Market Commentary | February 14, 2023


Time Rewards Selectivity

Before we started our seemingly endless commentary on runaway inflation, we talked a lot about our search for growth.  We wanted to find growth within the pandemic. We wanted growth above inflation. We wanted to identify which companies can grow earnings in a recession. This morning we received proof of the merits of all our rigorous analysis, even though it was almost overshadowed by the simultaneous release of another discouraging Consumer Price Index (CPI) report.

Armada Hoffler (AHH) is an east coast real estate development company that we first invested in shortly after their 2013 IPO. Our admiration of the company never wavered, but because their shares became expensive we had fully divested our positions by 2019. COVID brought all shares back to earth so in 2021 and 2022 we bought back into what we perceived as growth at a reasonable price.

AHH builds the best-in-market office, mixed use, multifamily, and retail developments in overlooked city centers like Virginia Beach, Baltimore, Atlanta, and Charlotte. Armada Hoffler’s symbiotic projects breathe new life into those communities and the properties enjoy sustaining demand. This morning’s earnings report beat consensus estimates and management raised 2023 FFO guidance.  In January, AHH secured an investment grade credit rating, giving them access to lower cost capital in a time of rising interest rates.

While the REIT index declined 0.82% on the CPI report, AHH shares jumped as much as 8% and closed the day 6.56% higher. What is more amazing is that the shares are still cheap; the broad REIT market trades at 15.2X forward FFO while AHH shares trade at just 10.8x FFO and a 25% discount to consensus NAV.

Patience and fundamental analysis pay rewards.


Our custodians will mail preliminary consolidated tax reporting on 02/15/2023. Subsequently, revisions will be issued that, historically, have reported much more favorable (money-saving) income tax treatments. REITs are structured to impart significant tax advantages; to ensure you capture those advantages, we suggest that you wait for the revised reports before filing your 2022 returns.

Notes and Disclosure

Articles are provided for informational purposes only. They are not recommendations to buy or sell any security and are strictly the opinion of the writer. The information contained in these articles is impersonal and not tailored to the investment needs of any particular person. It does not constitute a recommendation that any particular security or strategy is suitable for a specific person.

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Commentary may contain forward-looking statements that are by definition uncertain. Actual results may differ materially from our forecasts or estimations, and 2MCAC and its affiliates cannot be held liable for the use of and reliance upon the opinions, estimates, forecasts, and findings in this article.

Past performance does not guarantee future results. Investing in publicly held securities is speculative and involves risk, including the possible loss of principal. Historical returns should not be used as the primary basis for investment decisions. Although the statements of fact and data in this report have been obtained from sources believed to be reliable, 2MCAC does not guarantee their accuracy and assumes no liability or responsibility for any omissions/errors.

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