Armada Hoffler Properties(AHH) - 2024 Q3 - Quarterly Results

Executive Summary & Highlights Armada Hoffler reported a Q3 2024 net loss of $10.4 million, with Normalized FFO of $0.35 per share, alongside strong portfolio occupancy and strategic balance sheet improvements Third Quarter and Recent Highlights Armada Hoffler reported a GAAP net loss of $10.4 million for Q3 2024, with Normalized FFO of $0.35 per diluted share, achieving strong occupancy and positive renewal spreads - Net loss attributable to common stockholders and OP Unit holders of $10.4 million for Q3 2024, compared to net income of $5.3 million for Q3 2023[2] - Normalized FFO of $31.4 million, or $0.35 per diluted share, for Q3 2024, compared to $27.7 million, or $0.31 per diluted share, for Q3 2023[3] Key Operating Metrics (Q3 2024) | Metric | Value | | :-------------------------------- | :------ | | Weighted Average Stabilized Portfolio Occupancy | 95.4% | | Retail Occupancy | 96.2% | | Office Occupancy | 94.7% | | Multifamily Occupancy | 95.3% | Renewal Spreads (Q3 2024) | Segment | GAAP | Cash | | :-------- | :--- | :--- | | Retail | 13.1% | 7.8% | | Office | 18.5% | 0.8% | | Multifamily | 1.8% | 1.8% | - Office Same Store Net Operating Income (NOI) increased 6.1% on a GAAP basis compared to Q3 2023[6] - Third-party construction backlog as of September 30, 2024, was $193.1 million[6] - Raised $108.7 million of gross proceeds in an underwritten public offering of 10.35 million shares of common stock at $10.50 per share[8] CEO Commentary CEO Louis Haddad highlighted the company's strong portfolio occupancy and minimal commercial lease maturities, emphasizing a strategic shift towards a stronger balance sheet and property NOI - CEO Louis Haddad stated, "This quarter's results, including our 95.4% stabilized portfolio wide occupancy, underscore our best-in-class portfolio, featuring minimal commercial lease maturities for the next few years, that continues to provide long term value"[4] - The Company is moving toward a stronger balance sheet, higher emphasis on property NOI and less reliance on fee income over time[4] Financial Results Overview The company experienced a net loss in Q3 2024 due to derivative fair value changes and higher interest expense, despite an increase in Normalized FFO driven by portfolio NOI and construction gross profit Net Loss Analysis The company reported a net loss of $10.4 million for Q3 2024, primarily due to decreased fair value of interest rate swap derivatives and higher interest expense, partially offset by increased NOI - Net loss attributable to common stockholders and OP Unit holders for Q3 2024 decreased to $10.4 million compared to net income of $5.3 million for Q3 2023[9] - The period-over-period change was primarily due to a decrease in the fair value of undesignated interest rate swap derivatives and higher interest expense[9] - The negative change was partially offset by an increase in portfolio NOI and general contracting gross profit[9] FFO and Normalized FFO Performance FFO decreased to $12.7 million in Q3 2024, while Normalized FFO increased to $31.4 million, driven by higher portfolio NOI, interest income, and general contracting gross profit - FFO attributable to common stockholders and OP Unit holders for Q3 2024 was $12.7 million, down from $27.6 million for Q3 2023[10] - Normalized FFO attributable to common stockholders and OP Unit holders for Q3 2024 increased to $31.4 million, up from $27.7 million for Q3 2023[10] - The increase in Normalized FFO was due to increases in portfolio NOI, interest income, and general contracting gross profit, partially offset by higher interest expense[10] Operating Performance Details Q3 2024 saw high portfolio occupancy across all segments, significant leasing activity, a substantial construction backlog, and notable real estate financing income Portfolio Occupancy As of Q3 2024, the company's stabilized operating property portfolios maintained high occupancy rates across retail (96.2%), office (94.7%), and multifamily (95.3%) segments Stabilized Operating Property Portfolio Occupancy (Q3 2024) | Segment | Occupancy | | :-------- | :-------- | | Retail | 96.2% | | Office | 94.7% | | Multifamily | 95.3% | Leasing Activity and Same Store NOI During Q3 2024, Armada Hoffler executed 28 lease renewals and 9 new leases, totaling 273,212 net rentable square feet, with Office Same Store NOI increasing by 6.1% on a GAAP basis - Executed 28 lease renewals and 9 new leases during Q3 