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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-35908
ARMADA HOFFLER PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | |
Maryland | 46-1214914 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
222 Central Park Avenue | , | Suite 2100 | |
Virginia Beach | , | Virginia | 23462 |
(Address of principal executive offices) | (Zip Code) |
(757) 366-4000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, $0.01 par value per share | | AHH | | New York Stock Exchange |
6.75% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per share | | AHHPrA | | New York Stock Exchange |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large Accelerated Filer | ☒ | Accelerated Filer | ☐ |
Non-Accelerated Filer | ☐ | Smaller Reporting Company | ☐ |
| | Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes ☒ No
As of August 2, 2024, the registrant had 67,872,875 shares of common stock, $0.01 par value per share, outstanding. In addition, as of August 2, 2024, Armada Hoffler, L.P., the registrant's operating partnership subsidiary, had 21,664,516 units of limited partnership interest ("OP Units") outstanding (other than OP Units held by the registrant).
ARMADA HOFFLER PROPERTIES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2024
Table of Contents
PART I. Financial Information
Item 1. Financial Statements
ARMADA HOFFLER PROPERTIES, INC.
Condensed Consolidated Balance Sheets
(In thousands, except par value and share data) | | | | | | | | | | | | | | |
| | June 30, 2024 | | December 31, 2023 |
| | (Unaudited) | | |
ASSETS | | | | |
Real estate investments: | | | | |
Income producing property | | $ | 2,186,764 | | | $ | 2,093,032 | |
Held for development | | 10,483 | | | 11,978 | |
Construction in progress | | 46,642 | | | 102,277 | |
| | 2,243,889 | | | 2,207,287 | |
Accumulated depreciation | | (425,166) | | | (393,169) | |
Net real estate investments | | 1,818,723 | | | 1,814,118 | |
| | | | |
Cash and cash equivalents | | 20,306 | | | 27,920 | |
Restricted cash | | 1,391 | | | 2,246 | |
Accounts receivable, net | | 44,170 | | | 45,529 | |
Notes receivable, net | | 124,178 | | | 94,172 | |
Construction receivables, including retentions, net | | 106,010 | | | 126,443 | |
Construction contract costs and estimated earnings in excess of billings | | 542 | | | 104 | |
Equity method investments | | 152,615 | | | 142,031 | |
Operating lease right-of-use assets | | 22,954 | | | 23,085 | |
Finance lease right-of-use assets | | 89,776 | | | 90,565 | |
Acquired lease intangible assets | | 101,418 | | | 109,137 | |
Other assets | | 87,903 | | | 87,548 | |
Total Assets | | $ | 2,569,986 | | | $ | 2,562,898 | |
LIABILITIES AND EQUITY | | | | |
Indebtedness, net | | $ | 1,419,229 | | | $ | 1,396,965 | |
| | | | |
Accounts payable and accrued liabilities | | 39,543 | | | 31,041 | |
Construction payables, including retentions | | 125,226 | | | 128,290 | |
Billings in excess of construction contract costs and estimated earnings | | 19,418 | | | 21,414 | |
Operating lease liabilities | | 31,442 | | | 31,528 | |
Finance lease liabilities | | 92,258 | | | 91,869 | |
Other liabilities | | 53,464 | | | 56,613 | |
Total Liabilities | | 1,780,580 | | | 1,757,720 | |
| | | | |
| | | | |
| | | | |
Stockholders’ equity: | | | | |
Preferred stock, $0.01 par value, 100,000,000 shares authorized: 6.75% Series A Cumulative Redeemable Perpetual Preferred Stock, 9,980,000 shares authorized; 6,843,418 shares issued and outstanding as of June 30, 2024 and December 31, 2023 | | 171,085 | | | 171,085 | |
Common stock, $0.01 par value, 500,000,000 shares authorized; 67,388,397 and 66,793,294 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively | | 674 | | | 668 | |
Additional paid-in capital | | 587,117 | | | 580,687 | |
Distributions in excess of earnings | | (200,699) | | | (184,724) | |
Accumulated other comprehensive income | | 4,557 | | | 4,906 | |
Total stockholders’ equity | | 562,734 | | | 572,622 | |
Noncontrolling interests in investment entities | | 9,511 | | | 9,986 | |
Noncontrolling interests in Operating Partnership | | 217,161 | | | 222,570 | |
Total Equity | | 789,406 | | | 805,178 | |
Total Liabilities and Equity | | $ | 2,569,986 | | | $ | 2,562,898 | |
See Notes to Condensed Consolidated Financial Statements.
ARMADA HOFFLER PROPERTIES, INC.
