Armada Hoffler Properties, Inc Q4 2025 Earnings Call Transcript

Armada Hoffler Properties, Inc (NYSE: AHH) Q4 2025 Earnings Call dated Feb. 17, 2026

Presentation

Operator

Good morning ladies and gentlemen and welcome to the Armada Hoffler Properties fourth quarter 2025 earnings call. this time all lines are in lesson only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, February 17, 2026. I would like to turn the conference over to Chelsea Forest Vice President of Investor Relations. Please go ahead.

Chelsea Forrest — Vice President of Corporate Communications & Investor Relations

Good morning and thank you for joining Armada Hostler’s fourth quarter 2025 earnings and 2026 guidance conference call and webcast. On the call this morning, in addition to myself is Sean Tibbets, Chairman, President and CEO Matthew Barnes Smith, CFO and Craig Romero, EVP of Asset Management. The press release announcing our fourth quarter earnings along with our supplemental and guidance packages were distributed yesterday afternoon. A replay of this call will be available shortly after the conclusion of the call through March 19, 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 the remarks made herein are as of today, February 17, 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, the potential dispositions of our multifamily portfolio, our real estate financing program and our construction business and the use of the proceeds from such dispositions, our rebranding and the efforts thereof, the consequences of our strategic transformation, the impact of acquisitions and dispositions, our liquidity position, our portfolio performance and financing activities, 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 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 the 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 and normalized FFO 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@armadahopler.com I will now turn the call over to Shawn.

Shawn J. Tibbetts — Chief Executive Officer, President & Chairman of the Board

Good morning and thank you for joining us. Yesterday we formally announced the rebranding of the company as AH Realty Trust, effective March 2, which marks the defining moment in the evolution of the firm. Given the significance of yesterday’s announcements, we will keep our discussion of the fourth quarter and full year 2025 briefs. Today’s call is less about a single quarter and more about the transformation of the company and our path forward. This past year marked a pivotal period for the company, particularly with respect to capital allocation, balance sheet strategy and how we operate the business.

I’ll begin this morning by discussing the strategic decisions we announced yesterday and the rationale behind them. I will introduce Craig Ramiro, EVP of Asset Management to talk through highlights from the portfolio and Matt will cover our fourth quarter results and provide details on 2026 guidance I stepped into this role one year ago with a clear objective to evaluate every aspect of our business, our portfolio, capital structure, operating model and long term positioning. Over the past 12 months we have done exactly that, reviewing every layer of the business, challenging long held assumptions and focusing on where we believe we can create the most durable value for shareholders.

This comprehensive process back with full support from the Board, resulted in a clear path that we believe positions the company to maximize shareholder value over time. At our core, we are a public REIT focused on well positioned retail and office assets in growing markets. Alongside the relaunch of Ramada Hoefler as AH Realty Trust, we announced the plan exit and divestitures of our multi family portfolio and fee income businesses including construction, management and real estate financing. These were difficult but necessary actions designed to simplify the company, improve the quality and predictability of our income stream and meaningfully reduce leverage.

I am pleased that we have already made substantial progress on these initiatives. We are under a LOI for 11 of our 14 multifamily assets with a global real estate investment and management firm following a disciplined and targeted marketing process that began months ago, drawing strong interest from multiple credible parties. These negotiations are materially far along and we believe we are approaching final terms at an attractive price point and value. Despite the high quality of our assets, public market valuations do not reflect the underlying private market value of the portfolio. Exiting the multifamily portfolio unlocks significant embedded value by harvesting the arbitrage between public and private market valuations and accelerates our deleveraging program.

In addition, the exit of our construction business is effectively complete and we are substantially finalized on terms with the buyer. Lastly, we have executed a LOI with an institutional buyer to acquire the interest in two of our four real estate financing investments and we are in discussions with our partner to exit a third. The remaining investment is currently in the market with comparable cap rates in the low 5 cap range. We expect that transaction to be completed in the near term. These transactions take time to fully execute, but we are confident in the meaningful progress made to date toward de risking the business.

