Q4 2024 Armada Hoffler Properties Inc Earnings Call
Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily until the time, your lines will remain on musical. Thank you for your patience.
Speaker Change: Good morning, ladies and gentlemen. Welcome to the Armada Hoffler fourth quarter earnings conference call at this time. All lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If any at time during this call, you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, February.
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Speaker Change: 25. Before we begin, we'd like to note the management team is currently experiencing a severe, winter storm in the region. We appreciate your patience and understanding. If any technical difficulties arise during today's call, I would now like to turn the conference over to Chelsea Forrest. Please go ahead.
Chelsea Forrest: Good morning and thank you for joining Errata hawa's fourth quarter and full year, 2024 earnings conference call and webcast.
Sean Tibbits: On the call this morning in addition to my self is Sean Tibbits CEO and president and Matthew Barnes Smith CFO.
Sean Tibbits: The press release announcing our fourth quarter, earnings along with our earnings, guidance and supplemental package. We're distributed yesterday afternoon.
Sean Tibbits: A replay of this call will be available shortly after the conclusion of the call through March 20th, 2025 the numbers to access, the replay are provided in the earnings press release.
Sean Tibbits: For those who listen to the rebroadcast of this presentation, we remind you that the remarks made here in or as of today, February 20th, 2025 and will not be updated. Subsequent to this initial earnings call.
During this call, we may make forward-looking statements, including our statements related to the Future performance of our portfolio, our development pipeline, the impact of Acquisitions and dispositions are mezzanine program. Our construction business, our liquidity position, our portfolio performance and financing activities as well as comments on our guidance and Outlook.
Sean Tibbits: Listeners are cautioned that any forward-looking statements are based upon Management's beliefs assumptions and expectations, taking into account information, that is currently available these beliefs assumptions. And expectations may change as a result of possible events or factors, not all which are known and many of which are difficult to predict and generally beyond our control.
Sean Tibbits: These risks and uncertainties can cause actual results to differ materially from our current expectations and we advise listeners to review the forward-looking statement disclosure and our press release that we just distributed yesterday and the risk factors disclosed in the documents that we filed with or furnished to the SEC.
Speaker Change: We will also discuss certain non-GAAP Financial measures including but not limited to ffo and normalized ffo. Definitions of these non-GAAP measures as well as reconciliations to the most comparable. Gaap measures are included in the quarterly. Supplemental package, which is available on our website. At our mahler.com, I will now turn the call over to Champs
Speaker Change: Good morning and thank you for joining us to review. Our M Hoppers 2024 results and the path forward for 2025.
Champs Good: We have turned the page to the next chapter at our M Hustler. And I'm honored to be leading the company into the future. As we work toward achieving our long-term objectives,
Champs Good: Last call. We've made significant advances in leasing delivered developments and executed asset dispositions.
Champs Good: I will now walk through the details.
Champs Good: I reiterate that we remain committed to our core goal, improving the income stream and balance sheet quality.
Champs Good: Our short-term strategy is centered on positioning the company for sustainable growth while maintaining Financial strength. In an evolving Market, we will remain, highly focused on continuous Improvement of the company's quality as our value proposition being Surgical and intentional with enhancements to our income stream and balance sheet.
Champs Good: We had an impressive fourth quarter delivering normalized. Ffo of 27 cents per diluted share.
Champs Good: And ffo of 29 cents per diluted share.
Champs Good: Leasing remained very strong with sustained Senate demand across all 3 of our asset classes.
Champs Good: Our team transacted on over 5% of the commercial portfolio during the quarter executing a creative new leases on nearly 200,000 square feet and renewing over 125,000 square feet at positive releasing spread.
Champs Good: While fourth quarter multi family trade outs were slightly negative.
Champs Good: 2025 year to date trade outs, have since turned positive as competing new Supply in the Atlanta and Charlotte markets is absorbed.
Champs Good: We released our 2025 guidance yesterday afternoon with a range of 1 to 1 dollar and 10 cents.
Champs Good: We recognize that on the surface. This range might be viewed as a step back from where we ended last year.
Champs Good: That's said, we believe that the underlying decisions that led to this range, simply reflect our intentional actions to improve quality.
Additionally, the range includes market, dynamics and challenges. We are navigating specifically relating to construction, delivery delays, interest expense, and 1-time transaction fees recognized as income in 2024.