Condensed Consolidated Statements of Comprehensive Income
(In thousands, except per share data)
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
Revenues | | | | | | | | |
Rental revenues | | $ | 63,265 | | | $ | 59,951 | | | $ | 125,146 | | | $ | 116,169 | |
General contracting and real estate services revenues | | 116,839 | | | 102,574 | | | 243,814 | | | 186,812 | |
Interest income | | 4,632 | | | 3,414 | | | 9,258 | | | 7,133 | |
Total revenues | | 184,736 | | | 165,939 | | | 378,218 | | | 310,114 | |
| | | | | | | | |
Expenses | | | | | | | | |
Rental expenses | | 15,087 | | | 13,676 | | | 29,692 | | | 26,636 | |
Real estate taxes | | 5,886 | | | 5,631 | | | 11,811 | | | 11,043 | |
General contracting and real estate services expenses | | 112,500 | | | 99,071 | | | 235,398 | | | 180,241 | |
Depreciation and amortization | | 20,789 | | | 19,878 | | | 41,224 | | | 38,346 | |
Amortization of right-of-use assets - finance leases | | 394 | | | 347 | | | 789 | | | 624 | |
General and administrative expenses | | 4,503 | | | 4,052 | | | 10,377 | | | 9,500 | |
Acquisition, development, and other pursuit costs | | 5,528 | | | 18 | | | 5,528 | | | 18 | |
Impairment charges | | 1,494 | | | — | | | 1,494 | | | 102 | |
Total expenses | | 166,181 | | | 142,673 | | | 336,313 | | | 266,510 | |
Gain on real estate dispositions, net | | — | | | 511 | | | — | | | 511 | |
Operating income | | 18,555 | | | 23,777 | | | 41,905 | | | 44,115 | |
Interest expense | | (21,227) | | | (13,629) | | | (39,202) | | | (25,931) | |
| | | | | | | | |
| | | | | | | | |
Change in fair value of derivatives and other | | 4,398 | | | 5,005 | | | 17,286 | | | 2,558 | |
Unrealized credit loss release (provision) | | 228 | | | (100) | | | 145 | | | (177) | |
Other income, net | | 79 | | | 168 | | | 158 | | | 261 | |
Income before taxes | | 2,033 | | | 15,221 | | | 20,292 | | | 20,826 | |
Income tax benefit (provision) | | 1,246 | | | (336) | | | 712 | | | (524) | |
Net income | | 3,279 | | | 14,885 | | | 21,004 | | | 20,302 | |
Net income attributable to noncontrolling interests: | | | | | | | | |
Investment entities | | (17) | | | (269) | | | (51) | | | (423) | |
Operating Partnership | | (90) | | | (2,753) | | | (3,708) | | | (3,307) | |
Net income attributable to Armada Hoffler Properties, Inc. | | 3,172 | | | 11,863 | | | 17,245 | | | 16,572 | |
Preferred stock dividends | | (2,887) | | | (2,887) | | | (5,774) | | | (5,774) | |
Net income attributable to common stockholders | | $ | 285 | | | $ | 8,976 | | | $ | 11,471 | | | $ | 10,798 | |
Net income attributable to common stockholders per share (basic and diluted) | | $ | 0.00 | | | $ | 0.13 | | | $ | 0.17 | | | $ | 0.16 | |
Weighted-average common shares outstanding (basic and diluted) | | 67,106 | | | 67,901 | | | 66,972 | | | 67,844 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Comprehensive income: | | | | | | | | |
Net income | | $ | 3,279 | | | $ | 14,885 | | | $ | 21,004 | | | $ | 20,302 | |
Unrealized cash flow hedge gains | | 984 | | | 6,806 | | | 4,538 | | | 6,380 | |
Realized cash flow hedge gains reclassified to net income | | (1,398) | | | (5,055) | | | (5,040) | | | (7,977) | |
Comprehensive income | | 2,865 | | | 16,636 | | | 20,502 | | | 18,705 | |
Comprehensive (income) loss attributable to noncontrolling interests: | | | | | | | | |
Investment entities | | (17) | | | (245) | | | (12) | | | (363) | |
Operating Partnership | | 11 | | | (3,169) | | | (3,595) | | | (2,951) | |
Comprehensive income attributable to Armada Hoffler Properties, Inc. | | $ | 2,859 | | | $ | 13,222 | | | $ | 16,895 | | | $ | 15,391 | |
See Notes to Condensed Consolidated Financial Statements.
ARMADA HOFFLER PROPERTIES, INC.
