Armada Hoffler Properties, Inc.

Good morning, ladies and gentlemen, and welcome to the Armada Hoppler first quarter 2023 earnings call conference call. At this time, all lines are in the 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 on Tuesday, May 9, 2023. I would now like to turn the conference over to Chelsea Forrest, Director of Corporate Communication and Investor Relations. Please go ahead.

Good morning, and thank you for joining Armada Hoffler's first quarter 2023 earnings conference call and webcast. On the call with me this morning, in addition to myself, is Lou Haddad, CEO, Matthew Barnes-Smith, CFO, and Sean Tibbetts, COO. The press release announcing our first quarter earnings along with our supplemental package were distributed this morning. A replay of the call will be available shortly after the conclusion of the call through June 9, 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, May 9, 2023, and will not be updated subsequent to the 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 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 of 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 in our press release that we distributed this morning and the risk factors disclosed in documents we have filed with or furnished to the SEC. We will also discuss certain 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. I'll now turn the call over to Lou.

Thanks, Chelsea. Good morning, everyone, and thank you for joining us today. This morning we reported earnings for the first quarter of $0.30 per share, in line with our expectations and consistent with our full-year guidance. As you can see from our press release, the portfolio continues to deliver substantial growth in same-store sales and releasing spreads, while maintaining occupancy of 97% portfolio-wide. As pointed out on numerous occasions, best-in-market properties yield impressive results in most any economic climate. Later in the call, Sean and Matt will give you the details on the quarter, as well as the current state of operations and financial metrics. I will use my time to describe two very important post-quarter events. Last week's announcement of our planned acquisition and recapitalization of the Interlock mixed-use asset in West Midtown Atlanta is a game-changing success on several levels. We anticipate funding the acquisition with $100 million of unsecured fixed-rate financing, the issuance of a relatively small amount of OP units priced at $13, and the conversion of our existing mezzanine loan on the property into equity. At a 6.5% going-in cash cap rate, the property is immediately accretive to earnings. Although a significant majority of the NOI is achieved through retail and entertainment operations, Georgia Tech's Georgia Advanced Technology Ventures anchors the 200,000 square feet of state-of-the-art office space. This 50,000 square foot lease serves as an incubator for technology developed at Georgia Tech. Several other tenants, both retail and office, have noted the proximity, stability, and involvement of the university as an important advantage afforded by the building. We expect to quickly lease up remaining vacancy which will bring the stabilized gap cap rate on this trophy asset to well over 8%. With this single transaction, we will accomplish several objectives, adding yet another trophy-quality mixed-use asset to the portfolio, along with the other assets in the area, creating a concentration of investment in some of Atlanta's premier growth markets, thus complementing our existing dominant market position in Baltimore's Harbor Point and Virginia Beach's Town Center. We also substantially increased property NOI while right-sizing our mezzanine investment program, one that has proven to be a reliable source of investment opportunities. The retirement of this loan removes the last impediment to our long-stated goal of reducing the size of that program to more moderate levels that will focus on partnering on infill multifamily projects. That said, As the Interlock is the fourth major acquisition we've achieved at significant discounts through our construction activities and mezzanine lending, we will continue to strategically deploy these mechanisms where our underwriting indicates the opportunity for eventual acquisition of top-quality properties. Perhaps most importantly, the Interlock, combined with the Gainesville apartment complex and the mixed-use Southern Post, gives us a platform for further growth in a dynamic greater Atlanta market. The concentration of trophy-quality mixed-use assets in Virginia Beach, the Baltimore Harbor, and now Atlanta, combined with a steadily growing presence in the Carolinas, gives us solid positions in some of the most desirable markets in the Southeast. Before I mention the second major post-quarter development, I'll give it the context of some near-term headwinds, which are actually long-term opportunities, that make the announcement all the more impressive. The Interloch acquisition while significantly accretive, results in a material reduction in our previously projected guidance for mezzanine income for the year. Add to that the long hoped-for recapture of the Bed Bath & Beyond stores, which now appears to be likely, will result in less rental revenue in those two locations. Sean will give you some detail on the various options we are considering for those sites. However, in the short term, this is another drag on 2023 NOI. All that said, despite these near-term challenges, due to the continued robust increases in portfolio income, the strength of third-party construction fee income, strong liquidity, and interest expense consistency, we are maintaining our previous guidance as we anticipate momentum to continue throughout the year. Therefore, in keeping with our policy of dividend payouts in the 80% of AFFL range, The board has acted to raise the quarterly dividend to 19.5 cents, a 2.6% increase. With this change, the dividend will now eclipse its pre-pandemic level on an annual basis. The primary differences between then and now, aside from a stock price nearing $20, are a much stronger balance sheet and a far greater percentage of income coming from trophy rental income properties. I'll now turn the call over to Sean.