Armada Hoffler Properties, Inc.

At this time, all participants are in a listen-only mode. After management's prepared remarks, you'll be invited to participate in a question-and-answer session. At that time, if you would have a question, please press star 1 on your telephone. As a reminder, this conference call is being recorded today, Thursday, April 30, 2020. I will now turn the conference over to Michael O'Hara, Chief Financial Officer at Armada Hoffler. Please go ahead.

Good morning, and thank you for joining Amada Hoffler's first quarter 2020 earnings conference call and webcast. On the call this morning, in addition to myself, is Lou Haddad, CEO. The press release announcing our first quarter earnings, along with our quarterly supplemental package and our 2020 COVID-19 presentation were distributed this morning. A replay of this call will be available shortly after the conclusion of the call through May 30th, 2020. 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 remarks made herein are, as of today, April 30, 2020, and will not be updated subsequent to this initial earnings call. During this call, we will make four looking statements, including statements related to the future performance of our portfolio, our development pipeline, impacts of acquisition and dispositions, a mezzanine program, our construction business, equity position, our portfolio performance, and financing activities, as well as comments on our outlook. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond our control, particularly in the light of the adverse impacts of the COVID-19 pandemic on U.S. and global economies. The risks and uncertainties can cause actual results to differ materially from our current expectations, and we advise listeners to review the forward-looking statement disclosed in our press release this morning and the risk factors disclosed in documents we have filed with or furnished the SEC. We'll also discuss certain non-GAAP financial measures, including but not limited to FFO and normalized FFOs. 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, amadahoffler.com. We will start the call today by discussing our COVID-19 update. At this time, I'd like to draw your attention to our COVID-19 presentation that we published this morning.