Champs Good: We are focusing and committed to positioning the company for consistent long-term growth.
Champs Good: We are taking a prudent approach to investment emphasizing discipline, Capital, allocation and continuing to optimize our portfolio.
Champs Good: That will walk through specific details to bridge from 2024 to 2025.
Champs Good: Before discussing the quarter in more detail, I would like to remind you of the steps we have been and will continue taking to position the company for long-term success.
Champs Good: We will continue to focus on recycling, stabilized assets where value has been maximized given limited growth upside and where we feel that institutional interest is willing to pay up.
Champs Good: The ability to make this Choice and then to capitalize on better long-term opportunities that may arise, it's 1 of the benefits of having options within the multiple sectors within our current footprint.
Champs Good: So in the fourth quarter, we capitalized on the heightened demand for Southeast us retail assets. Selling 2 of our non-core fully stabilized retail assets at a blended cap rate in the low 6% range.
Champs Good: The 82 million aggregate sales price represents more than a 20% profit spread over costs.
Proving out, the company's initial development thesis.
Champs Good: We are finalizing the development assets at Harbor Point.
Champs Good: The cro price Global headquarters is nearing completion.
Champs Good: And we look forward to having their 2500 employees, join the community.
Champs Good: Similarly, we are excited about realizing the full value of the Southern post, noi in the coming period.
Champs Good: The mixed use Community is thriving with retail, tenants successfully opening their doors and receiving an overwhelmingly positive response from residents and visitors alike.
Champs Good: It has been a fantastic start and we're excited to see the continued growth and collaboration within this ecosystem.
Champs Good: At the same time, we are committed to investing in the right assets particularly in the multi family and mixed use sectors which we believe offer significant potential for growth.
Champs Good: As part of this strategy, we are focused on further strengthening our balance sheet by reducing leverage and enhancing our financial flexibility.
Champs Good: At the end of 2024, we disposed of 2 resale assets, that while diluting earnings allowed us to prudently, decrease debt.
Champs Good: While the current cost of capital presents challenges, we are confident in our ability to continue refining. Our business model and pursuing Redevelopment opportunities that add significant value.
As you recall in September, we successfully executed 109 million common Equity offering that reduced leverage and positioned us to add approximately 900 units across 4. High quality assets over the next year, resulting in a 37% increase in multifamily door count.
Champs Good: We are in the process of bringing that increased multi family door, count to reality, and look forward to updating you along the way.
Champs Good: We believe that real estate is all about spread investing and appropriate Leverage.
Although the markets remain in flux, we believe a more stabilized rate environment will allow us to enhance the quality of our debt with an eye toward longer term fixed rate instruments.
Champs Good: Let's quickly walk through the fundamentals, across the property. Sectors.
Champs Good: Consistent commercial, leasing activity and rent growth have been key. Drivers of value creation for the company. Our ability to secure high-quality tenants across our portfolio combined with our focus on maintaining competitive rental rates at significantly contributed to long-term stability.
Champs Good: Our office assets and mixed juice environments are commanding around. 15% premium above the competing Central Business districts in the region. The ongoing leasing momentum, coupled with double-digit releasing spreads, strengthens our income stream, and enhances the overall value of our assets.
Champs Good: Our office product continues to perform exceptionally well with occupancy currently at 97% with limited near-term rollover. It's importantly 95% of our office ABR is located in mixed-use communities, which create Dynamic ecosystems that provide ideal environments for employers to attract top talent.
Champs Good: This is driven sustained demand for our premium office spaces. Notably we successfully backfilled most of the former Wei workspace at the interlock.
Champs Good: Additionally, we completed a significant 12,000 square foot lease with Trader interactive at Town Center of Virginia Beach.
Champs Good: This floor was previously occupied by our own team and to meet the demand. We are able to consolidate and set a new Benchmark for office rent per square foot in the submarket.
Champs Good: Although near-term office rollover is low, we proactively identify early renewal opportunities and existing tenants.
Champs Good: Or potential backfield candidates or space that we anticipate recapturing. For example, just last month here at Town Center of Virginia Beach. We proactively negotiated long-term extensions with 2 existing office, tenants occupying over 120,000 square feet of space. That involved the simultaneous. Downsides of 1 in order to accommodate the expansion of the other
Champs Good: Renewing, both tenants at positive spreads.
