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Armada Hoffler Reports Fourth Quarter and Full Year 2023 Results

Bay Street

Net Loss of $0.27 per Diluted Share for the Fourth Quarter
and $0.05 per Diluted Share for the Full Year

Normalized FFO of $0.31 per Diluted Share for the Fourth Quarter
and $1.24 per Diluted Share for the Full Year

Announced 5% Increase in the Quarterly Cash Dividend on Common Stock

Dividends Declared During the Year Represent a 7.6% Year-Over-Year Increase

Introduced 2024 Full-Year Normalized FFO Guidance Range of $1.21 to $1.27 per Diluted Share

VIRGINIA BEACH, Va., Feb. 22, 2024 (GLOBE NEWSWIRE) — Armada Hoffler Properties, Inc. (NYSE: AHH) today announced its results for the quarter and year ended December 31, 2023 and provided an update on current events.

Highlights include:

“As we reflect on our performance throughout the fourth quarter and the year, I am proud of our team’s dedication and resilience, which has translated into exceptional results,” said Louis Haddad, Chief Executive Officer. “Best in market properties in healthy markets give us the ability to continue adding to earnings and dividends. We remain steadfast in our commitment to delivering value for our stakeholders and seizing opportunities for strategic expansion.”

Financial Results

Net (loss) income attributable to common stockholders and OP Unitholders for the fourth quarter was a net loss of $23.9 million compared to net income of $11.5 million for the fourth quarter of 2022. FFO attributable to common stockholders and OP Unitholders for the fourth quarter decreased to $11.1 million compared to $29.4 million for the fourth quarter of 2022. Normalized FFO attributable to common stockholders and OP Unitholders for the fourth quarter decreased to $27.9 million compared to $30.6 million for the fourth quarter of 2022. The period-over-period changes were positively impacted by higher property NOI due to the acquisition of The Interlock, Same Store NOI growth in the retail and multifamily segments, and positive releasing spreads, as well as higher general contracting gross profit. The period-over-period changes were negatively impacted by unrealized losses in the fair value of the Company’s non-designated interest rate derivative portfolio, accelerated in-place lease amortization for leases vacated by WeWork, lower interest income from real estate financing investments, higher interest expense due to increased indebtedness, higher general and administrative expenses, and higher income tax provision.

Net (loss) income attributable to common stockholders and OP Unitholders for the full year was a net loss of $4.5 million compared to net income of $82.5 million for the year ended December 31, 2022. FFO attributable to common stockholders and OP Unitholders for the full year decreased to $90.7 million compared to $106.6 million for the year ended December 31, 2022. Normalized FFO attributable to common stockholders and OP Unitholders for the full year increased to $110.5 million compared to $107.2 million for the year ended December 31, 2022. The year-over-year changes were positively impacted by higher property NOI due to the acquisition of The Interlock, Same Store NOI growth in the retail and multifamily segments, and positive releasing spreads, as well as higher general contracting gross profit. The year-over-year changes were negatively impacted by lower gains on sale of real estate, unrealized losses in the fair value of the Company’s non-designated interest rate derivative portfolio, accelerated in-place lease amortization for leases vacated by WeWork, lower interest income from real estate financing investments, higher interest expense due to increased indebtedness, higher general and administrative expenses, and higher income tax provision.

Operating Performance

At the end of the year, the Company’s retail, office, and multifamily stabilized property portfolios were 97.4%, 95.3%, and 95.5% occupied, respectively.

Total third-party construction contract backlog was $472.2 million as of December 31, 2023.

Interest income from real estate financing investments was $3.9 million for the three months ended December 31, 2023.

Balance Sheet and Financing Activity

As of December 31, 2023, the Company had $1.4 billion of total debt outstanding, including $267.0 million outstanding under its revolving credit facility and $495.0 million outstanding under its senior unsecured term loan facility. Total debt outstanding excludes unamortized GAAP fair value adjustments and deferred financing costs. Approximately 100% of the Company’s debt had fixed interest rates or was subject to interest rate swaps or caps as of December 31, 2023.

Outlook

The Company is introducing its 2024 full-year Normalized FFO guidance in the range of $1.21 to $1.27 per diluted share, as set forth in the separate presentation that can be found on the Investors page of the Company’s website, ArmadaHoffler.com. The following table outlines the Company’s assumptions along with Normalized FFO per diluted share estimates for 2024. The Company’s executive management will provide further details regarding its 2024 earnings guidance during today’s webcast and conference call.

