Q1 2025 Armada Hoffler Properties Inc Earnings Call
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Speaker Change: Good morning ladies and gentlemen and welcome to the Armada Hoffler first quarter 25 earnings conference call and webcast. At this time all lines are in listen only mode.
Speaker Change: Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for an operator.
Speaker Change: This call is being recorded on Thursday, May 8, 2025. I would now like to turn the conference over to Chelsea Forrest. Please go ahead.
Chelsea Forrest: Good morning, and thank you for joining Armada Hoffler's first quarter 2025 earnings conference call and webcast.
Speaker Change: On the call this morning, in addition to myself, is Shawn Tibbetts, CEO and President, and Matthew Barnes, this CFO .
Speaker Change: The press release announcing our first quarter earnings along with our supplemental package were distributed yesterday afternoon. A replay of this call will be available shortly after the conclusion of the call through June 7th, 2025. The numbers to access the replay are provided in the earnings package release.
Speaker Change: For those who listen to the rebroadcast of this presentation, we remind you that the remarks made here in our ads of today may 8th, 2025, and will not be updated best to play to the initial earnings call.
Speaker Change: During this call, we made it forward-looking statements, including statements related to the future performance of our portfolio, our development pipelines, the impact of acquisitions and dissisitions, our mezzanine program, our construction business, our liquidity position, our portfolio performance and financing activities, as well as comments on our outlook.
Speaker Change: Listeners are cautions that any forward-looking statements are based upon management's beliefs, assumptions, and expectations taking into account information that is currently available.
Speaker Change: These beliefs, assumptions, and expectations may change as a result of possible events or factors, not all of which are known and many of which are hard to predict and generally beyond our control.
Speaker Change: These rights and uncertainties can cause actual results to differ materially from our current expectations and we advise listeners to review the four looking statement disclosure and are press release that we distributed yesterday and the risk factors disclosed in the documents we have filed with are 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 reconciliation to the most comparable GAAP measures , are included in the core of the week supplemental package, which is available on our website at Armada Hoffler.com. I will now turn the call over to Shawn.
Shawn: Good morning, and thank you for joining us as we review Armada Hoffler's first quarter results, and provide some perspective on where we're headed for the remainder of the year and beyond.
Shawn: The first quarter was highly productive, reflecting our focus on operational excellence and the core goal of quality. As you can see from the release, all of our property types perform well and we delivered a strong result with normalized FFO of 25 cents per diluted share.
Shawn: With portfolio occupancy holding steady at a minimum of 95% over the past four quarters, we are reaffirming our full-year guidance.
Shawn: Our office assets remain essentially fully occupied at 97.5%, the remaining 2.5% is well inside a market vacancy factor.
Shawn: It is an especially good time to be concentrated in highly aminitized, mixed-use environments where we benefit from a more fluent multi-family renter base and strong stable office occupants.
Shawn: Both of which are attracted to and support a curated mix of retail and entertainment offerings.
Shawn: These settings create natural synergies that align with our evolving tenant and consumer preferences.
Positioning Us For Sustained Success
Shawn: Additionally, both our shopping centers and apartment communities remain defensive by nature, supported by demand for everyday goods and services, particularly grocery and necessity-based retail.
Shawn: We're looking at the 25% of retail outside of our mixed-use environment, 40% of this AVR comes from those with grocery anchors or shadow anchors.
Shawn: This strategic mix of asset classes and locations reinforces our ability to drive steady performance.
Shawn: We are pleased with the strong performance delivered across all segments of our portfolio. Office, retail, and multi-family
Shawn: Our property demonstrated solid fundamentals, this quarter, with both our office and retail assets achieving double-digit gap renewals press and a blended 2.6% growth rate for new and renewed multi-family reasons.
Shawn: The positive release and activity in our commercial portfolio demonstrates our ability to simultaneously grow rents and extend these terms.
Shawn: While the construction activity met expectations in the first quarter, a few construction projects across the balance of the year have come out of our guide.
Shawn: As we have previously communicated, our business strategy continues to shift away from our alliance of fee income, with an increased emphasis on driving higher quality property level earners.
