Acadia Realty Trust — 1Q23 Form 10-Q Summary
Business context and reporting period
Acadia Realty Trust is a fully integrated equity REIT focused on retail properties in high-barrier-to-entry, supply-constrained U.S. metropolitan areas. The company owns or has interests in 200 properties: 149 Core Portfolio properties and 51 properties held through four opportunity funds. The filing covers the unaudited three months ended March 31, 2023, compared with the three months ended March 31, 2022.
At March 31, 2023, operating properties were 91.0% occupied overall, including 92.2% for the consolidated Core Portfolio and 90.3% for the Fund Portfolio. Acadia’s share of Core and Fund portfolio occupancy was 91.4%.
Key financial metrics
| Metric | 1Q23 | 1Q22 | Change |
|---|---|---|---|
| Total revenues | $81.8 million | $81.5 million | Up $0.3 million |
| Operating income | $12.1 million | $40.0 million | Down $27.9 million |
| Net income | $22.0 million | $44.1 million | Down $22.1 million |
| Net income attributable to Acadia | $13.4 million | $16.8 million | Down $3.5 million |
| Basic and diluted EPS | $0.14 | $0.18 | Down $0.04 |
| Net operating income — Core Portfolio | $36.2 million | $34.0 million | Up 6.4% |
| Same-property NOI — Core Portfolio | $28.2 million | $26.4 million | Up 7.0% |
| FFO attributable to common shareholders and OP unitholders | $40.7 million | $35.4 million | Up 15.0% |
| Diluted FFO per share/OP unit | $0.40 | $0.36 | Up $0.04 |
Rental income increased to $80.7 million from $79.5 million. Operating expenses were $69.7 million, producing an operating margin of approximately 14.8%, compared with approximately 49.1% in the prior-year quarter. The prior-year period included a $28.8 million gain on property dispositions, which did not recur.
Interest expense rose to $21.6 million from $17.9 million, primarily due to higher average interest rates. Realized and unrealized holding gains increased to $26.8 million from $15.7 million, primarily reflecting a $28.5 million special dividend from Albertsons on a consolidated basis, partly offset by market-to-market losses on Albertsons securities.
Net cash provided by operating activities was $59.4 million, compared with $26.5 million in 1Q22. The improvement was primarily attributable to the Albertsons dividend and higher tenant cash receipts. Investing activities used $3.6 million versus $150.1 million in the prior-year period. Financing activities used $56.7 million versus providing $144.0 million, reflecting lower equity issuance, lower noncontrolling-interest contributions and net debt repayments.
Balance sheet, debt and liquidity
- Total assets were $4.19 billion at March 31, 2023, compared with $4.30 billion at December 31, 2022.
- Cash and cash equivalents were $17.1 million; cash plus restricted cash totaled $31.4 million.
- Total debt before unamortized costs and premiums was $1.76 billion, down from $1.81 billion at year-end 2022. Net indebtedness was $1.75 billion.
- Approximately 78.7% of debt was fixed or effectively fixed, with 21.3% variable-rate debt. Variable-rate exposure was hedged by $1.21 billion of interest-rate swaps and $144.5 million of interest-rate caps.
- The revolving credit facility had $127.4 million of availability, and total additional capacity under existing Core and Fund revolving facilities was $218.6 million.
- Debt maturities, without available extensions, included $288.7 million during the remainder of 2023 and $251.5 million in 2024. Management expects to refinance at least part of these obligations, but cautions that financing may not be available on acceptable terms.
- The company paid $17.1 million of dividends and distributions during the quarter and declared a $0.18-per-share quarterly distribution.
Material changes and unusual items
- Fund V acquired a 90% interest in a venture that acquired Mohawk Commons in Schenectady, New York, for $62.1 million at the venture level.
- Acadia received its share of a $28.5 million Albertsons special dividend and directly owned 1.6 million Albertsons shares at quarter-end, valued at approximately $34.2 million.
- Investments in and advances to unconsolidated affiliates fell to $191.6 million from $291.2 million, primarily reflecting the distribution of Albertsons shares and repayment of a $31.7 million bridge loan.
- The company funded $2.0 million of a remaining $12.8 million construction loan commitment related to 1238 Wisconsin Avenue.
- Core same-property NOI increased 7.0%, and management reported rent growth of 9.9% on a cash basis and 22.3% on a straight-line basis for 17 new and renewal leases covering 54,551 square feet.
- There were no real estate acquisitions, dispositions or impairment charges in the consolidated portfolio during 1Q23.
Guidance, outlook, risks and contingencies
The filing does not provide formal full-year earnings or FFO guidance. Management stated that it continues to see consumer confidence and expects to create value through leasing momentum, development and redevelopment projects, and its leasing pipeline.
- Rising inflation, interest rates, slowing economic growth, banking-sector instability and potential recession could increase borrowing costs, reduce tenant demand and pressure property values.
- Bed Bath & Beyond filed for Chapter 11 bankruptcy on April 23, 2023 and rejected leases at two Core Portfolio locations and three Fund Portfolio locations. These locations represented approximately 2.1% of Core GLA and 0.7% of Fund GLA. Acadia had already signed a new 15-year lease for one affected Core location.
- One Core Portfolio note totaling $21.6 million, including accrued interest, was in default at March 31, 2023. Management believes the collateral is sufficient to cover the carrying value and is pursuing recovery.
- Development and redevelopment projects had estimated remaining total costs of $49.0 million to $66.2 million, with Acadia’s estimated share of $28.8 million to $38.3 million.
- The company had approximately $48.3 million of construction and development commitments and $7.0 million of outstanding letters of credit.
- Fund IV refinanced a $14.6 million mortgage with a $16.5 million mortgage on April 28, 2023. Fund V extended its subscription line on May 1, 2023, and Fund IV repaid a $31.9 million mortgage using subscription-line proceeds.
- Management reported no defaults under the company’s loan agreements, no material changes to previously disclosed risk factors, and effective disclosure controls as of March 31, 2023.
Important facts for investors to verify
- Refinancing progress and pricing for the $288.7 million of consolidated debt maturing during the remainder of 2023 and the $251.5 million due in 2024.
- Actual tenant replacement, rent economics and downtime following Bed Bath & Beyond lease rejections.
- Collection and collateral recovery status for the $21.6 million defaulted structured-financing loan.
- Sustainability of FFO growth after excluding the unusual Albertsons dividend and other investment-related items.
- Execution of the development and redevelopment pipeline and the impact of inflation and interest rates on remaining project costs.
- Occupancy, leasing spreads and tenant-credit trends across the Core Portfolio and Funds.