ACADIA REALTY TRUST quarterly report, Q2 FY2022

Acadia Realty Trust — Form 10-Q Summary

Business Context and Reporting Period

Acadia Realty Trust is an integrated equity REIT focused on retail properties in densely populated, supply-constrained U.S. markets. It operates through Acadia Realty Limited Partnership and reports three segments: Core Portfolio, Funds, and Structured Financing.

This unaudited Form 10-Q covers the three and six months ended June 30, 2022. Prior-year interim amounts are presented as restated following previously disclosed accounting restatements.

The portfolio included 203 properties: 152 Core Portfolio properties and 51 properties held through opportunity funds.
Operating properties were 88.5% occupied on a consolidated Core and Fund basis and 89.5% occupied based on Acadia’s share.

Financial Results and Key Metrics

Metric	Three Months Ended June 30, 2022	Three Months Ended June 30, 2021	Six Months Ended June 30, 2022	Six Months Ended June 30, 2021
Total revenues	$84.3 million	$73.1 million	$165.8 million	$141.2 million
Operating income	$25.6 million	$12.9 million	$65.7 million	$21.7 million
Net income attributable to Acadia	$(0.4) million	$3.7 million	$16.5 million	$8.5 million
EPS, basic and diluted	$0.00	$0.04	$0.17	$0.09
Funds from operations attributable to common shareholders and OP unitholders	$23.4 million	$28.1 million	$58.8 million	$52.1 million
Diluted FFO per share and OP unit	$0.23	$0.30	$0.59	$0.56

Operating margin was approximately 30.4% in the second quarter and 39.6% for the first six months, compared with approximately 17.7% and 15.3%, respectively, in the comparable restated periods. The improvement primarily reflected higher gains on property dispositions, while second-quarter net income attributable to Acadia was reduced by investment losses.

Rental income increased to $80.6 million in the second quarter and $160.0 million for the six months, from $72.1 million and $138.1 million, respectively.
Second-quarter realized and unrealized holding losses were $26.3 million, compared with a $1.8 million gain in the prior-year period. The primary driver was a $14.3 million unrealized loss on the Albertsons investment and other Fund-related valuation changes.
Six-month gain on disposition of properties was $41.0 million, compared with $10.5 million in the prior-year period.
Core Portfolio same-property NOI increased 4.8% in the second quarter and 7.1% for the six months.
Core new and renewal lease spreads increased 4.3% on a cash basis and 15.4% on a straight-line basis in the second quarter; six-month spreads were 6.7% and 12.1%, respectively.

Cash Flow, Balance Sheet, Debt and Liquidity

Net cash provided by operating activities was $64.8 million for the six months, compared with $50.6 million in the prior-year period.
Investing activities used $141.9 million, primarily reflecting $242.6 million of real estate acquisitions, $99.9 million of investments in and advances to unconsolidated affiliates, and $25.3 million of development and property improvement spending.
Financing activities provided $84.5 million, including $119.5 million of net ATM equity proceeds, $99.9 million of noncontrolling-interest contributions, and new unsecured debt proceeds, partially offset by debt repayments and shareholder distributions.
Cash and restricted cash totaled $34.9 million at June 30, 2022, compared with $27.6 million at December 31, 2021.
Total assets were $4.44 billion, including $3.64 billion of net real estate investments. Total equity was $2.36 billion.
Total indebtedness was $1.81 billion after debt issuance costs and premiums, broadly unchanged from year-end 2021. Gross consolidated debt was $1.82 billion.
Debt was 64.0% fixed or effectively fixed and 36.0% variable. Variable-rate debt totaled $655.8 million, with $989.9 million of variable-rate debt fixed through swaps and $107.3 million subject to interest-rate caps.
Consolidated debt maturities without extension options totaled $430.9 million in the remainder of 2022 and $238.8 million in 2023. The Company had $346.2 million of additional capacity under existing Core and Fund revolving facilities.
The Company declared quarterly distributions of $0.18 per common share and OP unit during the first and second quarters of 2022. It paid $32.7 million of common-share and preferred-OP-unit dividends and distributions during the six months.