Full-year 2024 Guidance [1][2]   Expected Ranges
Portfolio NOI   $165.6M $170.0M
Construction Segment Profit   $12.8M $14.3M
G&A Expenses   $18.8M $18.2M
Interest Income   $18.8M $19.4M
Interest Expense[3]   $57.4M $56.8M
Normalized FFO per diluted share   $1.21 $1.27
       

[1] Includes the following assumptions:

[2] Ranges exclude certain items per the Company’s Normalized FFO definition: Normalized FFO excludes certain items, including acquisition, development, and other pursuit costs, debt extinguishment losses, prepayment penalties, impairment of intangible assets and liabilities, mark-to-market adjustments on interest rate derivatives not designated as cash flow hedges, amortization of payments made to purchase interest rate caps and swaps designated as cash flow hedges, provision for unrealized non-cash credit losses, 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.
[3] Includes the interest expense on finance leases and interest receipts of non-designated derivatives.

Supplemental Financial Information

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

Webcast and Conference Call

The Company will host a webcast and conference call on Thursday, February 22, 2024 at 8:30 a.m. Eastern Time to review financial results and discuss recent events. The live webcast will be available through the Investors page of the Company’s website, ArmadaHoffler.com. To participate in the call, please dial (+1) 888 259 6580 (toll-free dial-in number) or (+1) 416 764 8624 (toll dial-in number). The conference ID is 54806922. A replay of the conference call will be available through March 23, 2024 by dialing (+1) 877 674 7070 (toll-free dial-in number) or (+1) 416 764 8692 (toll dial-in number) and providing passcode 806922 #.

About Armada Hoffler Properties, Inc.

Armada Hoffler (NYSE: AHH) is a vertically integrated, self-managed real estate investment trust (“REIT”) with over four decades of experience developing, building, acquiring, and managing high-quality retail, office, 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 its 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.

Forward-Looking Statements

Certain matters within this press release are discussed using forward-looking language as specified in the Private Securities Litigation Reform Act of 1995, and, as such, may involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance to differ from those projected in the forward-looking statement. These forward-looking statements may include comments relating to the current and future performance of the Company’s operating property portfolio, the Company’s development pipeline, the Company’s real estate financing program, the Company’s construction and development business, including backlog and timing of deliveries and estimated costs, financing activities, as well as acquisitions, dispositions, and the Company’s financial outlook, guidance, and expectations. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise, and the Company may not be able to realize any forward-looking statement. For a description of factors that may cause the Company’s actual results or performance to differ from its forward-looking statements, please review the information under the heading “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, and the other documents filed by the Company with the Securities and Exchange Commission (the “SEC”) from time to time. The Company expressly disclaims any obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in the Company’s expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except to the extent otherwise required by applicable law.

Non-GAAP Financial Measures

The Company calculates FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts (“Nareit”). Nareit defines FFO as net income (loss) (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains or losses from the sale of certain real estate assets, gains and losses from change in control, and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity.

FFO is a supplemental non-GAAP financial measure. The Company uses FFO as a supplemental performance measure because it believes that FFO is beneficial to investors as a starting point in measuring the Company’s operational performance. Specifically, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, which do not relate to or are not indicative of operating performance, FFO provides a performance measure that, when compared period-over-period, captures trends in occupancy rates, rental rates, and operating costs. We also believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare the Company’s operating performance with that of other REITs.

However, because FFO excludes depreciation and amortization and captures neither the changes in the value of the Company’s properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of the Company’s properties, all of which have real economic effects and could materially impact the Company’s results from operations, the utility of FFO as a measure of the Company’s performance is limited. In addition, other equity REITs may not calculate FFO in accordance with the Nareit definition as the Company does, and, accordingly, the Company’s FFO may not be comparable to such other REITs’ FFO. Accordingly, FFO should be considered only as a supplement to net income as a measure of the Company’s performance. FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or service indebtedness. Also, FFO should not be used as a supplement to or substitute for cash flow from operating activities computed in accordance with GAAP.

