GlobeNewswire Inc | Nov 5, 2020 06:00AM EST

November 05, 2020

Net Income of $0.11 Per Diluted Share

Normalized FFO of $0.24 Per Diluted Share

Updated 2020 Full-Year Normalized FFO Guidance

VIRGINIA BEACH, Va., Nov. 05, 2020 (GLOBE NEWSWIRE) -- Armada Hoffler Properties,Inc. (NYSE: AHH) today announced its results for the quarter ended September30, 2020 and provided an update on current events and the impact of COVID-19.

Third Quarter and Recent Highlights:

-- Net income attributable to common stockholders and OP Unit holders of $8.7 million, or $0.11 per diluted share, compared to $9.9 million, or $0.13 per diluted share, for the three months ended September30, 2019.

-- Funds from operations attributable to common stockholders and OP Unit holders ("FFO") of $19.2 million, or $0.24 per diluted share, compared to $21.7 million, or $0.29 per diluted share, for the three months ended September30, 2019. See "Non-GAAP Financial Measures."

-- Normalized funds from operations attributable to common stockholders and OP Unit holders ("Normalized FFO") of $19.0 million, or $0.24 per diluted share, compared to $22.5 million, or $0.30 per diluted share, for the three months ended September30, 2019.

-- Recaptured two prime redevelopment sites - 3 acres in the Town Center of Virginia Beach and nearly 10 acres adjacent to James Madison University in Harrisonburg, Virginia - after terminating leases with Regal Cinemas upon tenant default. Excluding one-time charges of $1.1 million associated with these early terminations, Normalized FFO for the third quarter would have been $0.26 per diluted share.

-- Updated 2020 full-year Normalized FFO guidance to $1.10 to $1.12 per diluted share from $1.09 to $1.13 per diluted share.

-- Core operating property portfolio occupancy at 95.4% as ofSeptember30, 2020compared to 93.6% as of June 30, 2020. The Company'sSeptember 30, 2020occupancy includes office at 96.7%, retail at 94.2%, and multifamily at 95.9%.

-- Positive releasing spreads on lease renewals during the third quarter of 3.6% on a GAAP basis and 5.1% on a cash basis.

-- Collected 96% of portfolio rents for the third quarter, including 100% of office tenant rents, 98% of multifamily tenant rents, and 93% of retail tenant rents. Refer to pages 27-28 of the Supplemental Financial Package for further details.

-- Collected 96% of October portfolio rents, including 100% of office tenant rents, 97% of multifamily tenant rents, and 94% of retail tenant rents.

-- Announced a new development project, Solis Gainesville, a $52 million 223-unit multifamily project in downtown Gainesville, Georgia.

-- Ended the third quarter with $122.7 million of third-party construction backlog.

-- Acquired Nexton Square, a 118,000 square foot open air lifestyle center in Summerville, South Carolina in an off-market transaction.

-- Acquired partner's 20% ownership interest of the Southern Post project in Roswell, Georgia resulting in 100% ownership of the partnership.

-- Raised $86.3 million of net proceeds before offering expenses through an underwritten public offering of 3,600,000 shares of 6.75% Series A Cumulative Redeemable Perpetual Preferred Stock at a public offering price of $24.75 per share.

-- Completed the acquisition of the Edison Apartments in downtown Richmond, Virginia in an off-market, OP Unit transaction.

-- Completed the off-market acquisition of The Residences at Annapolis Junction, a 416-unit, Class A, LEED Gold certified mid-rise apartment community in Howard County, Maryland.

Despite the uncertainty over the last several months, the strength of both our Company and our tenants are demonstrated by portfolio collection rates exceeding 96%, said Louis Haddad, President & CEO. In addition to our sustained level of high rent collections, were pleased with the steps weve taken towards repositioning the Company for long-term value creation and growth. This management team has guided our Company through the previous four economic recessions. Each time, we emerged stronger than before. If history is any indication, we'll successfully navigate the current downturn and emerge as one of the country's strongest small cap REITs.