Giving this progress, we have removed the associated revenue streams from our 2026 outlook. With this transition, we believe we will 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, no longer operating fee based businesses with inconsistent income and no longer deploying capital towards sectors where our scale and advantage were limited. We believe with significantly reduced leverage and a streamlined operating model, we will be a stronger, leaner and more agile firm better positioned to produce predictable earnings and sustainable cash flow growth in 2027 and beyond.

At the same time, we are intensely focused on the operation of the company’s retail and office portfolio. We believe the best way to drive durable value is to be the best operator in our markets, maintaining rigorous operational oversight and driving consistent performance improvements across the portfolio. That means efficiently managing expenses, deepening our understanding of market and property level performance while acting as a disciplined capital allocator and redirecting capital when assets no longer meet our investment thresholds. The board and management team hold a strong conviction that exiting the multifamily sector and fee income businesses, strengthening the balance sheet and concentrating on sustainable cash flow and disciplined growth most benefits the long term value of the company.

While the quarter itself is not the focus of today’s call, it reinforces the stability of our retail and office assets and provides a strong foundation as we enter 2026 as we discuss guidance for the New year. As previously mentioned, it is important to note that 2026 guidance reflects the discontinued operations of the multifamily portfolio and the fee income portions of the business. While 2026 represents a transition year for the company, I want to underscore that throughout this period we continue to maintain full dividend coverage from the cash flows generated by our operating properties while also meaningfully reducing debt.

To provide added transparency around this shift, we included an FFO bridge in our guidance materials posted to our investor website. The bridge walks from reported 2025 FFO to a pro forma 2025 FFO that removes discontinued operations and then to post transformation FFO which reflects the company as it will operate going forward. By removing contributions from the construction management business, the real estate financing platform and the multifamily assets, investors can clearly assess the value of the streamlined retail and office portfolio. Importantly, by the end of the transformation, leverage is expected to improve by approximately two full terms, further strengthening the balance sheet and enhancing long term resilience.

Matt will discuss the guidance in detail. As we look ahead, our focus is on discipline, high quality, consistent growth and a simplified operating model. With lower leverage and a clearer operating model, we are in a stronger position to pursue accretive acquisitions that offer embedded upside in key growth markets that meet our fundamentals. This transformation only happens with a dedicated team. Over the past year we have stripped the company down to its foundation and are building it back up with the right people, the right focus and the right operating discipline. It begins with our people and we are confident in the team we have assembled to execute this plan.

This marks a new day for the firm and I’m excited about reducing risk and positioning the company for future growth. As we enter this next chapter, we do so with a clearer strategy, a more focused portfolio, a streamlined organization and a stronger financial foundation. We are not simply repositioning the company, we are fundamentally changing the quality of the business. We believe this transformation will result in a significantly stronger foundation that positions us to deliver predictable earnings, sustainable cash flow growth and long term outperformance. With that, I’ll turn it over to Craig Ramiro, EVP of Asset Management.

Craig has been with the company for more than a decade and has been deeply involved in every aspect of our real estate operations. In addition to his extensive real estate experience, he brings a Big four public accounting background which further strengthens his strategic and financial oversight. He leads our asset management team with exceptional focus and discipline and his deep expertise continues to be instrumental in driving our success. Given his experience and intimate knowledge of the portfolio, I’m pleased to have him join the call for the first time to walk through the portfolio highlights.

Craig Ramiro — Executive VP of Asset Management

Thank you Sean and good morning everyone. As Shawn outlined, with the portfolio now fully focused on retail and office, our attention is squarely on execution at the property level. I’ll briefly cover fourth quarter operating performance and then spend time on what we see ahead for the portfolio. Retail same store NOI for the quarter was up 5.6% on a GAAP basis and 3.4% on a cash basis, driven by new leasing and rent commencements across the portfolio as well as positive renewal spreads of 15% GAAP and 10% cash. Specifically, fourth quarter cash results reflect rent commencements for long term backfill tenants of anchor spaces in Atlanta, Durham and Virginia Beach.

