By Lydia Wheeler
Virginia Beach-based developer Armada Hoffler is taking the company public and plans to raise up to $201.3 million in its initial public offering.
Armada Hoffler Properties Inc. filed paperwork with the federal Securities and Exchange Commission on March 26, announcing its plan to qualify as a real estate investment trust and list common stock on the New York Stock Exchange under the symbol "AHH."
Listed in the initial company portfolio are seven office properties consisting of approximately 1 million square feet that were 94.1 percent leased as of Dec. 31; 15 retail properties consisting of approximately 1.1 million square feet that were 93.9 percent leased; and two multifamily properties consisting of 626 apartment units that were approximately 94.9 percent leased.
The S-11 filing does not give an expected price per share or say how many shares the company expects to sell. Though the corporation plans to pay regular quarterly dividends to its shareholders, the filing does not reveal an expected dividend amount or rate.
The form does reveal the company's revenues. In 2012, Armada Hoffler generated $108.5 million, down $21.7 million from $130.2 million in 2011. Net income increased to $8.9 million in 2012 compared to approximately $2.3 million in 2011 and $3.74 million in 2010.
Net proceeds of this offering would be used to repay approximately $112.8 million in outstanding debt, including exit fees, defeasance costs and assumption costs of approximately $2.2 million, and to pay private investors approximately $44 million.
An additional $171.1 million debt, guaranteed by company founder and Executive Chair Dan Hoffler, President and CEO Louis Haddad and Vice Chairman Russell Kirk, would be repaid with a portion of the net proceeds. Another $111 million of debt for which the three are grantors would be assumed by the REIT upon completion of the offering. The corporation expects to have approximately $280 million total outstanding debt upon completion of the offering.
Reached for comment, Haddad said he could only confirm that the company has filed an IPO. The company is in the quiet period and bound by federal securities laws from discussing the 321-page filing.
"We're hopeful we're going to be able to conclude the process later this spring," Haddad said.
Armada Hoffler Properties Inc. is listed as a Maryland corporation that formed in October 2012 as a successor to the Virginia Beach-based Armada Hoffler, founded by Hoffler in 1979. The commercial real estate tycoon is responsible for Town Center in Virginia Beach as well as the Newport News Marriott Hotel & Conference Center, the Norfolk Waterside Marriott and the Renaissance Portsmouth Hotel and Waterfront Conference Center.
"We will conduct our business through a traditional umbrella partnership real estate investment trust, or UPREIT, structure in which our properties are owned by our operating partnership directly or through limited partnerships, limited liability companies or other subsidiaries," the filing states.
The filing also projects this year's salaries of the corporation's three executive officers, if the SEC approves it as a publicly traded company. Haddad would make $745,654; Anthony Nero, president of development - $480,082; and Eric Apperson, president of construction - $480,475.
Six men are named to the company's board of directors including Hoffler, Kirk, former U.S. Treasury Secretary John Snow, former U.S. Sen. George Allen, James Carroll and James Cherry.
Hoffler is expected to receive a $250,000 annual cash retainer paid quarterly and a number of restricted shares equal to $50,000 divided by the initial public offering price.
Allen, an independent director, is expected to earn an annual cash retainer of $50,000 paid quarterly and a number of restricted shares equal to a$25,000, while Snow, who is listed as the lead independent director, will receive an annual cash retainer of $60,000, paid quarterly and a number of restricted shares equal to $25,000.
Armada Hoffler Properties Inc. plans to purchase the Apprentice School Apartments - 197 multifamily units in Newport News, which are under construction now and expected to be ready for market in November 2013.
Properties in the pipeline to add to the portfolio account for an additional 290,000 square feet of office space, 90,000 square feet of retail space and 491 apartments units. The properties include the Main Street Office Building and the Main Street Apartments in the Virginia Beach Town Center, Jackson Street Apartments in Durham, N.C., Sandbridge Commons shopping center in Virginia Beach, the Brooks Crossing Office Building in Newport News and Greentree Shopping Center in Chesapeake.
"Upon completion of this offering and the formation transactions, we will own 24 properties located predominantly in the Hampton Roads, Richmond and Raleigh-Durham markets, consisting of a total of approximately 1 million net rentable square feet of office space, 1.1 million net rentable square feet of retail space and 626 multifamily units," the filing states.
The company built 23 of the 24 properties in the initial portfolio; included are 10 properties within Virginia Beach Town Center.
Dick's Sporting Goods, which leases 84,000 square feet in the building on the corner of Virginia Beach Boulevard and Columbus Street, pays one of the lowest retail rental rates at $9.50 a square foot. The athletic store pays an annualized base rent of $798,000. Guadalajara, a Mexican restaurant that leases 8,152 square feet in the same building, pays $4.05 more a square foot and has an annualized base rent of $110,460.
Yard House, which leases 10,760 square feet in The Commerce Street retail property, pays the highest rental rate of the Town Center retail tenants included in the portfolio at $50 a square foot, equaling an annualized base rent of $583,000. Not far behind is Sonoma Wine Bar at $40 a square foot in the Fountain Plaza retail property. The restaurant's annualized base rent is $153,320.
Armada Hoffler is following in the footsteps of Wheeler Real Estate Investment Trust, which went public in November. The Virginia Beach-based company, which owns, acquires, finances, develops, renovates, leases and manages income-producing assets, like community centers, neighborhood centers, strip centers and retail properties, was the first REIT to form in Hampton Roads and also the first in Virginia that focused on retail.
Chairman and CEO Jon Wheeler said going public as a REIT is a good path for companies like Armada Hoffler, but he admits it's a costly and arduous venture.
"The assets you put in your S-11 to take public have to be fully audited," he said. "Most real estate companies like me or Armada Hoffler, unless their investors require it, have year-end financial statements but they aren't audited, so we had to go back three years of audits for the assets we put in."
After the initial IPO, Wheeler said his company experienced nine turns with the SEC.
"You file your application then they have 30 days to respond to your comments and then you respond to their comments and from that point on every two weeks that you respond to their comments they have to get back to you."
Now in the federally mandated quiet period, Armada Hoffler has to be careful what they say and to whom, Wheeler said.
"The SEC and FINRA [Financial Industry Regulatory Authority] doesn't want you conditioning the market," he said. "I can talk to you all day long in generalities about REITS and what we've done in the past, but I can't talk to you about today or tomorrow."