Champs Good: Favorable office demand Dynamics in town center and Harbor Point result in consistent, High occupancy and shorter downtime.
Champs Good: While others in the sector are seeing incremental progress toward the high 80s and low 90s. In occupancy, our biggest challenge continues to be accommodating the growing demand for tenant expansion space. Given our limited available inventory.
Champs Good: and while we've released the former wework space at the interlock,
Champs Good: 1 floor of wework space at 1. City Center is scheduled to expire in the second quarter of this year.
Champs Good: As the single largest near-term office expiration, the team is focused on finding the appropriate long-term solution for this space.
Champs Good: Our retail portfolio had a strong performance with 95% occupancy. We executed a new leases extensions or options covering approximately 195,000 square feet.
We recently executed a large and impactful new lease at the interlock with the Gathering Spot, a market leading membership, only Gathering hub for professionals.
Champs Good: The 10 year old Atlanta based organization will be moving their headquarters to our building. Taking 13,000 square feet on the rooftop and an additional 21,000 square feet of office formerly occupied by. We work.
Champs Good: Furthermore.
Champs Good: We completed 2 significant new retail, leases at Columbus Village in the Town Center of Virginia Beach.
Champs Good: With a national name, brand ger and Specialty Sports retailer for a projected to open by the end of 2025, and Rental income will be realized in 2026.
Champs Good: These 2, credit tenants will backfill substantially, all of the space previously occupied by Bed Bath and Beyond.
Champs Good: In the 18th since Bed Bath and Beyond closed, our team has now backed to a boat spaces previously occupied by the retailer.
Champs Good: Having also released the former Bed Bath and Beyond Space at Patterson place to another National Credit Senate.
Champs Good: Overall, we are seeing strong demand from retail, tenants looking for space. In a supply constrained Market that said we have not lost sight of the renewals and releasing required to remain at this level of occupancy.
Champs Good: We want to acknowledge the impact of store closures within the retail sector specifically.
Champs Good: The recently completed or announced store closures for Conns home plus Party City and Joanne Fabrics.
Champs Good: Combined. These 3, retailers represent over 115,000 square feet of space in our retail portfolio or 1.5 million of ABR.
Champs Good: Fortunately, we've already received. Unsolicited inbound interest from potential backfill tenants on all of this space.
Champs Good: Demonstrating the continued demand for well-located retail centers.
Champs Good: As we continue to monitor these developments, we remain focused on mitigating any risk to our portfolio.
Champs Good: The multi family portfolio, continues to operate well at 95.3% occupancy.
Champs Good: The rent growth in our markets such as Baltimore and Virginia Beach. Continue to create lift and we stand by our thesis well-located amenities and high-quality assets, outperform the competition within the submarkets.
Champs Good: As you know, there is some evidence that Supply pressures may be easing and we have started to recognize the start of this effect and our Southeast submarkets.
Champs Good: This should result in Improvement in rents as Supply incrementally, absorbs over, 2025 and into 2026.
Earlier this year residents began moving into Allied at Harbor Point.
Champs Good: This property stands out as the premier multifamily asset in the area.
Champs Good: Offering stunning Waterfront views and arrange of top tier amenities.
Champs Good: Allied is already receiving positive feedback and we're confident it will continue to be a highly sought after destination for residents. Seeking an exceptional living experience in this vibrant location.
Champs Good: We have taken intentional steps to focus. Our investments on the right asset that align with our strategic long-term objectives.
Champs Good: While the current cost of capital remains a challenge, we are committed to refining our business model and staying disciplined, and how we deploy capital.
Champs Good: We remain confident in the long term value of our portfolio.
Champs Good: Particularly, as we continue to unlock Redevelopment opportunities within our existing assets.
Champs Good: These projects are poised to drive meaningful value and enhance returns for our shareholders.
Champs Good: We believe these development opportunities will position us for future success. As market conditions involve
Matt: I will now turn the call to Matt.
Matt: Good morning and thank you, Sean. I'll start by giving a brief overview of our quarter 4 and 4, year results and conclude with an update, on our balance sheet, and some additional insights into our initial earnings guidance for 2025.
