Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Armada Hoffler Properties Inc (AHH, Financial) reported strong financial results for Q2 2024, with FFO of $0.25 per diluted share and normalized FFO of $0.34 per diluted share.
- The company achieved a 95% occupancy rate across its portfolio, indicating robust tenant demand.
- The construction division posted a record gross profit of $4.3 million, the highest in the company's history.
- The office segment showed impressive performance with a 24.3% GAAP spread and 9% same-store NOI growth.
- The company executed $85 million worth of term loans to pay down more expensive debt, maintaining its investment-grade credit rating.
Negative Points
- The company is not finding new development projects that are financially viable given the current economic conditions.
- Interest expenses are expected to increase in the second half of the year as developments come online and interest capitalization ceases.
- The construction gross profit is expected to decrease in the second half of the year, impacting overall earnings.
- The company faces challenges in major office markets, although it has managed to outperform its peers.
- There is a drag on earnings from less-than-stabilized developments, impacting the overall financial outlook.
Q & A Highlights
Q: The shorter loop development pipeline is essentially complete here. Are there any projects that are penciling right now given demand and your cost of capital?
A: We are not finding what we believe pencils. Cap rates and interest rates have moved, and the economic backdrop is uncertain. We are not seeing anything that attracts us to pull the trigger or begin intense underwriting given the environment. We are always on the lookout, but nothing is tempting us to move at this time. β Matthew Barnes-Smith, CFO
Q: What about on the redevelopment side beyond Columbus Village to Virginia Beach?
A: We are working on our redevelopment opportunity there, but it is rather small, around $10 million to $15 million. We think that works, especially given the attractive tenants we are looking at. However, we are not looking at any major redevelopments for the same reasons as new developments. β Matthew Barnes-Smith, CFO
Q: With $0.62 year-to-date and guidance of $1.23 to $1.27, how should we think about the cadence in the back half of the year?
A: The second quarter will likely be the highest quarter of the year. Interest expense will increase in the back half as developments come online and we no longer capitalize the interest. Construction gross profit was heavy in the first half and will come down in the third and fourth quarters. β Shawn Tibbetts, President & COO
Q: On some other retailers reopening their previously issued preferred stock series and raising capital that way, is that something you are considering?
A: The economic backdrop has changed dramatically, and we are contemplating additional avenues to strengthen our balance sheet. However, we are not ready to make any calls on this Thursday morning. It is a great idea, but not top of mind right now. β Shawn Tibbetts, President & COO
Q: Can you provide more details on the leasing spreads, particularly strong in office?
A: Virginia Beach was strong with good-sized leases, such as Anthropologie on the retail side. The Town Center office showed good growth in rent from renewals. Our mixed-use ecosystem drives demand, allowing us to command higher prices. β Shawn Tibbetts, President & COO
Q: You mentioned a mid-5 cap rate on the multifamily assets being sold. Is that indicative of the market overall?
A: Yes, the market is probably healthier than people give it credit for. The stabilized cap rate is 5.5%, with a going-in yield of less than 5%. This demonstrates strength in growth markets like Charlotte. β Shawn Tibbetts, President & COO
Q: With unexpected tailwinds like the termination fee and tax benefit, why not raise guidance?
A: We are constantly trying to accelerate lease-up of developments. The conservative approach is to show the drag from less than stabilized developments. We think it is prudent to hold the range as it is, given the economic backdrop. β Shawn Tibbetts, President & COO
Q: Can you elaborate on the strong leasing spreads in the office segment?
A: The Town Center office had good growth from renewals. Our mixed-use ecosystem drives demand, allowing us to command higher prices. This is our thesis, and we are proud of it. β Shawn Tibbetts, President & COO
Q: What are the swing factors within the portfolio or elsewhere in the business that could impact the guidance range?
A: Faster lease-up of developments could be a tailwind. However, given the economic backdrop, we cannot move the range with certainty. We think it is prudent to maintain the current guidance range. β Shawn Tibbetts, President & COO
Q: Can you provide more details on the cap rate for the multifamily assets being sold?
A: The stabilized cap rate is 5.5%, with a going-in yield of less than 5%. This demonstrates strength in growth markets like Charlotte. The market is probably healthier than people give it credit for. β Shawn Tibbetts, President & COO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
