Armada Hoffler Properties Stock: Price of 6.2%-Yielder Up 27% Since November
January 19, 2024
AHH Stock Bullish on Financial Results & Dovish Fed
After rebounding from the 2020 COVID-19 crisis, many real estate investment trusts (REITs) took a hit at the beginning of 2022, when the Federal Reserve said it was going to start raising interest rates.
The Fed subsequently raised its key lending rate 11 times between March 2022 and July 2023, from near-zero to the range of 5.25% to 5.5%.
That was bad for REITs because higher rates make it more expensive for them to borrow capital and carry loans. It has a direct impact on their operating margins and bottom-line profitability.
But ever since November 2023, when the Fed hinted that the current interest rate hike cycle might be over, most REITs have been on a tear. Armada Hoffler Properties Inc (NYSE:AHH) is no exception.
Two things have probably been helping juice Armada Hoffler Properties stock lately: the Fed’s announcement on November 1 about interest rates and Armada Hoffler Properties’ announcement on November 2 about fabulous third-quarter results.
As of this writing, AHH stock has rallied by an impressive 27% since the start of November 2023. On December 15, it rallied to a high of $12.91 per share, for a six-week gain of 32.6%.
A little profit-taking is more than well-deserved for long-suffering Armada Hoffler Properties stockholders.
Chart courtesy of StockCharts.com
Fortunately, the outlooks for Armada Hoffler Properties Inc’s business and stock are solid, with interest rates expected to start declining in the coming quarters. A soft economic landing should also help with investor optimism.
Not that Armada Hoffler Properties needs those tailwinds in order to succeed. Management said in its 2023 third-quarter earnings report that the company’s “vertically integrated business model continues to prove advantageous in most any economic climate.” (Source: “Armada Hoffler Reports Third Quarter 2023 Results,” Armada Hoffler Properties Inc, November 2, 2023.)
The company also said that, despite high interest rates, its “best-in-market properties yielded impressive results for yet another quarter.”
About Armada Hoffler Properties Inc
Armada Hoffler Properties is a self-managed REIT that develops, builds, acquires, and manages multifamily residences, offices, retail properties, and mixed-use industrial properties. (Source: “Investor Presentation: November 2023,” Armada Hoffler Properties Inc, last accessed January 11, 2024.)
Its core properties are primarily located in states along the East Coast: Florida, Georgia, Indiana, Maryland, North Carolina, South Carolina, Tennessee, Virginia, and Washington, D.C.
Some of the company’s properties involve public-private partnerships.
Its nationally recognized top tenants include Costco Wholesale Corporation (NASDAQ:COST), Duke University, Home Depot Inc (NYSE:HD), Morgan Stanley (NYSE:MS), PetSmart, LLC., and Whole Foods Market IP, Inc.
Armada Hoffler Properties Inc’s real estate portfolio is always in flux.
For instance, in July 2022, the company completed its $150.0-million sale of The Residence at Annapolis Junction, a 416-unit suburban midrise apartment community in Howard County, Maryland. In October 2022, it opened Chronicle Mill in Belmont, North Carolina to residents. The seven-acre site includes 238 apartments, 9,000 square feet of commercial space, and a public coworking space.
Management Reported “Impressive” Q3 Results
For the third quarter ended September 30, Armada Hoffler Properties reported net income of $2.3 million, or $0.06 per share, compared to $33.9 million, or $0.38 per share, in the same prior-year period. (Source: Armada Hoffler Properties Inc, November 2, 2023, op. cit.)
The company’s funds from operations (FFO) came in at $27.6 million, or $0.31 per share, up by 21.5% from $22.7 million, or $0.26 per diluted share, in the third quarter of 2022.
Its normalized funds from operations (NFFO) in the third quarter of 2023 were $27.7 million, or $0.31 per share, up from $25.8 million, or $0.29 per share, in the same prior-year period.
Its third-quarter construction gross profit was $3.3 million.
As of September 30, 2023, Armada Hoffler Properties Inc maintained a 97% weighted average occupancy of its properties. Its retail occupancy was 98%, office occupancy was 96%, and multifamily residence occupancy was 96%.
At the end of the third quarter, the company’s third-party construction backlog was $513.6 million.
For full-year 2023, the company maintained its previous NFFO guidance range of $1.23 to $1.27 per share. For 2022, Armada Hoffler reported NFFO of $1.22 per share.
Commenting on the results, Louis Haddad, Armada Hoffler Properties Inc’s president and CEO, said, “Our vertically integrated business model continues to prove advantageous in most any economic climate and our best-in-market properties yielded impressive results for yet another quarter.” (Source: Ibid.)
He continued, “Our ability to execute among several lines of business gives us an ability to preserve earnings growth while making the right real estate decisions for the long-term. We fully intend to continue adding to earnings and dividends in 2024 as we anticipate the market will eventually recognize superior out-performance in the commercial real estate sector.”
Fourth-Quarter Dividend of $0.195 Per Share
Armada Hoffler Properties Inc has a pretty strong history of raising its quarterly dividends. Between 2014 and 2020, the company raised its quarterly dividend six times, from $0.16 per share to $0.22 per share. (Source: “AHH Dividend History,” Nasdaq, last accessed January 11, 2024.)
Not everything keeps going up, though. Armada Hoffler suspended its dividend in the second quarter of 2020 and reinstated it in the third quarter of that year, but at a reduced level of $0.11 per share. On the plus side, AHH stock’s payout has been going up steadily since then (five times), from $0.15 to $0.195 per share.
On December 14, 2023, Armada Hoffler Properties Inc’s board declared a cash dividend of $0.195 per share, for a yield of 6.22% (as of this writing).
There’s certainly room for Armada Hoffler Properties stock’s dividends to grow. In 2019, Armada Hoffler paid out $0.84 per share. Its annualized dividend still needs to climb by 7.6% to get to that pre-pandemic level.
Although AHH stock has performed well since bottoming in May 2020—rising by 136% since then and approximately 16% year-over-year—it needs to climb by 25% to return to its January 2020 record high of $15.60 per share.
The Lowdown on Armada Hoffler Properties Stock
Armada Hoffler Properties Inc is a REIT with tremendous upside potential.
It has a diverse portfolio of high-end properties, and it recently reported terrific financial results.
Moreover, the company estimates that its NFFO in 2023 surpassed their pre-pandemic levels for the second consecutive year. As mentioned earlier, the company reported NFFO of $1.17 per share for 2019 and $1.22 per share for 2022.
