Armada Hoffler Properties, Inc. (NYSE: AHH) today announced
its results for the quarter ended September 30, 2020 and
provided an update on current events and the impact of COVID-19.
Third Quarter and Recent
Highlights:
- Net income attributable to common stockholders and OP Unit
holders of $8.7 million, or $0.11 per diluted share, compared to
$9.9 million, or $0.13 per diluted share, for the three months
ended September 30, 2019.
- Funds from operations attributable to common stockholders and
OP Unit holders ("FFO") of $19.2 million, or $0.24 per diluted
share, compared to $21.7 million, or $0.29 per diluted share, for
the three months ended September 30, 2019. See "Non-GAAP
Financial Measures."
- Normalized funds from operations attributable to common
stockholders and OP Unit holders ("Normalized FFO") of $19.0
million, or $0.24 per diluted share, compared to $22.5 million, or
$0.30 per diluted share, for the three months ended
September 30, 2019.
- Recaptured two prime redevelopment sites - 3 acres in the Town
Center of Virginia Beach and nearly 10 acres adjacent to James
Madison University in Harrisonburg, Virginia - after terminating
leases with Regal Cinemas upon tenant default. Excluding one-time
charges of $1.1 million associated with these early terminations,
Normalized FFO for the third quarter would have been $0.26 per
diluted share.
- Updated 2020 full-year Normalized FFO guidance to $1.10 to
$1.12 per diluted share from $1.09 to $1.13 per diluted share.
- Core operating property portfolio occupancy at 95.4% as
of September 30, 2020 compared to 93.6% as of June
30, 2020. The Company's September 30, 2020 occupancy
includes office at 96.7%, retail at 94.2%, and multifamily at
95.9%.
- Positive releasing spreads on lease renewals during the third
quarter of 3.6% on a GAAP basis and 5.1% on a cash basis.
- Collected 96% of portfolio rents for the third quarter,
including 100% of office tenant rents, 98% of multifamily tenant
rents, and 93% of retail tenant rents. Refer to pages 27-28 of the
Supplemental Financial Package for further details.
- Collected 96% of October portfolio rents, including 100% of
office tenant rents, 97% of multifamily tenant rents, and 94% of
retail tenant rents.
- Announced a new development project, Solis Gainesville, a $52
million 223-unit multifamily project in downtown Gainesville,
Georgia.
- Ended the third quarter with $122.7 million of third-party
construction backlog.
- Acquired Nexton Square, a 118,000 square foot open air
lifestyle center in Summerville, South Carolina in an off-market
transaction.
- Acquired partner's 20% ownership interest of the Southern Post
project in Roswell, Georgia resulting in 100% ownership of the
partnership.
- Raised $86.3 million of net proceeds before offering expenses
through an underwritten public offering of 3,600,000 shares of
6.75% Series A Cumulative Redeemable Perpetual Preferred Stock at a
public offering price of $24.75 per share.
- Completed the acquisition of the Edison Apartments in downtown
Richmond, Virginia in an off-market, OP Unit transaction.
- Completed the off-market acquisition of The Residences at
Annapolis Junction, a 416-unit, Class A, LEED Gold certified
mid-rise apartment community in Howard County, Maryland.
“Despite the uncertainty over the last several
months, the strength of both our Company and our tenants are
demonstrated by portfolio collection rates exceeding 96%,” said
Louis Haddad, President & CEO. “In addition to our sustained
level of high rent collections, we’re pleased with the steps we’ve
taken towards repositioning the Company for long-term value
creation and growth. This management team has guided our Company
through the previous four economic recessions. Each time, we
emerged stronger than before. If history is any indication, we'll
successfully navigate the current downturn and emerge as one of the
country's strongest small cap REITs.”
Financial Results
Net income attributable to common stockholders and
OP Unit holders for the third quarter decreased to $8.7 million
compared to $9.9 million for the third quarter of 2019. The
period-over-period change was primarily due to decreased operating
income from the property portfolio as a result of the disposition
of operating properties and an increase in the allowance for bad
debt (recorded as an adjustment to rental revenues) in the retail
portfolio as a result of the COVID-19 pandemic. Additionally, the
gain on real estate dispositions for the third quarter of 2020
decreased as compared to the third quarter of 2019. These decreases
were partially offset by property acquisitions and the completion
of development projects.