Now I'll turn the call over to Lou. Thanks, Mike. Good morning, everyone, and thank you for joining us today. As we all continue to fight the pandemic in our own ways, we express our gratitude to all those who are battling for us on the front lines and pray for those who have been affected by COVID-19. As you saw from our earnings release this morning, the first quarter was another strong period of performance of the company. Normally, this call would feature much attention on such impressive results, but as we all know, the situation at hand is far from normal. My primary focus today will be on the current status of our business and the steps we are taking to mitigate the near-term effects of this disruption on our company. As the company's largest equity holder, the decision to suspend the common dividend was not taken lightly and affects the board and management as a group more than any other shareholder. Our board made that decision, as well as the adoption of substantial cuts in board compensation and acceptance of my voluntary reduction in salary, despite the fact that the company remains cash flow positive for the foreseeable future, even at the current reduced level of rent collection. We view these conservative moves as, first, a reaction to the uncertainty over the actual level of rent collection over the next few months, but much more importantly, as an investment in the long-term value of our company We want to be in the strongest position possible to take advantage of the many opportunities that are almost certain to arise once conditions improve. This is consistent with the formula that we have successfully employed over the last four recessions. Simply put, pay your bills, work with your tenants, conserve your cash, and be ready to outpace your peers in the subsequent recovery. What a difference a quarter makes. Three months ago, on our last earnings call, we were on the cusp of achieving one of our long-term goals, financial metrics consistent with supporting a share price in excess of $20. And we were well on our way to a second billion dollars of equity market cap. Although we couldn't have foreseen the subsequent disruption caused by the pandemic, I can tell you that we have not changed either of those goals and we look forward to their attainment in the not-too-distant future. Management firmly believes the current share price does not come close to representing the value of our diversified, high-quality portfolio in our construction and development businesses. This is why you have seen me, our chairman, and our lead independent director adding to our already substantial positions in late March. Over the next several quarters, we believe that investors will recognize the demonstrable strength of our diversified model the quality of our portfolio, the value of our construction and development platforms, and the determination of our management team. We expect they will reward the company in much the same way as they have in previous years. As most of you know, through 2019, we more than tripled the returns of the REIT index over the preceding five years, and we intend to rival that performance over the next five. To recount a little bit of our corporate history, After the recession caused by 9-11, we emerged as one of the strongest commercial real estate concerns in Virginia. Following the Great Recession of 2008, we emerged as one of the strongest commercial real estate firms in the Southeast. We feel strongly that once the current downturn is behind us and we once again demonstrate our abilities, we will be recognized as one of the country's strongest small-cap REITs. In all, this will be the fifth severe economic disruption that our leadership team will navigate, and I expect the same long-term positive results that we produced in the first four. Here at the company, the team has continued to function well over the last two months, despite working remotely and under unprecedented conditions. We've made significant investments in our IT systems over the last few years, which is paying off handsomely in this extreme environment. and our tech staff has seamlessly integrated the new technology into all operating groups. All divisions are running smoothly, and the professionalism of our team is on full display. Each and every employee of the Amada Hoffler team is fully engaged, and many have worked tirelessly to produce this interim update. My sincere thanks to all of our staff, and I look forward to seeing you all as soon as possible. Turning to the April update deck that we published this morning. I'll walk you through the various components of our business and the current status. Let's begin with slide three, which illustrates the strategy we've employed across all our divisions to help ensure the health and safety of our team members, clients, tenants, and subcontractors, as well as our posture with respect to rent collection and deferments. What we've learned through the last four recessions is that how you conduct yourselves during a crisis has a lot to do with how quickly and robustly you come out of it. We intend to make the best long-term decisions for our staff and the company while maintaining the integrity and compassion we are known for. Page 4 offers a snapshot of our construction business. This substantial income generator is uniquely ours across the REIT universe. You'll recall that we entered the year with one of our largest third-party contract backlogs ever. As you can see, we ended the quarter with $236 million in remaining contract values. a total that will take us well into 2021. In addition to adhering to all local guidelines, we have initiated protocols for temperature testing, protective procedures, and safety gear as construction proceeds uninterrupted. Our construction group has maintained this high rate of production and profitability despite the difficult conditions. This performance is no different than what we have come to expect from these professionals, and we greatly appreciate their dedication to the company. Assuming no change in government guidelines, we expect this division to contribute $7 to $8 million of gross profit, which is in line with our previously disclosed estimates. Turning to page five, we've outlined the status of our rental income collectively and across all asset types. As you can see, we're ending April with nearly 80% of our expected portfolio-wide rents collected. This level of cash flow, while obviously not ideal, is more than adequate to sustain the company over the medium term. We offer these facts as further testament to the strength of our diversified platform. Mike will give you more specifics on our financial status a little later in the call. Let's look at the sectors individually, starting with multifamily on page six. As you can see, these assets are performing at a very high level despite the economic circumstances. April rent collections topped 97% and the remaining tenants who have asked for rent relief due to loss of employment are being placed on reasonable payment plans. Turning to page 7, you'll see that the office sector also had strong rent collections through April, with only a few tenants requesting rent deferments, while all of our top 10 office tenants remain operating and current on their obligations to us. We expect this component of our NOI to remain fairly consistent with our previous expectations, assuming offices reopen in the reasonably near future. Several of you have inquired about our exposure to WeWork. We believe that there are some misconceptions in the marketplace about this topic, and we wish to clarify the facts. To be clear, we have one active lease with WeWork. They occupy 60,000 square feet at our city center asset in Durham, North Carolina. We expect them to stay current on their lease commitment, or we will use the remedies available to us under the lease, including invoking their corporate guarantee. This lease constitutes 1.6% of our annual base rent. That said, there are two additional pre-commencement leases with WeWork, one at Will's Wharf at the Inner Harbor in Baltimore, and another with our partners S.J. Collins at the Interlock in Atlanta, for which we are a mezzanine lender. As neither we nor Collins have expended any tenant improvement funds in either space, and occupancy is several months to a year away, we opened discussions with WeWork early this year to reduce or eliminate their leases in these two locations in order to limit our exposure to this tenant. WeWork is also interested in reducing their exposure to us. as all three of these locations carry a multi-year guarantee from the corporate entity. We expect to announce the results of these discussions within the current quarter. We are very confident in the leaseability of any additional space that we may retain as a result of these negotiations and hope to provide an update on that aspect at that time. Moving on to the retail portfolio, detailed on page eight. As most of you know, We feature a high number of neighborhood centers anchored by high-credit grocers. These stores, along with convenience stores, pharmacies, fast food outlets, and other essential businesses, are performing well during the crisis and are largely responsible for the 57% of retail rents that were collected in April. We collected 87% of rents due from our top 10 tenants. This is not surprising. given our nearly 40-year history as an owner of grocery-anchored neighborhood centers and their performance in recessionary periods. The deferred rent is largely attributed to full-service restaurants, personal service outlets, entertainment venues, and junior anchor stores. Virtually all of these establishments are closed or operating at greatly reduced capacity and have requested April rent deferments, aggregating some 2.8 million dollars. We are working with these tenants commensurate with their financial status and their potential access to government assistance. At this time, we believe that the vast majority of these deferments are collectible, in most cases by year end. Until we know the timing and conditions of reopening, we intend to stay flexible in these agreements in order to avoid further negotiation. Page 9 gives some further detail on the makeup of our retail sector and a breakdown of collected April rents. Notable here is the somewhat counterintuitive fact that our regional and local tenants paid rents on par with the national tenants. We believe that this is indicative of the fact that our southeast markets are a bit stronger than those other regions represented in the nation as a whole. Lastly, a few of you have inquired about two tenants specifically, Regal Cinemas and Bed Bath & Beyond. As a reminder, portfolio-wide, we only have two leases with Regal Cinemas and four with Bed Bath & Beyond. Those of you who have followed the company for years know that both of these tenants occupy prime real estate in the older center we purchased a few years ago, adjacent to and now incorporated into the town center of Virginia Beach. You'll recall that the purchase was made for the expressed purpose of redevelopment and expansion of town center. These are the only tenants on this 10-acre site, which we envision as prime for multifamily development. The current crisis may well give us the opportunity to unlock the full potential of this site sooner than we had anticipated. With regards to the other locations for these two tenants, we are working through agreements for them to pay the deferred rent. The next slide gives an update on our development pipelines. While I'll ask Mike to walk you through the particulars of this graphic, it's important to note that there aren't any further cash requirements in both our current projects under development or the mezzanine loan program. Similarly, the previously announced development projects that have been placed on hold do not require any additional funds as we own the land parcels and we are not under any pressure to start construction prior to conditions substantially improving. Remember, Two of the three projects are predominantly multifamily assets. The third, 10 Tryon in Charlotte, North Carolina, will be anchored by Publix and a Fortune 100 firm. We don't expect any changes to the lease terms beyond added flexibility on the delivery date. One silver lining that we hope to take advantage of when we do start is the reduced construction pricing that, in our experience over the last four downturns, has been the norm. Now I'll turn the call over to Mike for the rest of the update.