Acadia Realty Trust — Form 10-Q Summary
Business context and reporting period
Acadia Realty Trust is an integrated equity REIT focused on retail, urban/infill mixed-use and self-storage properties, primarily in densely populated markets along the U.S. East Coast and in Chicago. The filing covers the three and nine months ended September 30, 2011; financial statements are unaudited. The Company had interests in 95 properties, including 48 core-portfolio properties and 47 properties held through three opportunity funds.
Key financial metrics
| Metric | Three months ended Sept. 30, 2011 | Nine months ended Sept. 30, 2011 |
|---|---|---|
| Total revenues | $37.4 million | $114.3 million |
| Operating income | $10.9 million | $36.2 million |
| Net income | $4.6 million | $39.3 million |
| Net income attributable to common shareholders | $4.0 million | $43.7 million |
| Diluted EPS | $0.10 | $1.08 |
| Funds from operations | $8.9 million; $0.22 per diluted share | $29.5 million; $0.72 per diluted share |
| Net cash provided by operating activities | Not separately reported | $39.1 million |
Operating margin was approximately 29.1% for the quarter and 31.6% for the nine-month period. Nine-month results included a $32.5 million gain on property sales, a $6.9 million impairment charge and a $1.3 million gain on debt extinguishment. Excluding the property-sale gain, reported earnings and FFO were materially lower than GAAP net income.
At September 30, 2011, total assets were $1.606 billion, cash and cash equivalents were $98.0 million, and cash in escrow was $27.6 million. Mortgage and convertible notes payable totaled $871.2 million. Approximately 37.9% of debt was fixed-rate, including hedged variable-rate debt, while 62.1% was floating-rate. Total equity was $649.5 million.
Material changes versus the prior comparable period
- Third-quarter revenue declined slightly from $37.6 million to $37.4 million, while operating income declined from $12.2 million to $10.9 million.
- Quarterly net income attributable to common shareholders declined from $5.1 million to $4.0 million, and diluted EPS declined from $0.13 to $0.10.
- Nine-month revenue increased from $108.9 million to $114.3 million, but net income attributable to common shareholders increased primarily because of the 2011 property-sale gain; 2010 included a $33.8 million bargain-purchase gain.
- Nine-month FFO declined from $38.3 million, or $0.94 per diluted share, to $29.5 million, or $0.72 per diluted share.
- Operating cash flow increased to $39.1 million from $22.6 million, while investing cash usage increased to $98.7 million from $23.1 million because of property acquisitions, development and investments in unconsolidated affiliates.
- Real estate and improvements expanded, with investments of $135.7 million during the first nine months, compared with $60.6 million in the prior-year period.
- Debt increased from $854.9 million at December 31, 2010 to $871.2 million at September 30, 2011. The Company repurchased $24.8 million face amount of convertible notes and recorded a $0.3 million loss on extinguishment.
Guidance, outlook, risks and unusual items
- No formal earnings or operating guidance is provided in the filing. Management expects to pursue acquisitions, redevelopment, re-tenanting and investments through its opportunity funds.
- Management identified approximately $59.4 million of remaining capacity under existing debt facilities, $98.0 million of cash, $21.4 million of unfunded Fund II commitments and $287.6 million of unfunded Fund III commitments as sources of liquidity.
- Debt maturities ranged from October 2011 through November 2032. Approximately $58.5 million of debt matured in 2011, including $32.9 million with extension options; management expected to refinance or otherwise address future maturities based on market conditions.
- The Company had $114.2 million of debt maturities due within one year, $24.9 million of construction commitments and $167.4 million of operating lease obligations.
- Interest-rate exposure is significant: a 100-basis-point increase in LIBOR would increase annual interest expense on consolidated variable-rate debt by approximately $5.4 million before noncontrolling interests. Refinancing at rates 100 basis points higher would increase annual interest expense by approximately $3.9 million.
- Granville Centre was impaired by $6.9 million during the second quarter and was sold in October 2011 for $2.3 million. A September flooding event caused approximately $1.4 million of asset damage; management recorded an offsetting insurance recovery and a $0.1 million deductible-related provision.
- In 2011, the Company acquired multiple retail portfolios and properties, including interests in the Georgetown Portfolio, Chicago properties and other assets. It also entered into pending acquisition agreements totaling $62.8 million for 13 properties and $64.5 million for three Fund III properties, subject to closing conditions.
- Principal risks include economic and tenant-credit conditions, real estate valuation and redevelopment risk, leverage and refinancing risk, interest-rate changes, insurance recoveries, joint-venture control limitations, environmental requirements and REIT distribution requirements. Management reported no material changes to previously disclosed risk factors.
Most important facts for investors to verify
- Reconcile GAAP net income with recurring operating performance and FFO, particularly the impact of the $32.5 million property-sale gain and other unusual items.
- Review near-term debt maturities, extension rights, refinancing plans and the limited remaining availability under credit facilities.
- Assess floating-rate exposure, interest-rate hedges and the potential earnings impact of higher LIBOR or refinancing rates.
- Evaluate acquisition, redevelopment and construction commitments, including pending transactions that remain subject to closing conditions.
- Monitor the recoverability of notes receivable, unconsolidated investments and properties affected by impairment or flooding.
- Confirm dividend coverage, REIT distribution requirements and the effect of noncontrolling interests on common-shareholder returns.