AKR

ACADIA REALTY TRUST - 10-Q Summary (Q1 2011)

Business Context and Reporting Period

This report covers the quarterly period ended March 31, 2011. Acadia Realty Trust is a fully-integrated equity REIT focused on owning, managing, and redeveloping high-quality retail and urban/infill mixed-use properties, primarily in the Northeast, Mid-Atlantic, and Midwestern United States. As of the reporting date, the Company operated 82 properties across its Core Portfolio and three Opportunity Funds (Fund I, II, and III).

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased by $2.3 million (6.2%) driven by higher rental income in the Opportunity Funds due to new leases at redevelopment properties (Fordham Place, Pelham Manor, Canarsie) and increased occupancy in the Self-Storage portfolio.
• Profitability Surge: Net income attributable to common shareholders increased by $4.3 million (83.6%). This was significantly boosted by a $3.9 million gain on the sale of a property (discontinued operations) and a $1.7 million gain on debt extinguishment.
• Investing Activity: Net cash used in investing activities increased to $49.0 million from $11.6 million, primarily due to a $40.5 million increase in investments in unconsolidated affiliates (acquisitions of Lincoln Road and White Oak properties) and increased real estate expenditures.
• Financing Activity: Net cash provided by financing activities turned positive at $31.0 million, compared to a $25.6 million outflow in the prior year, driven by $48.1 million in new mortgage borrowings and reduced debt repayments.

Guidance, Outlook, and Risks

• Outlook: Management continues to focus on internal growth through redevelopment and external growth via acquisitions. The Company expects to utilize Fund III and future funds as primary vehicles for acquisitions. Significant capital commitments remain unfunded by noncontrolling interests ($27.8 million for Fund II and $287.6 million for Fund III).
• Debt Maturities: Approximately $420.9 million of debt matures in 2011. Management expects to refinance a portion of this indebtedness based on market conditions. $210.5 million of this represents Fund III subscription line borrowings payable from capital calls.
• Risks & Contingencies:
  • Legal Proceedings: No material legal proceedings beyond those previously disclosed.
  • Venture Partner Issue: The Company became aware of charges against a partner in P/A Associates LLC, a venture partner in certain Fund II projects. P/A has been relieved of all operational authority regarding these projects. The Company stated it had no knowledge of improper activities.
  • Market Risk: 54.6% of the debt portfolio is variable-rate. A 100 basis point increase in LIBOR would increase annual interest expense by approximately $4.9 million.
• Subsequent Events: In April 2011, Fund III acquired The Heritage Shops at Millennium Park in Chicago for $31.6 million.

Investor Verification Checklist

• Debt Refinancing: Verify the Company's ability to refinance the $420.9 million of debt maturing in 2011, particularly the $210.5 million Fund III subscription line.
• Discontinued Operations Impact: Assess the sustainability of earnings given the $3.9 million gain from the sale of the Neiman Marcus leasehold interest, which is a non-recurring item.
• Venture Partner Exposure: Monitor the status of the Fund II projects involving P/A Associates LLC to ensure no financial or operational disruption occurs.
• Unconsolidated Affiliate Performance: Review the performance of the RCP Venture (Mervyns, Albertsons, etc.) and Opportunity Funds, as the Company recorded a loss of $148,000 in equity earnings from these affiliates in Q1 2011.
• Liquidity Position: Confirm that the $107.3 million cash balance and $64.9 million in available credit facility capacity are sufficient to cover upcoming debt maturities and capital calls.