AH Realty Trust Q3 2026 Earnings Call Transcript

AH Realty Trust (NYSE:AHRT) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

AH Realty Trust reported strong financial performance with third quarter FFO as adjusted at $0.16 per diluted share, surpassing expectations, and raised full-year 2026 FFO guidance to $0.57-$0.59 per share.

The company completed significant strategic transformations, including selling multifamily assets at favorable valuations, reducing leverage, and exiting non-core businesses to focus on retail and mixed-use office properties.

Operational highlights include a 6.1% increase in same-store cash NOI, with retail and office segments showing robust growth, and high occupancy rates with retail at 95% and office at 97%.

Management emphasized a strong balance sheet with net debt to total adjusted EBITDA at 7.1x, aiming to reduce it to 5.5-6.5x, and no major debt maturities until 2029, providing financial flexibility.

Guidance for 2026 includes raised same-store NOI growth in office (3%-4%) and reaffirmed retail growth (2.5%-3.5%), with expectations of continued organic growth and strategic capital allocation in 2027.

Full Transcript

OPERATOR (Moderator)

Q&A session. If you would like to ask a question, please press star one. To raise your hand and to withdraw your question, press star one again. I’ll now hand the conference over to Chelsea Forrest, EVP of Investor Relations. Chelsea, please go ahead.

Chelsea Forrest (Executive Vice President of Investor Relations)

Good morning and thank you for joining AH Realty Trust third quarter 2026 earnings conference call and webcast. On the call this morning, in addition to myself are Shawn Tibbetts, Chairman, President and Chief Executive Officer; Matthew Barnes-Smith, Chief Financial Officer; and Craig Ramiro, Executive Vice President of Asset Management. The press release announcing our third 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, December 3, 2026. The 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 remarks made herein are as of today, November 3, 2026, and will not be updated subsequent to this initial earnings call. During the 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 these programs, proceeds from such transactions, our rebranding and the aspects 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, many of which are unknown, difficult to predict, and generally beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations, and 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, related 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.

Shawn Tibbetts (Chairman, President and Chief Executive Officer)

Good morning and thank you for joining us today. We delivered strong results in the third quarter and remained well ahead of our transformation strategy milestones. Third quarter FFO as adjusted was $0.16 per diluted share ahead of our expectations with same-store cash NOI up 6.1%. This quarter demonstrates that the significant progress we are making across the company is translating into meaningful financial improvement. Given our progress year to date, both in restructuring the company and in the performance of the portfolio, we are again raising our full-year 2026 FFO as adjusted guidance range to $0.57 to $0.59 per diluted share.

Notably, our portfolio delivered these results while we were simultaneously executing one of the most significant transitions in the company’s history. Six months ago the market viewed AH Realty Trust as an execution story with real questions attached. Could we sell the multifamily and capture good value? Could we materially reduce leverage? Could we cleanly exit construction and real estate financing? The answer to each of those questions was and continues to be yes. Today our company is a focused retail and mixed-use office REIT with a stronger balance sheet and a portfolio that is performing well.

We are much leaner, we have meaningfully reduced leverage and we have addressed our near-term debt maturities. While we have significantly improved the business and its performance, we believe the market has yet to fully recognize that progress. As we continue to deliver on our commitments, we expect the market to see the value we see given the de-risked balance sheet and our line of sight to meaningful organic earnings growth into 2027. Earlier this year I stated that this transition would improve the company’s long-term growth trajectory and position us to deliver shareholder value more consistently over time as we become a more focused REIT.

We are now seeing that play out today. We believe that performance and transformation over the past two quarters demonstrate that the correct building blocks are in place and that AH Realty Trust is on an appropriate trajectory. 2026 was the year we transformed AH Realty Trust and materially completed the work to reposition the company for growth in 2027. Investors can expect the momentum to continue as we focus on embedded organic growth and on further improving the operations of the business.

We own great assets and great locations leads to strong tenants who view these properties as essential to their business. We believe our story is attractive as shareholders are compensated for owning the stock today, including through our quarterly dividend. AH Realty Trust dividend yield is approximately 9.3%, the dividend is fully covered by current AFFO and the business is cash-flow positive. We are proud of where we are and excited about what we see on the horizon.

Let’s step back for a few minutes and discuss the progress as it relates to transformation and evolution into a more focused, simpler and less levered company. Just over two quarters ago we committed to our shareholders and the market that we would substantially transform this company and its balance sheet. I’m proud to say we have delivered on materially all of those commitments on an ambitious timeline and in a challenging environment for real estate.