Condensed Consolidated Statements of Equity
(In thousands, except share data)
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Preferred stock | | Common stock | | Additional paid-in capital | | Distributions in excess of earnings | | Accumulated other comprehensive income | | Total stockholders' equity | | Noncontrolling interests in investment entities | | Noncontrolling interests in Operating Partnership | | Total equity |
Balance, December 31, 2023 | | $ | 171,085 | | | $ | 668 | | | $ | 580,687 | | | $ | (184,724) | | | $ | 4,906 | | | $ | 572,622 | | | $ | 9,986 | | | $ | 222,570 | | | $ | 805,178 | |
| | | | | | | | | | | | | | | | | | |
Net income | | — | | | — | | | — | | | 14,073 | | | — | | | 14,073 | | | 34 | | | 3,618 | | | 17,725 | |
Unrealized cash flow hedge gains | | — | | | — | | | — | | | — | | | 2,664 | | | 2,664 | | | 29 | | | 861 | | | 3,554 | |
Realized cash flow hedge gains reclassified to net income | | — | | | — | | | — | | | — | | | (2,700) | | | (2,700) | | | (68) | | | (874) | | | (3,642) | |
| | | | | | | | | | | | | | | | | | |
Net proceeds from issuance of common stock | | — | | | — | | | (10) | | | — | | | — | | | (10) | | | — | | | — | | | (10) | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Restricted stock awards, net | | — | | | 2 | | | 1,394 | | | — | | | — | | | 1,396 | | | — | | | — | | | 1,396 | |
| | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Redemption of operating partnership units | | — | | | — | | | (22) | | | — | | | — | | | (22) | | | — | | | (96) | | | (118) | |
Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (336) | | | — | | | (336) | |
| | | | | | | | | | | | | | | | | | |
Dividends declared on preferred stock | | — | | | — | | | — | | | (2,887) | | | — | | | (2,887) | | | — | | | — | | | (2,887) | |
Dividends and distributions declared on common shares and units ($0.205 per share and unit) | | — | | | — | | | — | | | (13,733) | | | — | | | (13,733) | | | — | | | (4,450) | | | (18,183) | |
Balance, March 31, 2024 | | $ | 171,085 | | | $ | 670 | | | $ | 582,049 | | | $ | (187,271) | | | $ | 4,870 | | | $ | 571,403 | | | $ | 9,645 | | | $ | 221,629 | | | $ | 802,677 | |
Net income | | — | | | — | | | — | | | 3,172 | | | — | | | 3,172 | | | 17 | | | 90 | | | 3,279 | |
Unrealized cash flow hedge gains | | — | | | — | | | — | | | — | | | 743 | | | 743 | | | — | | | 241 | | | 984 | |
Realized cash flow hedge (gains) losses reclassified to net income | | — | | | — | | | — | | | — | | | (1,056) | | | (1,056) | | | — | | | (342) | | | (1,398) | |
| | | | | | | | | | | | | | | | | | |
Net proceeds from issuance of common stock | | — | | | 4 | | | 4,259 | | | — | | | — | | | 4,263 | | | — | | | — | | | 4,263 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Restricted stock awards, net | | — | | | — | | | 809 | | | — | | | — | | | 809 | | | — | | | — | | | 809 | |
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Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (151) | | | — | | | (151) | |
| | | | | | | | | | | | | | | | | | |
Dividends declared on preferred stock | | — | | | — | | | — | | | (2,887) | | | — | | | (2,887) | | | — | | | — | | | (2,887) | |
Dividends and distributions declared on common shares and units ($0.205 per share and unit) | | — | | | — | | | — | | | (13,713) | | | — | | | (13,713) | | | — | | | (4,457) | | | (18,170) | |
Balance, June 30, 2024 | | $ | 171,085 | | | $ | 674 | | | $ | 587,117 | | | $ | (200,699) | | | $ | 4,557 | | | $ | 562,734 | | | $ | 9,511 | | | $ | 217,161 | | | $ | 789,406 | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred stock | | Common stock | | Additional paid-in capital | | Distributions in excess of earnings | | Accumulated other comprehensive income | | Total stockholders' equity | | Noncontrolling interests in investment entities | | Noncontrolling interests in Operating Partnership | | Total equity |
Balance, December 31, 2022 | | $ | 171,085 | | | $ | 677 | | | $ | 587,884 | | | $ | (126,875) | | | $ | 14,679 | | | $ | 647,450 | | | $ | 24,055 | | | $ | 232,509 | | | $ | 904,014 | |
| | | | | | | | | | | | | | | | | | |
Net income | | — | | | — | | | — | | | 4,709 | | | — | | | 4,709 | | | 154 | | | 554 | | | 5,417 | |
Unrealized cash flow hedge (losses) gains | | — | | | — | | | — | | | — | | | (328) | | | (328) | | | 2 | | | (100) | | | (426) | |
Realized cash flow hedge gains reclassified to net income | | — | | | — | | | — | | | — | | | (2,211) | | | (2,211) | | | (39) | | | (672) | | | (2,922) | |
| | | | | | | | | | | | | | | | | | |
Net proceeds from issuance of common stock | | — | | | — | | | (149) | | | — | | | — | | | (149) | | | — | | | — | | | (149) | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Restricted stock awards, net | | — | | | 2 | | | 977 | | | — | | | — | | | 979 | | | — | | | — | | | 979 | |