Matt: For the fourth quarter of 2024, we reported a normalized ffo of 27 cents per diluted share and ffo of 29 cents per diluted share, the variance between ffo and normalized ffo. During the quarter is due to the change in fair market, value of our, derivatives reflecting, a more constructive macroeconomic rate environment,
Matt: For the full 2024, fiscal year, we achieved ffo of $12, per diluted, share and normalized, ffo of $1.29, per diluted share.
Matt: In the fourth quarter, we delivered solid Financial results driven by strong portfolio, performance and discipline Asset Management.
Matt: This was primarily driven by higher rental income, along with our continued focus on operational, efficiency and tenant retention.
Matt: All 3 segments posted positive releasing spreads the retail segment. Achieved 11.1% gaap spread with the office segment achieving an 18.7% gaap spread. These results were 2.9% and 3.5% on a cash basis respectively.
Matt: Our multi family portfolio reported, a combined trade-off spread of negative 0.8% for the quarter renewal spreads on apartment leases remained. Strong at 4.7% for the fourth quarter, the 2025 year to date. Stabilized trade outs are showing improvements with a combined trade out of positive 0.6%
Matt: Our portfolio same store. Noi growth was 1.3 million at 3.6% on a gaap basis and 0.8 million at 2.3% on a cash basis. The office segment was a standout performer. This quarter posting 12.3% gaap and 7.9% cash, same store. Growth excluding the termination fee mentioned previously.
Matt: During the fourth quarter, we successfully completed 315,000 Square ft of new leases in renewals our overall. Portfolio occupancy at the end of the fourth quarter. Stood at 96% slightly increasing compared to the prior quarter and in line with our expectations we continue to see strong demand for high-quality assets and expect this trend to continue in 2025.
Matt: The construction management segment posted 2.1 million of gross profits as Telegraph previously, we expect that this segment's financial performance to return closer to historical levels in the short term and likely below historical levels over the next couple of years. Facing some expected downwards pressure on earnings
Matt: As you will see, in our guidance presentation, we estimate construction, growth profit to be between 6.8 million and 8.6 million in 2025.
Matt: For the fourth quarter, our stabilized leverage remained at 5.8 times.
Matt: We have discussed in detail, our ongoing efforts to transform the balance sheet towards long-term, fixed rate and secured debt.
Matt: We are pleased to report that we continue to make progress in executing this strategy.
Matt: As a result, we are successfully maintained our Triple B credit rating from Morning Star dbrs, along with an upgraded stable Outlook Trend. Even under the backdrop of bringing our large multi, Family Assets, the Allied on balance sheet with the expected earnings pressure throughout the 18-month lease up period.
Mitigate the risks associated with Rising interest rates, we have successfully hedged 100% of our variable rate debt exposure, ensuring stability and predictability in our interest expenses.
Matt: This strategy not only enhances our financial resilience, but also positions us for stronger cash flow Management in the coming quarters. Additionally, 56% of our debt is unsecured as of year, end up from 22% 3 years ago, looking ahead, we remain committed to maintaining this position through 2025
Matt: Now, let's discuss our 2025 guidance. As you saw in our guidance presentation released last night, we are providing a normalized ffo guidance. Range of $1 to $110 per diluted share.
Matt: The primary factor affecting the guidance range is the delays in the delivery of our Harbor Point projects, which as mentioned on prior earnings calls has shifted some of the noi and earnings expectations. This coupled with the increase in interest expense. From our recently, completed development pipeline will burden earnings until we have leased up the space and stabilize these assets. Additionally, the stabilization of Chandler residences, which is now expected to occur in the second quarter of 2025 rather than earlier in the year as previously anticipated.
Matt: Last.
Matt: Lastly, we aim to execute leases on the remaining vacant commercial spaces at Southern Post in 2025, to bring this new mixed-use property to stabilization in 2026.
Matt: We also anticipate lower construction, gross profits. Decreased real estate financing income as we maintain approximately 80 million dollars of principal outstanding and the dilution effects of our September Capital raise. These factors whilst challenging are being actively managed and our team remains focused on establishing a solid foundation for future. Sustained growth focused on continual Improvement to the quality of earnings and the quality of our assets as we as well as proactive balance sheet management
Sean Tibbits: I will now turn the call back over to Sean.
Sean Tibbits: Thank you, Matt.
