Armada Hoffler Properties(US:AHH)2023-02-22 16:00PART I Business Armada Hoffler Properties, Inc. is a full-service REIT focused on developing and managing properties, reporting significant 2022 growth in net income and FFO - The company operates as a full-service real estate firm focusing on office, retail, and multifamily properties, also providing general contracting services25 - The company elected REIT taxation status for U.S. federal income tax purposes starting December 31, 201326 FY 2022 Key Financial and Operational Highlights (vs. FY 2021) (in millions) | Metric | FY 2022 | FY 2021 | % Change | | :--- | :--- | :--- | :--- | | Net Income Attributable to Common Stockholders | $82.5M | $13.9M | +493.5% | | Diluted EPS | $0.93 | $0.17 | +447.1% | | FFO | $106.6M | $85.4M | +24.8% | | Diluted FFO per Share | $1.21 | $1.05 | +15.2% | | Normalized FFO | $107.2M | $87.6M | +22.4% | | Diluted Normalized FFO per Share | $1.22 | $1.08 | +13.0% | | Property Segment NOI | $146.5M | $123.8M | +18.3% | | Same Store NOI | $108.7M | $102.9M | +5.6% | | Stabilized Portfolio Occupancy (Year-End) | 97.0% | 96.7% | +0.3 bps | - Key 2022 strategic activities included acquiring the Constellation Energy Building, disposing of $177 million in noncore assets, and amending the credit facility to $550 million29 Our Properties As of December 31, 2022, the stabilized portfolio maintained high occupancy across its retail, office, and multifamily segments Stabilized Portfolio Overview as of December 31, 2022 | Property Type | Net Rentable Square Feet / Units | Occupancy | Annualized Base Rent (ABR) / Annualized Quarterly Rent (AQR) | | :--- | :--- | :--- | :--- | | Retail | 3,916,001 sq ft | 97.9% | $70,925,783 | | Office | 2,111,923 sq ft | 96.7% | $61,140,833 | | Multifamily | 2,254 units | 96.1% | $50,125,908 | Lease Expirations and Tenant Diversification The company maintains a manageable lease expiration profile with diversified tenants, where the top 20 account for 29.1% of ABR/AQR - The office portfolio has 2.9% of net rentable square feet expiring in 2023 and 6.7% in 202439 - The retail portfolio has 4.7% of net rentable square feet expiring in 2023 and 10.7% in 202440 - The top 20 tenants represent 29.1% of total ABR/AQR, with Constellation Energy Group as the largest at 8.0% with a 2036 lease expiration42 Development and Other Investments The company's development pipeline includes mixed-use and multifamily projects, alongside significant equity method investments and mezzanine loans - The development pipeline includes Southern Post, a $119 million mixed-use project, and Chronicle Mill, a $60 million multifamily project 93% leased by year-end 2022444647 - Significant equity method investments in Baltimore's Harbor Point include 50% ownership in T. Rowe Price Global HQ and 90% in Parcel 4 Mixed-Use, with estimated costs of $264 million and $226 million respectively485859 - A mezzanine loan on The Interlock in Atlanta had an $86.6 million balance as of December 31, 2022, generating $9.9 million in interest income4950 Acquisitions and Dispositions In 2022, the company recycled capital through key acquisitions, including the Constellation Energy Building, and dispositions totaling $259.8 million - Acquired 79% membership and 11% economic interest in the Constellation Energy Building for approximately $92.2 million cash and a $12.8 million seller loan60 - Acquired Pembroke Square, a 124,000 sq ft grocery-anchored shopping center, for $26.5 million in cash63 2022 Property Dispositions | Property | Sales Price (in millions) | | :--- | :--- | | Hoffler Place | $43.1 | | Summit Place | $37.8 | | North Pointe Outparcels | $23.9 | | The Residences at Annapolis Junction | $150.0 | | Sandbridge Commons Outparcels | $3.5 | | Gainesville Apartments - Retail Portion | $1.5 | | Total | $259.8 | Risk Factors The company faces business, operational, and industry risks, including economic downturns, geographic concentration, substantial debt, and REIT status maintenance - Business Risks: Exposure to adverse economic conditions, development/acquisition challenges, and substantial indebtedness of $1.1 billion as of December 31, 20229094101 - Operational Risks: Geographic concentration in Virginia (46% of NOI), Maryland (28% of NOI), and North Carolina (15% of NOI) creates susceptibility to regional economic downturns99146 - Real Estate Industry Risks: Subject to illiquidity of investments, potential environmental liabilities, and ADA compliance costs155158161 - Organizational and REIT Risks: Failure to maintain REIT qualification, potential conflicts of interest from executive ownership, and limitations on property sales due to tax protection agreements172188160 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None Properties Information regarding the company's properties is incorporated by reference from the detailed descriptions provided in Item 1 of this report - Information for this item is incorporated by reference from "Our Properties" and "Development Pipeline" in Item 1217 Legal Proceedings The company is not currently subject to any material litigation outside of routine matters arising in the ordinary course of business - The company is not subject to any material litigation beyond routine matters in the ordinary course of business218 Mine Safety Disclosures This item is not applicable to the company's operations - Not Applicable219 PART II Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common and preferred stock trade on the NYSE, with $0.72 per common share in dividends declared for 2022 - Common Stock trades on the NYSE under the symbol "AHH"222 - Series A Preferred Stock trades on the NYSE under the symbol "AHHPrA"222 - Declared cash dividends were $0.72 per share for the year ended December 31, 2022225 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes significant 2022 revenue and operating income growth to acquisitions, increased occupancy, and general contracting, with strong FFO and liquidity improvements Consolidated