Shawn: We believe the increased property level performance, coupled with expense management, will help to all set the decreased construction income for the remainder of the year, thus our unchanged
Shawn: Before we move on, I'll make a few comments on the broader economic landscape.
Shawn: It's clear that external factors like tariffs and ongoing macroeconomic uncertainty are top of mind for all businesses right now, and we are no exception.
Shawn: We are fully focused on those things that we can control. For us, control in this context is a disciplined approach to managing costs, seeking operational efficiencies and making strategic decisions that position us for long term success.
Shawn: We will continue refining our business model by reviewing all levels of expenses to ensure that we are most efficiently and properly stewarding our resources.
Shawn: An example of this is our 2025 GNA reduction of 13% year-over-year, achieved with tighter cross-controls and reduction in executive headcount.
Shawn: We're confident we can continue to deliver value through this challenging environment by remaining agile and always maintaining a proactive posture.
Shawn: Looking for opportunities to unlock value, whether that means disposing of a fully stabilized asset with less growth at aggressive cap rates or unearthing value through redevelopment.
Shawn: Since the beginning of the year, we spent a significant amount of time on the road, meeting directly with our shareholders and investment partners.
Shawn: These conversations have been invaluable, providing opportunities to reinforce our conviction in the company's long-term quality focus strategy, which is to reduce the complexity of the business model while improving the balance sheet.
Shawn: As part of the improvement of the balance sheet in mid-March, we raise set our quarterly dividend to 14 cents per share
Shawn: This was a difficult but necessary decision that we made with long-term value creation in mind. The new dividend level is now fully supported by operating property cash flow.
Shawn: This change reinforces our broader goal of delivering sustained, durable and predictable returns while also increasing fiscal flexibility for the company.
Shawn: We are in a solid financial position and feel very comfortable that we can sustain this more appropriate level of dividend into the future.
Shawn: In the first quarter, we experienced continued momentum across the portfolio, with above 95% occupancy across all three segments.
Shawn: The martial leasing was robust with 320,000 square feet transacted during the quarter. Additionally, our office has no material lease aspirations through 2027.
Shawn: Multi-family remains strong at 95% occupancy and we are seeing signs of supply absorption in key summed out markets like Atlanta and Charlotte.
Shawn: Retail remains solid with demand for well-located space, driving continuous leasing activity and positive spreads.
Shawn: Our retail portfolio remains resilient amid broader retail headwinds, including closures by tenants such as Party City, Tons, and Joanne Fabrics representing roughly a 115,000 square feet of space in our portfolio.
Shawn: However, I'm pleased to share that as of today there is tenant interest on all of this space with over 85% already under release or LOI to higher credit quality tenants at 25% higher rents.
Shawn: These leasing successes reflect the strength of our locations, as well as our proactive approach to tenant role over and reap the visioning opportunity.
Shawn: The interlock, our mixed-use asset in West Midtown Atlanta in partnership with Georgia Tech, has made tremendous progress over the last several quarters.
Shawn: Reaching materially full occupancy as we commit it, the retail component is currently 98% least, underscoring the strong demand for space and the vibrant, walkable neighborhood.
Shawn: During the quarter, we announced the marquee new lease with F1RK, the world's first Formula One themed hospitality and entertainment brand.
Shawn: backed by Liberty Media, the owner of Formula One, which will occupy over 15,000 square feet of first generation space at the interlock.
Shawn: This dynamic concept will further elevate the experience-driven energy of the project.
Shawn: On the off the side, we are currently 94% least with only 11,000 square feet available for leads with current interests, and no roll over this year or next.
Shawn: We executed three new office leases, totally approximately 23,000 square feet, reinforcing our belief that well-located high-quality office space in mixed-use environments remain entirely desirable for a wide range of tenants.
Shawn: At Harbor Point, we are thrilled to welcome T-Rote Price to their new global headquarters.
Shawn: as of the first week of March. Having T-Roe efficiently on-site in our Harbor Point ecosystem is a major milestone for the community and a testament to the long-term vision we've instituted on at Harbor Point.
Shawn: We announced Monday that we entered into a binding term sheet with our partner to acquire our partner's full interest in Allied apartments, where leasing is actively progressing with 39% currently leased.
Shawn: We have received positive feedback from residents that have moved in over the past few months.