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| | | | | | | | | | | | | | | | | | |
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Acquisitions of noncontrolling interest in real estate entity | | — | | | — | | | — | | | — | | | — | | | — | | | (12,834) | | | — | | | (12,834) | |
| | | | | | | | | | | | | | | | | | |
Distribution to joint venture partner | | — | | | — | | | — | | | — | | | — | | | — | | | (506) | | | — | | | (506) | |
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Dividends declared on preferred stock | | — | | | — | | | — | | | (2,887) | | | — | | | (2,887) | | | — | | | — | | | (2,887) | |
Dividends and distributions declared on common shares and units ($0.19 per share and unit) | | — | | | — | | | — | | | (12,908) | | | — | | | (12,908) | | | — | | | (3,916) | | | (16,824) | |
Balance, March 31, 2023 | | $ | 171,085 | | | $ | 679 | | | $ | 588,712 | | | $ | (137,961) | | | $ | 12,140 | | | $ | 634,655 | | | $ | 10,832 | | | $ | 228,375 | | | $ | 873,862 | |
Net income | | — | | | — | | | — | | | 11,863 | | | — | | | 11,863 | | | 269 | | | 2,753 | | | 14,885 | |
Unrealized cash flow hedge gains | | — | | | — | | | — | | | — | | | 5,093 | | | 5,093 | | | 151 | | | 1,562 | | | 6,806 | |
Realized cash flow hedge gains reclassified to net income | | — | | | — | | | — | | | — | | | (3,735) | | | (3,735) | | | (174) | | | (1,146) | | | (5,055) | |
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| | | | | | | | | | | | | | | | | | |
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Restricted stock awards, net | | — | | | — | | | 337 | | | — | | | — | | | 337 | | | — | | | — | | | 337 | |
| | | | | | | | | | | | | | | | | | |
Issuance of operating partnership units for acquisitions | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 12,194 | | | 12,194 | |
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Redemption of operating partnership units | | — | | | — | | | (19) | | | — | | | — | | | (19) | | | — | | | (564) | | | (583) | |
Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (427) | | | — | | | (427) | |
| | | | | | | | | | | | | | | | | | |
Dividends declared on preferred stock | | — | | | — | | | — | | | (2,887) | | | — | | | (2,887) | | | — | | | — | | | (2,887) | |
Dividends and distributions declared on common shares and units ($0.195 per share and unit) | | — | | | — | | | — | | | (13,248) | | | — | | | (13,248) | | | — | | | (4,222) | | | (17,470) | |
Balance, June 30, 2023 | | $ | 171,085 | | | $ | 679 | | | $ | 589,030 | | | $ | (142,233) | | | $ | 13,498 | | | $ | 632,059 | | | $ | 10,651 | | | $ | 238,952 | | | $ | 881,662 | |
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See Notes to Condensed Consolidated Financial Statements.
ARMADA HOFFLER PROPERTIES, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)(Unaudited) | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2024 | | 2023 |
OPERATING ACTIVITIES | | | | |
Net income | | $ | 21,004 | | | $ | 20,302 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Depreciation of buildings and tenant improvements | | 31,997 | | | 29,262 | |
Amortization of leasing costs, in-place lease intangibles and below market ground rents - operating leases | | 9,227 | | | 9,084 | |
Accrued straight-line rental revenue | | (3,119) | | | (3,244) | |
Amortization of leasing incentives and above or below-market rents | | (801) | | | (1,360) | |
Amortization of right-of-use assets - finance leases | | 789 | | | 624 | |
Accrued straight-line ground rent expense | | 18 | | | 40 | |
Unrealized credit loss provision (release) | | (145) | | | 177 | |
Adjustment for uncollectible lease accounts | | 1,235 | | | 1,168 | |
Noncash stock compensation | | 2,936 | | | 2,137 | |
Noncash acquisition, development, and other pursuit costs | | 5,528 | | | — | |
Impairment charges | | 1,494 | | | 102 | |
Noncash interest expense | | 2,062 | | | 4,412 | |
| | | | |
Gain on real estate dispositions, net | | — | | | (511) | |
Change in fair value of derivatives and other | | (4,560) | | | (490) | |
Adjustment for receipts on off-market interest rate derivatives | | (13,006) | | | — | |
| | | | |
Changes in operating assets and liabilities: | | | | |
Property assets | | (1,433) | | | (792) | |
Property liabilities | | (1,646) | | | (592) | |
Construction assets | | 21,209 | | | (24,282) | |
Construction liabilities | | (565) | | | 10,969 | |
Interest receivable | | (8,344) | | | (6,545) | |
Net cash provided by operating activities | | 63,880 | | | 40,461 | |
INVESTING ACTIVITIES | | | | |
Development of real estate investments | | (19,606) | | | (30,959) | |
