Armada Hoffler Properties, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Leasing and Developments: Strong leasing activity across all asset classes. Successfully executed asset dispositions and advanced developments like T. Rowe Price global headquarters nearing completion and Allied at Harbor Point occupied by residents.
• Balance Sheet Focus: Committed to improving income stream and balance sheet quality. Reduced leverage through debt dispositions and equity offering. Hedged 100% of variable rate debt exposure. Unsecured debt increased to 56% of total debt by yearend.
• Sector Performance: Office assets in mixed use environments command 15% premium over competing CBDs. Retail portfolio impacted by store closures but unsolicited interest for backfill. Multi-family portfolio operating well with rent growth in key markets.

Segment Performance

• Commercial: Fourth quarter delivered normalized FFO of $0.27 per diluted share and FFO of $0.29 per diluted share. Leasing was strong with over 5% of the commercial portfolio transacted, including nearly 200,000 sq ft of new leases and over 125,000 sq ft of renewals at positive spreads.
• Office: Occupancy at 97% with limited near-term rollover. 95% of office ADR is in mixed communities. Successfully backfilled former rework space at Interlock and completed a 12,000 sq ft lease with Trader Interactive. Proactively negotiated renewals with existing office tenants at positive spreads.
• Retail: 95% occupancy. Executed new leases/extensions/options covering ~195,000 sq ft. Impact of store closures (Conn’s, Party City, JOANN Fabrics) but received unsolicited interest from backfill tenants for affected spaces.
• Multi-family: 95.3% occupancy. Rent growth in markets like Baltimore and Virginia Beach. Supply pressures easing in Southeast sub-markets expected to improve rent in 2025-2026. Allied at Harbor Point is a premier multi-family asset with positive feedback.
• Construction Management: Posted $2.1 million of gross profit in Q4. Expected construction gross profit to be between $6.8 million and $8.6 million in 2025, with performance likely below historical levels over the next couple of years.

Guidance

• 2025 normalized FFO guidance range: $1 to $1.10 per diluted share.
• Factors affecting guidance: Delays in Harbor Point project delivery shifting NOI/earnings expectations, increased interest expense from development pipeline, stabilization of Chandler Residencies delayed to Q2 2025, lower construction gross profit, real estate financing income, and dilution from September capital raise.

Risks

• Construction Delays: Harbor Point project delays impacting NOI and earnings expectations.
• Interest Expense: Increased interest expense from development pipeline burdening earnings until spaces are leased up.
• Retail Store Closures: Impact of Conn’s HomePlus, Party City, and JOANN Fabrics closures on retail portfolio space and ADR, though unsolicited interest for backfill exists.

Question and Answer

• **Q: What the market look like going forward on the Mez side? Any of your historical partners starting new apartment projects might need that type of financing in 2025?

A: Shawn Tibbetts - Getting inquiries about financing, gap in lending market, but not prepared to execute a deal yet as sitting today.

• **Q: Two of your three apartment assets in that home market are sub-94% occupancy. Can you talk about how much supply that market has been seeing or is this just a price point issue?

A: Shawn Tibbetts - Likely a price point issue, with walkability and maintaining market rents key, seeing slowdown but expecting mid-90s occupancy in normal times.

• **Q: Provide some details on Southgates First occupancy, which declined to 82% in Q4, specifically, which tenant department and how is the releasing process going?

A: Shawn Tibbetts - Relates to JOANN and Conn’s closures. Backfill tenant in place for JOANN, active negotiations for backfill in sporting goods category for Conn’s, with unsolicited/active deals on all affected spaces.

• **Q: Are you able to help us understand the trajectory as we exit ’25, maybe any color on what’s assumes for the cadence of those FFO throughout the year and whether or not you start 2025 to be the trough in earnings?

A: Shawn Tibbetts - Expect 2025 to be the trough, with upside from backfills, better debt markets, and realization of development income in 2026 and beyond.

• **Q: You mentioned earlier 15% higher rents in your mixed use office assets versus the respective CBD. Can you touch a little bit more on that?

A: Shawn Tibbetts - Ecosystem concept with amenities creating walkability, lifting rental rates in office, retail, and multi-family; comparing to CBD averages and benefiting from mixed use quality and tenant demand for such locations.