Shawn: We're also preparing to welcome an exciting roster of new retailers, all opening this summer that will complement the existing merchandising mix and further enhance the vibrancy and amenity base of the neighborhood.
Shawn: I'm pleased to report that Chandler Residences located within the mixed-use community of Southern Post had successfully achieved stabilization with 95% least.
Shawn: It's other post-combines residential living with thoughtfully curated retail, dining and office components, creating a vibrant, walkable community.
Shawn: On the commercial side, Southern Post is currently 72% least for L.O.I. This includes all retail space, reflecting strong tenant demand, and the project's growing momentum.
Shawn: Two new restaurants are scheduled to open their doors in the coming weeks, further activating the street level experience and enhancing foot traffic through the site.
Shawn: Multi-family fundamentals remain solved. We reported a healthy combined trade-out of 2.6% for the first quarter, supported by strong retention and discipline-ridden growth strategies.
Shawn: April as meaningfully improved as a result of some short term leases with renewal spreads holding strong at 5.1% and newly spread rebounding to 4.1%.
Shawn: We look forward to continue to demand in our markets and capturing rent roads while maintaining eye occupancy and residence satisfaction.
Shawn: Our momentum further validates our strategic positioning, heading into the prime leasing season.
Shawn: Our 2018 vintage community greenside in Charlotte has experienced leaks that impacted the exterior of several units, and we are using this as an opportunity to complete a thoughtful improvement throughout the building, enhancing their overall appeal and value.
Shawn: As a result, some of the units are offline as we complete work in phases over the next 10-12 months.
Shawn: Given the properties prime location in Midtown, less than a mile from the new Pearl Innovation Medical District, we are confident that we will realize the return on these capital investments once completed. The impact of this has been contemplated in our earnings guidance for this year.
Shawn: As part of our long-term strategy, we are closely evaluating redevelopment opportunities within our existing portfolio, allowing us to unlock incremental value and drive future growth.
Shawn: We have added a section to the supplemental to detail these opportunities on page 25. These efforts are focused on enhancing high-performing assets and capitalizing on underutilized real estate that can be repositioned to meet evolving market demand.
Shawn: A great example is our ongoing work at Columbus Village adjacent to Townsend or Virginia Beach, where we are redeveloping the former Bet Bath and Beyond Store. As we mentioned in the last call, this project will bring in a highly sought after national grocer and golf galaxy.
Shawn: Complimenting Town Center's current offerings and increasing traffic to the center, while representing a 51% rent premium.
Shawn: We view this as a replicable model using our holistic approach and mix of asset classes to strategically allocate capital and resources in proven locations.
Shawn: Another example is our plan to monetize an undeveloped out parcel at Southgate Square for a new drive-through coffee location, which will activate excess land, drive additional traffic to the center, and enhance the property's overall income stream.
Shawn: We're also in the process of moving our Liberty Apartments leasing office from its current footprint to a more efficient nearby retail space.
Shawn: This move will allow us to repurpose the former Leasing Area into additional apartments, capitalizing on the strong demand for this community.
Shawn: Redevelopment is a key lever we will use to create value and enhance the quality of our anthem stream while maintaining a disciplined approach to capital deployment.
Speaker Change: Before we wrap up, I would like to take a moment to recognize the recent addition of Jennifer Boykin to our Board of Directors.
Speaker Change: Jennifer brings tremendous leadership experience and a strong operational background, most recently serving as EVP of Huntington Ingalls Industries and President of Newport News Shipbuilding.
Speaker Change: Her insights and perspective will be incredibly valuable and we're excited to welcome her to the team
Speaker Change: We remain focused on value creation through disciplined execution, thoughtful reinvestment and managing risk.
Speaker Change: As the year progresses, we are positioned to benefit from our upcoming multi-family deliveries as well as the continued maturation and ultimate stabilization of our development pipeline.
Speaker Change: We're acting with intentionality, building a stronger, simplified, and more consistent Armada Hoffler.
Speaker Change: One that is more efficient, more balanced, and creating more reliable earnings growth over time.
Speaker Change: Ultimately, one that is more aligned with creating long-term shareholder value.