Tenant and building improvements | | (11,436) | | | (9,912) | |
Acquisitions of real estate investments, net of cash received | | — | | | (8,355) | |
Dispositions of real estate investments, net of selling costs | | — | | | (20) | |
Notes receivable issuances | | (21,872) | | | (21,238) | |
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| | | | |
Receipts on off-market interest rate derivatives | | 13,006 | | | — | |
Leasing costs | | (2,690) | | | (2,348) | |
Leasing incentives | | — | | | (20) | |
Contributions to equity method investments | | (10,584) | | | (30,388) | |
Net cash used for investing activities | | (53,182) | | | (103,240) | |
FINANCING ACTIVITIES | | | | |
| | | | |
Proceeds from issuance of common stock, net of issuance cost | | 4,253 | | | (149) | |
Common shares tendered for tax withholding | | (980) | | | (1,110) | |
| | | | |
Debt issuances, credit facility, and construction loan borrowings | | 164,095 | | | 229,783 | |
Debt and credit facility repayments, including principal amortization | | (143,739) | | | (138,953) | |
Debt issuance costs | | (1,001) | | | (1,661) | |
| | | | |
| | | | |
Redemption of operating partnership units | | (118) | | | (583) | |
Distributions to noncontrolling interests | | (487) | | | (933) | |
| | | | |
Dividends and distributions | | (41,190) | | | (39,383) | |
Net cash (used for) provided by financing activities | | (19,167) | | | 47,011 | |
Net decrease in cash, cash equivalents, and restricted cash | | (8,469) | | | (15,768) | |
Cash, cash equivalents, and restricted cash, beginning of period | | 30,166 | | | 51,865 | |
Cash, cash equivalents, and restricted cash, end of period (1) | | $ | 21,697 | | | $ | 36,097 | |
See Notes to Condensed Consolidated Financial Statements.
ARMADA HOFFLER PROPERTIES, INC.
Condensed Consolidated Statements of Cash Flows (Continued)
(In thousands)(Unaudited)
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2024 | | 2023 |
Supplemental Disclosures (noncash transactions): | | | | |
| | | | |
| | | | |
Increase in dividends and distributions payable | | $ | 937 | | | $ | 685 | |
Increase (decrease) in accrued capital improvements and development costs | | 5,569 | | | (2,126) | |
| | | | |
| | | | |
Issuance of operating partnership units for acquisitions | | — | | | 12,194 | |
| | | | |
| | | | |
Debt assumed at fair value in conjunction with real estate purchases | | — | | | 105,584 | |
| | | | |
Note receivable redeemed in conjunction with real estate purchase | | — | | | 90,232 | |
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Acquisitions of noncontrolling interests | | — | | | 12,834 | |
| | | | |
Other liability satisfied in connection with a real estate disposal | | — | | | 750 | |
| | | | |
| | | | |
Recognition of finance lease right-of-use assets | | — | | | 47,742 | |
Recognition of finance lease liabilities | | — | | | 46,616 | |
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(1) The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the Condensed Consolidated Statements of Cash Flows (in thousands):
| | | | | | | | | | | | | | | | |
| | June 30, 2024 | | June 30, 2023 | | |
Cash and cash equivalents | | $ | 20,306 | | | $ | 34,054 | | | |
Restricted cash (a) | | 1,391 | | | 2,043 | | | |
Cash, cash equivalents, and restricted cash | | $ | 21,697 | | | $ | 36,097 | | | |
(a) Restricted cash represents amounts held by lenders for real estate taxes, insurance, and reserves for capital improvements.
See Notes to Condensed Consolidated Financial Statements.
ARMADA HOFFLER PROPERTIES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Business of Organization
Armada Hoffler Properties, Inc. (the "Company") is a vertically integrated, self-managed real estate investment trust ("REIT") with over four decades of experience managing, building, acquiring, and developing high-quality retail, office, and multifamily properties located primarily in the Mid-Atlantic and Southeastern United States. In addition to the ownership of the Company's operating property portfolio, the Company develops and builds properties for its own account and through joint ventures between the Company and unaffiliated partners and also invests in development projects through real estate financing arrangements. The Company also provides general construction and development services to third-party clients. The Company's construction and development experience includes mid- and high-rise office buildings, retail strip malls, retail power centers, multifamily apartment communities, hotels and conference centers, single- and multi-tenant industrial, distribution, and manufacturing facilities, educational, medical, and special purpose facilities, government projects, parking garages, and mixed-use town centers.
