Armada Hoffler Properties, Inc.

Good morning. Ladies and gentlemen, welcome to the Armada-Hoffler fourth quarter 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 any, at time during this call, you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, February 20, 2025. Before we begin, We'd like to note the management team is currently experiencing a severe winter storm in the region. We appreciate your patience and understanding if any technical difficulties arise during today's call. I would now like to turn the conference over to Chelsea Forrest. Please go ahead.

Good morning, and thank you for joining Armada Hossler's fourth quarter and full year 2024 earnings conference call and webcast. On the call this morning, in addition to myself, is Sean Tibbetts, CEO and President, and Matthew Barnsmith, CFO. The press release announcing our fourth quarter earnings, along with our earnings guidance and supplemental package, were distributed yesterday afternoon. A replay of this call will be available shortly after the conclusion of the call through March 20, 2025. 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 20th, 2025, and will not be updated subsequent to this initial earnings call. During this call, we may make forward-looking statements, including our 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 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 yesterday and the risk factors disclosed in the documents that we 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 will now turn the call over to Sean.

Good morning, and thank you for joining us to review Armada Hoffler's 2024 results and the path forward for 2025. We have turned the page to the next chapter at Armada Hoffler, and I'm honored to be leading the company into the future as we work toward achieving our long-term objectives. Since the last call, we've made significant advances in leasing, delivered developments, and executed asset dispositions. I will now walk through the details. I reiterate that we remain committed to our core goal, improving the income stream and balance sheet quality. Our short-term strategy is centered on positioning the company for sustainable growth while maintaining financial strength in an evolving market. We will remain highly focused on continuous improvement of the company's quality as our value proposition, being surgical and intentional with enhancements to our income stream and balance sheet. We had an impressive fourth quarter, delivering normalized FFO of 27 cents per diluted share and FFO of 29 cents per diluted share. Leasing remained very strong with sustained tenant demand across all three of our asset classes. Our team transacted on over 5% of the commercial portfolio during the quarter, executing accretive new leases on nearly 200,000 square feet and renewing over 125,000 square feet at positive releasing spreads. While fourth quarter multifamily tradeouts were slightly negative, 2025 year-to-date tradeouts have since turned positive as competing new supply in the Atlanta and Charlotte markets is absorbed. We released our 2025 guidance yesterday afternoon with a range of $1 to $1.10. We recognize that on the surface, this range might be viewed as a step back from where we ended last year. That said, we believe that the underlying decisions that led to this range simply reflect our intentional actions to improve quality. Additionally, the range includes market dynamics and challenges we are navigating, specifically relating to construction delivery delays, interest expense, and one-time transaction fees recognized as income in 2024. We are focused and committed to positioning the company for consistent long-term growth. We are taking a prudent approach to investments, emphasizing disciplined capital allocation, and continuing to optimize our portfolio. Matt will walk through specific details to bridge from 2024 to 2025. Before discussing the quarter in more detail, I would like to remind you of the steps we have been and will continue taking to position the company for long-term success. will continue to focus on recycling stabilized assets where value has been maximized given limited growth upside and where we feel that institutional interest is willing to pay up the ability to make this choice and then to capitalize on better long-term opportunities that may arise is one of the benefits of having options within the multiple sectors within our current footprint so In the fourth quarter, we capitalized on the heightened demand for Southeast U.S. retail assets, selling two of our non-core, fully stabilized retail assets at a blended cap rate in the low 6% range. The $82 million aggregate sales price represents more than a 20% profit spread over cost, proving out the company's initial development thesis. We are finalizing the development assets at Harbor Point. The T. Rowe Price Global Headquarters is nearing completion, and we look forward to having their 2,500 employees join the community. Similarly, we are excited about realizing the full value of the Southern Post NOI in the coming periods. The mixed-use community is thriving, with retail tenants successfully opening their doors and receiving an overwhelmingly positive response from residents and visitors alike. It has been a fantastic start, and we're excited to see the continued growth and collaboration within this ecosystem. At the same time, we are committed to investing in the right assets, particularly in the multifamily and mixed-use sectors, which we believe offer significant potential for growth. As part of this strategy, we are focused on further strengthening our balance sheet by reducing leverage and enhancing our financial flexibility. At the end of 2024, we disposed of two resale assets that, while diluting earnings, allowed us to prudently decrease debt. While the current cost of capital presents challenges, we are confident in our ability to continue refining our business model and pursuing redevelopment opportunities that add significant value. As you recall, in September, we successfully executed $109 million common equity offering that reduced leverage and positioned us to add approximately 900 units across four high-quality assets over the next year, resulting in a 37% increase in multifamily door count. We are in the process of bringing that increased multifamily door count to reality and look forward to updating you along the way. We believe that real estate