Acadia Realty Trust 2021 Form 10-K Summary
Business context and reporting period
Acadia Realty Trust is a fully integrated Maryland REIT focused on owning, acquiring, developing and managing retail properties in supply-constrained, densely populated U.S. markets. The company operates through an UPREIT structure and reports three segments: Core Portfolio, Funds and Structured Financing. This filing covers the fiscal year ended December 31, 2021; comparative 2020 and 2019 amounts are presented as restated.
At year-end, the company had interests in 186 Core Portfolio and Fund properties. The Core Portfolio included 128 operating properties totaling approximately 5.6 million square feet and was 88.3% occupied and 92.2% leased. Fund properties totaled approximately 7.9 million square feet and were 88.2% occupied and 91.5% leased.
Financial performance and key metrics
| Metric | 2021 | 2020, as restated | Change |
|---|---|---|---|
| Total revenues | $292.5 million | $250.9 million | +$41.6 million |
| Net income attributable to Acadia | $23.5 million | $(9.0) million | Improved by $32.5 million |
| Basic and diluted earnings per share | $0.26 | $(0.11) | Improved by $0.37 |
| Funds from operations | $117.1 million | $114.4 million | +$2.7 million |
| Diluted FFO per share and OP unit | $1.26 | $1.24 | +$0.02 |
| Core Portfolio NOI | $127.2 million | $124.3 million | +$2.9 million |
| Same-property Core NOI | $117.2 million | $115.4 million | +1.5% |
| Net cash from operating activities | $105.0 million | $103.9 million | +$1.1 million |
| Net cash used in investing activities | $(198.5) million | $(100.9) million | $(97.6) million |
| Net cash from financing activities | $91.3 million | $(1.3) million | +$92.6 million |
| Cash and restricted cash at year-end | $27.6 million | $29.8 million | Decreased $2.2 million |
Revenue growth primarily reflected lower COVID-19-related credit loss reserves, reversals of previously reserved tenant balances, acquisitions, higher tenant recoveries and termination income. These benefits were partly offset by tenant vacancies, higher rent abatements and property dispositions.
Reported earnings included $49.1 million of realized and unrealized holding gains on investments and other, including a $51.9 million mark-to-market gain on the company’s Albertsons investment, partly offset by a $4.5 million loss in Structured Financing. The company recorded $9.9 million of impairment charges, compared with $85.6 million in 2020.
At December 31, 2021, total assets were $4.26 billion, net real estate was $3.42 billion, total equity was $2.15 billion and total indebtedness was $1.81 billion. Cash on hand at consolidated subsidiaries was $17.7 million. The company had $199.4 million of additional capacity under existing consolidated Core and Fund revolving facilities.
Debt, liquidity and capital allocation
- Consolidated debt before unamortized costs and premiums was $1.82 billion, consisting of $1.04 billion fixed or effectively fixed-rate debt and $780.9 million variable-rate debt.
- Variable-rate debt represented 42.9% of consolidated debt. A 100-basis-point increase in rates would increase annual interest expense by approximately $7.8 million before noncontrolling interests.
- Approximately $757.2 million of consolidated debt was scheduled to mature in 2022 and $110.5 million in 2023, without giving effect to extension options. The company had options to extend $187.2 million of 2022 maturities and $41.5 million of 2023 maturities.
- The company stated that it expected to refinance at least part of upcoming maturities, but disclosed that financing may not be available on acceptable terms.
- The company issued 2.9 million common shares through its ATM program in 2021 for $64.9 million of gross proceeds and made no share repurchases. Approximately $122.6 million remained available under the repurchase authorization.
- Capital contributions to the Funds totaled $9.5 million in 2021. The company’s remaining Fund capital commitments were $70.3 million.
- The company paid $42.7 million of dividends and distributions on common shares, common OP units and preferred OP units. Common dividends declared totaled $0.60 per share.
Material changes versus prior comparable period
- Revenue increased 16.6%, while net income attributable to Acadia improved from a restated loss of $9.0 million to income of $23.5 million.
- FFO increased modestly by 2.4%, and same-property Core NOI increased 1.5%.
- Fourth-quarter 2021 pre-COVID billings collected or covered by payment agreements were approximately 98% for the Core Portfolio and 94% for the Funds, compared with 91% and 82%, respectively, in fourth-quarter 2020.
- COVID-19-related credit losses and rent abatements declined substantially. The total reported earnings impact of the pandemic was $16.3 million in 2021 versus $134.0 million in 2020.
