Aug. 13 at 2:29 PM
One of the under-the-radar RETIS that I’ve been following closely lately is Armada Hoffler Properties.
$AHH
Armada Hoffler isn’t your typical REIT.
While most real estate investment trusts just buy buildings and collect rent, AHH develops them from the ground up often for itself, sometimes for others.
This in-house development strategy allows them to earn development profits and own top-tier assets at below-market cost.
This also provides them with flexibility:
- In strong markets: Armada Hoffler can develop and retain high-quality properties at below-market cost, capturing both development profits and long-term rental income.
- In weak markets: Instead of acquiring buildings, Armada Hoffler can generate revenue by building projects for other companies, helping them stay profitable even when real estate deals slow down.
What’s interesting is this REIT recently cut its dividend by 30%, which was to be expected as the AFFO payout ratio climbed well above 100% by the end of 2024.
This led to an expected sell off.
AHH is now down nearly 44% in the last year.
However, the dividend cut put this REIT in a much healthier financial position.
After the dividend cut, management noted “The payout is now fully covered by property income without any consideration of fee income.”
Before the dividend cut, AHH was having to rely on fee income (from its construction business) along with rental income to cover the dividend.
As management noted, the dividend is now fully covered by rental income.
Along with this, insider buying has ramped up significantly in the last few months.
Insiders now own 10.2% of the business.
Stocks with heavy insider ownership have historically outperformed.
Insiders have been buying these shares while the REIT is trading at its lowest price to book value in 3 years.
This REIT currently has a starting yield of around 8.37%, and is expected to grow funds from operations at around 4% for the next few years.
