The Case For Armada Hoffler Properties

Summary

• AHH target Share Price: $24.72.
• Income generator with dividends paid.
• Currently undervalued at $12.91.

Kicking off this random stock picking journey I’ll be looking at Armada Hoffler Properties Inc. (AHH) a colleague and myself developed the research on this when looking for an interesting REIT play prior to the most recent 10-K release. Armada Hoffler Properties Inc. will be referenced throughout the document as AHH. At the time of this research the stock was range trading between $10 - $11. AHH is a real estate investment trust headquartered in the Virginia Beach, VA and was founded in 2012. AHH management has roughly four decades of experience developing, building, acquiring, and managing institutional-grade office, retail, and multi-family properties located primarily in the Mid-Atlantic and Southern United States.

Going over the financial highlights AHH had sales of 257,198 in millions of dollars and an EBITDA of 102. The net income was $32,258 M with an operating cash flow of $67,729 M. The firms cash position was $43,579 M with total assets of $1.8 B and debt to assets of 52.66.

2020 was hard on all companies and AHH was no different. The stock was trading at $18 per share before the market took a massive hit in March at the start of the COVID-19 pandemic. Since then the stock has been trading in the $10 - $13 range. Analyst consensus has been AHH is a buy or strong buy with some analysts concluding it’s a hold. EV/EBIT multiples using comps analysis value the stock at $35.34. Looking at a DCF valuation the share price under a base case scenario and conservative WACC values the share price at $24.72. The bear scenario shows that the stock price is fairly valued at $11.39 per share whereas the bull scenario shows the share price being undervalued with a share price of $28.39. With the base, bull, and bear valuation scenario we see that there is some decent upside with a potential 2x on initial investment in the bull case scenario.

What are the risks associated with AHH? Macro risks effecting the stock is COVID-19 along with tenant default due to a laggard economic recovery. With two stimulus checks and a third in the works, there is still a lot of uncertainty on the overall recovery of the economy. However, the experienced management team leading AHH is a strength when navigating the uncertainty of current times. With four decades of experience in bull and bear markets the AHH management team has the knowledge and skills to lead the firm to success. Specific risks to AHH are the geographic concentration of the D.C., Maryland, and Virginia (DMV) area. AHH is concentrated in the Mid-Atlantic region and therefore has a very specific economic risk to the DMV area. Despite this, the regional risk can be diversified away by investment into other regions and other real estate assets.

Ultimately, I believe that Armada Hoffler Properties (AHH) is a good income generator collecting a cash dividend of $0.15. The company has an experienced management team and is a great operator in the real estate investment trust space. My target price is $24.72 for a 3-year hold period. I am personally invested in this stock and believe it has the potential to reach the share price levels especially since it has been steadily recovering from the trough the stock had been in back in March 2020.