is all about spread investing and appropriate leverage. Although the markets remain in flux, we believe a more stabilized rate environment will allow us to enhance the quality of our debt with an eye toward longer term fixed rate instruments. Let's quickly walk through the fundamentals across the property sectors. Consistent commercial leasing activity and rent growth have been key drivers of value creation for the company. Our ability to secure high quality tenants across our portfolio combined with our focus on maintaining competitive rental rates, has significantly contributed to long-term stability. Our office assets and mixed-use environments are commanding around 15% premium above the competing central business districts in the region. The ongoing leasing momentum, coupled with double-digit releasing spreads, strengthens our income stream and enhances the overall value of our assets. Our office product continues to perform exceptionally well, with occupancy currently at 97% with limited near-term rollover. Importantly, 95% of our office ABR is located in mixed-use communities, which create dynamic ecosystems that provide ideal environments for employers to attract top talent. This has driven sustained demand for our premium office spaces. Notably, we successfully backfilled most of the former WeWork space at the interlock. Additionally, we completed a significant 12,000 square foot lease with Trader Interactive at Town Center of Virginia Beach. This floor was previously occupied by our own team, and to meet the demand, we were able to consolidate and set a new benchmark for office rent per square foot in the submarket. Although near-term office rollover is low, we proactively identify early renewal opportunities and existing tenants or potential backfill candidates for space that we anticipate recapturing. For example, just last month here at Town Center of Virginia Beach, we proactively negotiated long-term extensions with two existing office tenants occupying over 120,000 square feet of space that involved the simultaneous downsize of one in order to accommodate the expansion of the other. renewing both tenants at positive spreads. Favorable office demand dynamics in Town Center and Harbor Point result in consistent high occupancy and shorter downtime. While others in the sector are seeing incremental progress toward the high 80s and low 90s in occupancy, our biggest challenge continues to be accommodating the growing demand for tenant expansion space given our limited available inventory. And while we've released the former WeWork space at the interlock, one floor of WeWork space at one city center is scheduled to expire in the second quarter of this year. As the single largest near-term office exploration, the team is focused on finding the appropriate long-term solution for this space. Our retail portfolio had a strong performance with 95% occupancy. We executed new leases, extensions, or options covering approximately 195,000 square feet. We recently executed a large and impactful new lease at the interlock with the Gathering Spot, a market-leading membership-only gathering hub for professionals. The 10-year-old Atlanta-based organization will be moving their headquarters to our building, taking 13,000 square feet on the rooftop and an additional 21,000 square feet of office formerly occupied by WeWork. Furthermore, We completed two significant new retail leases at Columbus Village in the town center of Virginia Beach with a national name brand grocer and specialty sports retailer who are projected to open by the end of 2025 and rental income will be realized in 2026. These two credit tenants will backfill substantially all of the space previously occupied by Bed Bath & Beyond. In the 18 months since Bed Bath & Beyond closed, our team has now backfilled both spaces previously occupied by the retailer, having also released the former Bed Bath & Beyond space at Patterson Place to another National Credit tenant. Overall, we are seeing strong demand from retail tenants looking for space in a supply-constraining market. That said, we have not lost sight of the renewals and releasing required to remain at this level of occupancy. We want to acknowledge the impact of store closures within the retail sector specifically. The recently completed or announced store closures for Kahn's, Home Plus, Party City, and Joanne Fabrics. Combined, these three retailers represent over 115,000 square feet of space in our retail portfolio, or 1.5 million of ABR. Fortunately, we've already received unsolicited inbound interest from potential backfill tenants on all of this space, demonstrating the continued demand for well-located retail centers. As we continue to monitor these developments, we remain focused on mitigating any risk to our portfolio. The multifamily portfolio continues to operate well at 95.3% occupancy. The rent growth in our markets, such as Baltimore and Virginia Beach, continue to create lift, and we stand by our thesis. well-located, amenitized, and high-quality assets outperform the competition within the submarkets. As you know, there is some evidence that supply pressures may be easing, and we have started to recognize the start of this effect in our southeast submarkets. This should result in improvement in rents as supply incrementally absorbs over 2025 and into 2026. Earlier this year, residents began moving into Allied at Harbor Point. This property stands out as the premier multifamily asset in the area, offering stunning waterfront views and a range of top tier amenities. Allied is already receiving positive feedback, and we're confident it will continue to be a highly sought after destination for residents seeking an exceptional living experience in this vibrant location. We have taken intentional steps to focus our investments on the right assets that align with our strategic long-term objectives. While the current cost of capital remains a challenge, we are committed to refining our business model and staying disciplined in how we deploy capital. We remain confident in the long-term value of our portfolio, particularly as we continue to unlock redevelopment opportunities within our existing assets. These projects are poised to drive meaningful value and enhance returns for our shareholders. We believe these development opportunities will position us for future success as market conditions evolve. I will now turn the call to Matt.

