Armada Hoffler Properties, Inc.

Good morning, ladies and gentlemen, and welcome to the Armada Hossler fourth quarter 2022 earnings conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded today. Tuesday, February the 14th, 2023. I would now like to turn the conference over to Chelsea Forrest, Director of Corporate Communications and Investor Relations. Please go ahead.

Good morning, and thank you for joining Armada Hoffler's fourth quarter and full year 2022 earnings conference call and webcast. On the call this morning, in addition to myself, is Lou Haddad, CEO of Matthew Barnes-Smith, CFO, and Sean Tibbetts, COO. The press release announcing our fourth quarter earnings, along with our earnings guidance and supplemental package, were distributed this morning. A replay of this call will be available shortly after the conclusion of the call through March 14, 2023. 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, February 14th, 2023, and will not be updated subsequent to this initial earnings call. During this call, we may make 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 guidance and 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 which are difficult 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 this morning and the risk factors disclosed in the documents we have filed with or furnished to the SEC. We will also discuss 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. Lou will start the call today by discussing our 2023 guidance. At this time, I'd like to draw your attention to our 2023 guidance presentation made available on our website. I'll now turn the call over to Lou.

Thanks, Chelsea. Good morning, everyone, and thank you for joining us today. In addition to analysts and investors, there are many of the Armada Hoffler family and joint venture partners on the call. On behalf of our founder and chairman, Dan Hoffler, the board of directors, and executive management, we sincerely thank you for being a part of our team. Through your hard work, dedication, and expertise, we have brought about an accomplishment that I previously thought would only be attained a few more years in the future. The investment-grade credit rating assigned to us by DBRS Morningstar represents an achievement many years in the making. We believe this rating to be a validation of our diversified business model, Class A portfolio, multi-decade track record, and responsible fiscal management. This solid BBB designation gives us access to additional capital sources and investors that only transact with investment-grade companies. I encourage all who follow our company to read the rating report, which can be found on the DBRS Morningstar website. It gives a thorough and unbiased assessment of Armada Hoffler. As you have probably already seen, this morning we released record earnings for the fourth quarter. The 35 cents of normalized FFO per share far exceeds previous guidance. The primary drivers of this quarter's outperformance were increased NOI from office properties, robust same-store NOI, and the early payoff of a preferred equity asset, which triggered a minimum interest payment. This completes a full year that saw us grow earnings per share by 13% over 2021. The company is obviously firing on all cylinders. Today, I will focus my comments on our 2023 guidance presentation, which was released this morning and can be found on our investor relations website. Later in the call, Matt will give further details on the quarter and our financial metrics. Sean will wrap up our prepared remarks with comments on the current status of ongoing operations and the development pipeline, as well as portfolio highlights. Turning to page three of our guidance package. You'll see that we are forecasting a substantial increase in property NOI resulting from organic growth in our same store portfolio, the lease up and stabilization of recently delivered development projects, and anticipated acquisitions. We also anticipate another record year in construction as we continue to work through over $600 million in third party contracts over the next couple of years. This year, we'll realize the impact of the good work Matt and our finance team have done to further move the balance sheet towards more unsecured longer term fixed rate debt and our planned reduction of the mezzanine program. All these factors combined to result in a healthy 2.5% increase in bottom line per share earnings. Regarding our target of $100 to $200 million of acquisitions, We have identified a few potential off-market accretive opportunities with a possible component of OP unit equity. All told, we are pleased to continue the upward trajectory of our earnings in anticipation of further growth as our development projects deliver and stabilize. Turning to page four, you'll see an illustration of this trajectory. This chart shows that the company has been a model of consistency coming out of the pandemic, and that we expect that steady growth to continue for the foreseeable future. As the portfolio income continues to climb, you see that mezzanine income decreases as we eventually stabilize the program at the $80 million level that we established as a target some time ago. Construction fee income is expected to eventually return to the historical range of $4 to $7 million after a few years of elevated profits. Please note the continuous rise in portfolio NOI, despite the disposition of over $300 million of non-core assets over the last year or so. Turning to page five, the table at the top reiterates the expected dramatic increase in NOI, and the pie charts illustrate the various sectors in our property portfolio. While all sectors will continue to grow on an absolute basis, we expect to continue rebalancing the portfolio. We project that retail will continue to be our largest sector, but less of the total on a percentage basis. Multifamily will grow the fastest simply by virtue of developments in the pipeline and a full year of the newly stabilized apartment communities. We expect the office percentage to remain relatively stable with the addition of the office portion of Southern Post as well as new tenants coming online in our existing portfolio. Our current forecast contemplates exiting the T. Rowe Price joint venture upon completion. Page six summarizes the consistent and sustained growth our team has already achieved and the future growth that we expect to deliver this year. Whether it's NOI, EBITDA, or normalized FFO, Each of these important financial measures has incrementally increased and is projected to grow over the three-year period measured here. Perhaps as important, we have every reason to believe that this chart, inclusive of the dividend rate, will continue the trend after we add 2024 to the data. The underlying fundamentals of our portfolio, occupancy, renewal spreads, weighted average lease terms, tenant diversification and credit quality are stronger than ever, producing healthy NOI growth in each of our asset classes and record bottom line per share earnings. We understand this runs against the drumbeat of news in some real estate sectors, especially office, particularly if your focus is on gateway markets. On the contrary, we are seeing record demand and consequently have the ability to drive rental rates across our properties and submarkets. Given the economic history of resilience this portfolio has demonstrated, we see no reason for this to change. The biggest challenge we are facing in accommodating tenant demand and expansion in a portfolio at capacity. In short, to group us together with the office REITs facing major structural issues, is to ignore the strength, quality, and performance of our office properties. And even more importantly, this inaccurate characterization would overlook the other 70% of our portfolio and fee income sources, all of which are operating at record levels of profitability. And now over to Matt.