Business context and reporting period
This is an unaudited Form 10-Q for the quarter and six months ended June 30, 2022. The filing identifies the registrant as Armada Hoffler Properties, Inc. (NYSE: AHH); this differs from the “AH Realty Trust, Inc.” name in the request metadata. The company is a vertically integrated REIT focused on office, retail and multifamily properties, with general contracting and real estate services businesses. Its portfolio included 55 stabilized operating properties and four properties under development or not yet stabilized at quarter-end.
Financial and operating results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $100.5 million | $65.8 million | $179.8 million | $147.1 million |
| Net income | $30.8 million | $8.5 million | $43.0 million | $14.5 million |
| Net income attributable to common stockholders | $21.3 million; $0.31 per share | $4.1 million; $0.07 per share | $28.4 million; $0.42 per share | $6.5 million; $0.11 per share |
| Net operating income (NOI) | $38.6 million | $30.9 million | $75.9 million | $61.8 million |
| Operating cash flow | Not presented by quarter | $50.4 million | $40.6 million |
Q2 FFO attributable to common stockholders and OP unitholders was $27.0 million, or $0.31 per diluted share and unit, versus $22.9 million, or $0.28, a year earlier. Normalized FFO was $26.2 million, or $0.30, versus $23.4 million, or $0.29. These are non-GAAP measures, not substitutes for net income or cash flow.
Q2 rental revenue rose 16.6%, led by the Exelon Office acquisition and retail portfolio growth; multifamily rental revenue declined 6.4%, primarily reflecting property dispositions. Same-store NOI increased 6.0% overall: 12.5% for multifamily, 6.7% for retail and was materially flat for office. Stabilized portfolio occupancy was 97.3% (office 97.9%, retail 97.1%, multifamily 97.2%). General contracting revenue rose to $45.3 million from $18.4 million; gross profit was $1.9 million and operating margin was 4.1%, versus 1.5%.
Liquidity, debt and material changes
At June 30, cash and cash equivalents were $69.7 million and restricted cash was $6.7 million. Management reported $68.0 million available on its revolving credit facility and $33.3 million available under construction loans. Six-month cash flow was $50.4 million from operations, $(87.0) million from investing, and $72.5 million from financing, resulting in a $36.0 million increase in cash, cash equivalents and restricted cash.
Balance-sheet indebtedness, net, was $1.081 billion, up from $917.6 million at year-end 2021. Total debt principal was $1.165 billion; $82.0 million was drawn on the $150 million revolving facility. The company reported compliance with its debt covenants. The Marketplace at Hilltop loan, with $9.5 million outstanding, was due in October 2022; no other loans were scheduled to mature during the remainder of 2022. Interest expense increased 11.3% year over year in Q2. The company uses swaps and caps to manage floating-rate exposure.
Major activity included the January acquisition of a 79% membership interest and additional 11% economic interest in the Exelon Building, financed in part by a new $175 million floating-rate loan. Q2 included sales of the Hoffler Place and Summit Place properties and North Pointe outparcels. The North Pointe sale generated a $20.9 million gain; total net gains on real estate dispositions were $19.5 million for the quarter, materially supporting GAAP income. In July, the company sold The Residences at Annapolis Junction for $150 million and repaid its $84.4 million loan, sold Sandbridge Commons outparcels for $3.5 million, and paid down the revolver by a net $31 million.
Outlook, risks and unusual items
The filing provides no formal earnings or FFO guidance. Management cited operating cash flow, cash reserves, construction borrowings, the credit facility, equity issuance and non-core asset sales as sources for liquidity and capital needs. Third-party construction backlog reached a record $541 million; management expected to complete most contracts in place at June 30 over the next 12 to 24 months. Management also reported positive Q2 releasing spreads of 9.9% for retail and 13.1% for office, and an 8.1% increase in apartment trade-out rental rates. A new Franklin Templeton lease was expected to bring Wills Wharf to 91% occupancy.
The board declared a third-quarter common dividend of $0.19 per share, a 12% increase from the prior quarter; the Series A preferred dividend remained $0.421875 per share. Key risks include interest-rate increases, debt refinancing and covenant capacity, development costs and timing, tenant defaults or vacancies, and collection or repayment risk on development-related loans. The company had $139.4 million of notes receivable, $19.3 million of unfunded loan commitments, and $70.4 million of payment guarantees, with $1.6 million of guarantee liability recorded. All outstanding notes were rated “Pass,” but the Exelon note receivable was on non-accrual status. Management said current legal proceedings were not expected to have a material adverse effect and reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Confirm the registrant identity and ticker: the filing is for Armada Hoffler Properties, Inc. (AHH), not the company name in the request metadata.
- Assess how much reported earnings growth depended on the $19.5 million net disposition gain; compare GAAP results with FFO and normalized FFO.
- Review debt maturities, floating-rate exposure, hedging coverage and refinancing needs, including the $159.1 million due in 2023 and $187.1 million in 2024.
- Track execution, costs and cash requirements for the $541 million construction backlog and Harbor Point development commitments.
- Monitor post-quarter asset-sale proceeds, debt paydowns, occupancy and the sustainability of the increased common dividend.