Good morning, and thank you, Sean. I'll start by giving a brief overview of our quarter four and full year results, then conclude with an update on our balance sheet and some additional insights into our initial earnings guidance for 2025. For the fourth quarter of 2024, we reported a normalized FFO of 27 cents per diluted share and FFO of 29 cents per diluted share. The variance between FFO and normalized FFO during the quarter is due to the change in fair market value of our derivatives, reflecting a more constructive macroeconomic rate environment. For the fall 2024 fiscal year, we achieved FFO of $1.02 per diluted share and normalized FFO of $1.29 per diluted share. In the fourth quarter, we delivered solid financial results driven by strong portfolio performance and disciplined asset management. This was primarily driven by higher rental income, along with our continued focus on operational efficiency and tenant retention. All three segments posted positive releasing spreads. The retail segment achieved an 11.1% gap spread, with the office segment achieving an 18.7% gap spread. These results were 2.9% and 3.5% on a cash basis, respectively. Our multifamily portfolio reported a combined trade-out spread of negative 0.8% for the quarter. Renewal spreads on apartment leases remain strong at 4.7% for the fourth quarter. The 2025 year-to-date stabilized trade-outs are showing improvements with a combined trade-out of positive 0.6%. Our portfolio same-store NOI growth was $1.3 million at 3.6% on a gap basis and $0.8 million at 2.3% on a cash basis. The office segment was a standout performer this quarter, posting 12.3% gap and 7.9% cash same store growth, excluding the termination fee mentioned previously. During the fourth quarter, we successfully completed 315,000 square feet of new leases and renewals. Our overall portfolio occupancy at the end of the fourth quarter stood at 96%, slightly increasing compared to the prior quarter and in line with our expectations. We continue to see strong demand for high quality assets and expect this trend to continue in 2025. construction management segment posted 2.1 million of gross profit as telegraphed previously we expect that this segment's financial performance to return closer to historical levels in the short term and likely below historical levels over the next couple of years facing some expected downwards pressure on earnings as you will see in our guidance presentation we estimate construction gross profit to be between $6.8 million and $8.6 million in 2025. For the fourth quarter, our stabilized leverage remained at 5.8 times. We have discussed in detail our ongoing efforts to transform the balance sheet towards long-term fixed rate unsecured debt. We are pleased to report that we continue to make progress in executing this strategy. As a result, we have successfully maintained our BBB credit rating from Morningstar DBRS, along with an upgraded stable outlook trend, even under the backdrop of bringing our large multifamily asset, the Allied, on balance sheet with the expected earnings pressure throughout the 18-month lease-up period. To mitigate the risks associated with rising interest rates, we have successfully hedged 100% of our variable rate debt exposure, ensuring stability and predictability in our interest expenses. This strategy not only enhances our financial resilience, but also positions us for stronger cash flow management in the coming quarters. Additionally, 56% of our debt is unsecured as of year end, up from 22% three years ago. Looking ahead, we remain committed to maintaining this position through 2025. Now let's discuss our 2025 guidance. As you saw in our guidance presentation released last night, we are providing a normalized FFO guidance range of $1 to $1.10 per diluted share. The primary factor affecting the guidance range is the delays in the delivery of our harbour point projects, which, as mentioned on prior earnings calls, has shifted some of the NOI and earnings expectations. This coupled with the increased interest expense from our recently completed development pipeline will burden earnings until we have leased up the space and stabilised these assets. Additionally, the stabilization of Chandler residences, which is now expected to occur in the second quarter of 2025, rather than earlier in the year, as previously anticipated. Lastly, we aim to execute leases on the remaining vacant commercial spaces at Southern Post in 2025 to bring this new mixed-use property to stabilization in 2026. We also anticipate lower construction gross profits, increased real estate financing income as we maintain approximately $80 million of principal outstanding and the dilutionary effects of our September capital raise. These factors, whilst challenging, are being actively managed, and our team remains focused on establishing a solid foundation for future sustained growth, focused on continual improvement to the quality of earnings and the quality of our assets, as well as proactive balance sheet management. I will now turn the call back over to Sean.