Speaker Change: I'm proud of the progress we've made so far, and I'm excited about the future.
and I'm confident in the execution of our strategy.
I'll now turn the call over to Matt
Please see the complete disclaimer at https://www.sites.google.com
Good morning, and thank you, Shawn [inaudible]
Speaker Change: Armada Hoffler has delivered a strong start to the 2025 fiscal year, demonstrating the resilience of our diversified portfolio and disciplined operating model.
Speaker Change: For the first quarter, normalised at the foe, a few reasonable to common shareholders was 25.6 million or 25 cents per diluted chat, slightly above our expectations for the period. Net operating income for Q1 was 42.2 million, representing a 2% increase year over year and $600,000 better than budgeted.
Speaker Change: FFO, actually readable to common shareholders with 17.2 million or 17 cents per authoritative to share.
AFFO Total 20.4 million or 20 cents per diluted share
Speaker Change: Once we subtract the non-cash interest income, this results in 16 cents per diluted share which is above our cash dividend as detailed on page 19 of the supplemental.
Speaker Change: Our mixed-use portfolio in the open continues to perform exceptionally well, especially in the office segment.
Speaker Change: Same-store office NOI increased by 9.2% on a gap basis and 6.3% on a cash basis.
Speaker Change: Multi-family leasing performed well in Q1 with new lease growth and renewal growth, both contributing meaningfully, reporting a blended rate for the quarter of 2.6%.
Speaker Change: Multi-family releasing spreads for 5.4% with new leases reporting negative 1%.
Speaker Change: These spreads continue to perform well in April , increasing to 5.1% and 4.1% respectively.
Speaker Change: Rent collections remain strong and tenant demand across our residential portfolio remains helping.
In our retail statement, performance remains steady.
Speaker Change: Leasing activity remains robust at our grocery anchored centres and our mixed-use retail assets consistently achieve high-off-to-concey levels, maintaining above 95% as the complimentary blend of residential retail and office components creates a self-reinforcing ecosystem at demand driving stability across economic cycles.
Speaker Change: Our balance sheet remains a key focus of the management team.
Speaker Change: For the quarter, net debt to total adjusted EBITDAF to the 7.1 times at quarter end with our stabilized leverage at 5.4 times. Relative to our historic performance, we maintain strong liquidity of over $211 million.
Speaker Change: We also completed our hedging transaction during the quarter for $150 million national amount with a SWAP fixed rate of 2.5% mitigating exposure to further interest rate volatility.
Speaker Change: We continue to operate with the expectation that interest rates may remain elevated longer than previously anticipated.
Speaker Change: Our balance sheet strategy emphasises flexibility, allowing this management team to navigate through this environment whilst providing us options to fun growth when needed.
Speaker Change: We also recognise that debt capital markets remain selective. Our proactive approach to liquidity and discipline deployment ensures that we can fund our current development commitments and, when appropriate, invest with our own due balance sheet pressure.
Speaker Change: Prudent Cash Management is foundational to our approach, particularly in today's uncertain economic environment. In March, the Board of Directors made the strategic decision to right-size our dividend to better align with projected property cash levels, ensuring a sustainable payout that supports both shareholder returns and long-term balance sheet strength.
Speaker Change: As Shawn mentioned, maintaining sufficient liquidity to fund operations, service debt, and supporting our dividend from the cash flow generated by own properties is paramount to the company's success.
Speaker Change: We're proactively stress-test our cashflow model under a range of downsides scenarios, including a potential recessionary environment, higher for longer interest rates and moderate leasing activity.
Speaker Change: Following our recent dividend right sizing are adjusted funds from operation for the quarter and on a projected run rate basis is well positioned to fully cover our dividend obligations even under stress scenarios.
Speaker Change: This updated approach by management ensures that we are able to preserve balance sheet flexibility, protect our core distribution to shareholders and retain capital for strategic investment opportunities that may emerge over the course of the cycle.
Speaker Change: Finally, I would like to highlight a very important point on expenses. General and administrative expenses are projected to decrease by 13% year-over-year, reflecting our conscious and ongoing efforts to manage cost prudently.
Speaker Change: Given the year-over-year reduction in earnings, we are taking deliberate steps to align with the scale of our current operations while still supporting our strategic priorities.