Our timing on the multifamily sale was especially important. We secured pricing at a blended mid-5 cap rate before the recent move in rates began pushing cap rates higher. Investors now own the company. We said we would build simpler to run, far less levered and designed to produce predictable earnings and steady growth in cash flow. With that foundation in place, we are now in a position to show what this company and its operating model can do. That work depends on our people.

We rebuilt this organization from the ground up, putting the right people in the right roles and holding ourselves to a high standard of focus and discipline. I’m confident in the team we have and this quarter’s results reflect their work. This company’s profile has significantly changed both in terms of the portfolio holdings and balance sheet strength. With the sale of the Eberly and Gainesville 2, which closed last week, we have now closed 11 of 13 multifamily dispositions. We expect Greenside to close in the coming weeks and Premiere in the second quarter of 2027, consistent with the timeline we previously outlined. Furthermore, as of October 29th, our partner closed on Solus Kennesaw and as a result we have exited all four of the real estate financing positions as well as the general contracting business.

As a result of selling the multifamily portfolio at a blended mid-5 cap, we captured significant arbitrage between the equity markets valuation and the private markets valuation for the multifamily assets. If you recall, when we announced the multifamily dispositions in the first quarter, we committed to returning the value to shareholders. We have delivered on that commitment specifically by reducing debt by nearly $500 million, with leverage on track to improve by nearly two turns and continued repurchasing resulting in a total of 6.4 million shares at a weighted average price of $5.96.

Turning to the balance sheet, net debt to total adjusted EBITDA was 7.1 times at the quarter end, and we expect the remaining dispositions to move us into our target range of 5.5 to 6.5 times. This stronger balance sheet benefits shareholders in two ways. First, it lowers our risk profile with a dividend that is fully covered. Second, it gives us flexibility to pursue redevelopments or selective acquisitions when appropriate. Matt will cover loan maturities and our recent refinancing activities in more detail, but I’m pleased with the Constellation refinancing and the recast credit facility, which leaves us with no material maturity until 2029 and nearly 100% of our debt fixed or hedged. As rates have moved higher, the cost of capital across commercial real estate has risen with them. The decisions we made early in the year to sell multifamily, pay down debt and refinance ahead of our maturities mean we enter this environment from a position of strength.

We remain intensely focused on operating the company’s healthy open-air retail and mixed-use office portfolio. Our goal is simple: to be the best operator because that is how we create lasting value for shareholders going forward. I have personally committed, as is our entire team, to holding ourselves to close and intense management of every property, ensuring that we are sweating our assets and running each as efficiently as possible. Our third quarter results are demonstrative that this focus is gaining traction thanks to our cash NOI grew 6.1% with retail up 6.8% and office up 5.2%.

This is well ahead of our expectation for the year and as a result we are raising our same-store cash NOI range for the office segment to 3% to 4% and reaffirming the retail at the previously raised range of 2.5% to 3.5%. Leasing momentum continues with new lease cash spreads of 16.5% in retail and 23.3% in office and retail leased occupancy at 95%. We also see room to push rents further against the backdrop of a very strong retail market. We see mark-to-market opportunity in the short, mid and long term as today’s demand and limited new supply give us more pricing power.

That upside will come incrementally as leases roll. Given how our lease expirations are laddered, the office portfolio is equally stable at nearly 97% leased with a WALT of more than seven years and less than 6% of office ABR expiring through the end of 2027 and 2028 is similarly modest at roughly 5% of ABR. By contrast, nearly two thirds of office ABR runs through 2032 or later. Approximately 95% of office ABR is situated in mixed-use ecosystem communities and our tenant base is anchored by high-quality tenants including investment-grade names such as Constellation, Morgan Stanley and T. Rowe Price along with defense and government-related tenants such as Huntington Ingalls.

After shedding the complexity of multifamily construction and real estate financing, our team is better able to scrutinize the operations of every property and that work is leading to real changes. Earlier this year, we restructured our asset management team and operating team into a matrix structure built around two areas of focus. Greg Romero is accountable for the top line, including leasing and transactions, and Jeremy Riddick is accountable for operations, expense management and efficiency.

We place team members according to their strengths, giving each function clear ownership and accountability that sharpens our focus on operational excellence. We are supporting that structure with better data, technology and systems. Across the portfolio, we are adding capabilities step by step from leasing all the way through to expense management, from our largest costs such as real estate taxes and insurance, down to the smallest details like landscaping.