I'd like to take a moment to sincerely. Thank the entire Armada Hoffler team.
Sean Tibbits: Your hard work, dedication and resilience have been critical to the company's success.
Sean Tibbits: I truly appreciate your commitment to Excellence and I'm proud to work alongside each of you as we enter the next chapter of our m hler.
Sean Tibbits: Like to extend my gratitude to all of our investors. Both long-standing and new for your trust and confidence in our company.
Sean Tibbits: Thank you to everyone who joined us today on the call and I appreciate your interest in our story.
Sean Tibbits: We look forward to the future opportunities and leveraging, our capabilities.
Sean Tibbits: To create additional shareholder value.
Sean Tibbits: Operator.
Speaker Change: Thank you, ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please? Press the star, followed by the number 1 on your touchtone phone and you will hear a prompt but your hand has been erased. Should you wish to decline from the Ping process? Please press the star, followed by the number 2. If you are using a speaker-phone, please lift the handset. Before pressing any Keys 1 moment, please for your first question.
Speaker Change: Your first question comes from.
Robert Stevenson: Robert Stevenson from Johnny Company, please go ahead.
Robert Stevenson: Good morning guys. Um, what is the market look like going forward on the bedside um any of your historical Partners, starting new apartment projects that might need that type of financing in 2025 at this point,
Robert Stevenson: Rob good morning. This is Sean. Thank you for the question. Um, yeah, I we're getting inquiries about uh financing those types of deals as we discussed. In the past quarters. We think that the
Robert Stevenson: pressure in the lending Market has actually accelerated some of this. In other words, there's a gap that needs to be filled, right? When the loan to value has has pulled back. Uh, that said, um, we take a look at each and every 1 of these, but we have committed to the market, that would we want to be roughly 800 million, uh, in principal outstanding. We are sitting above that now. So we're looking at a timeline of when these kind of roll back in and trying to ladder if you will that Capital. Um there's some good deals out there and yes, there's some activity. Um but we're not prepared to execute on 1 1 s.
Robert Stevenson: And I guess any new um, Investments there does it need to be sort of a loan to own rather than just a straight loan. If you're looking to bring down that balance over time, that incremental Investments would have to have some sort of kicker there for you in order to make it attractive enough.
Speaker Change: Yeah, I think they're uh, all of the above are possible. Um, you know, at the end of the day, the question becomes for us. What is the risk, adjusted return on that Capital, right? And can we
Speaker Change: Can does the street give us more credit for deploying the capital into a rent? Um, kind of deriving asset and asset that derives rent. But uh, yeah, I think there's opportunity for both. We're just not prepared to pull that trigger as we sit here today,
Speaker Change: Okay. And it seems like from your comments, you know, Virginia, Beach office Market, you know, really strong. But, you know, 2 of your 3, apartment Assets in that Home Market, or sub 94% occupancy. Can you talk about how much Supply that market has been seeing or is this just a price point issue? Given that you guys have higher rents than the market given the location?
Speaker Change: I think it's the latter Rob, certainly there. Um, are new developments in the broader Market, but, uh, within the ecosystem, here, the walkability, if you will, uh, is key. And so we want to maintain rate especially, uh, when we can. So I think this is just a short term blip if you will, uh, we're not concerned about it, we could easily.
Speaker Change: You know, dropped by a couple bucks, but we think you know, the equation is maintained, the market rents where, and when we can, um, and our team takes a hard look, uh, Craig Romero, and his team, uh, take a hard look at, you know, what makes the most sense is, is a couple of bucks less and, uh, another 100 basis points more on occupancy, better than the, you know, the inverse of that. And we think we're in a pretty comfortable place there. I mean, frankly, frankly, in this time of the year, Rob, we're seeing slowdown in any way. But we expect to be where uh we would normally be uh in the mid 90s uh across the board there at Town Center.