Management also believes that the computation of FFO in accordance with Nareit’s definition includes certain items that are not indicative of the results provided by the Company’s operating property portfolio and affect the comparability of the Company’s period-over-period performance. Accordingly, management believes that Normalized FFO is a more useful performance measure that excludes certain items, including but not limited to, acquisition, development, and other pursuit costs, debt extinguishment losses, prepayment penalties, impairment of intangible assets and liabilities, mark-to-market adjustments on interest rate derivatives not designated as cash flow hedges, amortization of payments made to purchase interest rate caps and swaps designated as cash flow hedges, provision for unrealized non-cash credit losses, amortization of right-of-use assets attributable to finance leases, severance related costs, and other non-comparable items. Other equity REITs may not calculate Normalized FFO in the same manner as we do, and, accordingly, our Normalized FFO may not be comparable to such other REITs’ Normalized FFO.

NOI is the measure used by the Company’s chief operating decision-maker to assess segment performance. The Company calculates NOI as segment revenues less segment expenses. Segment revenues include rental revenues (base rent, expense reimbursements, termination fees, and other revenue) for our property segments, general contracting and real estate services revenues for our general contracting and real estate services segment, and interest income for our real estate financing segment. Segment expenses include rental expenses and real estate taxes for our property segments, general contracting and real estate services expenses for our general contracting and real estate services segment, and interest expense for our real estate financing segment. Segment NOI for the general contracting and real estate services and real estate financing segments is also referred to as segment gross profit. NOI is not a measure of operating income or cash flows from operating activities as measured in accordance with GAAP and is not indicative of cash available to fund cash needs. As a result, NOI should not be considered an alternative to cash flows as a measure of liquidity. Not all companies calculate NOI in the same manner. The Company considers NOI to be an appropriate supplemental measure to net income because it assists both investors and management in understanding the core operations of the Company’s real estate and construction businesses. To calculate NOI on a cash basis, we adjust NOI to exclude the net effects of straight line rent and the amortization of lease incentives and above/below market rents.

For reference, as an aid in understanding the Company’s computation of NOI, NOI Cash Basis, FFO and Normalized FFO, a reconciliation of net income calculated in accordance with GAAP to NOI, NOI Cash Basis, FFO and Normalized FFO has been included further in this release.

 
ARMADA HOFFLER PROPERTIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
 
  December 31,
   2023     2022 
  (Unaudited)    
ASSETS      
Real estate investments:      
Income producing property $ 2,093,032     $ 1,884,214  
Held for development   11,978       6,294  
Construction in progress   102,277       53,067  
    2,207,287       1,943,575  
Accumulated depreciation   (393,169 )     (329,963 )
Net real estate investments   1,814,118       1,613,612  
Cash and cash equivalents   27,920       48,139  
Restricted cash   2,246       3,726  
Accounts receivable, net   45,529       39,186  
Notes receivable, net   94,172       136,039  
Construction receivables, including retentions, net   126,443       70,822  
Construction contract costs and estimated earnings in excess of billings   104       342  
Equity method investment   142,031       71,983  
Operating lease right-of-use assets   23,085       23,350  
Finance lease right-of-use assets   90,565       45,878  
Acquired lease intangible assets   109,137       103,870  
Other assets   87,548       85,363  
Total Assets $ 2,562,898     $ 2,242,310  
       
LIABILITIES AND EQUITY      
Indebtedness, net $ 1,396,965     $ 1,068,261  
Accounts payable and accrued liabilities   31,041       26,839  
Construction payables, including retentions   128,290       93,472  
Billings in excess of construction contract costs and estimated earnings   21,414       17,515  
Operating lease liabilities   31,528       31,677  
Finance lease liabilities   91,869       46,477  
Other liabilities   56,613       54,055  
Total Liabilities   1,757,720       1,338,296  
Total Equity   805,178       904,014  
Total Liabilities and Equity $ 2,562,898     $ 2,242,310  
ARMADA HOFFLER PROPERTIES, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts)
 