That includes integrating AI tools such as Claude working alongside Yardi to analyze lease and expense data faster, identifying savings opportunities and support tenant targeting. We are deploying technology in finance and accounting as well so the team can spend much more of its time on higher-value work. Over time, we expect a surgical approach for our operations to produce continued margin improvement. As I said at the outset, 2026 was the year we repositioned AH Realty Trust and 2027 is about portfolio performance. A meaningful portion of our near-term growth is already locked in—leases that are signed but not yet paying rent in our stabilized portfolio represent approximately $6.5 million of ABR. Southern Post in Roswell, Georgia is a good example. The office component is more than 95% leased, but only about 42% of rent is being collected today as tenants complete build-outs and free rent periods burn off as rent commences.

Rent collected should more than double. The retail at Southern Post is following a similar path. At 93% leased and roughly 81% economic occupancy, we have a meaningful pipeline of redevelopment opportunities within our existing footprint. We have identified 12 opportunities across our property that put land and space we already own to more productive use. These include creating and developing out parcels in the parking fields and repurposing underused space to higher-value commercial uses.

We are excited about what this portfolio can produce given today’s capital markets and our cost of capital. We are laser focused on maximizing NOI by optimizing our operations. Market fundamentals provide a tailwind and we believe we can capitalize on it by maximizing NOI. With limited new supply in both retail and mixed-use office, we are positioned to keep driving rents and occupancy higher across both sectors. We will selectively look at opportunities to recycle capital as part of a disciplined capital allocation strategy, but with a clear line of sight on healthy organic growth and strength into 2027 and beyond and a balance sheet with no material maturities until 2029. We will be highly selective and opportunistic regarding any potential acquisitions or dispositions.

Two quarters ago we asked the market to trust that we could execute a complex transformation in a short period of time. We said we would sell the multifamily at strong value, exit our non-core businesses, reduce leverage and return capital to shareholders. We have substantially done each of those things and we have done them while maximizing the portfolio’s performance. We are a simpler, stronger company, a focused retail and mixed-use office REIT with a healthier balance sheet, a portfolio that is performing well with strong leasing and meaningful embedded forward growth in the portfolio.

We believe the market does not yet recognize that and we intend to close that gap by continuing to execute quarter after quarter. Before I turn it over, I want to thank our team. The pace and quality of what they have accomplished this year has been exceptional and I appreciate the commitment they have shown. With that, I’ll turn the call over to Craig.

Craig Ramiro (Executive Vice President of Asset Management)

Thank you, Shawn, and good morning, everyone. I’ll spend the next few minutes double-clicking on property portfolio performance, starting with retail. Retail same-store NOI for the quarter was up nearly 7%, driven by increases from our shopping center portfolio and The Interlock, which more than offset anticipated decreases at Town Center. About 75% of retail NOI comes from our shopping center portfolio, with the other 25% coming from our mixed-use properties, primarily Town Center in Virginia Beach and The Interlock in West Midtown Atlanta.

Shopping center fundamentals remain strong, with nearly 8% year-over-year growth in same-store NOI in the third quarter, 5% cash spreads on anchor tenant renewals, and 7% cash spreads on shop tenant renewals. Third-quarter visits to our shopping centers increased a significant 6% year over year and 10% compared to the pre-COVID third quarter of 2019. At the end of the third quarter, our shopping center portfolio was 96% leased with 95% economic occupancy, with the remaining vacancies split roughly 50/50 between anchor and shop space.

Anchor space vacancy is down to just 3%, and while we negotiate terms with long-term backfill tenants, we continue to monetize available space for temporary short-term seasonal uses to bolster NOI. At the end of the third quarter, shop space vacancy is down to around 7%, presenting growth opportunity as we intend to capitalize on the success of our anchor tenants, increase in foot traffic, and demand for retail space in a supply-constrained environment.

Turning to our mixed-use retail properties, we expected Town Center retail to weigh on current-year same-store NOI due to increased vacancy, and year over year, Town Center retail NOI declined 10% in both the third quarter and year-to-date period. That being said, last month Abercrombie & Fitch opened a new 5,000 square foot store in a prime corner space opposite both Anthropologie and Lululemon, and the space caddy-corner to Abercrombie we leased in the third quarter to a national new-to-market retailer at a 14% cash spread.