Speaker Change: Disco Responsibility remains a cornerstone of our operating philosophy, as demonstrated by a better than expected performance in the first quarter, and will maintain a tight focus on expense control throughout the remainder of the year.
Speaker Change: For the remainder of the year, we'll continue to focus on strengthening the stability of our cash flows supporting both future growth and a consistent sustainable dividend, driving operating efficiencies through strategic investments in technology and process improvements which continue to enhance margins over time.
Speaker Change: We remain disciplined in our execution, selectively advancing projects that offer attractive, positive, risk-adjusted, and protect.
Speaker Change: We are fully aware that transaction volumes across the real estate market have slowed. Our mid-term grateful primarily driven by the stabilization of the development pipeline and continued leasing activity which positions us well in the current environment.
Speaker Change: Fortunately, with our strong internal pipeline this year, our model does not include external acquisitions to drive grain, other than bringing online the alert multi-family assets from our real estate financing portfolio.
Speaker Change: Given our first quarter performance and our current line of sight for the remainder of the year, we are reaffirming our four-year 2025 normalized effortful guidance of $1 to $1.10 per diluted share.
Speaker Change: Even with the headwinds that Shawn mentioned in our construction entity, we are confident that our strategy, combined with our new leadership and diversified portfolio positions and more of Hoffler to deliver for the shareholders.
Speaker Change: Thank you for your time and support. With that, I will now turn over to Shawn for his closing remarks.
Thanks Matt.
Speaker Change: I want to thank everyone for joining us today and for your continued interest in Armada Hoffler.
Speaker Change: We remain focused on executing our short-term strategy delivering strong operational results.
and creating long-term value for our shareholders.
Speaker Change: As always, I want to thank our dedicated team for their hard work and commitment
Speaker Change: We look forward to updating you on our progress in the quarters ahead.
Thank you for joining us. Operator
Speaker Change: Thank you, Shawn. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question?
Please press star, followed by one on your touchtone phone.
Speaker Change: And your first question comes from Andrew Berger with Bank of America. Please go ahead.
Andrew Berger: Great. Good morning. Thank you for all the color in the opening remarks. You know, maybe just sticking with kind of high level Shawn, you touch on the macro bed and appreciate the color and the cost savings. And it does have like obviously it's load deconstruction pipeline a little bit, but just curious has, you know, the macro uncertainty, the tariffs.
Andrew Berger: Has that translated to any changes in your office or retail leasing conversations? Have tenants brought this up as a concern or maybe cause any delays or has it really kind of been more limited to on that construction side?
Shawn Marder-Hoffler: Andrew, thank you for the question and good morning. I think the latter is what we're seeing. As you can see, we've been very busy executing.
Shawn Marder-Hoffler: New Ann Renewal Leases, so I think the activity on the portfolio side has not seen that to date.
Shawn Marder-Hoffler: And frankly, we're seeing strength in that space. So I think that's good. Again, we can't control the macro environment to your point, but new starts are probably going to be softer, and that's what we're seeing in the construction side. So thankfully for us.
Shawn Marder-Hoffler: The value of the portfolio continues to shine as we're able to maintain the guidance here, even given some softness in the construction space.
Speaker Change: Great, thank you and you know I think you touched on this a couple times [inaudible]
Speaker Change: In the opening remarks, Matt, I know you mentioned it at the end, but you said you want to maintain some optionality to invest strategically over the course of the cycle as opportunities arise and
Speaker Change: You know, could we just get your latest thoughts? Obviously, you know, appreciate there might not be anything immediate term But as we get a couple years out, you know, do you want to see more of these mixed use communities? You know, how open are you to office? Maybe versus the other asset classes? Just, you know, your latest thoughts on the portfolio composition and whatnot? [inaudible]
Speaker Change: Sure, I think in the short run both disposition and acquisition are probably challenging given the
Speaker Change: The lack of recent trades and the uncertainty in the market, right? So I'm not sure we would feel comfortable going to market to either acquire or dispose, you know, in the short run. And the longer term, as you know, we are very equipped to operate and develop if necessary, mixed use communities. We believe these ecosystems continue to drive. And so that's what we're going to do.