Normalized FFO attributable to common stockholders
and OP Unit holders for the third quarter decreased to $19.0
million compared to $22.5 million for the third quarter of 2019.
FFO attributable to common stockholders and OP Unit holders for the
third quarter decreased to $19.2 million compared to $21.7 million
for the third quarter of 2019. The period-over-period changes in
Normalized FFO and FFO were negatively impacted by property
dispositions and an increase in the allowance for bad debt
(recorded as an adjustment to rental revenues) in the retail
portfolio as a result of the COVID-19 pandemic. These increases in
Normalized FFO and FFO were partially offset by property
acquisitions and completion of development projects
Operating Performance
At the end of the third quarter, the Company’s
office, retail and multifamily core operating property portfolios
were 96.7%, 94.2% and 95.9% occupied, respectively.
Total construction contract backlog was $122.7
million at the end of the third quarter.
Balance Sheet and Financing
Activity
As of September 30, 2020, the Company had
$885.4 million of total debt outstanding, including $205.0 million
outstanding under its senior unsecured term loan facility. The
Company had no balance outstanding under its revolving credit
facility as of September 30, 2020. The borrowing capacity under the
revolving credit facility was $125.0 million as of September 30,
2020. Total debt outstanding excludes unamortized GAAP fair value
adjustments and deferred financing costs. Approximately 63% of the
Company’s debt had fixed interest rates or was subject to interest
rate swaps as of September 30, 2020. After giving effect to
LIBOR interest rate caps with strike prices at or below 275 basis
points as of September 30, 2020, 100% of the Company’s debt
was either fixed or hedged.
The Company has no loans scheduled to mature
during the remainder of 2020, and $163.0 million of loans scheduled
to mature in 2021.
The Company is currently in compliance with all
debt covenants.
Outlook
The Company issued updated 2020 full-year
Normalized FFO guidance in the range to $1.10 to $1.12 per diluted
share. The following table updates the Company's assumptions
underpinning this forecast. The Company's executive management will
provide further details regarding its 2020 earnings guidance during
today's webcast and conference call.
Full-year 2020 Guidance [1] |
|
Expected
Ranges |
Total NOI |
|
$108.2M |
|
$109.6M |
Construction
Segment Gross Profit |
|
$7.4M |
|
$7.8M |
G&A
Expenses |
|
$12.7M |
|
$13.3M |
Mezzanine
Interest Income |
|
$19.8M |
|
$20.2M |
Interest
Expense |
|
$30.0M |
|
$30.5M |
Normalized
FFO per diluted share [2] |
|
$1.10 |
|
$1.12 |
[1] Includes the following assumptions:
- Disposition of two unencumbered assets for $8M in cash proceeds
at the end of the fourth quarter
- Acquisition of Annapolis Junction and Edison Apartments in the
fourth quarter
- An additional $0.5M of potential bad debt write offs for the
remainder of 2020
- Interest expense is calculated based on Forward LIBOR Curve,
which forecasts rates ending the year at 0.16%
[2] Normalized FFO excludes certain items,
including debt extinguishment losses, acquisition, development and
other pursuit costs, mark-to-market adjustments for interest rate
derivatives, provision for unrealized credit losses, amortization
of right-of-use assets attributable to finance leases, severance
related costs, and other non-comparable items. See "Non-GAAP
Financial Measures." The Company does not provide a reconciliation
for its guidance range of Normalized FFO per diluted share to net
income per diluted share, the most directly comparable
forward-looking GAAP financial measure, because it is unable to
provide a meaningful or accurate estimate of reconciling items and
the information is not available without unreasonable effort as a
result of the inherent difficulty of forecasting the timing and/or
amounts of various items that would impact net income per diluted
share. For the same reasons, the Company is unable to address the
probable significance of the unavailable information and believes
that providing a reconciliation for its guidance range of
Normalized FFO per diluted share would imply a degree of precision
for its forward-looking net income per diluted share that could be
misleading to investors.
Supplemental Financial
Information
Further details regarding operating results,
properties and leasing statistics can be found in the Company’s
supplemental financial package available at
www.ArmadaHoffler.com.
