Armada Hoffler Properties, Inc. (NYSE:AHH) reported strong first quarter 2024 results, with net income attributable to common stockholders and OP Unitholders of $14.8 million, or $0.17 per diluted share. The company's funds from operations (FFO) for the quarter was $35.0 million, or $0.40 per diluted share, while normalized FFO was $29.4 million, or $0.33 per diluted share.

Financials

For the full year 2023, Armada Hoffler reported annual net income of $82.87 million, annual revenue of $667.715 million, annual operating cash flow of $92.203 million, and annual free cash flow of $67.553 million.

The company's strong operational performance in the first quarter was driven by robust leasing activity, high occupancy levels, and continued growth in its construction business. Armada Hoffler's retail, office, and multifamily segments all reported increases in net operating income (NOI) compared to the same period last year.

Segment Performance

In the retail segment, NOI increased 11.6% year-over-year, primarily due to the acquisition of The Interlock Retail in May 2023. The office segment saw a 9.1% increase in NOI, driven by the acquisition of The Interlock Office, increased occupancy at Wills Wharf, and higher parking income at the Constellation Office. The multifamily segment reported a 4.8% increase in NOI, largely attributable to higher occupancy and rental rates at the Chronicle Mill Apartments.

Armada Hoffler's construction business also continued to deliver strong results, with first quarter profit of $4.1 million, in line with the company's guidance. The company's third-party construction backlog stood at $343.4 million as of March 31, 2024.

Outlook

Looking ahead, the company provided an unchanged guidance range for normalized FFO per diluted share of $1.21 to $1.27 for the full year 2024. This guidance reflects the company's expectation of continued strong operational performance, offset by higher interest expenses and the potential early sale of one of its real estate financing investments.

Liquidity

The company's balance sheet remains healthy, with a debt-to-enterprise value ratio of approximately 54% as of March 31, 2024. Armada Hoffler's weighted average cost of debt is fixed just above 4% until a portion of its derivatives mature in October 2025. Management expects to eventually bring the company's debt-to-enterprise value ratio down to the 40% range, with a corresponding debt service coverage ratio in the 2.2x to 2.5x range.

Business Overview

Armada Hoffler's geographic footprint is primarily concentrated in the Mid-Atlantic and Southeastern United States, with a diverse portfolio of retail, office, and multifamily properties. The company's revenue is generated from rental income (61.9%), general contracting and real estate services (26.0%), and interest income (4.6%).

Development Pipeline

The company's development pipeline remains active, with three projects expected to be delivered by the end of 2024. These include the Southern Post mixed-use development in Roswell, Georgia, the T. Rowe Price Global Headquarters project in Baltimore, and the Allied Department project, also in Baltimore. Armada Hoffler is currently not planning any new development starts for the remainder of 2024 due to the challenging construction cost and interest rate environment.

Funding Strategy

To fund its growth, Armada Hoffler is primarily relying on asset dispositions rather than equity capital markets activity. The company is currently marketing a few non-core multifamily assets for sale, with strong investor interest due to the quality of the properties and the growth markets in which they are located.

Conclusion

Overall, Armada Hoffler's first quarter results demonstrate the company's ability to navigate the current macroeconomic environment and deliver consistent earnings growth. The company's diversified portfolio, strong operational performance, and prudent capital allocation strategy position it well for continued success.