Acadia Realty Trust — Form 10-Q Summary
Business Context and Reporting Period
Acadia Realty Trust is an integrated equity REIT focused on acquiring, owning, managing and redeveloping retail properties in high-barrier-to-entry metropolitan areas, primarily along the East Coast and in Chicago. The filing covers the unaudited three and six months ended June 30, 2014, compared with the same 2013 periods.
At June 30, 2014, the Company had interests in 135 properties: 82 properties in its Core Portfolio and 53 properties in four opportunity funds. Core Portfolio physical occupancy was 96.6% and leased occupancy was 97.0%.
Key Financial Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total revenue | $49.5 million, versus $40.8 million | $96.2 million, versus $83.1 million |
| Operating income | $18.8 million, versus $14.9 million | $33.6 million, versus $31.3 million |
| Operating margin | Approximately 38.0%, versus 36.4% | Approximately 34.9%, versus 37.7% |
| Net income attributable to common shareholders | $11.5 million, versus $8.8 million | $33.1 million, versus $18.4 million |
| Diluted earnings per share | $0.19, versus $0.16 | $0.57, versus $0.34 |
| Funds from operations | $21.1 million, versus $17.3 million | $40.0 million, versus $34.1 million |
| Diluted FFO per share | $0.35, versus $0.31 | $0.67, versus $0.62 |
| Same-property Core Portfolio NOI | $15.7 million, up 4.9% | $31.4 million, up 4.6% |
| Net cash provided by operating activities | Not separately provided | $46.0 million, versus $24.9 million |
Net income included gains on property dispositions of $13.5 million for the six-month period, including a $12.4 million gain from the foreclosure of Walnut Hill Plaza. The prior-year period included a $1.5 million impairment charge.
Balance Sheet, Debt and Liquidity
- Total assets were $2.37 billion at June 30, 2014, compared with $2.26 billion at December 31, 2013.
- Mortgage and other notes payable were $1.07 billion, compared with $1.04 billion at year-end 2013. Estimated fair value was $1.09 billion.
- Cash and cash equivalents were $86.8 million. Restricted cash was $71.3 million, primarily related to City Point construction funding.
- Available capacity under the Company’s credit facilities was $259.4 million, including $137.5 million under the unsecured revolving facility and $121.9 million under the Fund IV subscription facility.
- Approximately 73.4% of debt was fixed-rate, including interest-rate swaps, at a weighted-average rate of 5.03%; 26.6% was floating-rate at a weighted-average rate of 1.96%.
- Debt maturities were $40.1 million within one year, with total future debt maturities of $1.07 billion. Management expected to refinance at least part of the 2014 maturities.
- The Company issued approximately 3.4 million common shares through its ATM program during the six months, generating approximately $91.2 million of net proceeds.
- Common shareholder dividends declared were $0.46 per share for the six-month period. Dividends and distributions to common shareholders, OP unitholders and LTIP holders totaled $27.2 million.
Material Changes Versus the Prior Comparable Period
- Revenue increased 21.3% in the quarter and 15.8% for the six months, primarily from 2013 and 2014 acquisitions, Fund re-tenanting activity and higher expense reimbursements.
- Six-month rental income increased $10.4 million, driven by Core Portfolio and Fund acquisitions and re-tenanting initiatives.
- Operating income increased 26.7% in the quarter and 7.2% for the six months. Six-month margin declined because expenses, depreciation and amortization grew alongside the acquisition and redevelopment program.
- Six-month net income attributable to common shareholders increased 79.9%, substantially reflecting the $12.9 million gain on property dispositions and the absence of the prior-year $1.5 million impairment charge.
- Operating cash flow increased $21.1 million, while investing cash use increased to $169.1 million from $101.1 million because of acquisitions, redevelopment spending, lower returns of capital and additional structured-finance investments.
- Core Portfolio same-property NOI grew 4.9% in the quarter and 4.6% for the six months, primarily from contractual rent increases and occupancy gains.
- The Company acquired six Core Portfolio properties for $145.7 million and Fund IV acquired a 50% interest in the Broughton Street Portfolio for $26.0 million.
Outlook, Commentary, Risks and Unusual Items
No formal earnings or financial guidance was provided. Management continued to emphasize acquisitions, redevelopment, re-tenanting and maintaining balance-sheet flexibility. The acquisition pipeline under contract totaled $67.7 million, subject to customary closing conditions. Seven Fund assets were under contract for sale for an aggregate $374.0 million, with anticipated net proceeds of approximately $195.6 million, including approximately $42.0 million attributable to the Operating Partnership.
- Redevelopment and construction commitments totaled $114.4 million. Fund redevelopment projects had total costs to date of $415.5 million, with additional anticipated costs varying by project.
- Unfunded capital commitments from noncontrolling interests in Funds III and IV totaled $409.3 million.
- Three non-performing notes receivable totaled $9.1 million at June 30, 2014. No reserve was recorded because management believed collateral and other credit indicators supported the carrying value.
- Interest-rate risk remains material. A 100-basis-point increase in LIBOR would increase annual interest expense on consolidated variable-rate debt, net of swaps, by approximately $2.9 million; the Company’s share after noncontrolling interests would be approximately $0.7 million.
- Legal proceedings included a tenant claim seeking more than $9.0 million related to a 2011 flood and a construction-related claim of approximately $8.5 million involving the City Point project. The filing states that the Company or applicable affiliates believe they have meritorious defenses; the outcome of the construction claim could not be estimated.
- The Company adopted the revised discontinued-operations guidance prospectively. It also evaluated newly issued revenue-recognition guidance, which was not expected to be adopted until 2017; the impact and adoption method had not been determined.
- Subsequent to quarter-end, the Company acquired Bedford Green for $46.8 million and Fund IV acquired Eden Square for $25.4 million.
Investor Verification Points
- Verify the sustainability of FFO growth after excluding disposition gains, note-collection income and other nonrecurring items.
- Assess refinancing capacity and terms for the $40.1 million of debt due within one year and the larger 2015 maturities.
- Review leasing, occupancy and rent-spread trends supporting same-property NOI growth.
- Evaluate execution risk, remaining costs and funding sources for City Point and other Fund redevelopment projects.
- Review the collectability and collateral supporting the $9.1 million of non-performing notes receivable.
- Monitor litigation outcomes, joint-venture obligations, unfunded commitments and the Company’s exposure to variable interest rates.