Thank you, Matt. I'd like to take a moment to sincerely thank the entire Armada Hoffler team. Your hard work, dedication, and resilience have been critical to the company's success. I truly appreciate your commitment to excellence, and I'm proud to work alongside each of you as we enter the next chapter of Armada HOPLA. I'd like to extend my gratitude to all of our investors, both longstanding and new, for your trust and confidence in our company. Thank you to everyone who joined us today on the call, and I appreciate your interest in our story. We look forward to the future opportunities and leveraging our capabilities to create additional shareholder value. Operator?

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touchstone phone, and you will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Robert Stevenson from Johnny Company. Please go ahead.

Good morning, guys. What's the market look like going forward on the MES side? Any of your historical partners starting new apartment projects that might need that type of financing in 2025 at this point?

Rob, good morning. This is Sean. Thank you for the question. Yeah, we're getting inquiries about financing those types of deals. As we discussed in the past quarters, we think that the pressure in the lending market has actually accelerated some of this. In other words, there's a gap that needs to be filled, right, when the loan-to-value has pulled back. That said, we take a look at each and every one of these, but we have committed to the market that we want to be roughly $80 million in principal outstanding. We are sitting above that now, so we're looking at a timeline. When these kind of roll back in and trying to ladder, if you will, that capital. There's some good deals out there, and yes, there's some activity, but we're not prepared to execute on one, as we sit here today. So, yes, theoretically, if we wanted to deploy capital, I'm thinking of two deals off the top of my mind right now that we could deploy. We think the quality story is best maintained, if you will, at the levels that we previously described.

And I guess any new investments there, does it need to be sort of a loan to own rather than just a straight loan if you're looking to bring down that balance over time that incremental investments would have to have some sort of kicker there for you in order to make it attractive enough?

Yeah, I think all of the above are possible. At the end of the day, the question becomes for us, what is the risk-adjusted return on that capital, right? And can we Can, does the street give us more credit for deploying the capital into a rent kind of deriving asset, an asset that derives rent? But yeah, I think there's opportunity for both. We're just not prepared to pull that trigger as we sit here today.

Okay. And it seems like from your comments, you know, Virginia Beach office market, you know, really strong. But, you know, two of your three apartment assets in that home market are sub 94% occupancy. Can you talk about how much supply that market has been seeing, or is this just a price point issue given that you guys have higher rents than the market given the location?