Frankly, drive value in markets such as this, and-
Speaker Change: So, if we see an opportunity, we'll prepare to strike, but I don't see that happening this year, if you will, but we'll continue to keep our eyes peeled. We don't want to rule anything out, but I think
Speaker Change: You know, to answer your question, we are always looking for an opportunity to use our competency and I would characterize one of our main competencies as operating and executing on these mixed
Ecosystems in terms of office [inaudible]
Speaker Change: I think the jury, you know, from a market's perspective is still out, I will, you know, quick commercial here, say our office is 97.5% occupied .
Frankly, and we're happy with that. I hope the market.
Speaker Change: continues to become happier about our office product, and we'll continue to advertise that. But I don't think you're going to see us rush out to do an office. That being said, we are comfortable with the office that we do have, and it's primarily, as you know, located in a mixed-use community. So back to the mixed-use story and kind of our core competency.
Great. Thank you. And if I could just add...
Speaker Change: a squeeze in one more kind of on that point with office. The leasing spreads have been pretty strong over the last couple of quarters. I think they've averaged over 20% the past four quarters. So I'm just curious kind of a two-part question one. What type of annual escalators are you baking into those leases? And you know, obviously not much rolling over the next year or two. I mean, you said you've addressed most of the major explorations and obviously not much space to lease over 97% occupied. But you know, how sustainable would you say those spreads are? Look at you.
Speaker Change: out over the next couple of years, just kind of based on, you know, in-place rents, escalators, and today's market rents assuming no major changes.
Speaker Change: Yeah, I think, you know, to your point, we're pretty well set, I mean, knock on wood, right, like, but in terms of the office leases that we have
Speaker Change: Let me say this way. We typically see 2 to 3% escalators every year, but we're getting term on these laces.
Speaker Change: 10-year term, and so I think that's what is providing the spread for you, but also this...
Speaker Change: kind of comfort level of this long-term arrangement with credit tenants. So, you know, the demand here allows us to, not just here in Townsend, but in our office product, allows us to achieve the 2 to 3% annual escalators, but also that longer term, which is creating that spread. So, we feel good about that, we're happy with that, and again, we've...
Speaker Change: We primarily focused on taking the risk off the table in the office space and I think it's hard to argue with the occupancy in the lack of rollover if you will in the short run or the midterm for that matter.
Great, thank you very much!
Speaker Change: Thank you. Your next question comes from Viktor Fediv with Scotiabank. Please go ahead.
Victor Fediv: Well, good morning, everyone, and thank you for taking my question.
Victor Fediv: I have a question on the retailers' tenant watch list. I know you mentioned a couple of tenants that run bankruptcy already, and you have already different mistake in 85% of.
Speaker Change: Allies, or Interest, or these spaces, but to try and understand what are the next potential problem, tenants, and what is your exposure to those ones?
Sure, I think...
Thank you for the question, Victor. I think...
Speaker Change: Show Ains, Party City and Conds, and as I said in the prepared remarks...
Speaker Change: 85% of that is currently, we're at the table either Lisa or under L.O.I., at least under L.O.I. with those at 20 to 25% higher rents, and I think
Speaker Change: You know, in my mind, that's a proxy for that type of space. There are people, um...
Speaker Change: I think lining up may be strong, but there are people knocking on our door wanting to talk to us about that space and frankly I feel very good about the fact that 85% of it our team has [inaudible]
Paper on, so that's exciting for us.
Speaker Change: You know, are there, you know, small mom and pop shops out there, 1,000, 2,000, 3,000 feet sure?
Speaker Change: The major risk off the table. I mean, there were a renewal, for instance, in Nordstrom Rack.
Speaker Change: 32,000 feet. That was a big one for us. We kicked that out five years and that's a type of thing we want to do. Like I said, are there smaller pieces out there? Yes, we're working on those, but I think we've mitigated by large the big pieces of the portfolio that would be concerning on a short to midterm basis.
Speaker Change: and the F F F F F F F F F F F F F F
Speaker Change: Good, thank you. And then, sticking with the risks, but probably switching to multi-family segment. In particular, Baltimore sub-market. Do you see any impact from Raton John Hopkins caught in financing? And in particular, because you have new asset coming online there, is there any kind of realization in occupancy as well, so just trying to understand some color for that sub-market and multi-family component?
