Is Armada Hoffler One of the Best Ideas Most Investors Have Overlooked?

Armada Hoffler Properties Inc. (NYSE: AHH) may be lesser known to many real estate investment trust (REIT) investors due to its $518 million market cap. Yet it has a yield of about 6.3% and is also being touted by Janney Montgomery Scott’s Robert Stevenson as one of the firm’s favorite names at current valuations.

Armada Hoffler has a Buy rating at Janney, and the call is after having met with the company on the road. Janney’s report from Monday said that they recently spent time on the road with CEO Lou Haddad and CFO Mike O’Hara.

The main takeaways from management meetings were that the company is close to being able to announce roughly a $90 million project in the Baltimore/Washington corridor structured similarly to their Point Street Apartments deal. Another boost is that the firm now expects three of the five retail assets management previously has talked about selling to go under contract shortly, with gross proceeds in the $30 million range. The main point is that Armada Hoffler is being called too cheap given the future growth potential.
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One cautionary note is that Armada Hoffler may not sell all five retail centers as quickly as expected. While its guidance assumes that it will sell all five of the non-Carolina assets it recently acquired as part of a 1.1 million square foot retail portfolio, Janney is only expecting three assets to be under contract at the time of the earnings call on May 3 — for approximately $30 million.

Stevenson raised his fair value estimate to $13 from $12 in the call. Janney’s fair value estimate incorporates additional future development deals not previously in the firm’s model with completions in the 2018 to 2020 period. Stevenson said:

We continue to believe that Armada Hoffler’s stock is undervalued. Given that the current stock price implies an 8%+ economic cap rate for the portfolio overall, we believe Armada Hoffler to be undervalued. With Armada Hoffler also trading at significant discounts on a multiple and dividend yield (6.4%) basis, we maintain our positive thesis and Buy-rating on the stock.

Armada Hoffler shares traded at $11.40 Monday morning, with a 52-week range of $9.50 to $11.60. The consensus analyst price target was last seen at $12.20, but due to thin volume and a low market cap, this REIT only has five analysts covering the stock with formal price targets.