I think it's the latter, Rob. Certainly there are new developments in the broader market, but within the ecosystem here, the walkability, if you will, is key. And so we want to maintain rate, especially when we can. So I think this is just a short-term blip, if you will. We're not concerned about it. We could easily drop by a couple bucks, but we think the equation is maintain the market rents where and when we can. And our team takes a hard look, Craig Romero and his team, take a hard look at what makes the most sense is a couple of bucks less and another 100 basis points more on occupancy better than the inverse of that. And we think we're in a pretty comfortable place there. I mean, frankly, in this time of the year, Rob, we're seeing slowdown anyway, but we expect to be where we would normally be in the mid-90s across the board there at Town Center.

Okay. And, Matt, after you've been active here, you've paid down some debt, you've done some equity raises and some asset sales in the back half of 2024. Can you talk about what the dilution is from that combo here? on an FFO per share basis, on a quarterly basis, just trying to figure out if there's some embedded growth that essentially gets turned on if you wind up, you know, investing in a stabilized asset rather than having it, you know, sitting on the balance sheet, you know, in debt repayment, et cetera. What's sort of embedded in that in terms of the 24-5 guidance here?

Yeah, certainly. Good morning, Rob. The equity raised in September was roughly about five pennies worth of dilution net once we'd paid down the debt there. So that is kind of what is being carried on from the 24 to the 25 year. Does that help?

Yep, that's perfect. And then last one for me, Sean, with T-Row headquarters wrapping up, you talked about monetizing some assets, et cetera. How are you and the board thinking about the longer term play here and the timing. I mean, the term's never going to get longer than it is. Obviously, there's some work left to do there. Is that something that you guys are anticipating on, you know, whether or not it's a JV or an outright sale or some other sort of transaction there, that that's going to wind up being a late 25 type of transaction that you would look to do something there, 26? Or is that, you know, at this point, not contemplated as you guys think about the strategic plan over the next 12 to 18 months?

Yeah, it's a great question, Rob. I think, as you know, in the past when we initiated the deal, we were thinking, well, you know, we may harvest that capital. As we sit here today, we don't think that's the most attractive option. However, we do look at this as well as the rest of the assets. on an iterative basis and ask ourselves, okay, what's the next best capital allocation move? I think the truth is the market's too soft right now for office, and we believe, as I think you do, I don't want to put words in your mouth, but that is a trophy asset, and we're not willing to part with it at a discount, especially given the credit that sits there. So I think we'll monitor it over time, but as we sit here today, we're excited about having T. Rowe in that building and partnering with them for the long term in terms of that lease. But, yeah, we'll continue to look at it. I think, you know, especially as markets improve, we will probably get a little more comfortable with the pricing there. But, you know, who knows? We're happy to hold it if that's not the case.

Okay. Thanks, guys. I appreciate the time this morning.

Yes, sir.

Thank you, Robert. The next question comes from Victor Fediv from Scotiabank. Please go ahead.

Good morning, everyone, and thank you for taking the question. Could you please provide some details on Southgate Square's occupancy, which declined to 82% in Q4, and specifically, which tenant department and how is the releasing process going?

Sure. Um, you know, that, that really relates to, uh, Joanne and cons both in the Southgate square, uh, complex there. Um, Joanne is dark in that location. So they've, they've shut the doors. Uh, I think the good news there is we're at least with a backfill tenant as we, as we sit here today. So we're excited about coming to market with that when we're able. Um, so our team's working hard there. On the con store, it has been closed as well. Obviously, we are sensitive to the bankruptcy proceedings here, but the truth is we are in active negotiations with a potential backfill, I would say, in the sporting goods category in that space. And so it's interesting, not only the Joann, but the cons and Party City, we essentially have unsolicited or active deals working on all of those spaces. So, I think that's a good news story. We do anticipate positive releasing activity there in terms of the spread. So, we're excited about that. You know, in the short run, it looks like a challenge, but in my view, that challenge has created an opportunity to potentially create lift. So, we're excited about that.

