Good morning, ladies and gentlemen, and welcome to the Armada Hoffler First Quarter '25 Earnings Conference Call and Webcast. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions]. This call is being recorded on Thursday, May 8, 2025. I would now like to turn the conference over to Chelsea Forrest. Please go ahead.

Good morning, and thank you for joining Armada Hoffler's First Quarter 2025 Earnings Conference Call and Webcast. On the call this morning, in addition to myself, is Shawn Tibbetts, CEO and President, and Matthew Barnes-Smith, CFO. The press release announcing our first quarter earnings, along with our supplemental package, were distributed yesterday afternoon. A replay of this call will be available shortly after the conclusion of the call through June 7, 2025. The numbers to access the replay are provided in the earnings press release. For those who listened to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today, May 8, 2025, and will not be updated subsequent to the initial earnings call. During this call, we made forward-looking statements, including statements related to the future performance of our portfolio, our development pipeline, the impact of acquisitions and dispositions, our mezzanine program, our construction business, our liquidity position, our portfolio performance and financing activities, as well as comments on our outlook. Listeners are cautioned that any forward-looking statements are based upon management's beliefs, assumptions, and expectations, taking into account information that is currently available. These beliefs, assumptions, and expectations may change as a result of possible events or factors, not all of which are known and many of which are hard to predict and generally beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations, and we advise listeners to review the forward-looking statement, disclosure, and our press release that we distributed yesterday and the risk factors disclosed in the documents we have filed with or furnished to the SEC. We will also discuss certain non-GAAP financial measures, including but not limited to FFO and normalized FFO. Definitions of these non-GAAP measures, as well as reconciliations to the most comparable GAAP measures, are included in the quarterly supplemental package, which is available on our website at armadahoffler.com. I will now turn the call over to Shawn.

Good morning, and thank you for joining us as we review Armada Hoffler's first quarter results and provide some perspective on where we're headed for the remainder of the year and beyond. The first quarter was highly productive, reflecting our focus on operational excellence and the core goal of quality. As you can see from the release, all of our property types performed well, and we delivered a strong result with normalized FFO of $0.25 per diluted share. With portfolio occupancy holding steady at a minimum of 95% over the past four quarters, we are reaffirming our full year guidance. Our office assets remain essentially fully occupied at 97.5%. The remaining 2.5% is well inside a market vacancy factor. It is an especially good time to be concentrated in highly-immunitized, mixed-use environments where we benefit from a more fluent multifamily renter base and strong, stable office occupants, both of which are attracted to and support a curated mix of retail and entertainment offerings. These settings create natural synergies that align with our evolving tenants and consumer preferences, positioning us for sustained success. Additionally, both our shopping centers and apartment communities remain defensive by nature, supported by demand for everyday goods and services, particularly grocery and necessity-based retail. When looking at the 25% of retail outside of our mixed-use environment, 40% of this AVR comes from those with grocery anchors or shadow anchors. This strategic mix of asset classes and location reinforces our ability to drive steady performance. We are pleased with the strong performance delivered across all segments of our portfolio, office, retail, and multifamily. Our properties demonstrated solid fundamentals this quarter, with both our office and retail assets achieving double-digit GAAP renewal spreads and a blended 2.6% growth rate for new and renewed multifamily leases. The positive releasing activity…

Good morning, and thank you, Shawn. Armada-Hoffler delivered a strong start to the 2025 fiscal year, demonstrating the resilience of our diversified portfolio and disciplined operating model. For the first quarter, normalized FFO attributable to common shareholders was $25.6 million, or $0.25 per diluted share, slightly above our expectations for the period. Net operating income for Q1 was $42.2 million, representing a 2% increase year-over-year and $600,000 better than budgeted. FFO attributable to common shareholders was $17.2 million, or $0.17 per diluted share. AFFO totaled $20.4 million, or $0.20 per diluted share. Once we subtract the non-cash interest income, this results in $0.16 per diluted share, which is above our cash dividend as detailed on page 19 of the supplemental. Our mixed-use portfolio continues to perform exceptionally well, especially in the office segment. Same-store office NOI increased by 9.2% on a GAAP basis and 6.3% on a cash basis. Office occupancy remained high at 97.5%, and office releasing spreads rose by 23.3% on a GAAP basis and 3.7% on a cash basis. Multifamily leasing performed well in Q1, with new lease growth and renewal growth both contributing meaningfully, reporting a blended rate for the quarter of 2.6%. Multifamily releasing spreads were 5.4%, with new leases reporting negative 1%. These spreads continued to perform well in April, increasing to 5.1% and 4.1%, respectively. Rent collections remain strong and tenant demand across our residential portfolio remains healthy. In our retail segment, performance remains steady. Leasing activity remains robust at our grocery anchored centres, and our mixed-use retail assets consistently achieve high occupancy levels, maintaining above 95% as the complementary blend of residential, retail and office components creates a self-reinforcing ecosystem of demand, driving stability across economic cycles. Our balance sheet remains a key focus of the management team. For the quarter, net…