Furthermore, we are currently negotiating terms on another 11,000 square feet of Town Center retail space at a double-digit blended cash spread. I look forward to providing further progress updates next quarter. At The Interlock in West Midtown Atlanta, retail NOI increased 29% year over year, with rent commencing from F1 Arcade in the third quarter. At the end of the third quarter, the retail portfolio was 95% leased with just under 91% economic occupancy. Signed, non-occupied ABR was $1.1 million, the majority of which we expect to realize in 2027. Year-to-date retail same-store NOI increased over 4% year over year. Looking ahead, we anticipate growth moderating in the fourth quarter, with annual retail same-store NOI growth settling within our full-year guidance range of 2.5% to 3.5% for 2026.

Turning to our office portfolio, office same-store NOI was up over 5% for the quarter, driven by increases at Harbor Point, Town Center, and The Interlock. Harbor Point in Baltimore accounted for over 55% of office same-store NOI, with Town Center contributing over 25% and The Interlock about 8%. Third-quarter office NOI at Harbor Point increased slightly despite the contractual free rent period and corresponding decrease in economic occupancy at Thames Street Wharf that I mentioned last quarter.

Looking ahead, economic occupancy at Thames Street Wharf is expected to increase in the fourth quarter before decreasing in the first quarter of 2027 to reflect a final future free rent period, again reaching full economic occupancy in the second quarter of 2027. As expected, leased occupancy at Wills Wharf increased to over 95% in the third quarter. Both of the office lease renewals executed during the third quarter were also at Wills Wharf, and despite already commanding top-of-market rents, we still produced positive cash spreads with healthy annual increases over the extended term.

Looking ahead, we anticipate Wills Wharf reaching full economic occupancy by the end of next year. At the end of the third quarter, Harbor Point office space was 98% leased, and given the limited availability, third-quarter cash spreads on new Harbor Point office spaces were over 23%. Town Center office NOI increased over 11% during the third quarter, driven by anticipated rent commencements at 1 Columbus, 2 Columbus, and the top floor of 222 Central Park that we previously occupied. At the end of the third quarter, Town Center office space was over 99% leased. Third-quarter office NOI at The Interlock increased over 30%, driven by rent commencements and free-rent burn-off, resulting in a sequential increase in economic occupancy to 77%, with further economic occupancy increases expected in the fourth quarter, coinciding with anticipated future rent commencements on signed leases.

As expected, both leased and economic occupancy at One City Center in Durham declined in the third quarter to 67%, with the 43,000 square feet of available trophy Class A space representing significant future growth potential given the quality of the asset and its location in close proximity to walkable amenities. At the end of the third quarter, the office portfolio was 97% leased with 90% economic occupancy. The majority of that gap we expect to close by the middle of next year.

Year-to-date office same-store NOI increased 4.7% year over year. Looking ahead, we expect growth moderating in the fourth quarter, with annual office same-store NOI growth settling within our revised full-year guidance range of 3% to 4% for 2026. With that, I’ll turn it over to Matt to discuss the balance sheet, third quarter results, and updates to our full-year 2026 guidance.

Matthew Barnes-Smith (Chief Financial Officer)

Good morning, and thank you, Greg. The third quarter and Weeks since have been a defining time period for the AH Realty Trust balance sheet. Last week we completed the refinancing of the Constellation Energy Building at Harbor Point and closed the recast of our unsecured credit facility including a new seven-year term loan. Together, these transactions address every material maturity we had in front of us through 2028, extend the tenor of our debt to better match the duration of our leases, and leave the company fully fixed or hedged once our final dispositions close this year.

This morning I will focus primarily on the balance sheet, but first the results for the third quarter. FFO attributable to common shareholders was $15.2 million or $0.16 per diluted share. FFO as adjusted, which excludes the results of the segments we have classified as discontinued operations, was $15.3 million or $0.16 per diluted share, ahead of our expectations. As a reminder, this is the metric that best represents the earnings of our go-forward retail and mixed-use office platform.

Total property portfolio NOI was $35.1 million with same-store NOI cash up 6.1% on a blended basis, 6.8% in retail and 5.2% in office. AFFO totaled $14.2 million or $0.15 per diluted share representing a payout ratio of approximately 97.5% on our current dividend. As Craig covered, leasing across the portfolio remained healthy. Cash renewal spreads were 5.8% in retail and 1.5% in office. Retail leased occupancy ended the quarter at 95% and office at 96.6%. These results continue to reflect the quality and location of our assets, and in particular our mixed-use ecosystems at Harbor Point in Baltimore and the Interlock in Atlanta.