But then probably just to follow up in terms of potential downtime, what could be the reasonable expectation for these boxes?

That's tough to say. Like I said, we're at least on the Joann store. So I would say, you know, depending on the build out and the required, you know, maneuvering there, if you will, in addition to kind of these bankruptcy procedures, We'd like to have something more concrete toward the end of the year, but time will tell. I think, you know, my view on this is the sooner we ink a lease, obviously the sooner the tenant's in place. So we have essentially removed the majority of the income for 2025 for the aforementioned tenants. We do have some speculative upside. Either we collect a little more rent as they roll through proceedings or we're able to get a tenant in. But we're viewing that as upside, Victor. So I think, you know, time will tell. But like I said, we'd like to see some activity in a couple of those spots this year.

Got it. Thank you. And probably just the last one for me. So in terms of potential capital recycling, do you have any kind of offers or any active properties that you are actively marketing now on the retail side or not really?

So it's interesting. We've, you know, even on the other, the two retails we sold in the fourth quarter, we received a fair amount of unsolicited activity. It seems like the capitals pent up and would like to get into retail, which is good. Again, we don't want to dispose of properties that we don't need to, but if it's a good capital, you know, harvesting slash relocate or reallocation, we'll take advantage of that. We have put Providence in the market. It's a mixed-use asset, just renewed a lease there. We may or may not transact on that. But for us, it looks like something that we would potentially take a look at. But, you know, we're not committal here. We just want to see what the pricing is, the indicative pricing in the marketplace. So I think the broader answer is we will take a look, as I mentioned to Rob, at the entire portfolio on an iterative basis. especially when we receive unsolicited offers. You know, for us, it's an equation. It's the quality equation, right? What do we believe is core to our strategy, improving the quality of the income stream? And what do we believe is a creative, you know, in terms of reinvesting and or retiring some debt? So I think, you know, it's an interesting time right now with retail price or retail cap rates, better said, compressed. So I think the message to you is we're looking at our assets and trying to best understand where the best opportunity sits. But, you know, I think we're pretty comfortable where we sit today. We'll see what comes in the future.

That's good. Thank you.

Thank you, Victor. The next question comes from Andrew Irger from Bank of America. Please go ahead.

Hey, good morning. This is Andrew. I'm for Jeff Spector. I appreciate all the color on 2025 guidance. It sounds like, you know, maybe some of the income that you'll receive in the near future has just been sort of shifted back a couple of quarters. So, you know, maybe just, you know, from a high level, are you able to help us understand the trajectory as we exit 25? Maybe, you know, any color on what's assumed? for the cadence of the FFO throughout the year and, you know, whether or not you expect 25 to be the trough in earnings, just kind of given the moving pieces that you're aware of today. And maybe a follow-up to that as well is, Sean, I know you said you're focused on improving the quality of the income stream as one of your main focuses. Maybe just if you could tie in some of your key focuses to, you know, drive that earnings growth over the next couple of years.

Sure. Yeah, as you... can see we have, and let me answer the question first. Yes, we expect 2025 to be the trough, right? And so from here, as I mentioned to the two previous questions, we think there's some upside. And frankly, when I say quality of the income stream, we're talking about what the investors really want to see, at least what we hear from investors that they really want to see, which is property income, right? And so we have a great fee income business and we are not shy about that. But our view is we need to become hyper-focused and remain hyper-focused on creating high quality property level income. As we begin to stabilize the developments in 2026, you will see, yes, we believe you're going to see increased growth there. In addition to our team's focus on managing OPEX, And increasing the organic growth and the kind of underlying portfolio, so we should see lift in the out years, in my view, where we are. stabilizing a foundational element, this year and we're going to continue to grow on that into 26 and beyond so yeah I think there are a couple of things, not only these backfields that i've been mentioning here. Hopefully also the debt markets behave, if you will, in addition to the fact that we will be incrementally realizing the development income in addition to growing organically in a healthy way the underlying portfolio income. And I think that, you know, that kind of equation helps us see that 26 and 27 will certainly be improvements on 25. Matt, did you want to add anything to that?

