AKR

ACADIA REALTY TRUST - 10-Q Summary (Q1 2009)

Business Context and Reporting Period

This report covers the quarterly period ended March 31, 2009. Acadia Realty Trust is a fully-integrated, self-managed equity REIT focused on retail properties, including neighborhood shopping centers, mixed-use properties, and self-storage facilities. The company operates through an umbrella partnership REIT (UPREIT) structure and manages three "Opportunity Funds" alongside its Core Portfolio. As of the reporting date, the Trust controlled 98% of the Operating Partnership.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 25% to $35.1 million, driven by a $1.4 million increase in minimum rents from the acquisition of Cortlandt Towne Center and partial service of Fordham Place. Interest income also rose significantly due to new preferred equity investments.
• Profitability: While GAAP Net Income declined 51% to $6.6 million, Net Income attributable to Common Shareholders increased 25% to $10.3 million. The GAAP decline was primarily due to a $3.3 million loss in equity earnings from unconsolidated affiliates (specifically Mervyns impairment charges) compared to a $13.2 million gain in the prior year.
• Discontinued Operations: The quarter included a $5.6 million gain on the sale of six Kroger supermarket locations, contributing $5.8 million to income from discontinued operations.
• Debt Extinguishment: The company recognized a $3.2 million gain from repurchasing $18.5 million of its convertible notes at a discount.
• Cash Flow: Operating cash flow swung from a $5.3 million use of cash in Q1 2008 to a $19.1 million provision in Q1 2009, largely due to the redemption of short-term financial instruments and improved working capital management.

Guidance, Outlook, and Risks

Outlook: Management notes the U.S. economy is in a recession, predicting a decline in retail sales and potential tenant bankruptcies. While occupancy and NOI have not been materially adversely affected as of March 31, 2009, the company warns that credit market conditions remain severely curtailed, potentially limiting external growth and refinancing capabilities.

Dividend Policy: To maintain financial flexibility following a public share offering in April 2009, the company expects to reduce the per-share dividend for the balance of 2009 while maintaining the aggregate annualized cash dividend at approximately $28.6 million.

Risks and Contingencies:

• Refinancing Risk: $135.9 million of debt matures in 2009. While extension options exist for $96.0 million of this amount, the company acknowledges that refinancing the remaining balance in the current credit environment will be difficult.
• Tenant Risk: Deteriorating sales performance by major tenants could lead to bankruptcy filings, negatively impacting cash flows.
• Unconsolidated Affiliates: Significant losses were recorded in the Retailer Controlled Property Venture (RCP Venture) due to impairment charges on Mervyns Department Store locations.

Investor Verification Checklist

• Debt Maturities: Verify the company's ability to refinance or extend the $34.5 million of debt maturing in 2009 without extension options.
• Dividend Sustainability: Confirm the impact of the April 2009 equity issuance on the per-share dividend reduction and the company's ability to maintain the aggregate $28.6 million annual payout.
• Unconsolidated Losses: Review the specific details of the Mervyns impairment charges and the outlook for the RCP Venture investments.
• Acquisition Pipeline: Assess the status of the New York Urban Infill Redevelopment projects (e.g., Fordham Place, CityPoint) and their capital requirements given tight credit markets.
• Convertible Notes: Monitor the remaining balance of convertible notes and the company's strategy for further repurchases or conversions.