    Three Months Ended December 31,   Year Ended December 31,
     2023     2022     2023     2022 
    (Unaudited)
Revenues                
Rental revenues   $ 59,842     $ 55,692     $ 238,924     $ 219,294  
General contracting and real estate services revenues     126,911       95,912       413,131       234,859  
Interest income     4,280       6,568       15,103       16,978  
Total revenues     191,033       158,172       667,158       471,131  
Expenses                
Rental expenses     15,027       12,641       56,419       50,742  
Real estate taxes     5,532       5,362       22,442       22,057  
General contracting and real estate services expenses     123,377       93,667       399,713       227,158  
Depreciation and amortization     35,270       18,109       96,078       72,974  
Amortization of right-of-use assets – finance leases     300       277       1,349       1,110  
General and administrative expenses     4,336       3,512       18,122       15,691  
Acquisition, development, and other pursuit costs     66       —       84       37  
Impairment charges     (5 )     83       102       416  
Total expenses     183,903       133,651       594,309       390,185  
Gain on real estate dispositions, net     —       42       738       53,466  
Operating income     7,130       24,563       73,587       134,412  
Interest expense     (16,435 )     (10,933 )     (57,810 )     (39,680 )
Loss on extinguishment of debt     —       (475 )     —       (3,374 )
Change in fair value of derivatives and other     (11,266 )     1,186       (6,242 )     8,698  
Unrealized credit loss release (provision)     297       232       (574 )     (626 )
Other income (expense), net     (293 )     (37 )     31       378  
(Loss) income before taxes     (20,567 )     14,536       8,992       99,808  
Income tax (provision) benefit     (495 )     5       (1,329 )     145  
Net (loss) income     (21,062 )     14,541       7,663       99,953  
Net loss (income) attributable to noncontrolling interests in investment entities     11       (137 )     (605 )     (5,948 )
Preferred stock dividends     (2,887 )     (2,887 )     (11,548 )     (11,548 )
Net (loss) income attributable to common stockholders and OP Unitholders   $ (23,938 )   $ 11,517     $ (4,490 )   $ 82,457  
                 
ARMADA HOFFLER PROPERTIES, INC.
RECONCILIATION OF NET INCOME TO FFO & NORMALIZED FFO
(in thousands, except per share amounts)
 
    Three Months Ended 
 December 31,		   Year Ended 
 December 31,
     2023     2022     2023     2022 
    (Unaudited)
Net (loss) income attributable to common stockholders and OP Unitholders   $ (23,938 )   $ 11,517     $ (4,490 )   $ 82,457  
Depreciation and amortization (1)     35,069       17,887       95,208       71,971  
Loss (Gain) on operating real estate dispositions (2)     —       11       —       (47,984 )
Impairment of real estate assets     —       —       —       201  
FFO attributable to common stockholders and OP Unitholders   $ 11,131     $ 29,415     $ 90,718     $ 106,645  
Acquisition, development and other pursuit costs     66       —       84       37  
Accelerated amortization of intangible assets and liabilities     (38 )     83       (653 )     215  
Loss on extinguishment of debt     —       475       —       3,374  
Unrealized credit loss (release) provision     (297 )     (232 )     574       626  
Amortization of right-of-use assets – finance leases     300       277       1,349       1,110  
Decrease (Increase) in fair value of derivatives not designated as cash flow hedges     16,159       (1,186 )     14,185       (8,698 )
Amortization of interest rate derivative premiums on designated cash flow hedges     612       1,801       4,210       3,849  
Normalized FFO available to common stockholders and OP Unitholders   $ 27,933     $ 30,633     $ 110,467     $ 107,158  
Net (loss) income attributable to common stockholders and OP Unitholders per diluted share and unit   $ (0.27 )   $ 0.13     $ (0.05 )   $ 0.93  
FFO attributable to common stockholders and OP Unitholders per diluted share and unit   $ 0.13     $ 0.33     $ 1.02     $ 1.21  
Normalized FFO attributable to common stockholders and OP Unitholders per diluted share and unit   $ 0.31     $ 0.35     $ 1.24     $ 1.22  
Weighted-average common shares and units – diluted     88,733       88,341       88,864       88,192  

________________________________________

(1) The adjustment for depreciation and amortization for each of the three months ended December 31, 2023 and 2022 excludes $0.2 million of depreciation attributable to our joint venture partners. The adjustment for depreciation and amortization for the years ended December 31, 2023 and 2022 excludes $0.9 million and $1.0 million, respectively, of depreciation attributable to our joint venture partners.
(2) ) The adjustment for gain on operating real estate dispositions for the year ended December 31, 2023 excludes $0.7 million for gains on the dispositions of non-operating parcels at Market at Mill Creek and adjacent to Brooks Crossing Retail. The adjustment for gain on real estate dispositions for the year ended December 31, 2022 excludes $5.4 million of the gain on the sale of The Residences at Annapolis Junction that was allocated to our joint venture partner.
ARMADA HOFFLER PROPERTIES, INC.
RECONCILIATION OF NET INCOME TO SAME STORE NOI, CASH BASIS
(in thousands) (unaudited)
 