Speaker Change: Okay, and Matt after, you know, you've been active. Here, you've paid down some debt. Um, you've done some Equity raises and some asset sales in the back half of 2024. Um, can you talk about what the dilution is from that, um, combo on an ffo per share basis on a quarterly basis? Just trying to figure out if there's some embedded growth that essentially gets turned on. If you wind up, you know, investing in a stabilized asset rather than having it, you know, sitting on the balance sheet, you know, in in debt, repayment, Etc. Um, what sort of embedded in that, in terms of the 245 guidance here,
Yeah, certainly good. Good morning Rob. Um, the the equity raised in September was roughly about 5, pennies worth of of dilution net. Once we we paid down the the debt there. So that that is kind of what is being carried on from the, the 24 to the 25 year. Does that help? Yep. That's perfect. And then last 1 for me, Sean with Tyro headquarters wrapping up, you talked about, you know, monetizing some assets, Etc. How are you in the board thinking about the longer term play here in the timing? I mean, the terms never going to get longer than it is
Speaker Change: Obviously there's some work left to do there is that something that you guys are anticipating on, you know, whether or not it's a JV or an outright sale or some other sort of transaction there that that's going to wind up being a late 25 type of transaction that you would look to do something there 26 or is that, you know, at this point um not contemplated as you guys. Uh, think about the Strategic plan over the next 12 to 18 months.
Speaker Change: Yeah, it's a great question, Rob, I think, as you know, um, in the past when we initiated the deal we were thinking, well, you know, we may, we may Harvest, uh, that Capital, as we sit here today, we don't think that's the most attractive option. However, we do look at this, as well as the rest of the assets, um, on an iterative basis and ask ourselves. Okay. What's the next best Capital? Allocation move. I think the truth is the markets too soft right now for office. And we believe uh as as I think you do, I don't want to put words in your mouth, but that is a, a trophy asset and we're not willing to part with it at a discount, especially given the credit, uh, that sits there. So I think we'll, we'll monitor it over time. But as we sit here today we're excited about having tro uh, in that building and and partnering with them, um, for the long term in terms of that lease. But yeah, we'll we'll continue to look at it. I think um, you know, especially as markets improve we will probably
Speaker Change: Probably, uh, get a little more comfortable with the pricing there, but you know, who knows that? We're happy to hold it. If if that's not the case.
Speaker Change: Okay. Thanks guys. I appreciate the time this morning.
Robert Stevenson: Yes sir. Thank you, Robert.
Speaker Change: The next question comes from Victor Fede, from scoter bank. Please go ahead.
Victor Fede: Good morning everyone. And uh, thank you for taking the question, could you please provide some details on South Gate Square occupancy, which declined to 82% in Q4 and specifically which tenant department and how is releasing process going?
Victor Fede: Sure. Um you know, that that really relates to uh Joanne and cons both in the South Gate Square
Victor Fede: Uh, complex there. Um, Joanne is dark in that location, so they've they've shut the doors.
Victor Fede: Uh, I think the good news there is, we are at least with a backfield tenant. As we, as we sit here today, so we're excited about coming to Market with that, when we're able. Um, so our teams working hard there, on the con store, um, it has been closed as well. Um, obviously we are, we are sensitive to the bankruptcy proceedings here but the truth is, we are inactive negotiations with the potential backfill
Victor Fede: Uh, I would say in the Sporting Goods category in that space. And so it's interesting. Not only the Joanne with the cons and Party City, we essentially have unsolicited or active deals working on all of those spaces. So, I think that's a good news story. We do anticipate, um, positive releasing, um, activity there, in terms of the spread. So we're excited about that. Uh, you know, in the short run, it looks like a challenge but in my view, that challenge is created an opportunity to, uh, potentially create lifts. So, we're, we're excited about that.
Speaker Change: But then probably just to follow up in terms of potential downtime what could be the reasonable expectation for these 2 boxes?
Speaker Change: That's tough to say, like I said, we're at least um, on the Jo-Ann store. So I would say, you know, depending on the the
Speaker Change: Build out and the required. Um, you know, maneuvering there if you will, uh, in addition to kind of these bankruptcy procedures, we'd like to have something more concrete toward the end of the year.
Speaker Change: but Tom will tell I think, you know that my view on this is the the sooner we Inked a lease obviously
Speaker Change: Um, we we have essentially removed the majority of the income for 2025 for the aforementioned. Tenants, um, we do have some speculative upside. Either we collect a little more rent as they as they roll through proceedings or we are able to get a tenant in but reviewing that as upside Victor. So I think you know time will tell but like I said we'd like to see some activity in a couple of those spots this year.
