Business Overview and History
Armada Hoffler Properties, Inc. (AHH) is a vertically-integrated, self-managed real estate investment trust (REIT) with over four decades of experience in developing, acquiring, and managing high-quality retail, office, and multifamily properties primarily located in the Mid-Atlantic and Southeastern United States. The company's strategic focus on strengthening its balance sheet, optimizing its portfolio, and investing in the right assets has positioned it for sustainable growth amid a dynamic market environment.
Armada Hoffler Properties, Inc. was formed on October 12, 2012 under the laws of the State of Maryland and is headquartered in Virginia Beach, Virginia. The company elected to be taxed as a real estate investment trust (REIT) for U.S. federal income tax purposes commencing with the taxable year ended December 31, 2013. On May 13, 2013, Armada Hoffler completed its initial public offering, raising proceeds to fund the acquisition of an initial portfolio of retail, office and multifamily properties.
Over the subsequent years, Armada Hoffler grew its portfolio through a combination of acquisitions, developments and redevelopments. A key milestone in the company's expansion was the acquisition of the Constellation Energy Building in Baltimore in 2022, which strengthened its presence in that market. However, Armada Hoffler has also faced challenges along the way. The COVID-19 pandemic in 2020 led the company to temporarily suspend its dividend and focus on preserving liquidity. Additionally, in 2022, the company incurred impairment charges related to the disposition of certain student housing properties.
Despite these obstacles, Armada Hoffler has maintained its focus on delivering long-term, sustainable shareholder value by consistently investing in and operating high-quality assets, maintaining a robust and resilient balance sheet, and fostering a dynamic, highly skilled team.
As of December 31, 2024, Armada Hoffler's stabilized operating property portfolio consisted of 46 retail properties, 14 office properties, and 11 multifamily properties, totaling 3.82 million, 2.34 million, and 2.49 million square feet, respectively. The company's portfolio is characterized by high-quality assets situated in well-performing markets, with a weighted average occupancy rate of 96% across all segments.
Financials
Armada Hoffler's financial profile reflects its commitment to disciplined capital allocation and balance sheet management. As of December 31, 2024, the company had total assets of $2.51 billion and net debt of $1.22 billion, translating to a net debt to total capitalization ratio of 56.5%. The company's interest coverage ratio stood at 1.59x, indicating its ability to comfortably service its debt obligations.
For the fiscal year 2024, Armada Hoffler reported total revenues of $708.47 million, representing a 6.2% increase year-over-year. Net income attributable to common stockholders and OP Unitholders was $30.90 million, or $0.33 per diluted share. The company achieved funds from operations (FFO) of $99.85 million and normalized FFO of $118.89 million.
In the fourth quarter of 2024, the company reported revenues of $142.6 million and net income of $26.1 million. Normalized FFO for the quarter was $0.27 per diluted share, while FFO was $0.29 per diluted share.
The company's liquidity position remains strong, with $70.64 million in cash and cash equivalents and $113 million available under its revolving credit facility as of December 31, 2024. Armada Hoffler's debt-to-equity ratio stood at 1.60, while its current ratio and quick ratio were both 0.38.
Operational Highlights and Strategic Initiatives
Armada Hoffler's focus on high-quality assets and operational excellence has driven its consistent performance across its business segments. The company operates in five reportable segments: retail real estate, office real estate, multifamily real estate, general contracting and real estate services, and real estate financing.
In the retail segment, which accounted for 39% of the company's total net operating income (NOI) in 2024, Armada Hoffler maintained a robust 95.3% occupancy rate. Rental revenues for the retail segment increased 3.5% in 2024 compared to 2023, primarily due to less bad debt recognized. Retail same-store NOI increased by 0.8% year-over-year.
The office portfolio continued to deliver exceptional results, with occupancy reaching 97.2% and positive releasing spreads of 18.7% on a GAAP basis and 3.5% on a cash basis. The office segment, which generated 31% of the company's total NOI in 2024, saw rental revenues and NOI increase by 14.7% and 19.0%, respectively, compared to the prior year. This growth was largely attributable to a $4.0 million termination fee received from a tenant at the Wills Wharf property and the addition of new tenants at that location.
In the multifamily segment, which accounted for 17% of total NOI in 2024, the company maintained an overall occupancy of 95.3%. Multifamily rental revenues increased 3.8% year-over-year, driven by the commencement of operations at Chandler Residences and increased occupancy at Chronicle Mill and The Everly properties. Multifamily same-store NOI increased by 1.6%.
The general contracting and real estate services segment generated $433.18 million in revenues and $13.88 million in gross profit for the year ended December 31, 2024. The company's third-party construction backlog stood at $123.78 million as of the end of 2024, down from $472.17 million at the beginning of the year, as it executed on its existing project pipeline.
The real estate financing segment, introduced as a reportable segment in 2024, recorded $16.08 million in interest income and $9.49 million in gross profit for the year. As of December 31, 2024, the company had approximately $121.4 million in outstanding real estate financing investments, including mezzanine loans and preferred equity investments for the development of new properties.
Liquidity
To further strengthen its balance sheet and enhance its financial flexibility, Armada Hoffler has been executing a strategic transformation towards longer-term, fixed-rate unsecured debt. As of December 31, 2024, unsecured debt represented 56% of the company's total borrowings, up from 22% three years ago. This initiative, coupled with the company's disciplined capital allocation approach, has enabled Armada Hoffler to maintain its BBB credit rating from Morningstar DBRS with a stable outlook.
The company has an amended and restated credit agreement that provides for a $550 million credit facility, including a $250 million senior unsecured revolving credit facility and a $300 million senior unsecured term loan facility. Additionally, Armada Hoffler has a $100 million senior unsecured term loan facility and a $75 million senior unsecured term loan facility.
Guidance and Outlook
For the full year 2025, Armada Hoffler provided a normalized FFO guidance range of $1.00 to $1.10 per diluted share. This guidance reflects several factors impacting the company's near-term performance, including:
1. Delays in the delivery of the Harbor Point projects, which has shifted some of the NOI and earnings expectations. 2. Increased interest expense from the recently completed development pipeline until these assets are leased up and stabilized. 3. The later than expected stabilization of the Chandler Residences property. 4. The goal 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. 5. Lower construction gross profit. 6. Increased real estate financing income. 7. Dilutionary effects of the September 2024 capital raise.
The company expects 2025 to be a trough year, with improvements in FFO anticipated in 2026 and beyond as the recently completed developments stabilize and the debt portfolio is further optimized.
Risks and Challenges
As with any real estate investment trust, Armada Hoffler is exposed to various risks, including changes in market conditions, tenant bankruptcies, and rising interest rates. The company's geographic concentration in the Mid-Atlantic and Southeastern regions also makes it susceptible to regional economic fluctuations and natural disasters.
Additionally, the company's construction and development activities carry inherent risks, such as cost overruns, project delays, and the ability to secure suitable tenants. Armada Hoffler's ability to execute its strategic initiatives and maintain its financial discipline will be crucial in navigating these challenges.
Conclusion
Armada Hoffler's methodical approach to building long-term value has enabled the company to navigate the evolving real estate landscape. By focusing on high-quality assets, strengthening its balance sheet, and optimizing its portfolio, Armada Hoffler has positioned itself for sustainable growth in the years ahead. While near-term headwinds may present challenges, the company's proven track record, experienced management team, and strategic initiatives instill confidence in its ability to deliver value for its shareholders over the long term. As Armada Hoffler continues to execute on its development pipeline and optimize its portfolio, investors can expect the company to emerge stronger and better positioned for growth in the coming years.