Armada Hoffler Properties, Inc.

Welcome to Armada Hoffler's first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared the remarks, you'll be invited to participate in a question and answer session. At that time, if you have a question, please press star 1 on your telephone. As a reminder, this conference call is being recorded today, Tuesday, May 4th, 2021. I will now turn the conference over to Michael O'Hara, Chief Financial Officer at Armada Hoffler. Please go ahead, sir.

Good morning and thank you for joining. I'm Otto Hoffler's first quarter 2021 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 were distributed this morning. Replay of this call will be available shortly after the conclusion of the call to June 4th, 2021. The numbers to access the replay are provided in the earnings press release. For those who listened to the rebroadcast of this presentation, I remind you that the remarks made herein or as of today, May 4th, 2021, 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, impact of acquisitions and dispositions, our mezzanine program, our construction business, of liquidity position, our portfolio performance, and financing activities, as well as comments on our guidance and 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 light of the COVID-19 pandemic and any related economic uncertainty. 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 was distributed this morning and the risk factors disclosed in documents we have filed with or furnished to the SDC. We'll also discuss certain non-GAAP 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, amadahoffman.com. I'll now turn the call over to Luke.

Thanks, Mike, and thanks, all of you, for joining us today. This morning, we posted first quarter results with $0.26 of normalized FFO per share, which was in line with our expectations. More importantly, as you see in our earnings release, leasing continued at an accelerated pace with overall portfolio occupancy nearly back to the mid-90s percentages, which is our historical norm. We anticipate new tenants taking possession by year-end, with lease revenue returning to pre-pandemic levels early next year. Simultaneously, the rent collection percentages have returned to near-2019 levels, and bad debt write-offs continue to level off. While we are very pleased with these results, they barely begin to tell the story of the momentum building within our company. As we relayed to you with our guidance presentation last quarter, 2021 is a year where our focus is to substantially increase NAV through our leasing initiatives, improved quality of NOI, and exciting development starts. In short, we anticipate that our activities over the course of 2021 will build a solid case for expansion of our earnings multiple and ultimately lead to significantly higher earnings and dividends over the next few years. As the company's largest active equity holder, management remains committed to generating long-term value for all shareholders. Later in the call, Mike will walk you through some of the specifics from the first quarter. I'll use my time today to briefly detail some of the recent developments that we believe will ultimately accelerate the accomplishment of our longer-term objectives. On numerous occasions, we have discussed that our mezzanine lending program will be gradually reduced to approximately $80 million in size. We had anticipated that the two major projects in this program would have loans outstanding until the end of 2022, thereby reducing our ability to meaningfully resize the program until that time. We still project that the interlock commercial loan will be outstanding for that duration. Due to favorable market conditions and the rapid pace of unit absorption, our partners at Terwilliger Pappas have decided to market the SOLUS interlock asset. We now anticipate that loan to be paid off in the third quarter. The projected return of $33 million of capital, inclusive of nearly $10 million of earned interest, will enhance our flexibility to take advantage of other opportunities that are appearing on a regular basis. Since the fall of 2019, we have made clear the goal of rebalancing the percentage of our NOI that is derived from retail assets. Ultimately, the portion of NOI from retail will decrease due to the predominantly multifamily and office makeup of our development pipeline. We have also made it clear that we expect to focus the retail sector of our business on high-quality grocery and discount anchored centers, both through development and acquisition. During the first quarter, we closed on the acquisition of a Whole Foods Anchorage Center in Delway Beach, Florida. Additionally, we've identified a few off-market acquisition opportunities in the retail area. As you might expect, these potential acquisitions would fit nicely with the return of capital from the SOLUS interlock payoff. Last quarter, I reported that we already had over 90,000 square feet of new leases on vacant space and an additional 46,000 square feet in final negotiations. There is no substitute for well-located real estate, regardless of the property type. As a case in point, I'm pleased to report we have executed nearly 60,000 square feet of new leases, including the Bed Bath and Beyond vacancy at North Point, which is now leased to Burlington. As a reminder, we had agreed to terminate two of our Bed Bath leases, in order to recapture the space at those centers. We can now report that both of these spaces were almost immediately released with minimal investment and a nearly 7% aggregate increase into NOI. In addition, we have another 50,000 square feet of retail space that is at lease. Given the velocity of activity around our assets, our expectation continues to be that we will be extensively back to our retail sector historical norm of approximately 95% lease within the next 12 months. Substantial progress is also being made at Will's Wharf, our office building at Harbor Point in Baltimore that was delivered at the onset of the pandemic. Tenant activity has resumed and we are now in final lease negotiations with two credit tenants totaling 40,000 square feet that will shortly bring total occupancy to 60%. As you might expect, the announcement of T. Rowe Price bringing 1,700 employees to Harbor Point, and the Governor's decision to locate several state facilities in the Central Business District, thus bringing an additional 3,300 employees in close proximity to our collection of assets at Harbor Point, will serve to further enhance the value of all of our properties at this location. The development pipeline is largely unchanged from last quarter's call. All commencement and completion dates remain intact. As you may recall, the four projects underway total nearly $250 million and are heavily weighted to the multifamily sector. Given the robust market for these types of assets in the southeast, we expect to eclipse our historical 20% spread between cost and value on these facilities. Those totals do not include our recently announced joint venture with BD Development for the 450,000 square foot build-to-suit for T. Rowe Price's World Headquarters, and its complementary mixed-use development. These two world-class, state-of-the-art facilities are adjacent to our other three assets at Harbor Point on the Baltimore waterfront. Our team is fully engaged, and we anticipate groundbreaking on the complex prior to year-end. Moving on to construction, that group continues to perform at the extremely high level we've come to expect over these many years. This facet of our business is also generating the same sort of momentum that we are seeing company-wide. The team is successfully wrapping up several large third-party projects in the next few months and expect to break ground on two more engagements for a long-standing client later this quarter. This past year has seen our company intensely tested in several ways. While the struggles brought on by the pandemic were certainly not unique to us, the perspective we've gained in navigating what is our fifth major recession, It's allowed us to use the strategies that have seen us survive and ultimately thrive through multiple cycles over the decades. Conserving cash, working with tenants, reducing operational expenses, taking care of our people. All these approaches set the stage for the most important part of the equation, taking advantage of new opportunities and ultimately outperforming our peers in the subsequent recovery. We fully anticipate demonstrating that outcome over the next few quarters. As you saw in the press release yesterday, Ford has continued to increase the dividend given the momentum that we see building in the company. We believe robust leasing, off-market acquisition opportunities, development progress, new construction contracts, and additional free capital will justify this and subsequent increases. Now, I'll turn it over to Mike for an update on the quarter.