Speaker Change: Got it. Uh thank you and probably is the last 1 for me. So in terms of potential Capital recycling, uh do you have any kind of offers or any active uh properties. You do that. You are actively marketing. Now on the retail side or not really
Speaker Change: So, it's interesting. We've um, you know, even on the other, the 2, uh, retails we sold in the fourth quarter.
Speaker Change: We receive a fair amount of unsolicited activity. It seems like the capital's tent up, um, and, and would like to get into retail which is good. Again, we don't want to dispose, um, of properties that we don't need to. But if it's a good Capital, you know, harvesting slash relocate or reallocation, uh, we'll take advantage of that. We have put, um, Providence in the market. Um, it's a mixed use asset, uh, just renewed, a lease there, we may or may not transact on that. But for us it it looks like something that uh, We've we would potentially take a look at but, you know, we're not committal here. We just want to see what the pricing is. The indicative pricing in the marketplace. So I think the broader answer is we will take a look as I mentioned to Rob at the entire portfolio on an iterative basis. Especially when we receive unsolicited offers you know for us it's an equation. It's the quality equation. Right? What do we believe? Is core to our strategy, improving the quality of the income stream.
And what do we believe is the creative? You know, in terms of reinvesting and or, uh, retiring some debt. So, I think, you know, it's it's an interesting, um, time right now with retail price or retail cap rates, better said compressed. Um, so I think the message to you is, we're looking at our assets and trying to best understand where the best opportunity.
Speaker Change: Unity sets. But, uh, you know, I think we're pretty comfortable where we sit today. We'll see what comes in the future.
Speaker Change: Understood. Thank
Victor Fede: Thank you, Victor.
Speaker Change: The next question comes from Andrew, urger from Bank of America. Please go ahead.
Andrew Urger: Hey, good morning. This is Andrew on for Jeff Spectre. Um, appreciate all the color on 2025 guidance. It sounds like, you know, maybe some of the income that you'll receive in the near future has just been sort of shifted back a couple of quarters. Um, so, you know, maybe just, you know, from a high level are you able to help us understand the trajectory as we exit 25? Maybe, you know, any color on what's assumed, uh, for for the Cadence of the ffo throughout the year. And, you know, whether or not you expect, 25 to be the trough and earnings just kind of giving the moving pieces that, uh, you're aware of today. And, um, maybe a follow up that as well as, uh, Sean. I I know you said your focus on improving the quality of the income stream as as 1 of your main focuses, maybe just if you could tie in some of your key focuses to, you know, drive that earnings growth over the next couple of years.
Speaker Change: Sure.
Speaker Change: Yeah. As as you uh can see. We've we have. And let me ask you the question first. Yes, we expect 2025 to be the trough, right? And so from here, as I mentioned to the 2, previous questions, we think there's some upside. Um, and frankly, when I say quality of the income stream, we're we're talking about what the what the investors really want to see, at least what we hear from investors.
Speaker Change: Investors that they really want to see, which is property income, right? And so we have a great fee income business and we are not shy about that. But our view is, we need to become hyper focused and remain hyper focused on creating high-quality property level income. Um, as we begin to stabilize the developments in 2026, um, you will see. Yes, we believe you're going to see increased growth there in addition to, um, our team's focus on managing Opex and increasing the organic growth and the kind of underlying portfolio. So we should see lift, uh, in the out years, in my view where we are, um, stabilizing a foundational element this year. And we're going to continue to grow on that into 26 and Beyond. So yeah, I think there are a couple of things. Um, not only these back fields that I've been mentioning here. Uh, hopefully. Also, uh, the debt markets, uh, behave, if you will, in addition to the fact that
Speaker Change: We will be incrementally realizing the development income in addition to Growing organically in a healthy way. The underlying portfolio income and I think that you know, that kind of equation helps us see that. 26 and 27 will certainly be improvements on 25. Matt, did you want to add anything to that?