Webcast and Conference Call
The Company will host a webcast and conference
call on Thursday, November 5, 2020 at 8:30 a.m. Eastern
Time to review financial results and discuss recent events. The
live webcast will be available through the Investors page of
the Company’s website, www.ArmadaHoffler.com. To participate in the
call, please dial 877-407-3982 (domestic) or 201-493-6780
(international). A replay of the conference call will be
available through Saturday, December 5, 2020 by dialing
844-512-2921 (domestic) or 412-317-6671 (international) and
entering the passcode 13711003.
About Armada Hoffler
Properties, Inc.
Armada Hoffler Properties, Inc. (NYSE: AHH) is a
vertically-integrated, self-managed real estate investment trust
("REIT") with four decades of experience developing, building,
acquiring, and managing high-quality, institutional-grade office,
retail, and multifamily properties located primarily in the
Mid-Atlantic and Southeastern United States. In addition to
developing and building properties for its own account, the Company
also provides development and general contracting construction
services to third-party clients. Founded in 1979 by Daniel A.
Hoffler, the Company has elected to be taxed as a REIT for U.S.
federal income tax purposes.
Forward-Looking Statements
Certain matters within this press release are
discussed using forward-looking language as specified in the
Private Securities Litigation Reform Act of 1995, and, as such, may
involve known and unknown risks, uncertainties and other factors
that may cause the actual results or performance to differ from
those projected in the forward-looking statement. These
forward-looking statements may include comments relating to the
current and future performance of the Company’s operating property
portfolio, the Company’s development pipeline, the Company’s
construction and development business, including backlog and timing
of deliveries and estimated costs, financing activities, and the
Company’s financial outlook and expectations. For a description of
factors that may cause the Company’s actual results or performance
to differ from its forward-looking statements, please review the
information under the heading “Risk Factors” included in the
Company’s Annual Report on Form 10-K for the year ended December
31, 2019, the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2020, and the other documents
filed by the Company with the Securities and Exchange Commission
(the “SEC”) from time to time, including the Company's Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 2020.
The Company’s actual future results and trends may differ
materially from expectations depending on a variety of factors
discussed in the Company’s filings with the the SEC. These factors
include, without limitation: (a) the impact of the coronavirus
(COVID-19) pandemic on macroeconomic conditions and economic
conditions in the markets in which the Company operates, including,
among others: (i) disruptions in, or a lack of access to, the
capital markets or disruptions in the Company’s ability to borrow
amounts subject to existing construction loan commitments; (ii)
adverse impacts to the Company’s tenants’ and other third parties’
businesses and financial condition that adversely affect the
ability and willingness of the Company’s tenants and other third
parties to satisfy their rent and other obligations to the Company,
including deferred rent; (iii) the ability and willingness of the
Company’s tenants to renew their leases with the Company upon
expiration of the leases or to re-lease the Company’s properties on
the same or better terms in the event of nonrenewal or early
termination of existing leases; and (iv) federal, state and local
government initiatives to mitigate the impact of the COVID-19
pandemic, including additional restrictions on business activities,
shelter-in place orders and other restrictions, and the timing and
amount of economic stimulus or other initiatives; (b) the Company’s
ability to continue construction on development and construction
projects, in each case on the timeframes and on terms currently
anticipated; (c) the Company’s ability to accurately assess and
predict the impact of the COVID-19 pandemic on its results of
operations, financial condition, dividend policy, acquisition and
disposition activities and growth opportunities; and (d) the
Company’s ability to maintain compliance with the covenants under
its existing debt agreements or to obtain modifications to such
covenants from the applicable lenders. The Company expressly
disclaims any responsibility to update forward-looking statements,
whether as a result of new information, future events or otherwise,
except as required by law.
Non-GAAP Financial Measures
The Company calculates FFO in accordance with the
standards established by the National Association of Real Estate
Investment Trusts ("Nareit"). Nareit defines FFO as net income
(loss) (calculated in accordance with GAAP), excluding depreciation
and amortization related to real estate, gains or losses from the
sale of certain real estate assets, gains and losses from change in
control, and impairment write-downs of certain real estate assets
and investments in entities when the impairment is directly
attributable to decreases in the value of depreciable real estate
held by the entity.
