Release Date: February 20, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Armada Hoffler Properties Inc (NYSE:AHH) reported strong leasing activity, with over 5% of the commercial portfolio transacted during the quarter.
• The company achieved a normalized FFO of $0.27 per diluted share and FFO of $0.29 per diluted share for the fourth quarter.
• Office assets are performing exceptionally well with a 97% occupancy rate and limited near-term rollover.
• The company successfully executed $109 million common equity offering, reducing leverage and positioning for future growth.
• Retail portfolio maintained strong performance with 95% occupancy and significant new leases executed.

Negative Points

• Fourth quarter multi-family tradeouts were slightly negative, although they have since turned positive in 2025.
• 2025 guidance range of $1 to $1.10 per diluted share is viewed as a step back from the previous year.
• Construction delivery delays and increased interest expenses are impacting earnings.
• Southgate Square's occupancy declined to 82% due to tenant departures, including Joanne and Cons.
• The company anticipates lower construction gross profits and decreased real estate financing income in 2025.

Q & A Highlights

• Warning! GuruFocus has detected 5 Warning Signs with AHH.

Q: What's the market outlook for mezzanine financing, and are any historical partners starting new apartment projects that might need such financing in 2025? A: Sean Tibbetts, CEO, responded that there is interest in financing these types of deals due to pressure in the lending market. However, the company is committed to maintaining approximately $80 million in principal outstanding and is currently above that level. While there are good deals available, they are not prepared to execute on any at this time.

Q: Are new investments in mezzanine financing expected to be structured as loan-to-own rather than straight loans? A: Sean Tibbetts, CEO, mentioned that all options are possible, but the focus is on risk-adjusted returns. The company is considering whether deploying capital into rent-generating assets would be more beneficial, but no decisions have been made yet.

Q: Can you discuss the Virginia Beach office market's strength and the occupancy rates of your apartment assets in that area? A: Sean Tibbetts, CEO, explained that the lower occupancy in some apartment assets is likely due to higher rents rather than supply issues. The company is focused on maintaining market rents and believes the current situation is a short-term blip.

Q: What is the dilution impact from recent debt paydowns, equity raises, and asset sales on FFO per share? A: Matthew Varn Smith, CFO, stated that the equity raise in September resulted in approximately five cents of dilution per share after debt repayment, which is carried over from 2024 to 2025.

Q: How is the company and board thinking about monetizing assets like the T. Rowe Price headquarters? A: Sean Tibbetts, CEO, indicated that while they initially considered harvesting capital from the T. Rowe Price headquarters, the current market is too soft for office assets. They view it as a trophy asset and are not willing to sell at a discount, but will continue to evaluate options as market conditions improve.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.