AH Realty Trust, Inc. 2026 Q2 Earnings Call

Thank you for joining AH Realty Trust second quarter 2026 earnings conference call and webcast. On the call this morning, in addition to myself, is Shawn Tibbetts, Chairman, President, and CEO, Matthew Barnes-Smith, CFO, and Craig Romero, EVP of Asset Management. The press release announcing our second quarter earnings, along with our supplemental package, were distributed yesterday afternoon. A telephonic replay will be available shortly after the conclusion of the call through Thursday, September 3rd, 2026. These numbers to access the replay are provided in the earnings press release. For those who listen to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today, August 4th, 2026, and will not be updated subsequent to this initial earnings call.

During this call, we may make forward-looking statements, including statements related to the future performance of our portfolio, transactions involving our multifamily portfolio, our real estate financing program, and our construction business, and the use of proceeds from such transactions, our rebranding and the efforts thereof, the consequences of our strategic transformation, our liquidity position, as well as comments on our outlook. Listeners are cautioned that any forward-looking statements are based upon management's beliefs, assumptions, and expectations, taking into account information that is currently available. These beliefs, assumptions, and expectations may change as a result of possible events or factors, not all of which are known, and many of which are difficult to predict and generally beyond our control.

These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review the forward-looking statement disclosure in our press release that we distributed yesterday and the risk factors disclosed in documents we have filed with or furnished to the SEC. We will also discuss certain non-GAAP financial measures, including but not limited to FFO, normalized FFO, and FFO as adjusted. Definitions of these non-GAAP measures, as well as reconciliations to the most comparable GAAP measures, are included in the quarterly supplemental package, which is available on our website at ahrealtytrust.com. I will now turn the call over to Shawn.

Good morning. Thank you for joining us today. Given our year-to-date results, we are raising our full year 2026 FFO as adjusted guidance range to $0.53 to $0.57 per diluted share. I will discuss where AH Realty Trust stands today, some milestones we achieved this quarter, and portfolio highlights before closing with a look at our current capital allocation strategy and outlook. Let me be direct. This has been the most consequential and productive quarter in AH Realty Trust history. When we announced our restructuring plan just over five months ago, we made key commitments to our shareholders. Today, I am proud to report that we have delivered on every one of them even faster than expected, resulting in significant accelerated value creation. In recent months, we have fundamentally transformed this company.

We sold nearly all of the multifamily portfolio, exited the majority of the real estate financing positions, paid down debt, executing the most significant balance sheet de-leveraging in the company's history. Lastly, we exited the construction business. Today, our refreshed board has new directors with the skills and experience to oversee our new company as we move forward. We did all of this while continuing to operate our retail and mixed-use office portfolio with excellence and increasing occupancy. When we announced our strategic pivot, we stated our intention to exit multifamily and real estate financing for a total gross proceeds of approximately $750 million. We have become a pure play, high-quality retail and mixed-use office REIT. We are now, in every meaningful way, that company, AH Realty Trust.

In May, we completed the sale of nine of the 11 multifamily properties in our original portfolio sale agreement to affiliates of Harbor Group International for $485 million. At the strong valuations we received for these assets, which exceeded the value the market assigned them within our REIT structure, is a clear validation of our thesis that substantial embedded value existed and continues to exist in the portfolio. Greenside and Premier are under contract with HGI for an additional $77 million in combined proceeds. We anticipate closing on Greenside by year-end 2026 and Premier by mid-2027. We have also executed a purchase and sale agreement on The Everly and Solis Gainesville for an aggregate gross sales price of $95.5 million with the buyer's deposit now non-refundable, and we expect to close by the end of the third quarter of 2026.

As committed, we intend to retain Smith's Landing given its unique ground lease structure and stable cash flow. The proceeds from the nine asset Harbor Group sale were redeployed. Approximately $460 million went directly to debt reduction, materially reshaping our capital structure. As of quarter end, AH Realty Trust net debt to total adjusted EBITDA stood at approximately 7.1 times, and our leverage trajectory is exactly where we said it would be. We remain on a clear path to our target leverage range of 5.5 to 6.5 times net debt to total adjusted EBITDA. AH Realty Trust continues to hold a BBB credit rating from Morningstar DBRS, underscoring the strength of the balance sheet we are fortifying. In the second quarter alone, we paid down $353 million of variable rate debt, further improving our debt profile.