    Three Months Ended
December 31,		   Year Ended 
December 31,
     2023     2022     2023     2022 
    (Unaudited)
Retail Same Store (1)                
Same Store NOI, Cash Basis   $ 15,246     $ 15,325     $ 61,848     $ 59,461  
GAAP Adjustments (2)     1,009       842       4,007       3,611  
Same Store NOI     16,255       16,167       65,855       63,072  
Non-Same Store NOI (3)     2,031       307       6,931       630  
Segment NOI     18,286       16,474       72,786       63,702  
                 
Office Same Store (4)                
Same Store NOI, Cash Basis     11,813       11,855       25,302       26,009  
GAAP Adjustments (2)     (1,195 )     1,277       (1,643 )     370  
Same Store NOI     10,618       13,132       23,659       26,379  
Non-Same Store NOI (3)     1,330       (246 )     27,639       21,322  
Segment NOI     11,948       12,886       51,298       47,701  
                 
Multifamily Same Store (5)                
Same Store NOI, Cash Basis     8,121       7,995       27,234       26,390  
GAAP Adjustments (2)     253       212       1,015       850  
Same Store NOI     8,374       8,207       28,249       27,240  
Non-Same Store NOI (3)     675       122       7,730       7,852  
Segment NOI     9,049       8,329       35,979       35,092  
                 
Total Property NOI     39,283       37,689       160,063       146,495  
                 
General contracting & real estate services gross profit     3,534       2,245       13,418       7,701  
Real estate financing gross profit     4,951       7,405       17,842       19,957  
Interest income (6)     4,280       6,568       15,103       16,978  
Depreciation and amortization     (35,270 )     (18,109 )     (96,078 )     (72,974 )
General and administrative expenses     (4,336 )     (3,512 )     (18,122 )     (15,691 )
Acquisition, development and other pursuit costs     (66 )     —       (84 )     (37 )
Impairment charges     5       (83 )     (102 )     (416 )
Gain on real estate dispositions, net     —       42       738       53,466  
Interest expense (7)     (16,435 )     (10,933 )     (57,810 )     (39,680 )
Loss on extinguishment of debt     —       (475 )     —       (3,374 )
Unrealized credit loss release (provision)     297       232       (574 )     (626 )
Amortization of right-of-use assets – finance leases     (300 )     (277 )     (1,349 )     (1,110 )
Change in fair value of derivatives and other     (11,266 )     1,186       (6,242 )     8,698  
Other income (expense), net     (293 )     (37 )     31       378  
Income tax (provision) benefit     (495 )     5       (1,329 )     145  
Net (loss) income     (60,345 )     (23,148 )     7,663       99,953  
                 
Net loss (income) attributable to noncontrolling interests in investment entities     11       (137 )     (605 )     (5,948 )
Preferred stock dividends     (2,887 )     (2,887 )     (11,548 )     (11,548 )
Net (loss) income attributable to AHH and OP unitholders   $ (63,221 )   $ (26,172 )   $ (4,490 )   $ 82,457  

_______________________________________

(1) Retail same-store portfolio excludes Pembroke Square, The Interlock Retail, and Columbus Village II for the three and twelve months ended December 31, 2023 and 2022.
(2) GAAP Adjustments include adjustments for straight-line rent, termination fees, deferred rent, recoveries of deferred rent, and amortization of lease incentives.
(3) Includes expenses associated with the Company’s in-house asset management division.
(4) Office same-store portfolio excludes The Interlock Office for the three and twelve months ended December 31, 2023 and 2022. Office same-store portfolio also excludes Wills Wharf and the Constellation Office for the twelve months ended December 31, 2023 and 2022.
(5) Multifamily same-store portfolio excludes Chronicle Mill, The Residences at Annapolis Junction, Hoffler Place, and Summit Place for the three and twelve months ended December 31, 2023 and 2022. Multifamily same-store portfolio also excludes 1305 Dock Street and The Everly for the twelve months ended December 31, 2023 and 2022.
(6) Excludes real estate financing segment interest income.
(7) Excludes real estate financing segment interest expense.
 

Contact:

Chelsea Forrest
Armada Hoffler Properties, Inc.
Director of Corporate Communications and Investor Relations
Email: CForrest@ArmadaHoffler.com 
Phone: (757) 612-4248 


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