Retail same store results year over year were up 1% gap and down 1% cash. Weighing on both fourth quarter and full year same store results was anchor space vacancy resulting from the bankruptcies of Conn’s Party City and Joann Fabrics totaling 92,000 square feet across the portfolio. These vacancies are reflected in year end occupancy just under 95% that was temporarily elevated in the third quarter by short term seasonal tenants. I’m pleased to share that as of today we have leased or are at lease on over 60,000 square feet of this space at an average releasing spread over 40%.

We anticipate rent commencing on roughly a third of the backfilled space in 2026 with the balance starting by mid-2027. Looking ahead, we expect retail same store NOI growth in 2026 to be supported by rent commencements at the interlock, including Atlanta’s first and only F1 arcade that opened earlier this month, as well as our successful redevelopment of Columbus Village. In the fourth quarter, both Trader Joe’s and Golf Galaxy opened in the former Bed, Bath and Beyond box at Columbus Village. Since opening, the new Golf Galaxy location ranks in the top five nationwide in terms of foot traffic and the new Trader Joe’s store has seen more than double the number of visits compared to their only other location in the market.

Because of the vision, persistence and disciplined execution of our team over the past two and a half years, we’ve successfully released all of Columbus Village at 60% higher rents. full occupancy, the redeveloped Columbus Village is expected to generate over $1 million of new ABR, the majority of which we anticipate realizing in 2026. Negatively impacting occupancy in 2026 will be the first quarter lease expirations of West Elm at Town center and harbor point totaling 20,000 square feet, while retail portfolio occupancy is expected to Decline by about 55 basis points. As a result, the NOI impact is diminished given the below market rent structures of both leases.

Market conditions continue to favor existing brick and mortar retail with tenant demand far exceeding new supply. Our portfolio of shopping centers and mixed use retail assets remain well positioned to capture this demand as demonstrated by our team’s ability to lease space at positive spreads. We are confident in our team’s ability to release both West Elm spaces at two to three times higher rents given their prime locations within Town center and Harbor Point Office Same store NOI for the quarter was up over 10% gap and nearly 17% cash driven by leasing and rent commencements in Town center specifically to Columbus as well as Wills Wharf and Harbor Point.

Renewal spreads during the quarter were positive 9% GAAP to 2.5% cash. Over the course of 2025, occupancy at the interlock increased nearly 600 basis points, ending the year at over 94% leased. Year over year. Office same store NOI increased 6% GAAP and 7% cash, supported by occupancy gains at the interlock, Wilsworth and Two Columbus. Leased occupancy at Two Columbus increased 500 basis points during the fourth quarter, partially offsetting our recapture of 8,000 square feet of space in 4525 Main to accommodate the relocation, consolidation and long term extensions of existing tenants in the building. This resulted in a marginal decrease in occupancy during the quarter to 96.4%, but we are already at lease with a backfill tenant at a double digit re leasing spread with lease execution anticipated by the middle of this year.

By the second quarter of this year we expect to complete the downsize and relocation of the company’s offices within Town center to space that has sat vacant for nearly three years. As a result of our intentional move to occupy the most cost effective space in the development, we unlocked 38,000 square feet of premier workspace in AH Tower, all of which has been released at an average rate of $35 per square foot, the highest rents in the market, creating $1.3 million of new AVR that we expect to fully realize in 2027 with partial recognition in 2026.

Looking ahead, we expect same store NOI growth in 2026 from rent commencements at the Interlock, producing nearly $1 million of new base rent during the year, partially offset by vacancy at One City center in Durham and Wills Wharf in Harbor Point. As a reminder, we reclaimed 30,000 square feet of space from WeWork at One City center in the second quarter of this past year. In the fourth quarter we negotiated the recapture of 9,000 square feet from an existing tenant at Will’s Wharf in exchange for a $3.1 million upfront fee and in the process consolidated most of the vacancy in the building onto a single floor.

This proactive and intentional move allowed us to accommodate an existing tenant’s desire to right size their footprint while also giving us the flexibility to pursue larger floor prospects in the market. While we are not forecasting any new rent commencements at either One City center or Wills Wharf in 2026. We are seeing good activity and interest in the market and remain confident in our team’s ability to release the space at Southern Post. We expect full rent commencement by existing office tenants in the fourth quarter of 2026 and we’re seeing strong interest and activity on the balance of the office space.

