Acadia Realty Trust — 2022 Q1 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 metropolitan areas. The filing covers the unaudited three months ended March 31, 2022, compared with March 31, 2021 amounts that were restated. At March 31, 2022, the Company had interests in 188 properties across its Core Portfolio and opportunity funds, with 181 operating properties and 13.8 million square feet at 88.5% occupancy.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenues | $81.5 million | $68.2 million | +$13.3 million |
| Rental income | $79.5 million | $66.0 million | +$13.5 million |
| Operating income | $40.0 million | $8.8 million | +$31.2 million |
| Net income | $44.1 million | $0.7 million | +$43.4 million |
| Net income attributable to Acadia | $16.8 million | $4.8 million | +$12.0 million |
| Basic and diluted EPS | $0.18 | $0.05 | +$0.13 |
| FFO attributable to common shareholders and OP unitholders | $35.4 million | $24.0 million | +$11.4 million |
| Diluted FFO per share | $0.36 | $0.26 | +$0.10 |
| Net cash provided by operating activities | $26.5 million | $31.0 million | -$4.5 million |
Reported operating margin was approximately 49.1% in Q1 2022 versus 12.8% in Q1 2021, primarily reflecting higher property disposition gains. Core Portfolio same-property NOI increased 9.7% to $29.8 million. Core Portfolio new and renewal leases produced cash rent growth of 7.8% and straight-line rent growth of 10.6%.
At March 31, 2022, total assets were $4.50 billion, including $3.60 billion of net real estate, $413.1 million of investments in and advances to unconsolidated affiliates, and $48.0 million of cash and restricted cash. Consolidated total indebtedness was $1.82 billion, consisting of $975.9 million of fixed or effectively fixed-rate debt and $850.3 million of variable-rate debt. The Company had $101.6 million available under its Core revolver and approximately $158.0 million of additional capacity under existing Core and Fund revolving facilities.
Material changes versus the prior comparable period
- Revenue growth reflected acquisitions, properties placed into service, and lower COVID-19-related credit loss reserves. Core revenue increased $6.1 million and Fund revenue increased $7.4 million.
- Q1 2022 included $28.8 million of gains on property dispositions, compared with $4.6 million in Q1 2021.
- Realized and unrealized holding gains increased to $15.7 million from $5.1 million, including a $12.6 million unrealized gain on the Company’s Albertsons investment and a $1.5 million gain from the sale of a Fund III investment.
- General and administrative expense increased to $11.9 million from $9.0 million, including approximately $2.0 million of acquisition costs and higher salaries and headcount.
- Operating cash flow declined despite higher earnings, while investing cash use increased substantially because of acquisitions and investments in unconsolidated affiliates.
- The Company sold 5.15 million common shares through its ATM program for $111.5 million of net proceeds. Approximately $230.7 million remained available under the ATM program.
- Net real estate increased to $3.60 billion from $3.42 billion at year-end 2021. The Company completed approximately $220.7 million of consolidated acquisitions and foreclosure-related property additions and invested in two Fund V unconsolidated ventures.
Guidance, outlook, risks and unusual items
The filing does not provide a specific quantitative earnings or FFO outlook. Management’s strategy remains focused on acquiring and operating urban and suburban retail assets, pursuing Fund investments, maintaining balance-sheet flexibility, and funding development and redevelopment.
- Debt maturities and refinancing: Without extension options, $619.3 million of consolidated debt was scheduled to mature during the remainder of 2022 and $173.5 million in 2023. Fund II’s City Point property accounted for $256.7 million of 2022 maturities and $39.5 million of 2023 maturities. Management expected to refinance or otherwise address maturities, but stated that financing may not be available on acceptable terms.
- Interest-rate exposure: A 100-basis-point increase in applicable indices would increase annual interest expense by approximately $8.5 million on variable-rate debt, with Acadia’s share after noncontrolling interests estimated at approximately $1.7 million. Approximately $798.2 million of variable-rate debt was fixed through swaps and $107.3 million was subject to interest-rate caps.
- Defaulted note: One Core Portfolio note totaling $21.6 million, including accrued interest, remained in default after maturing in April 2020. Management believed the collateral was sufficient to cover the carrying value and reserved its rights under the loan documents.
- Development commitments: Estimated costs to complete six consolidated and one unconsolidated development or redevelopment projects were $76.5 million to $101.2 million, with Acadia’s estimated share of $43.5 million to $54.7 million. Most remaining costs were discretionary.
- Restatement and controls: Prior-period financial statements were restated due to an accounting error involving improper consolidation of two less-than-wholly-owned Fund investments. Management reported that disclosure controls were not effective as of March 31, 2022 because a material weakness in internal control over financial reporting remained under remediation.
- Other risks: Key risks include tenant credit and renewals, COVID-19 effects, capital-market access, interest rates and LIBOR discontinuation, refinancing, joint-venture dependence, development execution, property damage, environmental matters, cybersecurity, REIT qualification, and valuation of investments.
- Subsequent events: In April 2022, the Company acquired the $85.4 million Henderson Portfolio, entered into a $175.0 million term loan used to repay the revolver, and Fund V obtained or modified additional financing.
Most important facts for investors to verify
- Whether the material weakness related to Fund-investment consolidation has been fully remediated and whether additional restatements are required.
- The refinancing status and extension outcomes for the substantial 2022 and 2023 debt maturities, particularly Fund II’s City Point obligations.
- Tenant occupancy, rent collections, credit loss reserves, and leasing spreads as post-pandemic conditions evolve.
- The collectability and collateral value supporting the $21.6 million defaulted Core Portfolio note.
- The sustainability of FFO growth after excluding property disposition gains, Albertsons mark-to-market gains, and other nonrecurring items.
- Exposure to higher interest rates given the increase in variable-rate debt to 46.6% of consolidated debt.
- Capital requirements and expected returns for acquisitions, Fund commitments, development projects, and unconsolidated investments.