Speaker Change: Um, know that that was that was well, well said, Sean Andrew, what. I what I would note is also as we get into uh, the end of 25 and 2026. Hopefully there will be a um, better macroeconomic Market uh, for us rate environments. So um, that will allow us to, you know, continue with our balance sheet strategy, higher quality debt and we're hoping, you know, when those maturities for us come up in 2026, we will be in a in a better interest rate position than we are. Um, as we stand here today,
Andrew Urger: You know, Andrew top of my mind or things like this Bed Bath and Beyond Redevelopment at Town Center, right? We we put out that a um, high-quality ger
Andrew Urger: and another retailer have already signed with us. This goes back to Rob's question apartment rents. Uh, when those tenants are in place, should increase, right? And and we see some lifts that kind of is ecosystem, type lift, in terms of rent and also realization of this kind of Redevelopment opportunity as it comes online. So we have a lot of uh variables that I would say contribute uh in a positive way to the equation and the out uh out months and out years.
Speaker Change: Great. That's very helpful. Thank you. And maybe just to follow up you mentioned earlier. Um, I think it was 15%, higher rents in your mixed use Office assets versus the respective CBDs. Um, I I was hoping maybe you could touch a little bit more on that. Um, I I guess a couple small questions would be 1 is that compared to, you know, similar quality Assets in the CBDs, um, or is the quality different? I'm I guess. I'm just trying to understand how much value is really kind of from the mixed use environment versus just the quality specifically of your assets. And then on the flip side just kind of thinking about the multi family and the retail you know just having an office building at any value to them or is it really kind of the retail multi family where where you know you're able to kind of have those synergies and
Andrew Urger: And be able to raise rents all around.
Andrew Urger: So I'll start with the uh, the ecosystem concept.
Andrew Urger: Our thesis is and I think we've proven it that this ecosystem helps Lift rental rates in all of those categories mainly due to the amenities, right? Like retail and a big way as an amenity to both the office and the multifamily. So this walkability in our markets, um, maybe different than a Manhattan if you will is not available otherwise. And so this creates an opportunity for for both office users and apartment residents to, you know, eat downstairs at a restaurant or shop or whatever the case may be. Um to your first question we took a look at both in terms of CBDs and across the kind of broader markets in both Baltimore and Virginia Beach. And I would say we're comparing to the average um because it's tough to tell right. These are desperate markets. They're they're different product types which answers your other question. I think it's a quality issue and frankly the tenant
Andrew Urger: In the office side, want to be in a mixed juice location, because it makes inviting their employees back to work and this kind of employee morale, uh, increase over time. So they're willing to pay up for that. And so, that's why you see the demand for us, um, you know, kind of increasing in these in these office spaces. Matt, did you, uh,
Speaker Change: Do you have something you want to say?
I Andrew just to just to give you some specific sets. Um, as Sean mentioned that the Baltimore Market in Q4 CBRE, um, published a Baltimore office market report and you know, if you just look at vacancy across the entire Baltimore office Market is, is just under 20%. The the vacancy in, the Baltimore CBD is 22% compared to only 2.25% in our mixed use community. So that that shows there, the, the evidence suggests that that is the, the benefit of that. When you look at rental rates, um, CBR reported that, you know, the Baltimore office Market is is below 20, 27, a, a square foot. Um, the CBD specifically is right at that 207 Mark, where we are um our our buildings in Harbor Point and north of 30. So that's the, the 15% above the DVD asking rents there.
Speaker Change: Andrew, I think further amounts Andrew to further match point, I think, you know, for the Virginia Beach Market there are um the the closest competitive market is is the Norfolk uh, CBD and and the numbers Matt stated are probably more pronounced than I don't have them sitting in front of me, but probably more pronounced in terms of rent spreads as well as occupancy. So I think you know in terms of being in the a position that trophy position, that's a
Speaker Change: that's a, uh,
Speaker Change: That's a good place to be.
Speaker Change: Great, thank you very much.
Andrew Urger: Thank you, Andrew.
Speaker Change: As a reminder, if you wish to ask a question, please press star 1.
Speaker Change: There are no further questions at this time. I would like to turn the call back over to Sean Tibet, please go ahead.
Speaker Change: Sure, thank you. Just want to say, I appreciate all of you taking time to walk through this with us today, we're excited about the future here at Armada Hoffler. Uh, we do apologize for any choppiness. We are after all office, um, owners and we are working remotely to take this call due to weather conditions. So, this is not normal for us. Uh, we prefer to be in the office as any office owner should be, um, and that, uh, that said,
Speaker Change: Seriously I hope you all stay safe um and we appreciate your confidence in us and look forward to uh taking any questions independently. If if necessary thank you very much for your time today.
Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for your participation. You may now disconnect