Office portfolio fundamentals are strong with nearly eight years of vault high credit tenancy, only 1.7% rollover in 2026 and our team’s demonstrated ability to lease space and grow rents. We see continued growth opportunity across both our retail and office portfolios through proactive leasing and tenant retention, mark to market adjustments on new leases, disciplined expense management and targeted redevelopment and capital investment where returns justify it. This operational focus is central to how we intend to drive consistent NOI growth and create value going forward. With that, I’ll turn it over to Matt.

Matthew T. Barnes-Smith — Chief Financial Officer, Treasurer & Corporate Secretary

Good morning and thank you all for joining us. I will begin with a review of our fourth quarter performance, then cover our full year results before turning to our outlook for the next year and the strategic transformation of the business. I’ll close with an update on our balance sheet and debt strategy as we position the company for the next phase. This quarter and full year represents an important inflection point for the company both in terms of financial performance and in the ongoing evolution of our platform, portfolio composition and capital structure. Starting with the fourth quarter, our results reflect continued operational excellence across the portfolio against a complex macroeconomic and capital markets backdrop.

For the fourth quarter of 2025, normalized FFO attributable to common shareholders was 29.5 million or $0.29 per diluted share. Above our expectations and guidance. FFO attributable to common shareholders was 23.1 million or $0.23 per diluted share. AFFO came in at 17.8 million or $0.17 per diluted share. Same store NOI for the portfolio increased 6.3% on a GAAP basis and 7.1% on a cash basis. Turning to the full year, 2025 was defined by foundational work repositioning the company with a strong focus on balance sheet discipline. For the full year 2025, normalized FFO attributable to common shareholders was 110.1 million or $1.08 per diluted share.

Above guidance. FFO attributable to common shareholders was 79.4 million or $0.78 per diluted share. AFFO came in at 75.6 million or $0.74 per diluted share same store NOI for The portfolio increased 2.8% on a GAAP basis and 2% on a cash basis. Importantly, the year also reflects a deliberate strategic shift towards simplification of the platform, higher quality and more predictable earnings streams and enhanced balance sheet resilience through positive cash flow. Starting the year with right sizing of the dividend represents not merely a financial transaction but a structural evolution of the company. As we look forward, we are evolving into a more focused, more transparent and more predictable operating platform.

Shaun discussed the planned disposition of the multifamily portfolio, the real estate financing platform and the construction entity. I will now walk through management’s estimates related to this repositioning, referring predominantly to the guidance presentation released yesterday afternoon. If these initiatives are executed as we expect, we expect to focus the redeployment of that capital in three areas primarily paying down our debt balance, investing in retail centers in carefully selected markets and if the opportunity arises, utilization of our share repurchase program. This repositioning is designed to create a business that is simpler to understand, easier to value and more closely aligns with long term institutional capital.

Post transformation we will be positioned as a simplified pure play retail and office REIT characterised by focus on reoccurring contractual cash flows with no reliance on fee or non recurring income. This year we will report our results in the most fundamental and transparent way using NAREIT defined FFO for our earnings metric Cash same store growth metrics to be consistent with other REITs in our space and leverage at a net debt to EBITDA level. Starting with the Guidance presentation, please bring your attention to page two which outlines our 2026 estimates for this transformation year. We will be guiding towards NAREIT FFO Bless the Discontinued operations between $0.50 per diluted share to $0.54 per diluted share with the following assumptions Disposition of the general contracting and real estate services business in Q1 of 2026 disposition of the multifamily portfolio with the exception of Smith’s Landing in 2026 realisation of the Allure at Edinburgh in mid-2026 exit of the real estate financing portfolio in the second half of 2026 blended retail and office same store NOI cash growth of just over 1.7% Acquisitions of approximately 50 million of retail properties with a cap Rate range of 6.25% to 7% in the second half of 2026 Secured debt paydowns of approximately 270 million as a result of the multifamily disposition Net unsecured debt paydowns of approximately 400 million.

