AH Realty Trust, Inc. Q2 FY2024 earnings call

• Succession plan: Founder and Chairman Dan Hoffler retired, Lou Haddad assumed Chairman role, to remain Executive Chair until Shawn Tibbet is appointed CEO early next year. - Portfolio performance: Robust operating metrics, tenant demand at all-time high, rents at best levels; one-time items led to outperformance, expecting earnings at high end of prior guidance. - Balance sheet: Executed $85 million term loans, paid down expensive debt; issued ~$9 million via ATM. - Segment details: Office segment had 94.3% occupancy, strong leasing including 35,000 sq ft lease with Stifel and 46,000 sq ft expansion for Morgan Stanley at Harbor Point; Retail segment executed new leases, 6% GAAP lease renewal rate; Multifamily had 94.9% occupancy and 4.3% lease renewal spread; Developments: Southern Post 71% leased in commercial space, Harbor Point T. Rowe Price HQ wrapping up, Allied Harbor Point pre-leasing started.

The construction division posted $4.3 million of gross profit, the highest quarter in Armada Hoffler's construction management history. The portfolio maintained 95% occupancy. Retail segment achieved a 5.8% GAAP re-leasing spread (2.9% cash). Office segment had a 24.3% GAAP re-leasing spread (4.4% cash), with 9% GAAP and 7.7% cash same-store NOI growth. Multifamily portfolio had a combined trade-out spread of 2% in Q2, accelerating to 3.4% in July, and 4.3% renewal spread in Q2 (improving to 4.4% in July). Same-store NOI growth was 0.6% GAAP and 1.8% cash overall.

• Expect year ending earnings at high end of prior guidance. - Second quarter likely highest quarter of the year, with termination fee in third quarter and $1.5 million tax benefit in second quarter contributing to high end. - Construction gross profit midpoint of range ($13.7 million-ish) expected, interest expense to increase in back half as developments come online.

• Forward-looking statements based on assumptions that may change due to unforeseen events. - Market volatility, changes in interest rates, economic backdrop affecting cap rates and development timelines.

Q: Development pipeline and projects penciling?

A: Lou Haddad says not finding projects that pencil due to cap rate, interest rate, and economic changes.

Q: Cadence in back half and TRS benefit?

A: Matthew Barnes-Smith says second quarter likely highest, $1.5 million TRS benefit was Q2, termination fee in Q3.

Q: Preferred stock and capital?

A: Matthew Barnes-Smith says not ready to make calls on preferred stock at this time.

Q: Swing factors and portfolio?

A: Shawn Tibbetts says conservative approach with current ranges, working to accelerate lease-up but no certainty to raise guidance.

Q: Leasing spreads and specific deals?

A: Shawn Tibbetts mentions strong leases in Virginia Beach, Town Center office renewals, mixed-use ecosystems driving demand.

Q: Cap rate on multifamily sale and market?

A: Lou Haddad says market healthier than perceived, mid-five cap rate on stabilized, sub-five going in in strong growth markets.