Results of Operations (in thousands) | Metric | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $454,153 | $284,076 | $170,077 | | Operating Income | $117,434 | $40,695 | $76,739 | | Net Income | $99,953 | $25,455 | $74,498 | | Net Income Attributable to Common Stockholders | $82,457 | $13,912 | $68,545 | - Total revenues increased due to a $27.2 million rise in rental revenues from the Constellation Office acquisition and a $142.9 million increase in general contracting revenues273274 - Liquidity is supported by $48.1 million cash, $233.5 million credit facility availability, and $205.0 million ATM Program availability as of December 31, 2022290293 FFO and Normalized FFO Reconciliation (in thousands) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net Income Attributable to Common Stockholders | $82,457 | $13,912 | | FFO Attributable to Common Stockholders | $106,645 | $85,350 | | Normalized FFO Attributable to Common Stockholders | $107,158 | $87,555 | Segment Results of Operations In 2022, office and retail segments saw strong NOI growth, while multifamily NOI decreased due to dispositions, and general contracting gross profit doubled Segment Net Operating Income (NOI) / Gross Profit (in thousands) | Segment | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Office | $47,701 | $28,839 | +65.4% | | Retail | $63,702 | $57,644 | +10.5% | | Multifamily | $35,092 | $37,311 | -5.9% | | General Contracting (Gross Profit) | $7,701 | $3,836 | +100.8% | - Office same-store NOI was relatively flat, decreasing slightly by $73,000, with overall segment growth driven by acquisitions257 - Retail same-store NOI increased by $3.4 million (6.6%) due to increased occupancy in the same-store portfolio262264 - Multifamily same-store NOI increased by $2.5 million (9.9%) primarily due to higher rental rates across multiple properties267268 - Construction backlog significantly increased to $665.6 million at year-end 2022 from $215.5 million at year-end 2021, driven by new contracts269270 Liquidity and Capital Resources The company maintains strong liquidity with $48.1 million cash and $233.5 million credit facility availability, supported by amended credit facilities and equity raises - As of December 31, 2022, the company had $48.1 million in unrestricted cash and $233.5 million available under its credit facility290 - In August 2022, the unsecured credit facility was amended, increasing total capacity to $550 million and extending maturities to 2027/2028295 - In December 2022, the company entered a new $100 million unsecured term loan facility maturing in 2027304 Consolidated Indebtedness as of December 31, 2022 (in thousands) | Debt Type | Principal Balance | | :--- | :--- | | Total Secured Debt | $612,132 | | Total Unsecured Debt | $461,000 | | Total Principal Balances | $1,073,132 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with 100% of outstanding debt economically hedged as of December 31, 2022 - The primary market risk exposure is interest rate risk from LIBOR, SOFR, and BSBY338 - As of December 31, 2022, 100% of outstanding debt is economically hedged, with 59.8% fixed-rate or swapped and 40.2% variable-rate339 - A 100 basis point interest rate increase would decrease annual cash flow by approximately $0.6 million, while a decrease would increase it by $1.7 million339 Financial Statements and Supplementary Data This section incorporates by reference the company's consolidated financial statements and supplementary data, which begin on page F-1 of the report - Consolidated financial statements and supplementary data are included commencing on page F-1 of the Annual Report340 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes - Management concluded that disclosure controls and procedures were effective as of December 31, 2022343 - Management concluded that internal control over financial reporting was effective as of December 31, 2022, based on the COSO 2013 framework345 - No material changes to internal control over financial reporting occurred during the quarter ended December 31, 2022347 Other Information The company reports no other information for this item - None PART III Directors, Executive Officers and Corporate Governance The information required for this item will be incorporated by reference from the company's Definitive Proxy Statement for its 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the Company's Proxy Statement for the 2023 Annual Meeting of Stockholders351 Executive Compensation The information required for this item will be incorporated by reference from the company's Definitive Proxy Statement for its 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the Company's Proxy Statement for the 2023 Annual Meeting of Stockholders352 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required for this item will be incorporated by reference from the company's Definitive Proxy Statement for its 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the Company's Proxy Statement for the 2023 Annual Meeting of Stockholders353 Certain Relationships and Related Transactions, and Director Independence The information required for this item will be incorporated by reference from the company's Definitive Proxy Statement for its 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the Company's Proxy Statement for the 2023 Annual Meeting of Stockholders354 Principal Accountant Fees and Services The information required for this item will be incorporated by reference from the company's Definitive Proxy Statement for its 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the Company's Proxy Statement for the 2023 Annual Meeting of Stockholders355 PART IV Exhibits and Financial Statement Schedules This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K report - This section lists the financial statements, Schedule III—Consolidated Real Estate Investments and Accumulated Depreciation, and other exhibits filed with the report358359360 Form 10-K Summary No Form 10-K summary is provided - None