Page 4 of the guidance presentation illustrates an FFO bridge starting at our reported 2025 NAREIT FFO of $0.78 per diluted share and walking through the transition, ending with management’s estimated NAREIT FFO for the full year post transition of $0.64 per diluted share. As you can see, post transition we expect to significantly reduce our leverage into a net debt to ebitda range of 5.5 times to 6.5 times. Page 5 provides a reconciliation of our 2025 actual NARE FFO results. Less are newly discontinued operations, illustrating a comparative pro forma FFO number that gives some context to the expected FFO growth post transformation.

There is no question that deleveraging brings some dilution but dramatically decreases risk and backstops the dividend. Most importantly, page 6 illustrates our AFFO payout ratio. Both in 2026 and post transition. Management committed to the market that the cash from the properties would cover the cash dividend going forward and we do not intend to waiver from that sentiment. You will see in the post Transformation column of the table that there are no non cash entries in the change in fair market value of derivatives. I will discuss our debt strategy later in my remarks. However, it is worth noting here that we are intentionally reducing our reliance on derivative products, expecting to have transitioned the balance sheet to fixed rate long term debt as our hedges mature at the end of 2026.

Finally, the guidance presentation focuses on growth. The reduction of debt enables the company to have a balance sheet that will unlock our ability to grow. Page 7 shows post transformation Our earnings profile will consist of roughly 50% retail and and 50% office NOI with 94% of that NOI in mixed use communities. Page eight demonstrates the potential opportunity and estimated NOI trend with organic growth planned 2026 acquisition growth and the potential future acquisition growth. Page 9 illustrates both NOI and leverage trends on a historical and post transformation basis, demonstrating strong retail and office NOI performance and a significant reduction in debt.

Please note our focus in 2026 is on transformation rather than expansion, prioritizing earnings quality, durability of cash flows and balance sheet strength over short term growth metrics. Turning to the balance sheet, our capital strategy is anchored in three principles resilience, discipline and proactive risk management. We are actively managing our upcoming maturities with three scheduled maturities in the near term a $95 million unsecured term loan maturing in May of 2026, Thames street war maturing in September of 2026 and the Constellation Energy building maturing in November of 2026. Our approach to addressing these maturities is structured and multifaceted, centered around placing long term fixed rate debt either at the property or the corporate level.

We are currently already in the market with each of these loans receiving preliminary pricing and terms. Similar to our inaugural debt private placement which closed last July. This long term fixed rate approach is designed to reduce volatility in our cash flow and earnings, enhance financial resilience and ensure the company operates from a position of balance sheet strength. As the transformative initiatives finalise and we use the capital to pay down debt, the company will be in a much better position to ladder in long term debt, private placements and other long term fixed rate debt, extinguishing our reliance on derivative products as they mature.

I’ll now turn the call back to Sean.

Shawn J. Tibbetts — Chief Executive Officer, President & Chairman of the Board

Thank you Craig and Matt. I’ll close by paraphrasing something Nick Saban often says. The key to sustained success is getting the right people on the bus, aligned around the same principles and standards and focused on executing at a high level. Over the past year, that is exactly what we have done. We are no longer the company we once were. We’ve streamlined, refocused and rebuilt the organization in a way that reflects who we are today. Aligned, disciplined and operating with clarity of purpose. The days of being a sprawling complex octopus are behind us. We are a new company with a sharper strategy, a stronger team and a more accountable operating model.

When focus, accountability and alignment come together, results follow. With that operator, we are ready to open the line for questions.

Question & Answers

Operator

Thank you ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star followed by the 1. On your telephone keypad you will hear a prompt that your hand has been raised and should you wish to cancel your request, please press Star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Thank you. And your first question comes from the line of Victor Fedive from Scotiabank. Please go ahead.