On capital allocation, year to date through September 30th we repurchased 6.4 million shares for $38.2 million at an average price of approximately $5.96 per share. With our shares continuing to trade at what we believe is a meaningful discount to NAV as outlined on page 13 of the supplemental, we continue to view repurchasing our shares as a potentially highly accretive use of capital balanced against our first priority of reducing leverage. Turning to the balance sheet, on October 28th we closed the refinancing of the $121.8 million loan on the Constellation Energy Building at Harbor Point which was scheduled to mature in November. The new loan is a three-year amended and restated term loan with PNC maturing in October 2029 and is swapped to an all-in rate of 6.36%. The building is anchored by the corporate headquarters of Constellation Energy, an investment grade tenant with a lease running through November of 2036.

The three-year term was a deliberate choice, preserving the flexibility to term the asset out into longer-dated capital, including the private placement market. As we continue to extend our debt profile, we appreciate PNC’s continued support as one of our relationship lenders. On October 28th we also closed the Fourth Amendment and Restatement of our unsecured credit facility. As we signaled on our last call, the recast consolidates our previously separate unsecured term loans, including the term loan we previously extended to May 2027, and right-sizes our primary facility in line with our simplified retail and mixed-use office platform. The new facility comprises a $150 million revolving credit facility maturing in 2031, a $200 million four-year term loan maturing in 2030, a $200 million five-year term loan maturing in 2031, and a new $100 million seven-year term loan maturing in 2033.

I want to emphasize the seven-year term loan. Seven-year unsecured bank capital is not available to every borrower and we see it as a direct reflection of the transformation we have completed and the quality of the platform that remains. Bank of America continues to lead our bank group. IDBET anchored the new seven-year term loan and we’re grateful for the depth of support across the entire group. We have swapped the seven-year term loan to an all-in fixed rate of 6.37%, locking in the cost of this capital through 2033.

Pricing across the full facility is 10 basis points tighter than the prior facility and the covenant package is consistent with the existing agreement. With these two transactions, together with the Thames Street Wharf refinancing completed in the second quarter, we have addressed every maturity we discussed with you at the start of the year and have no material maturities until 2029. The updated maturity schedule is on page 16 of our investor presentation posted on our website. Last quarter I described our weighted average years to maturity of two years as intentionally short while we completed the final stages of the transformation.

Following these transactions, it has extended to approximately 4.4 years and our maturity ladder is now well staggered, with no single year representing more than approximately 30% of total debt. We have been deliberate about bringing the duration of our debt closer to the duration of our income. The weighted average remaining lease term is approximately 7.5 years across our office portfolio and 5.4 years across retail, with our grocery and necessity-based anchors carrying longer terms.

With these transactions we have more than doubled our weighted average debt maturity from two years to approximately 4.4 years and significantly narrowed the gap to our lease terms. We will keep closing that gap, extending maturities as refinancing opportunities arise, including through long-term private placements, so that our debt better matches the contracted cash flows that support it. And whilst the company’s interest costs are now substantially fixed, our rents are not. Contractual rent escalators averaging approximately 3% across many of our leases grow the cash flow that services this debt every year, which over time we expect to help absorb the higher interest expense from these refinancings. At the end of the quarter, 61.4% of our debt was fixed or hedged, which reflects timing ahead of these transactions. Following these transactions that has increased to 96.2% and will reach 100% once the remaining dispositions close, at a weighted average interest rate of 5.2%.

That compares with 4.3% last quarter, with the increase reflecting the refinancing of loans originated at lower rates. We chose certainty over optionality because we do not believe it is prudent for a company of our size to carry floating-rate exposure against its long-term portfolio and equity capital on leverage. Net debt to total adjusted EBITDA was 7.1 times at quarter end, consistent with last quarter and down from 8.3 times at the end of the first quarter. Net debt plus preferred to total adjusted EBITDA was 8.3x. We continue to target 5.5 to 6.5 times, and we expect the dispositions of the Everleigh and Gainesville II and Greenside, together with the exit of our remaining real estate financing investment, to bring us into that range at an estimated 6.4 times at year end.

Lower leverage and fixed-rate, longer-dated debt are two halves of the same strategy, and together they will substantially reduce the sensitivity of our earnings to interest rates. We ended the quarter with total liquidity of $262.4 million including $195.3 million of availability under our credit facility and $37 million of cash on hand. Approximately 84% of our properties, representing 79% of annualized base rent, remain unencumbered. Taken together with our debt fixed or hedged, no material maturities until 2029, and leverage moving into our target range, we do not expect to be a forced seller or a forced borrower. That gives us the ability to be patient and strategic in how we allocate capital.