The Company is the sole general partner of Armada Hoffler, L.P. (the "Operating Partnership") and, as of June 30, 2024, owned 75.6% of the economic interest in the Operating Partnership, of which 0.1% is held as general partnership units. The operations of the Company are conducted primarily through the Operating Partnership and the wholly owned subsidiaries thereof.
As of June 30, 2024, the Company's stabilized operating portfolio consisted of the following properties:
| | | | | | | | | | | | | | | | | | | |
Property | | | | Location | | Ownership Interest |
Retail | | | | | | | |
Town Center of Virginia Beach | | | | | | | |
249 Central Park Retail* | | | | Virginia Beach, Virginia | | 100 | % | |
4525 Main Street Retail* (1) | | | | Virginia Beach, Virginia | | 100 | % | |
4621 Columbus Retail* (2) | | | | Virginia Beach, Virginia | | 100 | % | |
Columbus Village* | | | | Virginia Beach, Virginia | | 100 | % | |
Commerce Street Retail* | | | | Virginia Beach, Virginia | | 100 | % | |
Fountain Plaza Retail* | | | | Virginia Beach, Virginia | | 100 | % | |
Pembroke Square* | | | | Virginia Beach, Virginia | | 100 | % | |
Premier Retail* | | | | Virginia Beach, Virginia | | 100 | % | |
South Retail* | | | | Virginia Beach, Virginia | | 100 | % | |
Studio 56 Retail* | | | | Virginia Beach, Virginia | | 100 | % | |
The Cosmopolitan Retail* (3) | | | | Virginia Beach, Virginia | | 100 | % | |
Two Columbus Retail* (1) | | | | Virginia Beach, Virginia | | 100 | % | |
West Retail* (1) | | | | Virginia Beach, Virginia | | 100 | % | |
Grocery Anchored | | | | | | | |
Broad Creek Shopping Center | | | | Norfolk, Virginia | | 100 | % | |
Broadmoor Plaza | | | | South Bend, Indiana | | 100 | % | |
Brooks Crossing Retail* | | | | Newport News, Virginia | | 65 | % | (4) |
Delray Beach Plaza* | | | | Delray Beach, Florida | | 100 | % | |
Greenbrier Square | | | | Chesapeake, Virginia | | 100 | % | |
Greentree Shopping Center | | | | Chesapeake, Virginia | | 100 | % | |
Hanbury Village | | | | Chesapeake, Virginia | | 100 | % | |
Lexington Square | | | | Lexington, South Carolina | | 100 | % | |
Market at Mill Creek | | | | Mount Pleasant, South Carolina | | 100 | % | |
North Pointe Center | | | | Durham, North Carolina | | 100 | % | |
| | | | | | | | | | | | | | | | | | | |
Parkway Centre | | | | Moultrie, Georgia | | 100 | % | |
Parkway Marketplace | | | | Virginia Beach, Virginia | | 100 | % | |
Perry Hall Marketplace | | | | Perry Hall, Maryland | | 100 | % | |
Sandbridge Commons | | | | Virginia Beach, Virginia | | 100 | % | |
Tyre Neck Harris Teeter | | | | Portsmouth, Virginia | | 100 | % | |
Harbor Point - Baltimore Waterfront | | | | | | | |
Constellation Retail* (1) | | | | Baltimore, Maryland | | 90 | % | |
Point Street Retail* (3) | | | | Baltimore, Maryland | | 100 | % | |
Southeast Sunbelt | | | | | | | |
Chronicle Mill Retail* (3) | | | | Belmont, North Carolina | | 85 | % | (4) |
Nexton Square* | | | | Summerville, South Carolina | | 100 | % | |
North Hampton Market | | | | Taylors, South Carolina | | 100 | % | |
One City Center Retail* (1) | | | | Durham, North Carolina | | 100 | % | |
Overlook Village | | | | Asheville, North Carolina | | 100 | % | |
Patterson Place | | | | Durham, North Carolina | | 100 | % | |
Providence Plaza Retail* | | | | Charlotte, North Carolina | | 100 | % | |
South Square | | | | Durham, North Carolina | | 100 | % | |
The Interlock Retail* | | | | Atlanta, Georgia | | 100 | % | |
Wendover Village | | | | Greensboro, North Carolina | | 100 | % | |
Mid-Atlantic | | | | | | | |
Dimmock Square | | | | Colonial Heights, Virginia | | 100 | % | |
Harrisonburg Regal | | | | Harrisonburg, Virginia | | 100 | % | |
Liberty Retail* (3) | | | | Newport News, Virginia | | 100 | % | |
Marketplace at Hilltop | | | | Virginia Beach, Virginia | | 100 | % | |
Red Mill Commons | | | | Virginia Beach, Virginia | | 100 | % | |
Southgate Square | | | | Colonial Heights, Virginia | | 100 | % | |
Southshore Shops | | | | Chesterfield, Virginia | | 100 | % | |
The Edison Retail* (3) | | | | Richmond, Virginia | | 100 | % | |
| | | | | | | |