FFO is a supplemental non-GAAP financial measure.
The Company uses FFO as a supplemental performance measure because
it believes that FFO is beneficial to investors as a starting point
in measuring the Company’s operational performance. Specifically,
in excluding real estate related depreciation and amortization and
gains and losses from property dispositions, which do not relate to
or are not indicative of operating performance, FFO provides a
performance measure that, when compared period-over-period,
captures trends in occupancy rates, rental rates and operating
costs. We also believe that, as a widely recognized measure of the
performance of REITs, FFO will be used by investors as a basis to
compare the Company’s operating performance with that of other
REITs.
However, because FFO excludes depreciation and
amortization and captures neither the changes in the value of the
Company’s properties that result from use or market conditions nor
the level of capital expenditures and leasing commissions necessary
to maintain the operating performance of the Company’s properties,
all of which have real economic effects and could materially impact
the Company’s results from operations, the utility of FFO as a
measure of the Company’s performance is limited. In addition, other
equity REITs may not calculate FFO in accordance with the Nareit
definition as the Company does, and, accordingly, the Company’s FFO
may not be comparable to such other REITs’ FFO. Accordingly, FFO
should be considered only as a supplement to net income as a
measure of the Company’s performance.
Management also believes that the computation of
FFO in accordance with Nareit’s definition includes certain items
that are not indicative of the results provided by the Company’s
operating property portfolio and affect the comparability of the
Company’s period-over-period performance. Accordingly, management
believes that Normalized FFO is a more useful performance measure
that excludes certain items, including but not limited to,
acquisition, development and other pursuit costs, gains or losses
from the early extinguishment of debt, impairment of intangible
assets and liabilities, mark-to-market adjustments for interest
rate derivatives, provision for unrealized credit losses,
amortization of right-of-use assets attributable to finance leases,
severance related costs, and other non-comparable items.
For reference, as an aid in understanding the
Company’s computation of FFO and Normalized FFO, a reconciliation
of net income calculated in accordance with GAAP to FFO and
Normalized FFO has been included in the final page of this
release.
ARMADA HOFFLER PROPERTIES, INC. CONDENSED
CONSOLIDATED BALANCE SHEETS (dollars in thousands)
|
|
September 30, 2020 |
|
December 31, 2019 |
|
|
(Unaudited) |
|
|
ASSETS |
|
|
|
|
Real estate
investments: |
|
|
|
|
Income producing property |
|
$ |
1,531,910 |
|
|
$ |
1,460,723 |
|
Held for development |
|
13,607 |
|
|
5,000 |
|
Construction in progress |
|
60,810 |
|
|
140,601 |
|
|
|
1,606,327 |
|
|
1,606,324 |
|
Accumulated depreciation |
|
(241,859 |
) |
|
(224,738 |
) |
Net real estate investments |
|
1,364,468 |
|
|
1,381,586 |
|
Real estate
investments held for sale |
|
— |
|
|
1,460 |
|
Cash and
cash equivalents |
|
73,579 |
|
|
39,232 |
|
Restricted
cash |
|
5,645 |
|
|
4,347 |
|
Accounts
receivable, net |
|
26,465 |
|
|
23,470 |
|
Notes
receivable, net |
|
168,716 |
|
|
159,371 |
|
Construction
receivables, including retentions, net |
|
43,324 |
|
|
36,361 |
|
Construction
contract costs and estimated earnings in excess of billings,
