Acadia Realty Trust — Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2017, filed February 27, 2018. Acadia is a fully integrated U.S. equity REIT focused on retail properties in high-barrier-to-entry, supply-constrained metropolitan areas. Operations are conducted primarily through its approximately 95%-owned Operating Partnership and four consolidated opportunity funds. Reportable segments are Core Portfolio, Funds, and Structured Financing.
At year-end, the Company had 176 properties across its Core Portfolio and Funds, including 116 Core operating properties totaling approximately 6.3 million square feet and 54 Fund operating properties totaling approximately 4.2 million square feet. Core occupancy was 93.5%; Fund occupancy was 86.5%.
Financial and operating metrics
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Revenue | $250.3 million | $189.9 million | +31.8% |
| Net income attributable to Acadia | $61.5 million | $72.8 million | -15.5% |
| Basic and diluted EPS | $0.73 | $0.94 | -$0.21 |
| Funds from operations attributable to common shareholders and OP unit holders | $134.7 million | $117.1 million | +15.0% |
| Diluted FFO per share/OP unit | $1.51 | $1.44 | +4.9% |
| Net cash from operating activities | $119.8 million | $111.8 million | +$8.0 million |
| Net debt before issuance costs and premium | $1.438 billion | $1.506 billion | -$67.3 million |
| Cash and cash equivalents | $74.8 million | $71.8 million | +$3.0 million |
Operating income was $17.3 million, compared with $21.9 million in 2016. The decrease reflected higher depreciation, operating expenses, and $14.5 million of impairment charges. Interest expense increased to $59.0 million from $34.6 million, while interest income increased to $29.1 million from $25.8 million.
Core Portfolio NOI increased to $132.6 million from $117.9 million. Same-property Core NOI was $100.8 million, essentially flat year over year at a 0.1% increase. Core new and renewal lease spreads were 9.1% on a cash basis and 18.3% on a straight-line basis.
Cash dividends declared were $1.05 per common share, including quarterly dividends of $0.26, $0.26, $0.26, and $0.27. The Company paid $106.7 million of dividends and distributions on common shares and OP units during 2017. For tax purposes, 78% of 2017 distributions represented ordinary income and 22% represented capital gains.
Material changes versus the prior comparable period
- Revenue growth primarily reflected Core acquisitions completed in 2016 and Fund acquisitions and development projects placed in service during 2017.
- Funds segment revenue increased $40.6 million, but Funds net income attributable to Acadia declined $33.9 million because of higher depreciation, operating expenses, interest expense, impairments, and lower disposition gains.
- Core net income attributable to Acadia increased $13.5 million, supported by prior-year acquisitions and the consolidation of Market Square.
- The Company acquired or converted seven properties with aggregate consideration of approximately $254.5 million, including four Fund V shopping centers for $167.2 million and the consolidation of Market Square.
- The Company sold five consolidated Fund properties for $281.3 million and recognized a $48.9 million consolidated gain. Including unconsolidated dispositions, Fund property sales totaled approximately $345.8 million.
- Structured Financing notes receivable declined to $153.8 million from $276.2 million, primarily due to conversions of notes into real estate interests and repayments. The Company also recovered a previously defaulted $12.0 million note plus interest and fees.
- Variable-rate debt declined to $538.7 million from $645.2 million, reducing variable-rate exposure to 37.5% of debt from 42.9%. Approximately $504.0 million of variable-rate debt was effectively fixed through swaps.
- There were no equity issuances under the ATM program in 2017, compared with substantial ATM and follow-on issuance in 2016.
Guidance, outlook, commentary, risks, and unusual items
The filing does not provide a specific 2018 earnings or FFO guidance range. Management emphasized continued investment in high-quality retail properties, selective development and redevelopment, Fund growth, disciplined acquisitions, and maintaining a flexible balance sheet.
- Six development projects remained in progress at year-end. Estimated additional costs were $75.7 million to $101.7 million, with the Company’s share estimated at approximately $25.1 million to $33.2 million.
- Remaining capital commitments to the Funds were $131.9 million. Construction commitments totaled $92.2 million.
- Consolidated debt maturities were $94.4 million in 2018, $213.6 million in 2019, and $576.4 million in 2020. Management expected to refinance at least a portion of upcoming maturities, but cautioned that acceptable financing may not be available.
- A $26.3 million Core Portfolio mortgage was in default at year-end. The lender filed a lawsuit seeking approximately $32.1 million including principal, interest, penalties, and fees. Management believes the loan is non-recourse and the lawsuit is without merit.
- The Company had $166.5 million of additional capacity under existing revolving debt facilities and $74.8 million of cash at year-end.
- Impairment charges totaled $14.5 million, including $10.6 million related to a property classified as held for sale and $3.8 million related to City Point Condominium Tower I.
- The Tax Cuts and Jobs Act resulted in a $2.0 million reduction to deferred tax assets. The filing states that the ultimate effects of the legislation remained uncertain.
- Key business risks include retail-sector weakness, tenant bankruptcies and anchor departures, e-commerce and changing consumer behavior, geographic concentration in New York and Chicago, interest-rate increases, refinancing risk, development cost overruns, environmental liabilities, joint-venture risks, and REIT qualification requirements.
- Subsequent events included a new $500.0 million senior unsecured credit facility, a $45.2 million Fund V acquisition, a $26.0 million note repayment, and authorization of a new share repurchase program for up to $200.0 million.
Most important facts for investors to verify
- Reconcile GAAP earnings decline with the 15.0% increase in FFO and assess the contribution of nonrecurring property gains, impairments, and disposition activity.
- Review 2018–2020 debt maturities, refinancing plans, interest-rate sensitivity, covenant compliance, and the status of the defaulted $26.3 million mortgage.
- Evaluate Fund V capital commitments, development spending, lease-up assumptions, and the relatively low 86.5% Fund occupancy.
- Assess exposure to major tenants, anchor tenants, lease expirations, and retail-sector disruption from e-commerce and retailer distress.
- Confirm the economics and potential dilution associated with OP units, preferred OP units, LTIP units, and the new $200.0 million share repurchase authorization.
- Review the effect of the Tax Cuts and Jobs Act and adoption of new revenue, lease, credit-loss, and cash-flow accounting standards.