Press Release

Morningstar DBRS Confirms Armada Hoffler, Limited Partnership at BBB With Stable Trends

Real Estate
July 08, 2025

DBRS, Inc. (Morningstar DBRS) confirmed Armada Hoffler, Limited Partnership (Armada Hoffler or the Company) Issuer rating at BBB with Stable trends. Morningstar DBRS notes that the credit rating is based on the credit risk profile of the consolidated entity, Armada Hoffler Properties, Inc., which includes the Company and its subsidiaries.

KEY CREDIT RATING CONSIDERATIONS
The Stable trend reflects Armada Hoffler's continued execution of its strategy, including the completion and delivery of the Allied, the Company's sustained strong operating performance, and Morningstar DBRS' resultant expectation that Armanda Hoffler' key financial metrics will modestly improve, consistent with Morningstar DBRS' prior expectations, once the Allied reaches stabilization and the associated net operating income (NOI) is realized. The Allied is a mixed-use, 312-unit multifamily, retail, and parking garage asset in Baltimore, completed in Q1 2025 and expected to be fully stabilized by Q3 2026. Upon stabilization, the asset is expected to be a top asset in the portfolio by NOI contribution and contribute to geographic and asset type diversification.

CREDIT RATING DRIVERS
All else equal, Morningstar DBRS would consider a negative credit rating action should Total Debt-to-EBITDA remain higher than 9.3 times (x) and EBITDA Interest Coverage deteriorate of less than 2.33x on a sustained basis. All else equal, Morningstar DBRS would consider a positive credit rating action should Total Debt-to-EBITDA improve to 7.3x or better and EBITDA Interest Coverage is 2.67x or better on a sustained basis. Morningstar DBRS may also consider a positive credit rating action should the Total Secured Debt to Total Debt ratio reach and sustainably remain less than 40%.

FINANCIAL OUTLOOK
Morningstar DBRS projects the Total Debt-to-EBITDA to slightly deteriorate to the mid-9.0x range by YE2025 before improving to the 8.0x range by YE2026. Total Debt-to-EBITDA largely performed in line with Morningstar DBRS' prior expectations through March 31, 2025 (9.4x as of the last 12 months ended March 31, 2025) and is forecast to perform in-line with previous expectations for YE2025. Total Debt-to-EBITDA is expected to fluctuate in the near term given various debt repayments, increased mortgage loans, and growing EBITDA driven by the stabilization of newly constructed assets and same-property NOI growth.

EBITDA Interest Coverage is projected to modestly improve to the low-2.00x range through YE2026 (relative to LTM March 31, 2025, EBITDA Interest Coverage of 1.90x) as EBITDA growth is expected to exceed relatively stable interest expenses. The Company has high variable debt exposure, which is largely offset by various floating-to-fixed rate swaps.

CREDIT RATING RATIONALE
The rating confirmation is supported by (1) the Company's market position in the Mid-Atlantic region, (2) the asset quality of its multifamily and office portfolio, (3) the quality and diversification of its commercial tenant base, and (4) the longer-term weighted- average lease terms for its office and retail assets. The rating is constrained by (1) the exposure to general contracting income, which can cause cash flow volatility; (2) the geographic concentration of assets in the Virginia Beach, Virginia, and Baltimore markets; (3) elevated leverage metrics relative to the BBB rating category; and (4) the smaller portfolio size on EBITDA and square footage basis relative to the BBB rating category.

As of March 31, 2025, the Company had no rated senior unsecured debt outstanding; however, if the Issuer were to issue rated senior unsecured debt, Morningstar DBRS expects that the debt would be issued with terms and conditions consistent with market standards that would result in the rated senior unsecured debt ranking pari passu with all current and future unsecured credit facilities, which are satisfactory to Morningstar DBRS.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025) https://dbrs.morningstar.com/research/454196

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)

A) Weighting of BRA Factors
In the analysis of Armada Hoffler, Limited Partnership, the BRA factors are considered in the order of importance contemplated in the methodology.

B) Weighting of FRA Factors
In the analysis of Armada Hoffler, Limited Partnership, the FRA factors are considered in the order of importance contemplated in the methodology.

C) Weighting of the BRA and the FRA
In the analysis of Armada Hoffler, Limited Partnership, the BRA carries greater weight than the FRA.

Notes:
All figures are in U.S. dollars unless otherwise noted.

Morningstar DBRS applied the following principal methodology:

Global Methodology for Rating Entities in the Real Estate Industry (June 20, 2025)
https://dbrs.morningstar.com/research/456536

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025) https://dbrs.morningstar.com/research/447186 which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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Ratings

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