2024 for an aggregate of 273,212 net rentable square feet[6] - Office Same Store Net Operating Income (NOI) increased 6.1% on a GAAP basis compared to Q3 2023[6] Construction Segment Performance The third-party construction backlog stood at $193.1 million as of September 30, 2024, generating $3.4 million in construction gross profit for the quarter - Total construction contract backlog was $193.1 million as of September 30, 2024[11] - Construction gross profit for Q3 2024 was $3.4 million[6] Real Estate Financing Income Interest income from real estate financing investments for the three months ended September 30, 2024, was $4.1 million - Interest income from real estate financing investments was $4.1 million for the three months ended September 30, 2024[11] Balance Sheet and Financing Activities As of Q3 2024, the company maintained approximately 89% of its $1,330.1 million total debt at fixed rates or hedged, while successfully raising $108.7 million in a public equity offering Debt Structure and Hedging As of September 30, 2024, total debt outstanding was $1,330.1 million, with approximately 89% either fixed-rate or economically hedged through interest rate swaps - As of September 30, 2024, the Company had $1,330.1 million of total debt outstanding, including $164.0 million outstanding under its revolving credit facility[13] - Approximately 89% of the Company's debt had fixed interest rates or was subject to interest rate swaps as of September 30, 2024[13] Equity Offerings During Q3 2024, the company raised $22.1 million gross proceeds via its ATM program and $108.7 million from a public offering of 10.35 million shares At-the-Market (ATM) Equity Offering (Q3 2024) | Metric | Value | | :-------------------- | :------------ | | Shares Issued | 1,886,112 | | Total Gross Proceeds | $22.1 million | | Average Gross Price Per Share | $11.71 | Public Offering (September 27, 2024) | Metric | Value | | :-------------------- | :------------ | | Gross Proceeds | $108.7 million | | Shares Offered | 10.35 million | | Public Offering Price | $10.50 per share | | Net Proceeds | $103.4 million | Outlook and Guidance The company narrowed its 2024 full-year Normalized FFO guidance range to $1.25 to $1.27 per diluted share, based on specific assumptions for portfolio NOI, construction gross profit, and interest expenses 2024 Full-Year Normalized FFO Guidance The company narrowed its 2024 full-year Normalized FFO guidance range to $1.25 to $1.27 per diluted share - The Company narrowed its 2024 full-year Normalized FFO guidance range to $1.25 to $1.27 per diluted share[16] Key Guidance Assumptions The updated guidance is based on assumptions including expected portfolio NOI between $171.0 million and $172.2 million, construction gross profit of $12.3 million to $13.5 million, and initial project deliveries in Q1 2025 Full-Year 2024 Guidance Assumptions | Metric | Expected Range | | :-------------------------------- | :------------- | | Portfolio NOI | $171.0 M - $172.2 M | | Construction Segment Gross Profit | $12.3 M - $13.5 M | | G&A Expenses | ($18.7 M) - ($18.5 M) | | Interest Income | $18.2 M - $18.4 M | | Adjusted Interest Expense | ($55.6 M) - ($54.8 M) | - Guidance includes assumptions for Southern Post delivery schedule update and initial delivery of the T. Rowe Price Global HQ and Allied | Harbor Point in the first quarter of 2025[17] Company Information Armada Hoffler is a vertically integrated REIT with over four decades of experience in developing, building, acquiring, and managing high-quality retail, office, and multifamily properties primarily in the Mid-Atlantic and Southeastern US About Armada Hoffler Properties, Inc. Armada Hoffler (NYSE: AHH) is a vertically integrated, self-managed REIT with over four decades of experience in developing, building, acquiring, and managing high-quality retail, office, and multifamily properties - Armada Hoffler (NYSE: AHH) is a vertically integrated, self-managed real estate investment trust (REIT)[20] - The company has over four decades of experience developing, building, acquiring, and managing high-quality retail, office, and multifamily properties primarily in the Mid-Atlantic and Southeastern United States[20] - Armada Hoffler also provides general construction and development services to third-party clients[20] Forward-Looking Statements This section serves as a disclaimer regarding forward-looking statements, noting that actual results may differ due to known and unknown risks and