Thanks, Matt. I want to thank everyone for joining us today and for your continued interest in Armada Hoffler. We remain focused on executing our short-term strategy, delivering strong operational results and creating long-term value for our shareholders. As always, I want to thank our dedicated team for their hard work and commitment. We look forward to updating you on our progress in the quarters ahead. Thank you for joining us. Operator?

Thank you, Shawn. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] And your first question comes from Andrew Berger with Bank of America. Please go ahead.

Great. Good morning. Thank you for all the color in the opening remarks. Maybe just sticking with kind of high-level, Shawn, you touched on the macro a bit and appreciate the color and the cost savings. And it does sound like obviously it slowed the construction pipeline a little bit. But just curious, has the macro uncertainty, the tariff conversations, has that translated to any changes in your office or retail leasing conversations? Have tenants brought this up as a concern or maybe caused any delays? Or has it really kind of been more limited to on that construction side?

Andrew, thank you for the question and good morning. I think the latter is what we're seeing. As you can see, we've been very busy executing new and renewal leases. So I think the activity on the portfolio side has not seen that to-date. And frankly, we're seeing strength in that space. So I think that's good. Again, we can't control the macro environment, to your point, but new starts are probably going to be softer. And that's what we're seeing in the construction side. So thankfully for us, the value of the portfolio continues to shine as we're able to maintain the guidance here, even given some softness in the construction space.

Great. Thank you. And I think you touched on this a couple of times in the opening remarks, Matt. I know you mentioned it at the end, but you said you want to maintain some optionality to invest strategically over the course of the cycle as opportunities arise. And could we just get your latest thoughts, obviously, appreciate there might not be anything immediate term, but as we get a couple of years out, do you want to see more of these mixed use communities? How open are you to office, maybe versus the other asset classes, just your latest thoughts on the portfolio composition and whatnot?

Sure. I think in the short run, both disposition and acquisition are probably challenging, given the lack of recent trades and the uncertainty in the market. So I'm not sure we would feel comfortable going to market to either acquire or dispose in the short run. In the longer term, as you know, we are very equipped to operate and develop, if necessary, mixed use communities. And we believe these ecosystems continue to drive, frankly, drive value in markets such as this. And so, if we see an opportunity, we'll prepare to strike, but I don't see that happening this year, if you will, but we'll continue to keep our eyes peeled. We don't want to rule anything out, but I think, to answer your question, we are always looking for an opportunity to use our competency, and I would characterize one of our main competencies as operating and executing on these mixed use ecosystems. In terms of office, I think the jury, from a market's perspective, is still out. I will, quick commercial here, say our office is 97.5% occupied, frankly, and we're happy with that. I hope the market continues to become happier about our office product, and we'll continue to advertise that. But I don't think you're going to see us rush out to do an office. That being said, we are comfortable with the office that we do have, and it's primarily, as you know, located in a mixed use community, so back to the mixed use story and kind of our core competency.

Great. Thank you. And if I could just squeeze in one more kind of on that point with office, the leasing spreads have been pretty strong over the last couple of quarters. I think they've averaged over 20% the past four quarters. So I'm just curious, kind of a two-part question. One, what type of annual escalators are you baking into those leases? And obviously, not much rolling over the next year or two. I know you said you've addressed most of the major expirations and obviously not much space to lease over 97% occupied, but how sustainable would you say those spreads are, looking out over the next couple of years, just kind of based on in-place rents, escalators, and today's market rents, assuming no major changes?

Yes, I think to your point, we're pretty well set, I mean, knock on wood, right? Like, but in terms of the office leases that we have -- let me say it this way. We typically see 2% to 3% escalators every year, but we're getting term on these leases, 10-year term. And so I think that's what is providing the spread for you, but also this kind of comfort level of this long-term arrangement with credit tenants. So the demand plus -- the demand here allows us to, not just here in Town Center, but in our office product, allows us to achieve the 2% to 3% annual escalators, but also that longer term, which is creating that spread. So we feel good about that, we're happy with that, and again, we've primarily focused on taking the risk off the table in the office space. And I think it's hard to argue with the occupancy and the lack of rollover, if you will, in the short run, or the midterm for that matter.

Great. Thank you very much.

Thank you. Your next question comes from Viktor Fediv with Scotiabank. Please go ahead.

