Jefferies starts Armada Hoffler at Buy, says dividend-cut sell-off is overdone

Investing.com -- Jefferies initiated coverage of real-estate investment trust Armada Hoffler Properties (NYSE: AHH) with a Buy rating saying that an unexpected dividend reduction and worries about higher interest costs have pushed the stock well below what its fundamentals justify.

Armada Hoffler slashed its quarterly payout by 32% after first-quarter results, a move that helped drive a 32% slide in the shares this year.

“The current move is overdone,” the analysts wrote, saying a lower but still “well-supported” dividend should let investors refocus on the company’s 97.5%-occupied office portfolio and 94.4%-filled retail assets, where near-term lease expirations are limited.

Jefferies expects tight occupancy to give Armada Hoffler pricing power, forecasting average rent increases of about 10% on retail renewals and 15% in office.

Development projects in Georgia and Baltimore should lift income further as they lease up over the next two years, the brokerage added.

The firm projects core FFO of $1.06 a share in 2025, four cents above the current consensus, and sees earnings growth resuming in 2026 as higher interest expenses and tougher year-over-year construction comparisons fade.

Investors often keep REITs that cut dividends “in the penalty box,” Jefferies acknowledged, but it said clearing low expectations on upcoming results should help the stock’s valuation “re-rate” closer to peers.

Key risks, according to the note, include higher-than-expected interest rates, a delay in leasing at mixed-use developments and a prolonged slowdown in commercial real estate transactions.

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