uncertainties, advising review of SEC filings - Forward-looking statements may involve known and unknown risks, uncertainties, and other factors that may cause actual results or performance to differ from projections[21] - Investors should review information under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, and other SEC filings[21] - The Company expressly disclaims any obligation or undertaking to update or revise any forward-looking statement[21] Non-GAAP Financial Measures Definitions This section defines key non-GAAP financial metrics like FFO, Normalized FFO, and NOI, explaining their calculation, purpose, and limitations for financial analysis Funds From Operations (FFO) FFO is a Nareit-defined non-GAAP measure, excluding real estate depreciation/amortization and gains/losses from property sales, used to track occupancy, rental rates, and operating costs, despite certain limitations - FFO is calculated in accordance with Nareit standards, defined as net income (loss) (GAAP) excluding depreciation and amortization related to real estate, gains or losses from the sale of certain real estate assets, gains and losses from change in control, and impairment write-downs of certain real estate assets[22] - FFO is used as a supplemental performance measure to capture trends in occupancy rates, rental rates, and operating costs[23] - Limitations of FFO include excluding changes in property value and capital expenditures, and it may not be comparable to other REITs' FFO[24] Normalized Funds From Operations (Normalized FFO) Normalized FFO is a management-preferred performance measure that adjusts Nareit FFO by excluding items not indicative of operating property portfolio results, such as derivative mark-to-market adjustments and severance costs - Normalized FFO is a more useful performance measure that excludes certain items from FFO not indicative of the results provided by the Company's operating property portfolio[25] - Exclusions include debt extinguishment losses, impairment and accelerated amortization of intangible assets, property acquisition/development costs, mark-to-market adjustments for interest rate derivatives not designated as cash flow hedges, and severance related costs[25] Net Operating Income (NOI) NOI is a supplemental measure used by management to assess segment performance, calculated as segment revenues less expenses, aiding in understanding core real estate and construction operations - NOI is the measure used by the Company's chief operating decision-maker to assess segment performance, calculated as segment revenues less segment expenses[26] - Segment revenues include rental revenues, general contracting and real estate services revenues, and interest income[26] - NOI is considered an appropriate supplemental measure to net income as it assists in understanding the core operations of the Company's real estate and construction businesses[26] - To calculate NOI on a cash basis, adjustments are made to exclude the net effects of straight line rent and the amortization of lease incentives and above/below market rents[26] Condensed Consolidated Financial Statements The condensed financial statements for Q3 2024 reflect a net loss despite increased revenues, alongside stable assets, decreased liabilities, and increased equity Condensed Consolidated Balance Sheets The balance sheet shows total assets of $2,561.1 million as of September 30, 2024, with a decrease in total liabilities and an increase in total equity Condensed Consolidated Balance Sheets (dollars in thousands) | Metric | September 30, 2024 | December 31, 2023 | | :----------------------------------------- | :------------------- | :------------------ | | Total Assets | $2,561,139 | $2,562,898 | | Net Real Estate Investments | $1,812,673 | $1,814,118 | | Cash and Cash Equivalents | $43,852 | $27,920 | | Total Liabilities | $1,679,647 | $1,757,720 | | Indebtedness, net | $1,327,971 | $1,396,965 | | Total Equity | $881,492 | $805,178 | Condensed Consolidated Income Statements For Q3 2024, total revenues increased to $187.7 million, but the company reported a net loss of $7.5 million due to derivative fair value changes and higher interest expense Condensed Consolidated Income Statements (in thousands) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | | :---------------------------------------------------------------- | :------------------------------ | :------------------------------ | | Total Revenues | $187,652 | $166,011 | | Rental