net |
|
215 |
|
|
249 |
|
Operating
lease right-of-use assets |
|
32,818 |
|
|
33,088 |
|
Finance
lease right-of-use assets |
|
23,691 |
|
|
24,130 |
|
Acquired
lease intangible assets, net |
|
57,958 |
|
|
68,702 |
|
Other
assets |
|
44,393 |
|
|
32,901 |
|
Total Assets |
|
$ |
1,841,272 |
|
|
$ |
1,804,897 |
|
LIABILITIES AND EQUITY |
|
|
|
|
Indebtedness, net |
|
$ |
886,509 |
|
|
$ |
950,537 |
|
Accounts
payable and accrued liabilities |
|
20,667 |
|
|
17,803 |
|
Construction
payables, including retentions |
|
55,825 |
|
|
53,382 |
|
Billings in
excess of construction contract costs and estimated earnings |
|
7,085 |
|
|
5,306 |
|
Operating
lease liabilities |
|
41,589 |
|
|
41,474 |
|
Finance
lease liabilities |
|
17,941 |
|
|
17,903 |
|
Other
liabilities |
|
60,219 |
|
|
63,045 |
|
Total Liabilities |
|
1,089,835 |
|
|
1,149,450 |
|
Total Equity |
|
751,437 |
|
|
655,447 |
|
Total Liabilities and Equity |
|
$ |
1,841,272 |
|
|
$ |
1,804,897 |
|
ARMADA HOFFLER PROPERTIES, INC. CONDENSED
CONSOLIDATED INCOME STATEMENTS (in thousands, except per share
amounts)
|
|
Three Months
Ended September 30, |
|
Nine Months
Ended September 30, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
Revenues |
|
|
|
|
|
|
|
|
Rental revenues |
|
$ |
39,636 |
|
|
$ |
42,220 |
|
|
$ |
121,840 |
|
|
$ |
109,507 |
|
General contracting and real estate services revenues |
|
58,617 |
|
|
27,638 |
|
|
163,283 |
|
|
66,118 |
|
Total revenues |
|
98,253 |
|
|
69,858 |
|
|
285,123 |
|
|
175,625 |
|
Expenses |
|
|
|
|
|
|
|
|
Rental expenses |
|
10,223 |
|
|
9,873 |
|
|
27,907 |
|
|
24,513 |
|
Real estate taxes |
|
4,760 |
|
|
4,180 |
|
|
13,326 |
|
|
10,759 |
|
General contracting and real estate services expenses |
|
56,509 |
|
|
26,446 |
|
|
157,401 |
|
|
62,855 |
|
Depreciation and amortization |
|
14,176 |
|
|
15,465 |
|
|
42,232 |
|
|
38,874 |
|
Amortization of right-of-use assets - finance leases |
|
147 |
|
|
145 |
|
|
440 |
|
|
230 |
|
General and administrative expenses |
|
2,601 |
|
|
2,977 |
|
|
9,382 |
|
|
9,329 |
|
Acquisition, development and other pursuit costs |
|
26 |
|
|
93 |
|
|
555 |
|
|
550 |
|
Impairment charges |
|
47 |
|
|
— |
|
|
205 |
|
|
— |
|
Total expenses |
|
88,489 |
|
|
59,179 |
|
|
251,448 |
|
|
147,110 |
|
Gain on real estate dispositions |
|
3,612 |
|
|
4,699 |
|
|
6,388 |
|
|
4,699 |
|
Operating income |
|
13,376 |
|
|
15,378 |
|
|
40,063 |
|
|
33,214 |
|
Interest income |
|
4,417 |
|
|
5,710 |
|
|
16,055 |
|
|
16,622 |
|
Interest expense on indebtedness |
|
(7,294 |
) |
|
(8,828 |
) |
|
(22,252 |
) |
|
(22,205 |
) |
Interest expense on finance leases |
|
(229 |
) |
|
(228 |
) |
|
(686 |
) |
|
(340 |
) |
Equity in income of unconsolidated real estate entities |
|
— |
|
|
— |
|
|
— |
|
|
273 |
|
Change in fair value of derivatives and other |
|
318 |
|
|
(530 |
) |
|
(1,424 |
) |
|
(3,926 |
) |
Unrealized credit loss release (provision) |
|
33 |
|
|
— |
|
|
(227 |
) |
|
— |
|
Other income (expense), net |
|
177 |
|
|
362 |
|
|
521 |
|
|
426 |
|
Income
before taxes |
|
10,798 |
|
|
11,864 |
|
|
32,050 |
|
|
24,064 |
|
Income tax
benefit |
|
28 |
|
|
199 |
|
|
220 |
|
|
339 |
|
Net
income |
|
10,826 |
|
|
12,063 |
|
|
32,270 |
|
|
24,403 |
|
Net loss
attributable to noncontrolling interests in investment
entities |
|
45 |
|
|
(960 |
) |
|
181 |
|
|
(640 |
) |
Preferred
stock dividends |
|
(2,220 |
) |
|
(1,234 |
) |
|
(4,462 |
) |
|
(1,388 |
) |
Net
income attributable to common stockholders and OP Unit
holders |
|
$ |
8,651 |
|
|
$ |
9,869 |
|
|
$ |
27,989 |
|
|
$ |
22,375 |
|
ARMADA HOFFLER PROPERTIES, INC.