Viktor Fediv — Analyst, Scotiabank

Good morning everyone and thank you for taking my question, Matt. And probably Sean as well. So in terms of your long term growth trajectory, on the page eight of your guidance presentation you highlighted the potential for like 10 million of annualized commercial NOI additions starting from 2027 and beyond, which implies around 150 million of acquisitions. If you just ask him. Six and a half cap rate. So how do you plan to finance this and what are your key assumptions, particularly around share price and debt costs? For These to be achievable.

Shawn J. Tibbetts — Chief Executive Officer, President & Chairman of the Board

Victor, good morning. Thank you for the question. I think this starts with the theme here, right. We want to maintain the appropriate leverage point. Right. So we, I think have done what we said we would do here and demonstrated we’re willing to do what is needed to unlock the value of the existing portfolio. That said, we want to be balanced in our approach, we want to be disciplined in our approach and we want to be consistent in our growth. So there’s a balance here. To your point, we think there’s obviously debt capital available, but at the right time we would like to balance the capital stack by continuing to add equity.

But we’re not going to do that at any cost. Right. And so at the end of the day, the shares need to be trading at the right, at the right level relative to nav for us to even think about that. So what you’re seeing us project here is we think we can get to that point and we think it makes sense in the out 27 years, if you will, to 27, 28 to look for acquisitions that meet kind of our threshold and our crosshairs. Matt, anything you want to add to that relative to the capital stack?

Matthew T. Barnes-Smith — Chief Financial Officer, Treasurer & Corporate Secretary

No, I think you covered it well.

Viktor Fediv — Analyst, Scotiabank

Got it. And then if you look, let’s say five years from now, where do you see, ah, realty trust in terms of retail to office? Noi split.

Shawn J. Tibbetts — Chief Executive Officer, President & Chairman of the Board

Yeah, I think as we’ve got, as we’ve talked about here and thank you for the question, we like to operate and we intend to operate going forward where we can add the most value. And I think it’s pretty clear that we add the most value in both retail and office. And in the short run we are focused on retail and specifically the type of retail that we have in our portfolio. Right. And we’re somewhat agnostic in that regard because again, we add the most value there. I think if you talk to Craig and I’m going to ask him to chime in here, we have our eye on a couple of opportunities.

Now that does not mean we’re going to pull the trigger, but as you’re aware, we’ve embedded in the model about 50 million of capital to outlay to go into acquisition mode, if in fact that makes the most sense for us. But we’re not beholden to that. Craig, you want to add a little more color there?

Craig Ramiro — Executive VP of Asset Management

No, I think that’s good context, Sean. I’ll only add that, look, our team. Has shown the ability to, to continue. To lease space and grow rents and so we will look for acquisition opportunities that display those same fundamentals in the right target markets. Population growth, income growth below market rents, and the ability to drive and create value. So our eyes are open, we are always active in the market and we look forward to executing on our strategy.

Viktor Fediv — Analyst, Scotiabank

Great. And just quick follow up on that. So obviously you’re looking within geographies where you have some expertise and competitive advantage. Just trying to understand how wide your opportunity set is now in terms of you have kind of planned to acquire 50 million this year, but how wide is kind of under consideration pool now for you and what are the key metrics you are kind of paying the most attention to?

Shawn J. Tibbetts — Chief Executive Officer, President & Chairman of the Board

Sure. I think, Victor, the answer is best rooted in markets that have fundamentals that we like and meet our investment thresholds a little more deeply there. Markets with growth, markets with population growth. You know as well as I that we operate in secondary markets. That way we can build a moat and be the best operator. We’re not intending on going into tier one cities and battling out with folks that are 50 times our size. Our cost of capital and our expertise primarily exists in the secondary market. So we like markets that are a reflection of the markets that we’re in today.

We’re not stuck in this geography, but we are mindful about the demographics and the fundamentals specifically that exist in the markets and what their growth looks like on a go forward basis.

Viktor Fediv — Analyst, Scotiabank

Thank you.

Operator

Thank you. And your next question comes from the line of Andrew Berger from Bank of America. Please go ahead.