Whilst we are not coupon clippers by nature, we have the flexibility to do just that if the economy or interest rate environment goes south and, while nothing is guaranteed, it will cover our dividend in almost any scenario. Turning to guidance, as Shawn mentioned we are raising our full year 2026 FFO as adjusted guidance to $0.57 to $0.59 per diluted share. We are also raising our same-store NOI cash growth range for office to 3% to 4% and reaffirming retail at last quarter’s raised range of 2.5% to 3.5%. This outlook reflects the terms of the refinancing I have described, including the higher all-in cost of the refinanced debt partially offset by lower debt balances and the elimination of floating-rate exposure.

It assumes the dispositions of the Everleigh and Gainesville II and the exit of our remaining real estate financing investment announced last week, and the disposition of Greenside later this quarter, with no acquisitions planned for the balance of 2026. With the transformation substantially complete and the balance sheet refinanced, termed out and fixed, we believe we have addressed the key uncertainties in our story. What remains is a simpler, higher-quality retail and mixed-use office platform financed with longer-dated fixed-rate capital matched to lease duration. We believe AH Realty Trust is positioned to compound value for shareholders. And as committed, we will continue to provide the enhanced disclosures that will allow investors to track our progress.

With that, I will turn the call back over to Shawn.

Shawn Tibbetts (Chairman, President and Chief Executive Officer)

Thank you, Matt. With our transformation now substantially complete, AH Realty Trust is the company we set out to build. A focused retail and mixed-use office REIT with a stronger balance sheet and a cleaner earnings profile. Thank you to our team for their continued dedication and to our shareholders for their ongoing investment in AH Realty Trust. Operator, we are ready for questions.

OPERATOR (Moderator)

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you’d like to ask a question, please press star one to raise your hand, and to withdraw your question, press star one. Again, we ask that you pick up your handset when asking a question to allow for optimum sound quality. If you’re muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jana Galan from Bank of America.

Your line is open. Please go ahead.

Jana Galan (Analyst)

Thank you. Good morning and congrats on the tremendous progress on the strategic plan. Shawn, can you discuss your kind of current capital allocation priorities from here? Maybe between redevelopment, share buybacks and any opportunistic acquisitions, while you also continue to maintain the target leverage?

Shawn Tibbetts (Chairman, President and Chief Executive Officer)

Sure. Thank you, Jana. And we appreciate the positive commentary about the progress thus far. Yeah. So our capital allocation strategy is, as I said, very disciplined, very opportunistic, highly selective. And what I’m saying there is we are very cognizant and very focused on the level of leverage that we maintain. We made a commitment to the street and to our investors that we would stay between five and a half and six and a half times levered. I’m happy to say as we sit here today, which Matt, I’m sure we’ll talk about in a minute, we are inside of that range, which we’re super excited about.

A lot of work to get here. Thank you to the team for that. But, yeah, look, we are looking at a balanced approach. We are capital allocators. At the end of the day, we will buy our own shares back when we believe that’s the best value proposition. We will invest in redevelopment when the risk-adjusted spread is there to spread to our cost of capital most appropriately and to replacement value of the assets, and so forth. And if we see an acquisition on the horizon that we think makes sense for our shareholders, we will buy it.

That being said, I think we’re in a pretty strong position here. We’ve done a lot of work to kind of transform the foundation. We’re well positioned to roll into 2027 with a very clear line of sight on extremely healthy earnings growth as well as obviously a healthy dividend that’s well supported by the cash flow. So we’re not in a hurry to do anything, especially in this market, because our portfolio is performing very, very well. And I’m happy about that and the ability of the performance to continue, and candidly, the opportunity that we created to allow performance alongside the transformation of the company.

I’m really proud of the fact that we didn’t lose sight on the large transformation or the operations of the portfolio and the improvement thereof along the way. So yeah, we are looking at all of those things that you mentioned, including share buyback, including redevelopment of assets or repositioning of assets that we own, and potential acquisitions. But we’re being highly selective and we are not in a rush to do anything, especially against the backdrop of this market.

Jana Galan (Analyst)

Thank you. And then maybe just real quick, looking at the 2027 lease expirations, just curious if there’s any kind of large known move-outs in either the office or retail portfolio. And maybe just in general, how are those discussions and negotiations going?

Shawn Tibbetts (Chairman, President and Chief Executive Officer)

Yeah, I’ll start by saying I feel very good having looked at not only the watch list but also the rollover. Our team has done a great job getting out in front of that. But Craig, why don’t you touch on a little detail, give a little color to the call about what you’re seeing.