No, that was well said, Sean. Andrew, what I would note is also as we get into the end of 25 and 2026, hopefully there will be a better macroeconomic market for us rate environment. So that will allow us to continue with our balance sheet strategy, higher quality debt. And we're hoping when those maturities for us come up in 2026, we will be in a better interest rate position than we are as we stand here today.

You know, Andrew, top of my mind are things like this Bed Bath & Beyond redevelopment at Town Center. We put out that a high-quality grocer and another retailer have already signed with us. This goes back to Rob's question. Apartment rents, when those tenants are in place, should increase. And we see some lifts that kind of is ecosystem type lift in terms of rent and also realization of this kind of redevelopment opportunity as it comes online. So we have a lot of variables that I would say contribute in a positive way to the equation and the out months and out years.

Justin Capposian, Great that's very helpful Thank you and maybe just to follow up you mentioned earlier, I think it was 15% higher rents in your mixed use office assets versus the respective CBD. Justin Capposian, I was hoping, maybe you could touch a little bit more on that I guess a couple small questions would be one is that compared to you know similar quality assets in the CBDs. Or is the quality different? I guess I'm just trying to understand how much value is really kind of from the mixed use environment versus just the quality specifically of your assets. And then on the flip side, just kind of thinking about the multifamily and the retail, you know, just having an office building add any value to them, or is it really kind of the retail multifamily where, you know, you're able to kind of have those synergies and be able to raise rents all around?

So I'll start with the ecosystem concept. Our thesis is, and I think we've proven it, that this ecosystem helps lift rental rates in all of those categories, mainly due to the amenities, right? Like retail in a big way is an amenity to both the office and the multifamily. So this walkability in our markets um maybe different than a Manhattan if you will is not available otherwise and so this creates an opportunity for for both office users and apartment residents to you know eat downstairs at a restaurant or shop or whatever the case may be to your first question we took a look at both in terms of CBDs and across the kind of broader markets in both Baltimore and Virginia Beach and I would say we're comparing to the average because it's tough to tell, right? These are disparate markets. They're different product types, which answers your other question. I think it's a quality issue. And frankly, the tenants in the office side want to be in a mixed-use location because it makes inviting their employees back to work and this kind of employee morale increase over time. So they're willing to pay up for that. And so that's why you see the demand for us kind of increasing in these office spaces. Matt, do you have something you want to say?

Andrew, just to give you some specific stats, as Sean mentioned, the Baltimore market in Q4 CBRE published a Baltimore office market report. And, you know, if you just look at vacancy across the entire Baltimore office market is just under 20%. The vacancy in the Baltimore CBD is 22% compared to only 2.25% in our mixed use community. So that shows there, the evidence suggests that that is the benefit of that. When you look at rental rates, CBRE reported that you know the baltimore office market is is below 20 27 a square foot um the cbd specifically is right at that 27 mark where we are our buildings in harbor point at north of 30. so that's the 15 above the dvd asking rents there andrew i think that's very helpful for other maps andrew to further matt's point i think you know for the virginia beach market there aren't um

The closest competitive market is the Norfolk CBD, and the numbers Matt stated are probably more pronounced. I don't have them sitting in front of me, but probably more pronounced in terms of rent spreads as well as occupancy. So I think, you know, in terms of being in the A position, the trophy position, that's a good place to be.

Great. Thank you very much.

Thank you, Andrew. As a reminder, if you wish to ask a question, please press star one. There are no further questions at this time. I would like to turn the call back over to Sean Tibbetts. Please go ahead.

Sure, thank you. I appreciate all of you taking time to walk through this with us today we're excited about the future here at armada hoffler we do apologize for any choppiness we are after all office owners and we are working remotely to take this call due to weather conditions so this is not normal for us we prefer to be in the office as any office owner should be um and that uh that said Seriously, I hope you all stay safe and we appreciate your confidence in us and look forward to taking any questions independently if necessary. Thank you very much for your time today.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.