Armada Hoffler Properties Reports Second Quarter 2022 Results

VIRGINIA BEACH, Va., Aug. 04, 2022 (GLOBE NEWSWIRE) — Armada Hoffler Properties, Inc. (NYSE: AHH) today announced its results for the quarter ended June 30, 2022 and provided an update on current events.

Second Quarter and Recent Highlights:

  • Net income attributable to common stockholders and OP Unit holders of $27.8 million, or $0.31 per diluted share, compared to $5.6 million, or $0.07 per diluted share, for the three months ended June 30, 2021.
  • Funds from operations attributable to common stockholders and OP Unit holders (“FFO”) of $27.0 million, or $0.31 per diluted share, compared to $22.9 million, or $0.28 per diluted share, for the three months ended June 30, 2021. See “Non-GAAP Financial Measures.”
  • Normalized funds from operations attributable to common stockholders and OP Unit holders (“Normalized FFO”) of $26.2 million, or $0.30 per diluted share, compared to $23.4 million, or $0.29 per diluted share, for the three months ended June 30, 2021.
  • Raised 2022 full-year Normalized FFO guidance to $1.16 to $1.20 per diluted share from the Company’s previous guidance range of $1.15 to $1.19 per diluted share. This represents a 10% increase over 2021 results.
  • Announced a third quarter cash dividend of $0.19 per common share, a 12% increase over the prior quarter’s dividend.
  • Stabilized operating property portfolio occupancy increased to 97.3% as of June 30, 2022. Office occupancy was 97.9%, retail occupancy was 97.1%, and multifamily occupancy was 97.2%.
  • Same Store net operating income (“NOI”) increased 6.0% on a GAAP basis and 7.4% on a cash basis compared to the quarter ended June 30, 2021.
    • Multifamily same store NOI increased 12.5% on a GAAP and cash basis.
    • Commercial same store NOI increased 4.1% on a GAAP basis and 5.8% on a cash basis.
  • Third-party construction backlog totaling $541 million, highest in the Company’s history
  • Positive releasing spreads during the second quarter of 13.1% on a GAAP basis and 3.0% on a cash basis for office and 9.9% on a GAAP basis and 3.5% on a cash basis for retail.
  • Achieved an 8.1% increase in rental rates on apartment trade outs across the multifamily segment.
  • Completed $177 million of sales of noncore assets at a blended 4.1% exit cap rate.
    • The Residences at Annapolis Junction in Baltimore for $150 million, 4.15% cash cap rate.
    • Two outparcels at North Pointe in Durham, North Carolina for $24 million, 4.0% cash cap rate.
    • Two outparcels at Sandbridge Commons in Virginia Beach for $3 million, 4.5% cash cap rate.
  • Appointed Dennis H. Gartman, renowned investor, economist, and longtime publisher of “The Gartman Letter,” as a member of our board of directors. He is the sixth independent member.
  • Executed a new office lease with Franklin Templeton for 60,000 square feet at the Company’s Wills Wharf office building in Baltimore’s Harbor Point neighborhood. The investment management firm has agreed to lease the entire fifth floor and a portion of the fourth floor of Wills Wharf and will bring the building to 91% occupancy.

“We believe the types of assets we own will outperform the competitive set through most any business cycle. High-quality facilities in mixed-use environments located in desirable sub-markets stand the test of time,” said Louis Haddad, President & CEO. “When you have premium properties amongst limited peer competition, you have the ability to move rents in a positive direction through virtually any macro-economic backdrop.”

Financial Results

Net income attributable to common stockholders and OP Unit holders for the second quarter increased to $27.8 million compared to $5.6 million for the second quarter of 2021. The period-over-period change was primarily due to an increase in property operating income due to acquisitions, gains recognized on dispositions, developments and improved same-store performance, increased general contracting gross profit, and changes in the fair value of interest rate derivatives. The increase was partially offset by a decrease in interest income on our mezzanine loan portfolio, a decrease in income tax benefit, an increase in interest expense, and an increase in loss on extinguishment of debt.