Sure, I, um, to date.
Speaker Change: We haven't seen or at least we can't tell if there's an impact from the Johns Hopkins.
You're kind of a funding situation. I would say...
We have seen...
Speaker Change: Are some of our residents interested in and signing Lisa's next door?
Speaker Change: We've done a lot of calculus on this and as far back as two years ago I've been conveying to the market that we want to be very careful about the lease up. We do get questions about stabilization and we've said hey look, this needs to be thinking 18 to 24 months such that.
Speaker Change: We can maintain the market rents that we want to maintain to keep a healthy ecosystem there So, you know, I think there's also the added benefit of of T row employees right in the added kind of
Speaker Change: Traffic in that area, there are a couple thousand more employees there, right? And people are coming back to the office more than they were two years ago. So I think these are all in my mind drivers of kind of increased demand over time relative to where we may have been 12 to 24 months ago.
But it makes sense. Thank you.
Yes, sir.
Speaker Change: Thank you. As a reminder, if you would like to ask a question, please press star, followed by one.
Speaker Change: Your next question comes from Rob Stevenson with Jenny, please go ahead.
Speaker Change: Good morning, guys. Shawn, to ask the tenant question a little bit differently. You have leases on, I guess, a little over 6% of the entire portfolio rolling over the remainder of 25 and about 12% of the retail portfolio in 26th.
Speaker Change: Any tenants of impact that have either told you that they aren't renewing or look like that they may be iffy to renew, maybe not on a tenant watch list but just because of whatever their changing needs are space wise or location wise that you know might not renew that might impact you guys looking forward? [inaudible]
Speaker Change: Yeah, I think let's start with, thanks Robert for the question and good morning. Let's start with...
Speaker Change: What I would say is the biggest roll over upcoming. It's in the retail space. It's an office depot in Durham 28,000 square feet.
Speaker Change: We have we think they may not renew and frankly we have a backfill identified and we're working on that as we speak There's a staples that we're in discussion with we think they are going by the way that's 19,000 feet that
Speaker Change: All indications are they're going to renew. The other renewal in 25 is a Ruth's press store here in Virginia Beach. We've renewed that post-parts quarter.
Speaker Change: for 10 years, so that's a quarter two. You'll see that in that in quarter two. 26. There's a safe way for 55,000 feet. We renewed for five years. There's a Harris-Steeter for 52,000 feet, the best performer in the market.
Speaker Change: We there's a high indication that they're going to renew and if not, I'm sure somebody will want to step into that
Speaker Change: Another high-end brochure step into that space. But I think we'll see...
Speaker Change: for Newls, and I think the most work, I think what I'm saying to you, Rob needs to be done on that off the steep bow and locking off that 28,000 feet with the backfill that we're talking to.
Speaker Change: And is that likely, if it winds up coming back to you, is that likely to be a multi-tenant space or at 28,000 square feet? Are there, is that tenant pool deep enough to release that at this point?
Speaker Change: We've got options that could do both. I think from my perspective, if we can fill it with the high quality tenant that's able to absorb that space, so be it, if not, we can...
Speaker Change: We can arrange a situation like we've done at Bad Bath here in Virginia Beach, try to have a two or three tenet [inaudible]
Speaker Change: But we're comfortable that there's not a lot of drag there, that deal expires [inaudible]
Speaker Change: from the 31st of this year, so expect to have us having some more tangible conversation
Okay.
Speaker Change: And then back to your earlier comments about the disposition market being, you know, sort of, I guess a bit frozen to paraphrase you, if one of the options comes up to purchase one of the apartments out of the Mes portfolio,
Speaker Change: If the disposition market doesn't allow you, I assume that given the cost of common, you probably wouldn't issue equity here Are you guys comfortable with temporary leveraging up?
Speaker Change: using a line of credit to close a deal to get a high-quality apartment property in the mix. Do you push that out if that's the option? How are you guys thinking about that at this point in time?
