AH Realty Trust, Inc. quarterly report, Q3 FY2021

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Armada Hoffler Properties, Inc. — Q3 2021 Form 10-Q

Reporting period: Quarter and nine months ended September 30, 2021. The filing identifies the registrant as Armada Hoffler Properties, Inc., not AH Realty Trust, Inc.; verify the intended company. Amounts below are in U.S. dollars.

Business context

The company is a vertically integrated REIT focused on office, retail, and multifamily properties, primarily in the Mid-Atlantic and Southeastern United States, and also operates a general contracting and real estate services business. At quarter-end, it reported 57 stabilized operating properties and three properties under development or not yet stabilized.

Financial results and liquidity

  • Q3 revenue: $67.1 million, down 31.7% from $98.3 million. Rental revenue rose 25.0% to $49.6 million, while contracting and real estate services revenue fell 70.1% to $17.5 million, reflecting fewer large third-party projects.
  • Q3 earnings: GAAP net income was $7.7 million versus $10.8 million; net income attributable to common stockholders was $3.6 million, or $0.06 per diluted share, versus $6.4 million, or $0.11. Management reported FFO of $21.9 million ($0.27 per diluted share) and Normalized FFO of $21.5 million ($0.26), compared with $19.2 million ($0.24) and $19.0 million ($0.24), respectively, in Q3 2020. These are non-GAAP measures.
  • Nine-month results: Revenue was $214.2 million versus $285.1 million; GAAP net income was $22.2 million versus $32.3 million. FFO was $65.5 million ($0.81 per diluted share) versus $63.5 million ($0.81); Normalized FFO was $65.4 million ($0.81) versus $66.3 million ($0.85).
  • Property operations: Q3 segment NOI was $32.9 million, up from $26.8 million. Office NOI was $7.0 million, retail $14.9 million, and multifamily $9.5 million. Stabilized portfolio occupancy was 96.4%: office 96.9%, retail 95.2%, and multifamily 97.4%.
  • Cash flow: Nine-month operating cash flow was $69.2 million, compared with $67.8 million. Investing used $101.4 million, primarily reflecting acquisitions and development; financing provided $15.2 million. Cash, cash equivalents, and restricted cash declined to $33.5 million from $50.4 million at year-end 2020, including $28.0 million of unrestricted cash.
  • Debt and liquidity: Balance-sheet indebtedness, net, was $968.4 million; principal balances were $1.017 billion before the specified GAAP adjustments and held-for-sale reclassification. The company reported $89 million available under its revolving facility and $71.9 million available under construction loans. It said it was in compliance with debt covenants and had no loans scheduled to mature during the remainder of 2021.
  • Margins and costs: Contracting segment gross profit fell to $1.6 million in Q3 from $2.1 million, despite an operating margin increase to 8.9% from 3.6%. Interest expense rose 17.3% in Q3 to $8.8 million; depreciation and amortization and general and administrative expenses also increased.

Material changes and notable items

  • Rental growth reflected acquisitions, development deliveries, and stronger multifamily occupancy and rents. Q3 retail same-store NOI rose 15.3%, partly reflecting Regal Cinemas revenue and bad-debt recoveries; multifamily same-store NOI rose 19.0%.
  • Q3 contracting revenue was substantially lower than the prior-year period. Nine-month third-party construction backlog was $106.9 million, down from $122.7 million a year earlier; the company expected to complete most contracts in place at quarter-end within 12–18 months.
  • The company acquired Overlook Village and Greenbrier Square in Q3. Greenbrier Square included assumed debt of $20.0 million. It classified Johns Hopkins Village as held for sale, with closing expected in Q4 2021, subject to customary conditions.
  • A $3.0 million impairment was recorded in Q1 for Socastee Commons following the anchor tenant lease expiration; the property was sold in August for $3.8 million, with a $0.1 million disposition loss.
  • Q3 common dividend was $0.16 per share. In October, the board declared a Q4 dividend of $0.17, a 6.25% quarterly increase. The company also raised $27.4 million net through common-stock ATM sales during the first nine months and $2.4 million in October.

Outlook, risks, and contingencies

  • The filing provides no quantified full-year earnings or revenue guidance. Management described plans to lease the remaining Wills Wharf space by early 2022; the property was about 60% leased at quarter-end. Chronicle Mill was expected to begin delivering units in Q3 2022.
  • Management said the full effects of COVID-19 remained uncertain, particularly for retail tenants, and could include closures, late rent payments, relief requests, and reduced occupancy. Eviction and rent-related restrictions in certain jurisdictions could also affect collections and operations.
  • Interest-rate and refinancing exposure remain relevant: much of the debt is variable-rate, with caps and swaps in place. The company noted the transition away from LIBOR, and disclosed a $71.0 million Thames Street Wharf refinancing with a swap fixing the rate at 2.35% through 2026.
  • The company had a $37.5 million payment guarantee related to the Interlock Commercial project, with a $1.6 million recorded liability; $6.6 million of unfunded loan commitments; and a $15.0 million standby letter of credit supporting its Harbor Point joint-venture investment. A separate $9.5 million letter of credit secured performance on a related-party construction project.
  • Harbor Point Parcel 3 had an estimated equity commitment of up to $30 million. Management also described preliminary plans for two Harbor Point projects with estimated combined equity needs of $60 million and anticipated groundbreaking in early 2022; completion and partial payment guarantees were expected when construction financing is obtained.
  • Management did not expect current legal proceedings to have a material adverse effect. The filing reported no material changes to previously disclosed risk factors and no material changes in market-risk disclosures.

Important facts for investors to verify

  • Confirm issuer identity: the supplied filing is for Armada Hoffler Properties, Inc., whereas the request metadata names AH Realty Trust, Inc.
  • Reconcile GAAP earnings with FFO and Normalized FFO, and assess the significance of lower contracting activity and nine-month Normalized FFO per share.
  • Review debt maturities, variable-rate exposure, covenant headroom, and post-quarter borrowing; the filing gives availability figures but not a clear consolidated leverage ratio.
  • Track Johns Hopkins Village sale completion and proceeds, Wills Wharf lease-up, and performance of the Interlock and Nexton mezzanine investments.
  • Assess retail tenant collections and the effects of COVID-related restrictions, the $37.5 million guarantee, and the planned Harbor Point capital and guarantee obligations.