RECONCILIATION OF NET INCOME TO FFO & NORMALIZED FFO (in
thousands, except per share amounts)
|
|
Three Months
Ended September 30, |
|
Nine Months
Ended September 30, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
Net income attributable to common stockholders and OP Unit
holders |
|
$ |
8,651 |
|
|
$ |
9,869 |
|
|
$ |
27,989 |
|
|
$ |
22,375 |
|
Depreciation
and amortization(1) |
|
14,131 |
|
|
15,057 |
|
|
41,867 |
|
|
38,331 |
|
Gain on
operating real estate dispositions(2) |
|
(3,612 |
) |
|
(3,220 |
) |
|
(6,388 |
) |
|
(3,220 |
) |
FFO
attributable to common stockholders and OP Unit
holders |
|
$ |
19,170 |
|
|
$ |
21,706 |
|
|
$ |
63,468 |
|
|
$ |
57,486 |
|
Acquisition,
development and other pursuit costs |
|
26 |
|
|
93 |
|
|
555 |
|
|
550 |
|
Impairment
of intangible assets and liabilities |
|
47 |
|
|
— |
|
|
205 |
|
|
— |
|
Unrealized
credit loss provision (release) |
|
(33 |
) |
|
— |
|
|
227 |
|
|
— |
|
Amortization
of right-of-use assets - finance leases |
|
147 |
|
|
145 |
|
|
440 |
|
|
230 |
|
Change in
fair value of derivatives and other |
|
(318 |
) |
|
530 |
|
|
1,424 |
|
|
3,926 |
|
Normalized FFO available to common stockholders and OP Unit
holders |
|
$ |
19,039 |
|
|
$ |
22,474 |
|
|
$ |
66,319 |
|
|
$ |
62,192 |
|
Net
income attributable to common stockholders and OP Unit holders per
diluted share and unit |
|
$ |
0.11 |
|
|
$ |
0.13 |
|
|
$ |
0.36 |
|
|
$ |
0.31 |
|
FFO
attributable to common stockholders and OP Unit holders per diluted
share and unit |
|
$ |
0.24 |
|
|
$ |
0.29 |
|
|
$ |
0.81 |
|
|
$ |
0.81 |
|
Normalized FFO attributable to common stockholders and OP
Unit holders per diluted share and unit |
|
$ |
0.24 |
|
|
$ |
0.30 |
|
|
$ |
0.85 |
|
|
$ |
0.87 |
|
Weighted
average common shares and units - diluted |
|
78,443 |
|
|
74,543 |
|
|
78,020 |
|
|
71,256 |
|
________________________________________
(1) The
adjustment for depreciation and amortization for the three months
ended September 30, 2020 and 2019 excludes $0.1 million and $0.4
million, respectively, of depreciation attributable to the
Company's joint venture partners. The adjustment for depreciation
and amortization for the nine months ended September 30, 2020 and
2019 excludes $0.4 million and $0.8 million, respectively, of
depreciation attributable to the Company's joint venture partners.
The adjustment for depreciation and amortization for the nine
months ended September 30, 2019 includes $0.2 million of
depreciation attributable to the Company's investment in One City
Center from January 1, 2019 to March 14, 2019, which was an
unconsolidated real estate investment during this period. |
(2) The
adjustment for gain on operating real estate dispositions for the
three and nine months ended September 30, 2019 excludes the portion
of the gain on Lightfoot Marketplace that was allocated to our
joint venture partner and excludes the gain on sale of a
non-operating land parcel. |
Contact:
Michael P. O’Hara Armada Hoffler
Properties, Inc. Chief Financial Officer, Treasurer, and
Secretary Email: MOHara@ArmadaHoffler.com Phone: (757) 366-6684
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