Speaker Change: Please don't make a mistake. I have people calling all the time about wanting to buy assets. My view on this is let's let the market settle down a little bit so that we can really understand, you know, what pumps are. I'm not sure they're great comps out there right now. Back to the acquisition side. I mean, that that's certainly a source of capital. We saw something we wanted. [inaudible]
Speaker Change: Purchase it. Assuming that it's fitting within our core strategy and that.
Speaker Change: The sponsor developer is willing to sell it to us at a price that works, right? So I think...
Speaker Change: Yeah, a lot of algebra there, but answer your question. We're not wild about obviously selling common at the prices we said today, and obviously we're sensitive to leverage, so I think there's a little bit of a dance there. Matt, you want to add anything to that from the balance sheet standpoint?
Speaker Change: Just a great question, Rob, just to say that we have spent a lot of time over the last year or so, trying to be very disciplined and we're working very hard to get the leverage in a range that the investors, the shareholders are more comfortable with. So, as Shawn said, there'd be some puts and takes on the algebra there in the calculation. But we've committed to the market that we're going to be disciplined capital allocators. And we would have to look at that. That's what we're going to do.
Speaker Change: Stigley, you know, with respect to where I'll cross the capital and where the cost of debt is today.
Speaker Change: Okay, and is T-Rodell paying full renters or still ramp up left and at least to get to full ren for them.
Speaker Change: Yes, so Tiro started paying rent, or they have been paying rent back since August , the rent commencement date and the move in was March 7th. Obviously as the project closes out, there will be a true up here, you know, in the last little bits as the contractor finishes and finalises that. But you're recognising rent as well? Yeah, we're recognising rent, not prepaid, recognising true rent as of March 7th.
Speaker Change: Okay, so the second quarter should be a full, represent a full quarter of Gapran for T-Ro.
Speaker Change: Yes, and Rob, you will see that for us come in as a FFO contribution. It's an off-balance sheet JV, so our 50% comes back as an FFO contribution after debt service has been taken at the property level.
Speaker Change: Okay, and then last one for me, there's five redeveloped projects listed in the supplemental totaling little over 19 million. Have all of those projects started and are they already sort of either in the $80 million construction backlog or if?
Speaker Change: flowed through previous numbers, just trying to get a feel for whether or not some of those haven't started and will hit the backlog at some point or whether or not that's basically already accounted for in the backlog, either past or present.
Speaker Change: Got it. Thank you yeah, I think probably the best way to run through this these five they're relatively small rob to your point. So it's not I'm not going to be a tremendous kind of bubbling in the backlog Liberty apartments is nearly complete.
Speaker Change: <unk> looking at a Q3.
Speaker Change: Kind of lease up I think actually we have already signed paper for residents on those two on those apartments. So that's awesome.
Speaker Change: Awesome and a small but awesome uplift story, there Columbus village should be in the numbers and progress as you know we're looking at.
Speaker Change: Q4.
Speaker Change: For the retailers potentially the grocery will slide into Q1 of next year.
Speaker Change: Let's see Southgate square still working on that deal. So that's that's not in a number yet.
Speaker Change: <unk> of company operations.
Speaker Change: That's that's kind of an internal move here you haven't seen that yet Pembroke square still talking to the site.
Speaker Change: Work early planning folks on that one but to be clear these would not be in backlog because they are internal development projects right. So youre not going to see that end up in a third party backlog.
Speaker Change: Some of that May show up in our kind of broader backlog or broader work work scope, but they won't be in the third party backlog.
Speaker Change: We won't go to recognize films.
Speaker Change: Thanks, guys I appreciate the time.
Speaker Change: Yes, Thank you Rob.
Speaker Change: Yeah.
Speaker Change: Thank you there are no further questions at this time I would like to turn the call back over to Sean <unk> for closing remarks.
Speaker Change: Thank you all for joining this morning, we appreciate.
Speaker Change: Your attention appreciate all the questions.
Speaker Change: Just to our team who is listening out there our partners our investors. We appreciate your confidence in US we look forward to continuing to improving the quality of this of the story in this great company and I look forward to talking to you on the road in next quarter and again appreciate your support and hope you have a nice weekend take care.
Speaker Change: Ladies and gentlemen, this concludes today's conference call and webcast. Thank you. So much for your participation you may now disconnect.
Speaker Change: [music].
Speaker Change: Yeah.