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AH

Armada Hoffler Properties, Inc. (AHH)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered normalized FFO of $0.27 per diluted share, FFO of $0.29, and GAAP EPS of $0.26; operating strength was aided by higher portfolio NOI and a $21.3M gain on retail asset sales, while interest expense and derivative fair value changes were notable drivers year-over-year .
  • Office continued to outperform with same‑store NOI up 12.3% (GAAP) and renewal spreads of 18.7% GAAP / 3.5% cash; retail renewals were 11.1% GAAP / 2.9% cash; multifamily renewals were 4.7% (GAAP/cash) amid supply headwinds in Atlanta/Charlotte .
  • 2025 guidance was introduced at $1.00–$1.10 normalized FFO per diluted share, with lower expected construction gross profit, higher adjusted interest expense, and later asset stabilization timings (Harbor Point deliveries in Q1’25; Chandler stabilizing Q2’25) .
  • Balance sheet actions fully hedged variable-rate exposure (100%) post-Q4 and refinanced Premier at 5.53% fixed; management subsequently “rightsized” the common dividend from $0.205 to $0.14 to align payout with property income quality and balance sheet goals .

What Went Well and What Went Wrong

What Went Well

  • Office segment outperformance: same‑store NOI +12.3% (GAAP) and strong renewal spreads (18.7% GAAP / 3.5% cash), underscoring flight-to-quality in mixed-use ecosystems with limited near-term rollover .
  • Strategic dispositions: Sold Market at Mill Creek and Nexton Square for $82.0M at blended low‑6% cap rates, realizing a $21.3M net gain and redeploying proceeds to debt reduction .
  • CEO emphasis on quality and growth: “We remain committed to our core goal - improving the income stream and balance sheet quality... positioning the company for sustainable growth while maintaining financial strength” .

What Went Wrong

  • EPS/FFO dilution drivers: Elevated interest expense and derivative fair value volatility (though excluded from normalized FFO) and lower construction gross profit pressured reported results and outlook .
  • Multifamily softness: Q4 multifamily trade-outs slightly negative; occupancy in select markets dipped amid new supply, with recovery expected as 2025 progresses .
  • Construction backlog declined to $123.8M (from $193.1M in Q3 and $302.9M in Q2), pointing to lower near-term segment profit and reflected in 2025 guidance .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Total Revenues ($USD Millions)$184.736 $187.652 $142.600
Operating Income ($USD Millions)$18.555 $24.956 $39.682
Interest Expense ($USD Millions)$21.227 $21.387 $18.376
Net Income to AHH/OP Unitholders ($USD Millions)$0.375 ($10.416) $26.140
GAAP EPS per diluted share$0.00 ($0.11) $0.26
FFO per diluted share$0.25 $0.14 $0.29
Normalized FFO per diluted share$0.34 $0.35 $0.27
EBITDAre ($USD Millions)$42.639 $34.852 $47.587

Segment NOI ($USD Millions)

Segment NOIQ2 2024Q3 2024Q4 2024
Retail$19.280 $18.591 $19.287
Office$14.779 $19.117 $13.199
Multifamily$8.233 $8.054 $9.088
Total Property NOI$42.292 $45.762 $41.574

KPIs

KPIQ2 2024Q3 2024Q4 2024
Stabilized Occupancy – Retail95.4% 96.2% 95.3%
Stabilized Occupancy – Office94.3% 94.7% 97.2%
Stabilized Occupancy – Multifamily94.9% 95.3% 95.3%
Weighted Avg Occupancy94.9% 95.4% 96.0%
Renewal Spreads – Retail (GAAP / Cash)5.8% / 2.9% 13.1% / 7.8% 11.1% / 2.9%
Renewal Spreads – Office (GAAP / Cash)24.3% / 4.4% 18.5% / 0.8% 18.7% / 3.5%
Multifamily Renewal Trade-out4.3% 1.8% 4.7% (GAAP/cash)
Construction Backlog ($USD Millions)$302.850 $193.122 $123.784
GC Gross Profit ($USD Millions)$4.339 $3.366 $2.093

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Normalized FFO per diluted shareFY 2024$1.21–$1.27 $1.25–$1.27 (narrowed, as of Q3) Raised midpoint via narrowing
Normalized FFO per diluted shareFY 2025N/A$1.00–$1.10 Introduced (lower vs 2024 actual $1.29)
Portfolio NOI ($USD Millions)FY 2025N/A$171.2–$175.8 Introduced
Construction Segment Gross Profit ($USD Millions)FY 2025N/A$6.8–$8.6 Introduced (down from 2024 levels)
Adjusted Interest Expense ($USD Millions)FY 2025N/A($63.5)–($59.5) Introduced (higher than 2024)
Interest Income ($USD Millions)FY 2025N/A$15.7–$16.7 Introduced
G&A Expenses ($USD Millions)FY 2025N/A($17.6)–($16.6) Introduced
Delivery/Asset Timing AssumptionsFY 2025N/AHarbor Point T. Rowe Price & Allied in Q1’25; Chandler stabilizes Q2’25 Introduced
Common Dividend per shareQuarterly$0.205 (Q4’24 dividend) $0.14 (Q1’25 dividend) Lowered