Revenues | $68,598 | $62,913 | | General Contracting and Real Estate Services Revenues | $114,353 | $99,408 | | Total Expenses | $162,696 | $143,896 | | Operating Income | $24,956 | $22,342 | | Interest Expense | ($21,387) | ($15,444) | | Change in Fair Value of Derivatives and Other | ($10,308) | $2,466 | | Net (Loss) Income | ($7,546) | $8,423 | | Net (Loss) Income Attributable to Common Stockholders and OP Unitholders | ($10,416) | $5,343 | FFO and Normalized FFO Reconciliation FFO decreased to $12.7 million ($0.14 per diluted share) in Q3 2024, while Normalized FFO increased to $31.4 million ($0.35 per diluted share) after specific adjustments FFO and Normalized FFO Reconciliation (in thousands, except per share amounts) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | | :---------------------------------------------------------------------------------------------------- | :------------------------------ | :------------------------------ | | Net (Loss) Income Attributable to Common Stockholders and OP Unitholders | ($10,416) | $5,343 | | FFO Attributable to Common Stockholders and OP Unitholders | $12,654 | $27,582 | | Normalized FFO Available to Common Stockholders and OP Unitholders | $31,438 | $27,735 | | Net (Loss) Income Attributable to Common Stockholders and OP Unitholders per diluted share and unit | ($0.1) | $0.06 | | FFO Attributable to Common Stockholders and OP Unitholders per diluted share and unit | $0.14 | $0.31 | | Normalized FFO Attributable to Common Stockholders and OP Unitholders per diluted share and unit | $0.35 | $0.31 | | Weighted Average Common Shares and Units - diluted | 90,598 | 89,589 | Net Operating Income (NOI) Reconciliation Total Property NOI increased to $45.8 million in Q3 2024, with Office Same Store NOI (GAAP) increasing, while Retail and Multifamily Same Store NOI saw slight decreases Net Operating Income (NOI) Reconciliation (in thousands) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | | :---------------------------------------------------- | :------------------------------ | :------------------------------ | | Retail Same Store NOI, Cash Basis | $17,960 | $18,771 | | Retail Same Store NOI (GAAP) | $19,088 | $20,076 | | Office Same Store NOI, Cash Basis | $12,744 | $12,805 | | Office Same Store NOI (GAAP) | $15,040 | $14,169 | | Multifamily Same Store NOI, Cash Basis | $8,213 | $8,540 | | Multifamily Same Store NOI (GAAP) | $8,422 | $8,742 | | Total Property NOI | $45,762 | $42,290 | | General contracting & real estate services gross profit | $3,366 | $3,313 | | Real estate financing gross profit | $2,348 | $2,768 | - Retail same-store portfolio for the three months ended September 30, 2024 and 2023 excludes Southern Post Retail and Columbus Village II due to redevelopment[36] - Office same-store portfolio for the three months ended September 30, 2024 and 2023 excludes Southern Post Office[36] - Multifamily same-store portfolio for the three months ended September 30, 2024 and 2023 excludes Chandler Residences[36] Additional Information This section directs stakeholders to supplemental financial data, details on the Q3 2024 webcast and conference call, and provides investor relations contact information Supplemental Financial Information Further details regarding operating results, properties, and leasing statistics are available in the Company's supplemental financial package on ArmadaHoffler.com - Further details regarding operating results, properties, and leasing statistics can be found in the Company's supplemental financial package available on the Investors page at ArmadaHoffler.com[18] Webcast and Conference Call The company hosted a webcast and conference call on November 5, 2024, at 8:30 a.m. ET to discuss financial results and recent events, with a recorded replay available - The Company hosted a webcast and conference call on Tuesday, November 5, 2024, at 8:30 a.m. Eastern Time to review financial results and discuss recent events[19] - The recorded webcast will be available through the Investors page of the Company's website, ArmadaHoffler.com[19] - A replay of the conference call will be available through Wednesday, December 4, 2024[19] Contact Information Contact information for investor relations is provided for Chelsea Forrest, Vice President of Corporate Communications and Investor Relations - Contact: Chelsea Forrest, Vice President of Corporate Communications and Investor Relations[37] - Email: CForrest@ArmadaHoffler.com[37] - Phone: (757) 612-4248[37]