- The company completed approximately $195.0 million of acquisitions, including a $26.3 million Core acquisition and $168.6 million of Fund V acquisitions. It disposed of consolidated properties for total proceeds of approximately $66.3 million and recorded $10.5 million of aggregate disposition and lease-termination gains.
- The company expanded its credit facility in June 2021, increasing revolver and term-loan capacity by $50 million each, resulting in total facility capacity of up to $700 million.
- Interest-rate exposure increased as variable-rate debt rose from $589.0 million at year-end 2020 to $780.9 million at year-end 2021.
Restatement, controls and unusual items
The company restated its 2020 and 2019 annual financial statements and specified 2020 and 2021 interim periods. The primary issue was an error in the original consolidation of two less-than-wholly-owned Fund investments, 640 Broadway and Paramus Plaza. These investments were reclassified from consolidated investments to investments in unconsolidated affiliates.
The consolidation error reduced previously reported total assets by $55.8 million at December 31, 2020 and $57.4 million at December 31, 2019, and reduced liabilities by $57.5 million and $58.8 million, respectively. Excluding other immaterial adjustments, the error did not affect net income, FFO or distributions in excess of accumulated earnings. Other adjustments reduced 2020 net income attributable to Acadia by $0.2 million and increased 2019 net income by $0.7 million.
Management identified a material weakness in internal control over financial reporting related to the consolidation accounting error. Management and the audit committee concluded that disclosure controls and internal control over financial reporting were not effective as of December 31, 2021. The independent auditor issued an adverse opinion on internal control effectiveness but an unqualified opinion on the restated consolidated financial statements. Remediation includes additional analysis of less-than-wholly-owned investments and enhanced post-closing procedures; the weakness had not been remediated as of the filing date.
Other unusual items included the Albertsons fair-value gain, property impairments, disposition gains, rent concessions, a $5.4 million conditional tenant settlement of which only $0.3 million was recognized, and two structured-financing loans in default. A Fund III note was subsequently resolved through foreclosure in January 2022.
Guidance, outlook and principal risks
The filing does not provide quantitative earnings or FFO guidance. Management’s strategy remains focused on acquiring and managing high-quality retail assets, selectively developing and redeveloping properties, expanding the Funds platform and maintaining balance-sheet flexibility.
- Refinancing and interest-rate risk are significant because of the large 2022 maturity schedule, increased variable-rate exposure and the planned transition away from USD LIBOR.
- Retail tenant performance, lease renewals, vacancies, anchor tenant departures, co-tenancy provisions, bankruptcies and e-commerce trends could reduce rental income and property values.
- COVID-19 remains a contingency risk if new variants or government restrictions again disrupt tenant operations, rent collections or capital markets.
- The company is exposed to geographic concentration, particularly the New York and Chicago metropolitan areas in the Core Portfolio.
- Development and redevelopment projects involve cost overruns, delays, permitting, leasing and stabilization risks. Estimated company-share costs to complete identified projects through 2025 were approximately $45.6 million to $56.8 million.
- Structured-financing investments include collateral, borrower and senior-debt risks. Notes receivable were $153.9 million net of a $5.8 million credit-loss allowance at year-end.
- Real estate impairment estimates depend on subjective assumptions regarding rents, occupancy, holding periods, capitalization rates and future cash flows.
- The company faces environmental, climate, natural-disaster, insurance, cybersecurity, litigation, REIT qualification and joint-venture risks.
Subsequent to year-end, the company sold 4.3 million shares through its ATM program for $96.3 million of gross proceeds, acquired a Soho property for $39.0 million, completed additional property acquisitions and financing transactions, and sold two properties previously classified as held for sale.
Most important facts for investors to verify
- Review the full restatement disclosures and confirm the accounting treatment and balances for 640 Broadway, Paramus Plaza and other unconsolidated affiliates.
- Monitor remediation of the material weakness and whether future filings receive an unqualified internal-control opinion.
- Assess the company’s ability to refinance or extend the approximately $757.2 million of consolidated debt scheduled to mature in 2022.
- Reconcile consolidated debt, unconsolidated pro-rata debt of $188.5 million and available revolving capacity when evaluating leverage and liquidity.
- Evaluate the sustainability of FFO and Core NOI after excluding investment fair-value gains, disposition gains and COVID-19-related recovery effects.
- Track rent collections, occupancy, lease expirations, tenant concessions and exposure to major tenants and concentrated metropolitan markets.
- Review the collectability and collateral coverage of defaulted or otherwise stressed structured-financing loans.
- Confirm post-year-end acquisitions, dispositions, ATM issuances and debt repayments disclosed in Note 18.