Armada Hoffler Properties, Inc. — FY 2019 Form 10-K
Registrant note: The supplied filing is for Armada Hoffler Properties, Inc. (NYSE: AHH), not AH Realty Trust, Inc. It covers the fiscal year ended December 31, 2019; the filing was signed February 24, 2020. The company is a REIT focused on office, retail, and multifamily properties, with construction and real estate services and mezzanine lending operations, primarily in the Mid-Atlantic and Southeast.
Financial performance
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Total revenue | $257.2 million | $193.3 million |
| Rental revenue | $151.3 million | $117.0 million |
| General contracting and real estate services revenue | $105.9 million | $76.4 million |
| Net income | $32.3 million | $23.5 million |
| Net income attributable to common stockholders | $21.6 million; $0.41 per diluted share | $17.2 million; $0.36 per diluted share |
| FFO / normalized FFO attributable to common stockholders and OP Unit holders | $80.0 million / $85.1 million; $1.10 / $1.17 per diluted share and unit | $64.3 million / $66.5 million; $0.99 / $1.03 per diluted share and unit |
| Property segment NOI | $102.0 million: office $21.1 million, retail $58.0 million, multifamily $22.9 million | $78.4 million: office $12.8 million, retail $50.3 million, multifamily $15.3 million |
| Construction and services gross profit / operating margin | $4.3 million / 4.1% | $2.7 million / 3.6% |
| Operating cash flow | $67.7 million | $56.1 million |
| Cash used for investing / cash provided by financing | $(295.1) million / $246.9 million | $(240.6) million / $185.6 million |
Balance sheet, debt, and liquidity
- At year-end, total assets were $1.805 billion, net indebtedness was $950.5 million (principal balance $960.8 million), total liabilities were $1.149 billion, and total equity was $655.4 million. Debt increased from $694.2 million net at year-end 2018.
- Cash and cash equivalents were $39.2 million, with $4.3 million restricted cash. The company reported $40.0 million of availability under its credit facility and $58.1 million available under construction loans.
- Debt maturities were concentrated in 2021–2024: $143.0 million in 2021, $116.4 million in 2022, $132.4 million in 2023, and $165.0 million in 2024. These figures exclude potential extension options.
- About 50.8% of principal debt was fixed-rate or swapped and 49.2% variable-rate; including swaps and caps, 76.8% was fixed or economically hedged. Management reported compliance with debt covenants at year-end.
- The amended $355 million credit facility matures in 2024 for the revolving component, with extension options, and 2025 for the term loan. Revolver and term loan rates were 3.26% and 3.21%, respectively, at year-end.
Changes, transactions, and outlook
- Revenue grew $63.9 million year over year. Rental revenue increased $34.4 million, largely from acquisitions, new properties entering service, and improved occupancy. Construction revenue rose $29.5 million, mainly as Interlock projects moved into construction.
- Same-store NOI increased to $71.1 million from $68.5 million. Year-end stabilized occupancy was 96.6% in office, 96.9% in retail, and 95.6% in multifamily; core portfolio occupancy was 96.5%, versus 95.8% a year earlier.
- Major 2019 acquisitions included One City Center’s office and retail components, a 79% controlling interest in 1405 Point, Red Mill Commons and Marketplace at Hilltop, and Thames Street Wharf. The company sold Lightfoot Marketplace for $30.3 million and recognized a $4.5 million gain.
- Construction backlog reached $242.6 million, up from $165.9 million. The company expected to complete most contracts in backlog at year-end within 12–18 months.
- Development pipeline included Wills Wharf and Summit Place under construction and additional delivered-but-not-stabilized projects. Estimated total cost for listed projects was $205 million, of which $159.1 million had been incurred. Timing and cost estimates are subject to change and depend on approvals, financing, and market conditions.
- No full-year 2020 earnings or FFO guidance is provided in the supplied filing text. The company declared $0.84 per common share for 2019, compared with $0.80 in 2018; in February 2020 it announced a first-quarter 2020 common dividend of $0.22 per share, a 4.8% increase from the prior quarter.
Risks, contingencies, and unusual items
- Mezzanine loans and similar investments totaled $153.0 million at year-end, with $23.1 million of 2019 interest income. The loans are subordinate to senior debt and exposed to borrower, project, collateral-value, and repayment risks. The company also guaranteed $56.7 million of third-party senior construction loans.
- Debt and refinancing risk are material; variable-rate exposure, covenant restrictions, and sizable maturities could affect cash available for operations and distributions. Management estimated a 100-basis-point increase in rates would reduce annual cash flow by approximately $4.1 million, assuming debt and derivatives remained unchanged.
- The portfolio is geographically concentrated: Virginia, Maryland, and North Carolina represented approximately 56%, 18%, and 18% of portfolio ABR, respectively; Town Center properties accounted for 31% of rental revenue. Retail properties contributed 47.3% of total ABR.
- Three construction customers represented 67% of construction and services revenue in 2019. Project margins and revenue recognition depend on estimates of completion costs, contract progress, and variable consideration.
- The company issued common stock through its ATM program, raising $97.0 million net in 2019, and issued $61.3 million net of underwriting discount in Series A preferred stock with a 6.75% dividend. These capital raises supported acquisitions and corporate funding needs.
- Adoption of the expected-credit-loss standard on January 1, 2020 was expected to create a $2.3–$3.3 million reserve for notes receivable. The company recorded no loan-loss allowance at December 31, 2019; estimates depend on projected property values and operating results.
- Other significant exposures include hurricane and insurance limitations, leasing and retail-market risks, REIT qualification requirements, tax-protection agreements, environmental and regulatory obligations, and potential conflicts involving affiliates. The filing reports no material litigation expected to adversely affect the company.
Most important facts for investors to verify
- Review the debt maturity schedule, credit-facility availability, covenant headroom, refinancing plans, and the rise in debt following 2019 acquisitions.
- Assess collectability and collateral coverage of the $153.0 million mezzanine portfolio, including the $56.7 million in loan guarantees and the expected 2020 credit-loss reserve.
- Track leasing, occupancy, tenant concentration, and rent expirations—especially in concentrated regional markets and retail assets.
- Verify development costs, completion schedules, leasing progress, and funding needs for Wills Wharf, Summit Place, and other pipeline projects.
- Compare cash available for distributions with common and preferred dividend obligations; FFO and normalized FFO are non-GAAP measures and are not substitutes for operating cash flow.