Craig Ramiro (Executive Vice President of Asset Management)

Yeah, happy to. Shawn and Jana, thank you for the question. You know, in total, 2027, we’re only looking at roughly, what, 450,000 square feet or so, expiring. Much of that, I’m proud to say, we are already in negotiations with tenants to extend or renew. Nothing of significance to note. I will highlight two things just for the horizon. Of that 450, about 100,000 of that is in the office sector. We know we’ll probably get back about 25,000 square feet or so, so those are known vacates.

The good news is we know about it. We proactively hold discussions with our tenants to get in front of those things, and we’re already exploring options for backfilling that. But outside of that, not a ton of risk on the office side. In the retail side, of the 350 or so thousand square feet that rolls next year, if anything there’s opportunity. The single biggest piece of that is a movie theater here in Town Center. That’s 50,000 square feet. We deliberately and intentionally extend that lease kind of on an annual basis to preserve future redevelopment potential. Now that that four-acre site is adjacent to a brand-new Trader Joe’s, you know that real estate has only just gotten more valuable over the last year.

And so if anything, that’s an intentional move to create and preserve flexibility for us in the future.

Shawn Tibbetts (Chairman, President and Chief Executive Officer)

What you hear Craig saying is essentially what I alluded to in my previous comments. We’re sweating these assets. We’re focused on the operations of this company. We will transact when necessary and when appropriate. But we believe there’s more value to be had out of this portfolio, and the team has a heightened focus on that. So thank you for the question, Jana.

Jana Galan (Analyst)

Thank you.

OPERATOR (Moderator)

Your next question comes from Victor Fadi from Scotiabank. Your line is open. Please go ahead.

Victor Fadi (Analyst)

Thank you. Good morning, and great to see you nearly across the finish line of transformation. I’d like to focus on your core portfolio growth opportunity and, looking across, let’s say, the next two to three years of your lease expirations, what is the approximate mark-to-market between the expiring rents and respective current market rents for the office and retail portfolios? And what could that opportunity contribute to leasing spreads and same-store growth over that period of time?

Shawn Tibbetts (Chairman, President and Chief Executive Officer)

I think you heard us talk about what we believe and what we see as opportunistic mark-to-market kind of uptick in the rents and therefore, obviously, NOI spreads, so on and so forth. The truth is you’re gonna see that, as I mentioned, incrementally over time. There are obviously options, these leases are laddered in. So we’ll continue to extract that value and take advantage of the tailwinds that exist, candidly, in both the retail and the office markets, you know, supply and demand relationship leaning in our favor.

But I think, in my view, Victor—and I’m happy to step aside and let Craig, or ask Craig to add some commentary here—but I think you should see more of the same, more similar to what you saw this year. We’re obviously not guiding at this point into 2027, short of, you know, along of what we’ve already said back in February about where we expect kind of post-transformation pro forma earnings to be. But I think you should see something that looks similar to 2026 in 2027 and beyond, given the ladder effect of these leases and the opportunities we see on the horizon.

Craig, anything you want to add to that?

Craig Ramiro (Executive Vice President of Asset Management)

No, I think that’s a good summary, Shawn. I’ll just add, you know, I think we’re seeing very positive signs both in the office and retail portfolios. In retail, we continue to push rents both on the anchor side and shop space side—again, positive spreads this quarter in both areas. In the office segment, we command top-of-market rents in our office projects—Harbor Point, specifically, Town Center here in Virginia Beach—and quarter after quarter we continue to produce positive results.

So we expect more of the same. And if you look at the last four quarters, healthy, healthy growth and renewal spread across the board.

Victor Fadi (Analyst)

Got it. And then if you think about what’s already known, I appreciate the details you provided initially on signed-not-occupied pipeline, approximately 6.5 million of ABR incremental. But if you think about the timing and actual cash NOI contribution in 2027 from both signed leases that have not yet commenced and remain in free-rent periods, how much of that embedded growth should benefit 2027?

Shawn Tibbetts (Chairman, President and Chief Executive Officer)

Yeah, I think we expect to see the majority of that gap close by the middle of next year. There’ll be some lingering tail towards the fourth quarter and first quarter of ’28 even, but by the middle of ’27, much of that gap we anticipate closing given the timing of delivery and build-out and where we are as of today.

Victor Fadi (Analyst)

Right, thank you.

OPERATOR (Moderator)

Your next question comes from John Peterson with Jefferies. Your line is open. Please go ahead.