Office | | | | | | | |
Town Center of Virginia Beach | | | | | | | |
249 Central Park Office* (5) | | | | Virginia Beach, Virginia | | 100 | % | |
4525 Main Street* | | | | Virginia Beach, Virginia | | 100 | % | |
4605 Columbus Office* (5) | | | | Virginia Beach, Virginia | | 100 | % | |
Armada Hoffler Tower* | | | | Virginia Beach, Virginia | | 100 | % | |
One Columbus* | | | | Virginia Beach, Virginia | | 100 | % | |
Two Columbus Office* | | | | Virginia Beach, Virginia | | 100 | % | |
Harbor Point - Baltimore Waterfront | | | | | | | |
Constellation Office* | | | | Baltimore, Maryland | | 90 | % | |
Thames Street Wharf* | | | | Baltimore, Maryland | | 100 | % | |
Wills Wharf* | | | | Baltimore, Maryland | | 100 | % | |
Southeast Sunbelt | | | | | | | |
Chronicle Mill Office* (3) | | | | Belmont, North Carolina | | 85 | % | (4) |
One City Center Office* | | | | Durham, North Carolina | | 100 | % | |
Providence Plaza Office* (5) | | | | Charlotte, North Carolina | | 100 | % | |
The Interlock Office* | | | | Atlanta, Georgia | | 100 | % | |
Mid-Atlantic | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Brooks Crossing Office* (5) | | | | Newport News, Virginia | | 100 | % | |
| | | | | | | |
Multifamily | | | | | | | |
Town Center of Virginia Beach | | | | | | | |
Encore Apartments* | | | | Virginia Beach, Virginia | | 100 | % | |
Premier Apartments* | | | | Virginia Beach, Virginia | | 100 | % | |
The Cosmopolitan* | | | | Virginia Beach, Virginia | | 100 | % | |
Harbor Point - Baltimore Waterfront | | | | | | | |
1305 Dock Street* | | | | Baltimore, Maryland | | 90 | % | |
1405 Point* | | | | Baltimore, Maryland | | 100 | % | |
Southeast Sunbelt | | | | | | | |
Chronicle Mill* | | | | Belmont, North Carolina | | 85 | % | (4) |
Greenside Apartments | | | | Charlotte, North Carolina | | 100 | % | |
The Everly* | | | | Gainesville, Georgia | | 100 | % | |
Mid-Atlantic | | | | | | | |
The Edison* | | | | Richmond, Virginia | | 100 | % | |
Liberty Apartments* | | | | Newport News, Virginia | | 100 | % | |
Smith's Landing | | | | Blacksburg, Virginia | | 100 | % | |
________________________________________
*Mixed-use asset.
(1) Formerly reported in the office real estate segment. Refer to Note 3 for further information.
(2) Formerly known as Apex Entertainment.
(3) Formerly reported in the multifamily real estate segment. Refer to Note 3 for further information.
(4) We are entitled to a preferred return on our investment in this property.
(5) Formerly reported in the retail real estate segment. Refer to Note 3 for further information.
As of June 30, 2024, the following properties were under development or redevelopment:
| | | | | | | | | | | | | | | | | | | | | | | |
Development, Not Stabilized | | Segment | | Location | | AHH Ownership | |
Southern Post Retail* | | Retail | | Roswell, Georgia | | 100% | |
Southern Post Office* | | Office | | Roswell, Georgia | | 100% | |
Chandler Residences* | | Multifamily | | Roswell, Georgia | | 100% | |
| | | | | | | | | | | | | | | | | | | | |
Redevelopment | | Segment | | Location | | AHH Ownership |
Columbus Village II* | | Retail | | Virginia Beach, Virginia | | 100 | % |
________________________________________
*Mixed-use asset.
2. Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles ("GAAP").
The condensed consolidated financial statements include the financial position and results of operations of the Company and its subsidiaries. The Company’s subsidiaries include the Operating Partnership and the subsidiaries that are wholly owned or in which the Company has a controlling interest, including where the Company has been determined to be a primary beneficiary of a variable interest entity ("VIE") in accordance with the consolidation guidance of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC"). All significant intercompany transactions and balances have been eliminated in consolidation.
In the opinion of management, the condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, which are necessary for the fair presentation of the financial condition, and results of operations for the interim periods presented.