As of quarter end, our debt was 100% fixed or economically hedged. Beyond multifamily, we have fully exited the construction business and substantially wound down our real estate financing platform. The result is a company that is dramatically simpler with far less earnings volatility, far less balance sheet complexity, and far greater focus on what we do best: owning and operating high-quality, open air retail and mixed-use ecosystems in strong Sun Belt, Mid-Atlantic, and Southeast markets. Another defining element of our successful transformation is governance. We have made purposeful, strategic changes to the composition of our board to ensure that we have the right leadership in place for this next chapter. At our 2026 annual meeting, shareholders elected Theodore Bigman and Lori Wittman as independent directors.

The skills and expertise they bring are directly relevant to our business and transformation, as well as our focus on closing the gap between AH Realty Trust share price and its asset value. As previously announced, Dennis Gartman and George Allen completed their board service at the annual meeting. We thank them again for their years of contribution. This board refresh reflects a deliberate and ongoing alignment of governance with strategy, and we are confident AH Realty Trust is well positioned for shareholder value creation. I want to shift gears and discuss our capital allocation framework, which is built around one principle: deploying capital where it creates the most value for shareholders. In May, our board of directors increased the total authorized repurchase capacity to $100 million, doubling the original authorization and reflecting the board's conviction in the intrinsic value of this company.

Through June 30, 2026, we repurchased approximately $33.2 million, or 5.6 million shares at a weighted average price of $5.92 per share. We believe this was among the most compelling uses of capital. After giving effect to the increased authorization, approximately $54.1 million remains available for future repurchases. As we work to continue closing the gap between our current share price and intrinsic value, we will continue to evaluate a range of capital allocation options, including targeted redevelopment and out parcel development within the existing portfolio where we see near-term accretive opportunities. We will also selectively evaluate acquisitions in our target market, only at terms that are accretive to shareholders. We will not pursue acquisitions only for the sake of growth. Shareholder value creation is our North Star, it is through that lens that we will continually reassess capital allocation opportunities.

It is worth touching on the broader retail landscape. According to CoStar's most recent data, the sector's fundamentals are stabilizing and in key pockets tightening further. Net absorption rebounded to positive 9.8 million square feet in the second quarter after a negative first quarter. Announced store openings continue to outpace closures. Available retail space remains near a multi-decade low, roughly 12% below the 10-year average. While new construction is still well below pre-pandemic levels, keeping a lid on new supply. Grocery anchored space, which underpins our portfolio, is tighter still than the broader market. Landlords continue to capture meaningful rent gains on new leases, even as growth moderates. Investor demand for retail real estate remains strong as well, with sales volume up 26% year-over-year and cap rates stabilizing after peaking in 2025.

We believe all of this plays directly to the strength of the portfolio we have built. Against the backdrop of executing our transformation, our retail and mixed-use office portfolio continued to perform at a high level. Craig will take you through the details shortly. A few highlights worth noting up front. Our retail portfolio ended the quarter at 95.1% leased. Second quarter retail cash same store NOI was up 2.9% year-over-year, driven by a cash renewal lease spread of 8.7%. Rent commencements from prior leasing activity and a tenant base anchored by proven high traffic national retailers. Trader Joe's at Columbus Village continues to outpace the only other nearby market location by nearly two times in visits. Golf Galaxy at Columbus Village ranks in the top three of all Golf Galaxy stores nationally. Chartway Federal Credit Union recently opened at an outparcel at Columbus Village.

Another example of the redevelopment and NOI enhancement opportunities we continue to execute across the portfolio. Looking ahead, we expect full year 2026 same store NOI growth of approximately 2.5%-3.5%. We expect our retail lease percentage to continue building as our signed not occupied pipeline commences, with the bulk of that activity weighted toward 2027. Our office portfolio ended the quarter at 96.7% leased occupancy, with economic occupancy gains continuing to build as new tenants began paying rent. Last quarter, we completed the consolidation, downsizing, and relocation of AH Realty Trust's own corporate offices, moving from the main tower at Town Center into the least desirable retail space elsewhere in the Town Center portfolio that has been vacant for three years.