John Peterson (Analyst)

Great, thanks. Good morning, guys. Congrats on all the progress. I was hoping you could just talk about your submarkets and maybe rank them for us. Where are you seeing the best balance of supply and demand across your mixed-use office and retail shopping center markets? And where would you like to see a better demand profile?

Shawn Tibbetts (Chairman, President and Chief Executive Officer)

John, good morning. Thank you for the question. It’s interesting. We see relative strength across the market, but I would say if we back up and look at occupancy, not only leased but also economic occupancy, we’re rather consistent across the portfolios. Much of the office that we own is situated either in, as you well know, in mixed use here in Virginia Beach, in the Baltimore MSA, and down in the Southeast. And we continue to be able to push rent and have the opportunity to push rents in all of those locations given supply and demand.

So I feel good about that. We are running out of office space, which is a good problem to have—something we talk about often. We’re happy with that and we’re happy to have real estate, as I said, that people kind of desire and need to run their business. Across the retail, certainly there are stronger markets than others. Candidly, we are focused here on Virginia Beach Town Center. We want better occupancy here, and a better curated mix for long-term stability. But the shopping centers, specifically the grocery-anchored shopping centers across the portfolio, are continuing to see strength and our ability to push rents there.

So we’re excited about it. You see the spreads, you see the same-store—those are both moving us in the right direction. We’ve got some pockets that we need some work on. And as you know, and as we’ve discussed, One City Center is a place that we’re focused on the office side. And as I just said, here in Virginia Beach Town Center, in the mixed use, we want to make sure we get the right long-term kind of stable fit. Otherwise, we continue to see opportunistic kind of rent increases and supply-demand in our favor across the portfolio.

Craig, is there something on your mind that you’re thinking is like, you know, top end—this is the strongest? Is this a place where we need focus?

Craig Ramiro (Executive Vice President of Asset Management)

No, I think you hit them all. I mean, when you look at office, you know, Town Center office, 99% leased. Candidly, we have more inquiries than we have space available. Harbor Point, we’re now up to 98% leased, continue to push rents. So we’re still seeing good demand there. On the retail side, the shopping center portfolio continues to exhibit strength. If you look at foot traffic data—visits across all of our open-air shopping centers—up 6% year over year, 10% pre-COVID.

So we’re seeing good rent growth opportunities across the board, and we intend to take advantage of that.

John Peterson (Analyst)

All right, great. And then I apologize if you covered this, but the guidance kind of implies a step down into the fourth quarter on same-store NOI and also just on the FFO number. But you also talked about the signed-not-occupied gap closing through the middle of next year. So I don’t know if you could maybe walk us through the cadence here over the next few quarters of what’s driving the step down and if we should expect a reacceleration immediately after that in the first half of next year.

Shawn Tibbetts (Chairman, President and Chief Executive Officer)

Matt, you want to take the guidance question and then Craig or I will step up on the same-store.

Matthew Barnes-Smith (Chief Financial Officer)

Yes, certainly. So a couple of things, John—good morning—are happening with the same-store guidance for Q4. The first thing is we had a very strong Q4 of 2025, so the starting foundational block is higher on a percentage increase one quarter over the course of the next year. And secondly, we believed it was prudent to really do a tenant watch list review with some of our bad debt in the retail segments. So we’ve been somewhat conservative in our forecast for the fourth quarter and what we’re seeing down there, a couple of the entertainment tenants down in The Interlock in West Midtown Atlanta.

So that is what’s driving, as you would say, the step down in the retail same-store for Q4. I think that’s a good observation. In my prepared remarks I mentioned we expect growth moderating a bit here in the fourth quarter, but still on an annual basis, healthy growth for both segments, both retail and office.

John Peterson (Analyst)

All right, great. Thank you, guys. Appreciate it.

Matthew Barnes-Smith (Chief Financial Officer)

Thank you, John.

OPERATOR (Moderator)

There are no more questions at this time. I’ll now turn the call back to Shawn Tibbetts for closing remarks.

Shawn Tibbetts (Chairman, President and Chief Executive Officer)

Thank you very much. I just want to take a minute, a second to thank all of the call participants, our investors, our shareholders, board members, our team, all stakeholders and interested parties. We appreciate your confidence in and your investment in AH Realty Trust. We’re looking forward to the future. We’re excited about what we’ve accomplished, but even more so excited about what the future holds. So thank you for your time today. Looking forward to having individual conversations with you and thank you for your time.

Have a nice day.

OPERATOR (Moderator)

This concludes today’s call. Thank you for attending. You may now disconnect.

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