The accompanying condensed consolidated financial statements were prepared in accordance with the requirements for interim financial information. Accordingly, these interim financial statements have not been audited and exclude certain disclosures required for annual financial statements. Also, the operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These interim financial statements should be read in conjunction with the audited consolidated financial statements of the Company included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed. Such estimates are based on management’s historical experience and best judgment after considering past, current, and expected events and economic conditions. Actual results could differ significantly from management’s estimates.
Recent Accounting Pronouncements
Recently Issued Accounting Standards Not Yet Adopted:
Segment Reporting
In November 2023, the FASB issued ASU 2023-07 as an update to ASC Topic 280, which will be effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024. Early adoption is permitted. ASU 2023-07 requires an entity to disclose significant segment expenses regularly provided to the chief operating decision maker, a description of "other segment items," and the title and position of the chief operating decision maker, and allows for more than one measure of a segment's profit or loss if used by the chief operating decision maker. The update also enhances interim disclosure requirements and requirements for entities with a single reportable segment. The Company is currently evaluating the impact of ASU 2023-07 on its consolidated financial statements.
Income Taxes
In December 2023, the FASB issued ASU 2023-09 as an update to ASC Topic 740, which will become effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. ASU 2023-09 enhances the disclosures surrounding income taxes, specifically in relation to the rate reconciliation table and income taxes paid. The Company is currently evaluating the impact of ASU 2023-09 on its consolidated financial statements.
Other Accounting Policies
See the Company's Annual Report on Form 10-K for the year ended December 31, 2023 for a description of other accounting principles upon which basis the accompanying consolidated financial statements were prepared.
3. Segments
The Company operates its business in five reportable segments: (i) retail real estate, (ii) office real estate, (iii) multifamily real estate, (iv) general contracting and real estate services, and (v) real estate financing. Refer to Note 1 for the composition of properties within each property segment.
Net operating income ("NOI") is the primary measure used by the Company’s chief operating decision-maker to assess segment performance. NOI is calculated as segment revenues less segment expenses. Segment revenues include rental revenues for the property segments, general contracting and real estate services revenues for the general contracting and real estate services segment, and interest income for the real estate financing segment. Segment expenses include rental expenses and real estate taxes for the property segments, general contracting and real estate services expenses for the general contracting and real estate services segment, and interest expense for the real estate financing segment. Segment NOI for the general contracting and real estate services and real estate financing segments is also referred to as segment gross profit as illustrated in the table below. NOI is not a measure of operating income or cash flows from operating
activities as measured by GAAP and is not indicative of cash available to fund cash needs. As a result, NOI should not be considered an alternative to cash flows as a measure of liquidity. Not all companies calculate NOI in the same manner. The Company considers NOI to be an appropriate supplemental measure to net income because it assists both investors and management in understanding the core operations of the Company’s real estate, construction, and real estate financing businesses.
Since the Company's Annual Report on Form 10-K for the year ended December 31, 2023, the Company retrospectively reclassified certain components of mixed-use properties between the retail, office, and multifamily real estate segments in order to align the components of those properties with their tenant composition. As a result, NOI for the three months ended June 30, 2023 increased $0.5 million and less than $0.1 million for the retail and office real estate segments, respectively, and decreased $0.5 million for the multifamily real estate segment. NOI for the six months ended June 30, 2023 increased $0.8 million and less than $0.1 million for the retail and office real estate segments, respectively, and decreased $0.9 million for the multifamily real estate segment. These reclassifications had no effect on total property NOI as previously reported. These reclassifications also had no impact on our general contracting and real estate services or real estate financing segments.
The following table presents NOI for the Company's five reportable segments for the three and six months ended June 30, 2024 and 2023 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
Retail real estate | | | | | | | | |
Rental revenues | | $ | 26,094 | | | $ | 25,288 | | | $ | 51,745 | | | $ | 48,247 | |
Rental expenses | | 4,394 | | | 4,073 | | | 8,605 | | | 7,717 | |
Real estate taxes | | 2,420 | | | 2,340 | | | 4,835 | | | 4,608 | |
Segment net operating income | | 19,280 | | | 18,875 | | | 38,305 | | | 35,922 | |
Office real estate | | | | | | | | |
Rental revenues | | 22,870 | | | 20,629 | | | 44,748 | | | 40,286 | |
Rental expenses | | 5,956 | | | 5,332 | | | 12,079 | | | 10,491 | |
Real estate taxes | | 2,135 | | | 2,157 | | | 4,350 | | | 4,242 | |
Segment net operating income | | 14,779 | | | 13,140 | | | 28,319 | | | 25,553 | |
Multifamily real estate | | | | | | | | |
Rental revenues | | 14,301 | | | 14,034 | | | 28,653 | | | 27,636 | |
Rental expenses | | 4,737 | | | 4,271 | | | 9,008 | | | 8,428 | |
Real estate taxes | | |