Andrew Berger — Analyst, Bank Of America

Great. Good morning and congratulations on putting these plans into motion. Could you just talk maybe high level about your latest thoughts on mixed use communities and you know, whether these retail investments that you’re targeting are still within mixed use communities or are these separate? And I guess also to that point on the office side, you know, it sounds like you’re not looking to invest in office at the moment. You know, maybe just any more color there as you think over the next couple of years about that split that you were talking about before with the retail versus office.

You know, if office, is this something you’d be willing to sell if you get the pricing on those assets a bit more in favor.

Shawn J. Tibbetts — Chief Executive Officer, President & Chairman of the Board

Morning, Andrew. Yeah, we are obviously capable in the mixed use space. Right. We have quite a significant chunk of our portfolio that sits in mixed use. So we like mixed use. With that said, as I mentioned earlier to Victor, we like all of retail and we’re willing to look at all of that retail in terms of office. You know, I’ll answer the latter part of your question first we’re capital allocators in the end and that is what we focus on. So if there is an opportunity to harvest capital at an appropriate price, we will do so.

We don’t have intentions of doing so as we sit here today, but we think that the office market does recover, specifically the high quality trophy type assets that we hold. And so we’ll take a look at that. And we continuously look at that over time. But we believe right now the best focus for us is in the retail space.

Andrew Berger — Analyst, Bank Of America

Great, thank you. And could you just provide a little bit more color on the multifamily dispositions, Just maybe anything around the pricing for that and any more color on the timing?

Shawn J. Tibbetts — Chief Executive Officer, President & Chairman of the Board

Sure. As you’re aware, we are under LOI with 11 out of the 14 assets. To be clear, the remaining two, notwithstanding the Smith Landing asset, we will take to market in the near future. So I think the best way to describe this is, number one, we’re looking at fair and competitive pricing relative to market comps on the assets that we own. We’re thinking in the mid 5 cap range. Just to give you. Just to give you a number in terms of progress. We feel really good about this. The buyer as well as ourselves have been leaning in heavily here and we’ve been working feverishly to get there.

We made tremendous progress. Obviously the goal is to de risk the company, remove the uncertainty, set ourselves up for healthy growth. So I want to make sure we keep kind of as our North Star here the deleveraging aspect, selling these assets, harvesting the arbitrage and applying that to the leverage, driving down that leverage on our balance sheet. But yeah, we feel good and we hope to come back to the market very soon and talk more definitively about the deal that we’re able to get to. So we’re excited about that. Actually. I just want to say while I have an opportunity here, I’m proud of this team and the amount of progress we’ve made and we feel good about it and that’s why we chose to share this with the market today.

Andrew Berger — Analyst, Bank Of America

Great, thank you. And maybe just one final one for me on the dividend. You did address the 95% payout ratio earlier. I guess the question is, where would you like to see that trend over time? You know, it’s 95% on 2026 as well as post transformation. Should we be thinking about it, you know, just over the next couple of years as trending lower from. From there? Like, can you just talk a little bit like, is there any other metric we should be looking at besides from AFFO payout ratio just to kind of get a sense of, you know, how you and the board are thinking about the dividend.

Shawn J. Tibbetts — Chief Executive Officer, President & Chairman of the Board

Sure. I think it’s important to note that we were cash flow positive in 2025, which is great. Happy to get us there. Obviously it was a challenging environment to get there, but I think that’s the first sign of help will be cash flow positive in 2026, which is good. I think you should, you should be thinking about this with us being conservative with our capital. Right. And we want to pay out a nice dividend, but we don’t want to overpay a dividend. So at the end of the day, you’re not going to see us aggressively hike that.

You’re going to see us stay in comp. In compliance with the REIT standards. Right. But also, you know, put, put the capital back to shareholders in an appropriate manner. I guess that’s a long way of saying we are not in a hurry to hike the dividend. We’re in a hurry to simplify this company and delever this company. And the dividend will fall into place as the company grows and as the cash flows grow.

Andrew Berger — Analyst, Bank Of America

Thank you.

Operator

Thank you. And your last question comes from the line of John Peterson from Jefferies. Please go ahead.

Jonathan Petersen

Oh, great, thanks. I was hoping you could talk about. Development as part of your long term strategy for growth. It seems like in the near term. The focus is maybe more on acquisition of retail properties. But do you anticipate being a developer in the future?