FFO attributable to common stockholders and OP Unit holders for the second quarter increased to $27.0 million compared to $22.9 million for the second quarter of 2021. Normalized FFO attributable to common stockholders and OP Unit holders for the second quarter increased to $26.2 million compared to $23.4 million for the second quarter of 2021. The period-over-period changes in FFO and Normalized FFO were due to higher property operating income resulting primarily from leasing activity and property acquisitions and an increase in general contracting gross profit. These increases were partially offset by a decrease in interest income on our mezzanine loan portfolio and an increase in interest expense.

Operating Performance

At the end of the second quarter, the Company’s office, retail and multifamily stabilized operating property portfolios were 97.9%, 97.1% and 97.2% occupied, respectively.

Total construction contract backlog was $541.2 million at the end of the second quarter.

Balance Sheet and Financing Activity

As of June 30, 2022, the Company had $1.2 billion of total debt outstanding, including $82.0 million outstanding under its revolving credit facility. Total debt outstanding excludes GAAP adjustments. Approximately 45% of the Company’s debt had fixed interest rates or was subject to interest rate swaps as of June 30, 2022. The Company’s debt was 100% fixed or hedged as of June 30, 2022 after considering interest rate caps with strike prices at or below 300 basis points.

Outlook

The Company raised its 2022 full-year Normalized FFO guidance range to $1.16 to $1.20 per diluted share. The following table updates the Company’s assumptions underpinning this forecast. The Company’s executive management will provide further details regarding its 2022 earnings guidance during today’s webcast and conference call.

Full-year 2022 Guidance[1][2] Expected Ranges
Total NOI $144.8M $145.8M
Construction Segment Gross Profit $7.3M $8.3M
G&A Expenses $16.0M $16.5M
Interest Income $12.6M $13.0M
Interest Expense[3] $32.9M $33.6M
Normalized FFO per diluted share $1.16 $1.20

[1] Includes the following assumptions:

  • Interest expense, net of interest rate caps, based on the Forward Yield Curve ending 2022 at 3.7%
  • No capital markets activity for the remainder of the year
  • Acquisition of $25 to $35 million of grocery-anchored retail assets
  • The Interlock mezzanine loan paid off during the fourth quarter of 2022

[2] Ranges exclude certain items per Company’s Normalized FFO definition: Normalized FFO excludes certain items, including debt extinguishment losses, acquisition, development and other pursuit costs, mark-to-market adjustments for interest rate derivatives, provision for non-cash unrealized credit losses, certain costs for interest rate caps designated as cash flow hedges, amortization of right-of-use assets attributable to finance leases, severance related costs, and other non-comparable items. See “Non-GAAP Financial Measures.” The Company does not provide a reconciliation for its guidance range of Normalized FFO per diluted share to net income per diluted share, the most directly comparable forward-looking GAAP financial measure, because it is unable to provide a meaningful or accurate estimate of reconciling items and the information is not available without unreasonable effort as a result of the inherent difficulty of forecasting the timing and/or amounts of various items that would impact net income per diluted share. For the same reasons, the Company is unable to address the probable significance of the unavailable information and believes that providing a reconciliation for its guidance range of Normalized FFO per diluted share would imply a degree of precision for its forward-looking net income per diluted share that could be misleading to investors.

[3Includes interest expense on finance leases

Supplemental Financial Information

Further details regarding operating results, properties and leasing statistics can be found in the Company’s supplemental financial package available at www.ArmadaHoffler.com.

About Armada Hoffler Properties, Inc.

Armada Hoffler Properties (NYSE:AHH) is a vertically-integrated, self-managed real estate investment trust (“REIT”) with four decades of experience developing, building, acquiring and managing high-quality office, retail 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 be placed in their stabilized portfolio. Founded in 1979 by Daniel A. Hoffler, Armada Hoffler has elected to be taxed as a REIT for U.S. federal income tax purposes. For more information visit ArmadaHoffler.com.