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
Balance sheet/interest rate riskTransition to unsecured, hedging; capital markets opportunistic 89% fixed/hedged; equity raise ~$103M; target BBB 94% fixed/hedged at YE; post-Q4 swap to 100% hedged variable rate Improving risk profile
Office leasing strength9% SS NOI; 24.3% renewal spreads; flight-to-quality 6.1% SS NOI; 18.5% spreads 12.3% SS NOI; 18.7% spreads; mixed-use premium vs CBD Persistent outperformance
Retail tenant churn/backfillsMixed-use leasing wins; proactive tenant mgmt Positive renewals; strong demand Addressing closures (Conn’s, Party City, Jo‑Ann); active backfills; expect positive spreads Managing churn; re-leasing opportunity
Multifamily trade-outsNew lease trade-outs improving; renewals +4.3% Renewals +1.8% Q4 slightly negative; 2025 YTD turning positive; supply absorption expected Stabilizing
Construction/backlog trajectoryRecord GP; backlog $302.9M Backlog $193.1M Backlog $123.8M; 2025 GP guided lower Downtrend near term
Development deliveriesSouthern Post leasing/stabilization cadence Harbor Point moved to initial Q1’25; Southern Post update T. Rowe Price & Allied delivered Q1’25; Chandler Q2’25 Slight delays, now delivering

Management Commentary

  • “We remain committed to our core goal - improving the income stream and balance sheet quality... positioning the company for sustainable growth while maintaining financial strength in an evolving market.” – Shawn Tibbetts, CEO .
  • “We have turned the page… Leasing remained very strong… our team transacted on over 5% of the commercial portfolio… renewing over 125,000 square feet at positive releasing spreads.” – Shawn Tibbetts .
  • “We recognize that [2025 guidance] might be viewed as a step back… reflects intentional actions to improve quality… delivery delays, interest expense, and one‑time fees in 2024.” – Shawn Tibbetts .
  • “We have successfully hedged 100% of our variable rate debt exposure… enhancing financial resilience and positioning us for stronger cash flow management.” – Matthew Barnes, CFO .

Q&A Highlights

  • Real estate financing (“mezz”) program: Targeting ~$80M principal outstanding; seeing opportunities but staying disciplined; focus on risk‑adjusted returns and potential loan‑to‑own structures .
  • T. Rowe Price HQ monetization: Market too soft for office; view asset as trophy with strong credit; willing to hold vs selling at discount .
  • Southgate Square occupancy: Impact from Jo‑Ann/Conn’s closures; active backfills (sporting goods category) with expectation of positive releasing spreads; downtime targeted toward later 2025 .
  • Capital recycling: Evaluating selective dispositions (e.g., Providence mixed‑use) given compressed retail cap rates; iterative portfolio quality lens .
  • 2025 earnings cadence: Management views 2025 as trough; expects improvement into 2026–2027 as developments stabilize and debt costs potentially ease .

Estimates Context

  • S&P Global Wall Street consensus EPS/revenue estimates were unavailable at the time of this report due to data access limits; estimate comparisons are therefore omitted. Expect near‑term consensus revisions to reflect lower 2025 normalized FFO guidance ($1.00–$1.10) and reduced construction profit/backlog, partially offset by office strength and full hedging of variable-rate debt .

Key Takeaways for Investors

  • Mixed‑use office remains the alpha engine: structurally higher rents and materially lower vacancy vs CBD peers; sustained renewal spreads suggest durable pricing power in Town Center and Harbor Point .
  • 2025 set up as trough: Guidance embeds delivery timing and interest burden; normalized FFO expected to re‑accelerate beyond 2025 as Allied/Chandler/Southern Post contribute and macro rates potentially ease .
  • Balance sheet risk materially reduced: 100% hedged variable-rate exposure, secured refinancings, and dividend reset align capital structure to property income quality—supports resilience through the cycle .
  • Retail churn is manageable: Credit tenant closures create re‑leasing upside; unsolicited interest and active negotiations indicate potential positive spreads on backfills .
  • Construction segment normalization: Backlog down to $123.8M and 2025 GP guided lower; investors should focus on property NOI and stabilized portfolio EBITDAre as primary earnings drivers .
  • Capital recycling optionality: Selective dispositions at favorable cap rates fund debt reduction and targeted growth; portfolio quality enhancement remains a central theme .
  • Watch for 2025 catalysts: Harbor Point deliveries, Chandler stabilization, and retail backfills; monitor leasing of remaining Southern Post commercial space to position for 2026 stabilization .