Financial Results

Net income attributable to common stockholders and OP Unit holders for the third quarter decreased to $8.7 million compared to $9.9 million for the third quarter of 2019. The period-over-period change was primarily due to decreased operating income from the property portfolio as a result of the disposition of operating properties and an increase in the allowance for bad debt (recorded as an adjustment to rental revenues) in the retail portfolio as a result of the COVID-19 pandemic. Additionally, the gain on real estate dispositions for the third quarter of 2020 decreased as compared to the third quarter of 2019. These decreases were partially offset by property acquisitions and the completion of development projects.

Normalized FFO attributable to common stockholders and OP Unit holders for the third quarter decreased to $19.0 million compared to $22.5 million for the third quarter of 2019. FFO attributable to common stockholders and OP Unit holders for the third quarter decreased to $19.2 million compared to $21.7 million for the third quarter of 2019. The period-over-period changes in Normalized FFO and FFO were negatively impacted by property dispositions and an increase in the allowance for bad debt (recorded as an adjustment to rental revenues) in the retail portfolio as a result of the COVID-19 pandemic. These increases in Normalized FFO and FFO were partially offset by property acquisitions and completion of development projects

Operating Performance

At the end of the third quarter, the Companys office, retail and multifamily core operating property portfolios were 96.7%, 94.2% and 95.9% occupied, respectively.

Total construction contract backlog was $122.7 million at the end of the third quarter.

Balance Sheet and Financing Activity

As of September30, 2020, the Company had $885.4 million of total debt outstanding, including $205.0 million outstanding under its senior unsecured term loan facility. The Company had no balance outstanding under its revolving credit facility as of September 30, 2020. The borrowing capacity under the revolving credit facility was $125.0 million as of September 30, 2020. Total debt outstanding excludes unamortized GAAP fair value adjustments and deferred financing costs. Approximately 63% of the Companys debt had fixed interest rates or was subject to interest rate swaps as of September30, 2020. After giving effect to LIBOR interest rate caps with strike prices at or below 275 basis points as of September30, 2020, 100% of the Companys debt was either fixed or hedged.

The Company has no loans scheduled to mature during the remainder of 2020, and $163.0 million of loans scheduled to mature in 2021.

The Company is currently in compliance with all debt covenants.

Outlook

The Company issued updated 2020 full-year Normalized FFO guidance in the range to $1.10 to $1.12 per diluted share. The following table updates the Company's assumptions underpinning this forecast. The Company's executive management will provide further details regarding its 2020 earnings guidance during today's webcast and conference call.

Full-year 2020 Guidance ^[1] Expected RangesTotal NOI $108.2M $109.6MConstruction Segment Gross Profit $7.4M $7.8MG&A Expenses $12.7M $13.3MMezzanine Interest Income $19.8M $20.2MInterest Expense $30.0M $30.5MNormalized FFO per diluted share ^[2] $1.10 $1.12

[1] Includes the following assumptions:

-- Disposition of two unencumbered assets for $8M in cash proceeds at the end of the fourth quarter -- Acquisition of Annapolis Junction and Edison Apartments in the fourth quarter -- An additional $0.5M of potential bad debt write offs for the remainder of 2020 -- Interest expense is calculated based on Forward LIBOR Curve, which forecasts rates ending the year at 0.16%

[2] Normalized FFO excludes certain items, including debt extinguishment losses, acquisition, development and other pursuit costs, mark-to-market adjustments for interest rate derivatives, provision for unrealized credit losses, amortization of right-of-use assets attributable to finance leases, severance related costs, and other non-comparable items. See "Non-GAAP Financial Measures." The Company does not provide a reconciliation for its guidance range of Normalized FFO per diluted share to net income per diluted share, the most directly comparable forward-looking GAAP financial measure, because it is unable to provide a meaningful or accurate estimate of reconciling items and the information is not available without unreasonable effort as a result of the inherent difficulty of forecasting the timing and/or amounts of various items that would impact net income per diluted share. For the same reasons, the Company is unable to address the probable significance of the unavailable information and believes that providing a reconciliation for its guidance range of Normalized FFO per diluted share would imply a degree of precision for its forward-looking net income per diluted share that could be misleading to investors.