Well, good morning, everyone, and thank you for taking my question. I have a question on the kind of retailer's tenant watch list. I know you mentioned a couple of tenants that went bankrupt already, and you have already, if I'm not mistaken, 85% of allies or interest for these spaces, but just trying to understand what are the next potential problem tenants, and what is your exposure to those ones?

Sure. I think -- thank you for the question, Victor. I think, from my perspective, and Matt may have some more color on this if he'd like to add, but there are three names top of mind, and they are JOANN, Party, City, and Conn's. And as I said in the prepared remarks, 85% of that is currently -- we're at the table either lease or under LOI, at lease or under LOI with those at 20% to 25% higher rents. And I think, in my mind, that's a proxy for that type of space. There are people, I think, lining up may be strong, but there are people knocking on our door wanting to talk to us about that space, and frankly, I feel very good about the fact that 85% of it, our team has paper on, so that's exciting for us. Are there small mom and pop shops out there, 1,000, 2,000, 3,000 feet, sure, but I think, back to my comment previously to Andrew, I think we're in the process, if not already, of taking the major risk off the table. I mean, the renewal, for instance, in Nordstrom Rack, 32,000 feet, that was a big one for us. We kicked that out five years, and that's the type of thing we want to do. Like I said, are there smaller pieces out there? Yes, we're working on those. But I think we've mitigated, by and large, the big pieces of the portfolio that would be concerning on a short- to mid-term basis.

Got it. Thank you. And then, sticking with the risks, but probably switching to multifamily segment, in particular Baltimore submarket, do you see any impact from rest and Johns Hopkins cut in financing, and in particular, because you have new asset coming online there, is there any cannibalization in occupancy as well, so just trying to understand some color for that submarket and multifamily component?

Sure. To-date, we haven't seen, or at least we can't tell if there's an impact from the Johns Hopkins funding situation. I would say we have seen some of our residents interested in assigning leases next door at Allied which we think is a good thing. Occupancy seems to be holding, and the rate seems to be holding. And as we said to the market, we want to be very careful here that we don't cannibalize ourselves. But certainly, I think it's a testament to the quality of the product that's being offered up there, that our tenants are essentially, our residents are essentially moving from one high-quality asset, trophy asset, to a newer trophy-quality asset. And look, we've done a lot of calculus on this, and that's as far back as two years ago, I've been conveying to the market that we want to be very careful about the lease up. We do get questions about stabilization, and we've said, hey, look, this needs to be thinking 18 to 24 months such that we can maintain the market rents that we want to maintain to keep a healthy ecosystem there. So I think there's also the added benefit of T-Rowe employees and the added traffic in that area. There are a couple of thousand more employees there, and people are coming back to the office more than they were two years ago, so I think these are all, in my mind, drivers of increased demand over time relative to where we may have been 12 to 24 months ago.

Got it. Makes sense. Thank you.

Yes, sir.

Thank you. [Operator Instructions]. Your next question comes from Rob Stevenson with Janney. Please go ahead.

Good morning, guys. Shawn, to ask the tenant question a little bit differently. You have leases on, I guess, a little over 6% of the entire portfolio rolling over the remainder of '25 and about 12% of the retail portfolio in '26. Any tenants of impact that have either told you that they aren't renewing or look like that they may be iffy to renew, maybe not on a tenant watch list, but just because of whatever their changing needs are space-wise or location-wise that might not renew that might impact you guys looking forward?

Yes, I think let's start with -- thanks, Rob, for the question and good morning. Let's start with what I would say is the biggest rollover upcoming, it's in the retail space. It's in Office Depot in Durham, 28,000 square feet. We think they may not renew, and frankly, we have the backfill identified, and we're working on that as we speak. There's a Staples that we're in discussion with. We think they are going, by the way, that's 19,000 feet that all indications are they're going to renew. The other renewal in '25 is a Ruth's Chris store here in Virginia Beach. We've renewed that post-first quarter for 10 years, so that's in quarter two. You'll see that in the stats in quarter two. '26 , there's a Safeway for 55,000 feet. We renewed for five years. There's a Harris Teeter for 52,000 feet, the best performer in the market, so there's a high indication that they're going to renew. If not, I'm sure somebody will want to step into that, another high-end grocer step into that space. I think we'll see renewals. The most work, I think what I'm saying to you, Rob, needs to be done on that Office Depot and locking up that 28,000 feet with the backfill that we're talking to.

Is it likely, if it winds up coming back to you, is that likely to be a multi-tenant space or at 28,000 square feet? Where is that tenant pool deep enough to release that at this point?

