Armada Hoffler Properties: Navigating Challenges and Maintaining Resilience

Armada Hoffler Properties, a vertically-integrated real estate investment trust (REIT), has weathered the economic turbulence of the past year with a focus on long-term sustainability and strategic growth. Despite facing headwinds, the company has demonstrated its ability to adapt and capitalize on emerging opportunities.

Financial Performance Overview

For the first quarter of 2025, Armada Hoffler reported a net loss attributable to common stockholders and unitholders of $7.2 million, or $0.07 per diluted share, compared to net income of $14.8 million, or $0.17 per diluted share, in the same period of 2024. This decline was primarily driven by unrealized losses on non-designated interest rate derivatives, which negatively impacted the company’s Funds from Operations (FFO) by $5.6 million.

Funds from Operations (FFO), a key metric for REITs, decreased to $17.2 million, or $0.17 per diluted share, from $35.0 million, or $0.40 per diluted share, in the prior-year quarter. Normalized FFO, which excludes certain non-recurring items, also declined to $25.6 million, or $0.25 per diluted share, compared to $29.4 million, or $0.33 per diluted share, in the same period of 2024.

Segment Performance

Armada Hoffler’s diversified portfolio of retail, office, and multifamily properties, as well as its general contracting and real estate financing businesses, contributed to its overall performance.

Retail Segment The retail segment’s NOI (Net Operating Income) decreased by 5.5% to $18.0 million, primarily due to the dispositions of the Market at Mill Creek and Nexton Square properties, partially offset by the commencement of operations at Southern Post Retail. Same-store NOI remained relatively flat, increasing by just 0.2%.

Office Segment The office segment’s NOI increased by 12.5% to $15.2 million, driven by the addition of new tenants at Wills Wharf, Thames Street Wharf, and The Interlock Office. Same-store NOI grew by 9.2%, reflecting the strong demand for office space in the company’s markets.

Multifamily Segment The multifamily segment’s NOI was relatively consistent, increasing by 2.7% to $9.0 million. Same-store NOI, however, decreased by 3.2%, primarily due to increased utility expenses at the company’s Harbor Point properties in Baltimore.

General Contracting and Real Estate Services Segment The general contracting and real estate services segment’s gross profit decreased by $2.7 million, or 66.5%, to $1.4 million, primarily due to a substantial reduction in the company’s backlog as previously executed projects were completed.

Real Estate Financing Segment The real estate financing segment’s gross profit declined by 24.2% to $2.0 million, mainly due to decreased interest rates for the Solis Gainesville II and The Allure at Edinburgh investments, as well as the redemption of the Solis City Park II investment in July 2024.

Liquidity and Capital Resources

As of March 31, 2025, Armada Hoffler had $45.7 million in unrestricted cash and cash equivalents, as well as $160.4 million in available borrowings under its revolving credit facility and $8.6 million in available borrowings under its construction loans. The company continues to implement a strategic transformation of its borrowing composition, increasing the proportion of unsecured debt to 56.5% of its total borrowings, up from 54.8% a year earlier.

During the first quarter of 2025, the company increased outstanding borrowings on its revolving credit facility by $21.0 million. It also has $134.8 million in debt maturing during the remainder of 2025, which it plans to repay or extend through available options.

Armada Hoffler’s liquidity position and access to capital provide it with the flexibility to navigate the current economic environment and pursue strategic growth opportunities. The company’s disciplined approach to managing its balance sheet and diversifying its funding sources has been a key factor in its resilience.

Operational Highlights

Despite the challenging market conditions, Armada Hoffler’s operational performance remained relatively strong. As of March 31, 2025, the company’s weighted average stabilized portfolio occupancy was 95.7%, with retail occupancy at 94.5%, office occupancy at 97.5%, and multifamily occupancy at 95.0%.

The company executed 31 commercial lease renewals and 11 new commercial leases during the first quarter, totaling 313,002 net rentable square feet. Notably, the company achieved positive spreads on renewals across all segments, with retail GAAP and cash spreads of 11.0% and 7.4%, respectively, office GAAP and cash spreads of 23.3% and 3.7%, and multifamily GAAP and cash spreads of 2.6%.

The company’s third-party construction backlog stood at $80.4 million as of March 31, 2025, and its construction gross profit for the first quarter was $1.4 million.

Outlook and Challenges

Armada Hoffler’s management remains cautiously optimistic about the company’s future, acknowledging the ongoing economic uncertainties and their potential impact on the real estate industry.

One of the key challenges the company faces is the volatility in the interest rate environment. The unrealized losses on non-designated interest rate derivatives, which negatively affected the company’s FFO, highlight the importance of effective risk management strategies. Armada Hoffler has taken steps to mitigate its interest rate exposure, including entering into interest rate swap agreements and diversifying its funding sources.

Another area of concern is the performance of the company’s general contracting and real estate services segment, which experienced a significant decline in gross profit due to the reduction in its backlog. Armada Hoffler will need to focus on replenishing its backlog and maintaining a steady pipeline of projects to support the long-term viability of this business unit.

The company’s real estate financing segment also faces challenges, as the lower interest rates and the redemption of the Solis City Park II investment have impacted its profitability. Armada Hoffler will need to carefully manage its real estate financing portfolio and explore new investment opportunities to maintain the segment’s contribution to its overall performance.

Despite these challenges, Armada Hoffler’s management remains committed to its long-term strategy of delivering sustainable shareholder value. The company’s diversified portfolio, strong liquidity position, and disciplined approach to capital management provide a solid foundation for weathering the current economic environment and positioning the company for future growth.

Conclusion

Armada Hoffler Properties has demonstrated its resilience in the face of a challenging market. While the company’s financial performance has been impacted by various factors, including interest rate volatility and operational challenges, its management team has taken proactive steps to navigate these obstacles and maintain the company’s long-term viability.

By focusing on its core strengths, diversifying its revenue streams, and prudently managing its balance sheet, Armada Hoffler is well-positioned to capitalize on emerging opportunities and continue delivering value to its shareholders. As the real estate industry navigates the evolving landscape, Armada Hoffler’s commitment to operational excellence and strategic growth will be crucial in shaping its future success.