Supplemental Financial Information

Further details regarding operating results, properties and leasing statistics can be found in the Companys supplemental financial package available at www.ArmadaHoffler.com.

Webcast and Conference Call

The Company will host a webcast and conference call on Thursday, November5, 2020 at 8:30 a.m.Eastern Time to review financial results and discuss recent events. The live webcast will be available through the Investors pageof the Companys website, www.ArmadaHoffler.com. To participate in the call, please dial 877-407-3982 (domestic) or 201-493-6780 (international).A replay of the conference call will be available through Saturday, December5, 2020 by dialing 844-512-2921 (domestic) or 412-317-6671 (international) and entering the passcode 13711003.

About Armada Hoffler Properties,Inc.

Armada Hoffler Properties, Inc. (NYSE: AHH) is a vertically-integrated, self-managed real estate investment trust ("REIT") with four decades of experience developing, building, acquiring, and managing high-quality, institutional-grade office, retail, and multifamily properties located primarily in the Mid-Atlantic and Southeastern United States. In addition to developing and building properties for its own account, the Company also provides development and general contracting construction services to third-party clients. Founded in 1979 by Daniel A. Hoffler, the Company has elected to be taxed as a REIT for U.S. federal income tax purposes.

Forward-Looking Statements

Certain matters within this press release are discussed using forward-looking language as specified in the Private Securities Litigation Reform Act of 1995, and, as such, may involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance to differ from those projected in the forward-looking statement. These forward-looking statements may include comments relating to the current and future performance of the Companys operating property portfolio, the Companys development pipeline, the Companys construction and development business, including backlog and timing of deliveries and estimated costs, financing activities, and the Companys financial outlook and expectations. For a description of factors that may cause the Companys actual results or performance to differ from its forward-looking statements, please review the information under the heading Risk Factors included in the Companys Annual Report on Form 10-K for the year ended December 31, 2019, the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, and the other documents filed by the Company with the Securities and Exchange Commission (the SEC) from time to time, including the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020. The Companys actual future results and trends may differ materially from expectations depending on a variety of factors discussed in the Companys filings with the the SEC. These factors include, without limitation: (a) the impact of the coronavirus (COVID-19) pandemic on macroeconomic conditions and economic conditions in the markets in which the Company operates, including, among others: (i) disruptions in, or a lack of access to, the capital markets or disruptions in the Companys ability to borrow amounts subject to existing construction loan commitments; (ii) adverse impacts to the Companys tenants and other third parties businesses and financial condition that adversely affect the ability and willingness of the Companys tenants and other third parties to satisfy their rent and other obligations to the Company, including deferred rent; (iii) the ability and willingness of the Companys tenants to renew their leases with the Company upon expiration of the leases or to re-lease the Companys properties on the same or better terms in the event of nonrenewal or early termination of existing leases; and (iv) federal, state and local government initiatives to mitigate the impact of the COVID-19 pandemic, including additional restrictions on business activities, shelter-in place orders and other restrictions, and the timing and amount of economic stimulus or other initiatives; (b) the Companys ability to continue construction on development and construction projects, in each case on the timeframes and on terms currently anticipated; (c) the Companys ability to accurately assess and predict the impact of the COVID-19 pandemic on its results of operations, financial condition, dividend policy, acquisition and disposition activities and growth opportunities; and (d) the Companys ability to maintain compliance with the covenants under its existing debt agreements or to obtain modifications to such covenants from the applicable lenders. The Company expressly disclaims any responsibility to update forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Non-GAAP Financial Measures

The Company calculates FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts ("Nareit"). Nareit defines FFO as net income (loss) (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains or losses from the sale of certain real estate assets, gains and losses from change in control, and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity.