Material Changes Versus the Prior Comparable Period

Revenues increased 15.3% in the second quarter and 17.4% for the six months, driven by acquisitions, leasing activity, tenant-related collections and lease termination income.
Second-quarter net income attributable to Acadia declined to a loss of $0.4 million because investment valuation losses more than offset higher operating income and disposition gains.
Six-month net income attributable to Acadia increased 93.0% to $16.5 million, supported by substantially higher disposition gains and improved Core Portfolio results.
Six-month FFO increased 12.8% to $58.8 million, but second-quarter FFO declined 16.7% to $23.4 million.
Acadia acquired or consolidated substantial assets, including the 121 Spring Street, Williamsburg Collection, 8833 Beverly Boulevard and Henderson Portfolio investments, and the foreclosure-related consolidation of 640 Broadway.
Acadia sold several Fund properties and recognized $41.0 million of aggregate gains during the six months.
Acadia issued 5.5 million common shares through its ATM program for $119.5 million of net proceeds. Shares outstanding increased to approximately 94.9 million from 89.3 million at year-end 2021.
The Company increased its ownership in Fund II and Mervyns II to 40% through an $18.5 million investment during the quarter.

Guidance, Outlook, Risks and Unusual Items

The filing does not provide formal quantitative earnings or FFO guidance. Management’s stated strategy remains focused on acquiring and managing Core Portfolio assets, pursuing opportunistic Fund investments, recycling assets, and maintaining balance-sheet flexibility.

Management estimated remaining development and redevelopment costs of $73.0 million to $97.7 million through 2025, with Acadia’s expected share of approximately $40.8 million to $52.0 million. Most remaining costs are discretionary.
Management expects to refinance at least part of maturing debt, but cautions that financing may not be available on acceptable terms. A 100-basis-point increase on refinanced debt could increase annual interest expense by approximately $7.3 million, of which Acadia’s share would be approximately $2.6 million.
A 100-basis-point increase in applicable indices on variable-rate debt would increase annual interest expense by approximately $6.6 million before noncontrolling interests and $1.8 million after giving effect to noncontrolling interests.
One Core Portfolio note totaling $21.6 million, including accrued interest, remained in default at June 30, 2022. Management believes the collateral is sufficient to cover the carrying value.
Rents receivable reserves totaled $31.3 million at June 30, 2022. The Company had received $2.4 million under a conditional settlement with a former tenant and recognized the amount as credit-loss recoveries.
The Albertsons investment was subject to a lockup extension through September 10, 2022 and generated a $14.3 million second-quarter unrealized holding loss.
The Company’s disclosure controls were not effective as of June 30, 2022 because of a previously reported material weakness related to the improper consolidation of two less-than-wholly-owned Fund investments. Remediation efforts were ongoing.
Key risks include tenant credit and renewals, retail-property performance, interest rates and LIBOR transition, refinancing and liquidity, joint-venture partner performance, development execution, valuation volatility, COVID-19 effects, cybersecurity, environmental matters, catastrophic events, REIT qualification, and the impact of the prior-period restatement on investor confidence.

Important Facts for Investors to Verify

Reconcile reported net income with FFO and assess the sustainability of results excluding disposition gains and investment valuation changes.
Review the timing, terms and refinancing status of the $430.9 million of debt scheduled to mature during the remainder of 2022 and the $238.8 million maturing in 2023.
Monitor the material weakness remediation and the implications of the prior-period restatement.
Evaluate exposure to Albertsons valuation changes and other Fund-level investment marks.
Assess the collectability and collateral coverage of the $21.6 million defaulted Core Portfolio note and remaining rents receivable reserves.
Consider dilution from the ATM program, future equity issuance and OP-unit or partner put rights, including the post-quarter acquisition of additional City Point ownership.
Verify subsequent events, including the August 2022 City Point refinancing and Acadia’s increase of its City Point ownership to approximately 62%.