We've got options that could do both. I think, from my perspective, if we can fill it with a high-quality tenant that's able to absorb that space, so be it, if not, we can arrange a situation like we've done at Bed Bath here in Virginia Beach and have a two- or three-tenant, but we're comfortable that there's not a lot of drag there. That deal expires on the 31st of this year, so expect to have us having some more tangible conversation with you in the quarters to come.

Okay. And then back to your earlier comments about the disposition market being, I guess, a bit frozen to paraphrase you. If one of the options comes up to purchase one of the apartments out of the Mez portfolio, if the disposition market doesn't allow you, I assume that, given the cost of common, you probably wouldn't issue equity here, are you guys comfortable with temporary leveraging up using the line of credit to close a deal to get a high-quality apartment property in the mix? Do you push that out if that's the option? How are you guys thinking about that at this point in time?

Yes, I think to your point, we don't want to take anything off the table, Rob, right? But if there were something attractive enough for us to look at, we would want to, to your point, kick the can on it and see if we can't keep a line of sight on it for long enough to get maybe some better capital availability or arrangement in place. My comment about disposition, please don't make a mistake. I have people calling all the time about wanting to buy assets. My view on this is, let the market settle down a little bit so that we can really understand what comps are. I'm not sure there are great comps out there right now. Back to the acquisition side, I mean that's certainly a source of capital. If we saw something we wanted, we can trade quickly and purchase it, assuming that it's fitting within our core strategy and that the sponsor developer is willing to sell it to us at a price that works. So I think, yes, a lot of algebra there, but to answer your question, we're not wild about obviously selling common at the price as we said today, and obviously, we're sensitive to leverage. I think there's a little bit of a dance there. Matt, you want to add anything to that from the balance sheet standpoint?

Just as a great question, Rob, just to say that we have spent a lot of time over the last year or so trying to be very disciplined and we're working very hard to get the leverage in a range that the investors, the shareholders are more comfortable with. So as Shawn said, there'd be some puts and takes on the algebra there and the calculation, but we've committed to the market that we're going to be disciplined capital allocators and we would have to look at that holistically with respect to where our cost of capital and where the cost of debt is today.

Okay. And is T-Rowe now paying full rent or is there still ramp up left in that lease to get full rent for them?

Yes. So T-Rowe started paying rent or they have been paying rent back since August. The rent commencement date and the move in was March 7th. Obviously, as the project closes out, there will be a true up here in the last little bits as the contractor finishes and finalizes that.

But you're recognizing rent as of March 7th?

Yes, we're recognizing rent, not prepaid, recognizing true rent as of March 7th.

Okay. So the second quarter should be a full, represent a full quarter of GAAP rent for T-Rowe?

Yes. And Rob, you will see that for us come in as a FFO contribution. It's an off balance sheet JV. So our 50% comes back as an FFO contribution after debt service has been taken at the property level.

Okay. And then last one for me, there's five redevelopment projects listed in the supplemental totaling a little over $19 million. Have all of those projects started and are they already sort of either in the $80 million construction backlog or flowed through previous numbers? Just trying to get a feel for whether or not some of those haven't started and will hit the backlog at some point or whether or not that's basically already accounted for in the backlog, either past or present?

Got it. Thank you. I think probably the best way to run through these five, they're relatively small, Rob, to your point. So it's not going to be a tremendous kind of bubble in the backlog. Liberty Apartments is nearly complete. You're probably looking at a Q3 kind of lease up. I think actually we've already signed paper for residents on those two, on those apartments. So that's an awesome, kind of small but awesome uplift story there. Columbus Village should be in the numbers. It's in progress, as you know. We're looking at Q4 for the retailers. Potentially the grocer will slide into Q1 of next year. Let's see, Southgate Square still working on that deal, so that's not in a number yet. Consolidation of company operations, that's kind of an internal move here. You haven't seen that yet, and then Brook Square, still talking to the kind of site work early planning folks on that one. But to be clear, these would not be in backlog because they're internal development projects, right? So you're not going to see that in the third party backlog. Some of that may show up in our kind of broader backlog or broader work scope, but they won't be in the third party backlog, as you know. We won't be able to recognize field notes.

Okay. Thanks, guys. Appreciate the time.

Yes. Thank you, Rob.

Thank you. There are no further questions at this time. I would like to turn the call back over to Shawn Tibbetts for closing remarks.

Thank you all for joining this morning. We appreciate your attention, appreciate all the questions. Just to our team who's listening out there, our partners, our investors, we appreciate your confidence in us. We look forward to continuing to improving the quality of this story and this great company. And I look forward to talking to you on the road in the next quarter, and again, appreciate your support. I hope you have a nice weekend. Take care.

Ladies and gentlemen, this concludes today's conference call and webcast. Thank you so much for your participation. You may now disconnect.