FFO is a supplemental non-GAAP financial measure. The Company uses FFO as a supplemental performance measure because it believes that FFO is beneficial to investors as a starting point in measuring the Companys operational performance. Specifically, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, which do not relate to or are not indicative of operating performance, FFO provides a performance measure that, when compared period-over-period, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare the Companys operating performance with that of other REITs.

However, because FFO excludes depreciation and amortization and captures neither the changes in the value of the Companys properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of the Companys properties, all of which have real economic effects and could materially impact the Companys results from operations, the utility of FFO as a measure of the Companys performance is limited. In addition, other equity REITs may not calculate FFO in accordance with the Nareit definition as the Company does, and, accordingly, the Companys FFO may not be comparable to such other REITs FFO. Accordingly, FFO should be considered only as a supplement to net income as a measure of the Companys performance.

Management also believes that the computation of FFO in accordance with Nareits definition includes certain items that are not indicative of the results provided by the Companys operating property portfolio and affect the comparability of the Companys period-over-period performance. Accordingly, management believes that Normalized FFO is a more useful performance measure that excludes certain items, including but not limited to, acquisition, development and other pursuit costs, gains or losses from the early extinguishment of debt, impairment of intangible assets and liabilities, mark-to-market adjustments for interest rate derivatives, provision for unrealized credit losses, amortization of right-of-use assets attributable to finance leases, severance related costs, and other non-comparable items.

For reference, as an aid in understanding the Companys computation of FFO and Normalized FFO, a reconciliation of net income calculated in accordance with GAAP to FFO and Normalized FFO has been included in the final pageof this release.

ARMADA HOFFLER PROPERTIES,INC. CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands)

September30, December31, 2020 2019 (Unaudited) ASSETS Real estate investments: Income producing property $ 1,531,910 $ 1,460,723 Held for development 13,607 5,000 Construction in progress 60,810 140,601 1,606,327 1,606,324 Accumulated depreciation (241,859 ) (224,738 )Net real estate investments 1,364,468 1,381,586 Real estate investments held for sale ? 1,460 Cash and cash equivalents 73,579 39,232 Restricted cash 5,645 4,347 Accounts receivable, net 26,465 23,470 Notes receivable, net 168,716 159,371 Construction receivables, including retentions, 43,324 36,361 netConstruction contract costs and estimated 215 249 earnings in excess of billings, netOperating lease right-of-use assets 32,818 33,088 Finance lease right-of-use assets 23,691 24,130 Acquired lease intangible assets, net 57,958 68,702 Other assets 44,393 32,901 Total Assets $ 1,841,272 $ 1,804,897 LIABILITIES AND EQUITY Indebtedness, net $ 886,509 $ 950,537 Accounts payable and accrued liabilities 20,667 17,803 Construction payables, including retentions 55,825 53,382 Billings in excess of construction contract 7,085 5,306 costs and estimated earningsOperating lease liabilities 41,589 41,474 Finance lease liabilities 17,941 17,903 Other liabilities 60,219 63,045 Total Liabilities 1,089,835 1,149,450 Total Equity 751,437 655,447 Total Liabilities and Equity $ 1,841,272 $ 1,804,897

ARMADA HOFFLER PROPERTIES,INC. CONDENSED CONSOLIDATED INCOME STATEMENTS (in thousands, except per share amounts)

Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (Unaudited)Revenues Rental revenues $ 39,636 $ 42,220 $ 121,840 $ 109,507 General contracting andreal estate services 58,617 27,638 163,283 66,118 revenuesTotal revenues 98,253 69,858 285,123 175,625 Expenses Rental expenses 10,223 9,873 27,907 24,513 Real estate taxes 4,760 4,180 13,326 10,759 General contracting andreal estate services 56,509 26,446 157,401 62,855 expensesDepreciation and 14,176 15,465 42,232 38,874 amortizationAmortization ofright-of-use assets - 147 145 440 230 finance leasesGeneral and 2,601 2,977 9,382 9,329 administrative expensesAcquisition, development 26 93 555 550 and other pursuit costsImpairment charges 47 ? 205 ? Total expenses 88,489 59,179 251,448 147,110 Gain on real estate 3,612 4,699 6,388 4,699 dispositionsOperating income 13,376 15,378 40,063 33,214 Interest income 4,417 5,710 16,055 16,622 Interest expense on (7,294 ) (8,828 ) (22,252 ) (22,205 )indebtednessInterest expense on (229 ) (228 ) (686 ) (340 )finance leasesEquity in income ofunconsolidated real ? ? ? 273 estate entitiesChange in fair value of 318 (530 ) (1,424 ) (3,926 )derivatives and otherUnrealized credit loss 33 ? (227 ) ? release (provision)Other income (expense), 177 362 521 426 netIncome before taxes 10,798 11,864 32,050 24,064 Income tax benefit 28 199 220 339 Net income 10,826 12,063 32,270 24,403 Net loss attributable tononcontrolling interests 45 (960 ) 181 (640 )in investment entitiesPreferred stock dividends (2,220 ) (1,234 ) (4,462 ) (1,388 )Net income attributableto common stockholders $ 8,651 $ 9,869 $ 27,989 $ 22,375 and OP Unit holders

ARMADA HOFFLER PROPERTIES,INC. RECONCILIATION OF NET INCOME TO FFO& NORMALIZED FFO (in thousands, except per share amounts)

Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (Unaudited)Net income attributable tocommon stockholders and OP $ 8,651 $ 9,869 $ 27,989 $ 22,375 Unit holdersDepreciation and 14,131 15,057 41,867 38,331 amortization^(1)Gain on operating real (3,612 ) (3,220 ) (6,388 ) (3,220 )estate dispositions^(2)FFO attributable to commonstockholders and OP Unit $ 19,170 $ 21,706 $ 63,468 $ 57,486 holdersAcquisition, development 26 93 555 550 and other pursuit costsImpairment of intangible 47 ? 205 ? assets and liabilitiesUnrealized credit loss (33 ) ? 227 ? provision (release)Amortization ofright-of-use assets - 147 145 440 230 finance leasesChange in fair value of (318 ) 530 1,424 3,926 derivatives and otherNormalized FFO available tocommon stockholders and OP $ 19,039 $ 22,474 $ 66,319 $ 62,192 Unit holdersNet income attributable tocommon stockholders and OP $ 0.11 $ 0.13 $ 0.36 $ 0.31 Unit holders per dilutedshare and unitFFO attributable to commonstockholders and OP Unit $ 0.24 $ 0.29 $ 0.81 $ 0.81 holders per diluted shareand unitNormalized FFO attributableto common stockholders and $ 0.24 $ 0.30 $ 0.85 $ 0.87 OP Unit holders per dilutedshare and unitWeighted average common 78,443 74,543 78,020 71,256 shares and units - diluted

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(1) The adjustment for depreciation and amortization for the three months endedSeptember 30, 2020 and 2019 excludes $0.1 million and $0.4 million,respectively, of depreciation attributable to the Company's joint venturepartners. The adjustment for depreciation and amortization for the nine monthsended September 30, 2020 and 2019 excludes $0.4 million and $0.8 million,respectively, of depreciation attributable to the Company's joint venturepartners. The adjustment for depreciation and amortization for the nine monthsended September 30, 2019 includes $0.2 million of depreciation attributable tothe Company's investment in One City Center from January 1, 2019 to March 14,2019, which was an unconsolidated real estate investment during this period.(2) The adjustment for gain on operating real estate dispositions for the threeand nine months ended September 30, 2019 excludes the portion of the gain onLightfoot Marketplace that was allocated to our joint venture partner andexcludes the gain on sale of a non-operating land parcel.

Contact:

Michael P. OHara Armada Hoffler Properties,Inc. Chief Financial Officer, Treasurer, and Secretary Email: MOHara@ArmadaHoffler.com Phone: (757) 366-6684