Shawn J. Tibbetts — Chief Executive Officer, President & Chairman of the Board

Morning, John. Thank you for the question. Great question. Obviously, development has helped build a good piece of the portfolio that we own today. That being said, as you’re aware of capital cost, cost of capital are up relative to where they were in our past. And we, although we are willing to do development where it makes sense, we believe there’s a risk adjusted spread that’s required there. So we think the most accretive given the, given the timing would be acquisition in the short run.

That said, we are willing to do development surgically and in the right space and I’ll just offer as a proxy the bed bath and beyond conversion to Trader Joe’s. Right. That was a quick conversion of an existing box. And as Craig mentioned, We experienced almost 60% increase over the former rents and a relatively short duration. So we’re looking for surgical development opportunities, really thinking redevelopment. We do have conversations frequently about development with partners, but I think you’re going to see us partner with others to do development as opposed to large scale development pipelines. As you’ve seen us as you’ve seen us deploy in the past.

Jonathan Petersen

Okay, that makes sense. I was hoping to maybe also get more context on the growth from your core businesses, retail and office that’s expected in 2026. I think the guidance is for 1.7% same store NOI, but your fourth quarter growth number was quite a bit higher than that. So are there any sort of headwinds or move outs in the office portfolio and maybe are you able to able to parse out expected growth in office versus retail in 26 on a same store basis?

Shawn J. Tibbetts — Chief Executive Officer, President & Chairman of the Board

Sure. I’ll start by saying the team has done a tremendous job working ahead of the curve on move outs vacancies and I think Craig can give you some more color here.

But at the end of the day we see upside. I think Craig mentioned the West Elm in the comments previously. We see, we see opportunity there given the very low rent relative to the market there. So Craig and his team have been working on this. As you know, we take very seriously the rollover and vacancies and we like to stay ahead of those. I think. Craig, if you don’t mind, would you add a little more color on what you’re seeing out in 2026 and beyond?

Craig Ramiro — Executive VP of Asset Management

Yeah, happy to. Sean and John, thank you for the question. Yeah, in my prepared remarks I mentioned the anchor spaces that we, that we got back with the bankruptcies of Comp Party City. Joann We’ve made a ton of progress there in terms of backfilling and leasing. Still have a little bit of work to go. And of course with tenant build out and move in, there is lag in between former tenant exiting and new tenant commencing rent. So 26, we’re in that in between period for the most part. And that’s what you’ll see way a bit on 26 growth with anticipated growth coming in 27 in the beginning and throughout throughout 27.

So that’s really what’s dragging on retail results for next year. Sean mentioned West Elm. That is space that we did take back this first quarter at below market rents. So we’re excited, actually really excited about taking that space back and the ability to release at two to three times rents, bringing those spaces to market on the office side. Not a ton of rollover there. Right. So near term risk is low and well diversified across the portfolio. The two things really causing headwinds for us. The space at one city center in Durham which we’ve all known about and have been proactively managing to try to mitigate, we’re seeing good interest in the market there, as well as a little bit of space we took back at Will’s Wharf to accommodate our existing anchor and to offer greater flexibility to prospects the market. So all told, I think 26 will be a little bit of a gap year in terms of that with expected Greater growth in 2027.

Jonathan Petersen

Great. Appreciate the color. Thank you, guys.

Operator

Thank you. That ends our question and answer session. I will now hand the call back to Sean Tibbetts for any closing remarks.

Shawn J. Tibbetts — Chief Executive Officer, President & Chairman of the Board

Sure. Thank you very much. So thank you all for joining us today and your interest in our company. I just want to share with you, we couldn’t be more excited about this. Our team is focused, our team is intentional, and we are looking forward to putting the company on a growth trajectory. And that’s really our message here, right? We are working feverishly to put the balance sheet in the place that it should be and set ourselves up for growth for the coming years. So thank you all for your interest today. We appreciate your time and your investment in us.

Operator

And this concludes today’s call. Thank you for participating. You may all disconnect.