Acadia Realty Trust — 2020 Q2 Form 10-Q Summary
Business context and reporting period
Acadia Realty Trust is an integrated equity REIT focused primarily on retail properties in densely populated, supply-constrained U.S. markets. The filing covers the three and six months ended June 30, 2020, and reflects significant operating disruption from the COVID-19 pandemic. At June 30, the company had interests in 187 properties: 131 in its Core Portfolio and 56 in its opportunity funds.
Key financial metrics
| Metric | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 |
|---|---|---|---|---|
| Total revenues | $63.8 million | $70.2 million | $135.2 million | $144.2 million |
| Operating income (loss) | $(5.8) million | $7.1 million | $(52.1) million | $23.3 million |
| Net income (loss) | $64.9 million | $(5.2) million | $4.9 million | $(2.3) million |
| Net income attributable to Acadia | $19.4 million | $9.1 million | $11.0 million | $21.3 million |
| Basic and diluted EPS | $0.22 | $0.11 | $0.12 | $0.26 |
| FFO attributable to common shareholders and OP unitholders | $44.9 million | $31.8 million | $72.7 million | $66.6 million |
| Diluted FFO per share/unit | $0.49 | $0.36 | $0.79 | $0.75 |
| Net cash provided by operating activities | Not separately reported | Not separately reported | $58.5 million | $62.2 million |
Second-quarter net income included $87.8 million of realized and unrealized investment gains, primarily a $64.9 million unrealized gain and approximately $22.8 million realized gain related to the company’s Albertsons investment. These gains were substantially attributable to noncontrolling interests; consequently, Acadia’s reported net income was $19.4 million.
Same-property Core Portfolio NOI declined 18.7% in the second quarter and 10.1% for the six-month period. Core and Fund pro rata leased occupancy was 93.3% and 91.1%, respectively, at June 30, compared with 93.9% and 93.2% at March 31.
Balance sheet, debt and liquidity
- Total assets were $4.33 billion at June 30, 2020, including $3.63 billion of net real estate investments.
- Total indebtedness was $1.81 billion, up from $1.71 billion at December 31, 2019. Approximately 77.7% was fixed or effectively fixed at a weighted-average rate of 3.73%; 22.3% was variable-rate debt.
- Cash and cash equivalents were $34.3 million, with total cash and restricted cash of $48.3 million.
- The $250 million Core revolver had $62.1 million of available capacity after borrowings and letters of credit. Total additional capacity under existing Core and Fund revolving facilities was approximately $219.4 million.
- Scheduled consolidated debt principal repayments were $144.8 million for the remainder of 2020 and $373.2 million in 2021, before considering extension options. The company had extension options covering $115.4 million of 2020 maturities and $231.4 million of 2021 maturities.
- Operating cash flow was $58.5 million, investing activities used $86.7 million, and financing activities provided $46.5 million during the first six months. Cash and restricted cash increased $18.3 million.
- The company repurchased 1.2 million common shares for $22.4 million at an average price of $18.29; $122.6 million remained authorized under the repurchase program.
Material changes versus the prior comparable period
- Revenue declined 9.2% in the second quarter and 6.3% for the first six months, primarily from rent collection reserves, tenant closures, bankruptcies and concessions related to COVID-19.
- Six-month operating results were reduced by $51.5 million of non-cash impairment charges on selected Fund properties; Acadia’s pro rata share was $12.4 million. No additional impairment was recorded for the second quarter.
- Same-property Core NOI decreased $6.0 million in the second quarter, driven primarily by lower rent collections and COVID-19-related reserves.
- The company consolidated Town Center on April 1, 2020 after exchanging a $38.7 million note receivable plus $2.0 million of accrued interest for the remaining ownership interest.
- Acadia acquired two Core properties for approximately $19.2 million, while Fund IV acquired two Broughton Street properties and consolidated them.
- The company suspended common-share and common-OP-unit distributions for the quarters ending June 30 and September 30, 2020. The board had not determined dividend policy beyond the third quarter.
- Variable-rate debt increased from $314.6 million at year-end 2019 to $406.2 million at June 30, increasing interest-rate exposure.
Guidance, outlook, risks and unusual items
- Management withdrew its 2020 guidance on March 31 and placed certain major development and construction projects on hold. Remaining development and redevelopment spending is largely discretionary and dependent on tenant demand.
- At June 30, approximately 74% of consolidated and unconsolidated annualized base rent came from stores that were open or partially open. By July 31, this increased to approximately 88%.
- As of June 30, collections and negotiated concessions represented approximately 83% of April through June billed Core rents and approximately 62% of Fund rents. By July 31, Core collections and concessions increased to 86%, while Fund collections remained approximately 62%.
- The company recorded approximately $15.9 million of aggregate rent and straight-line receivable loss reserves during the first six months, of which Acadia’s share was approximately $12.9 million. It also executed 98 rent concession arrangements, including $3.0 million of deferrals and $0.8 million of rent forgiveness.
- Two structured-financing loans were in default or matured without repayment: a Core loan totaling approximately $21.3 million at June 30 and a Fund III loan totaling approximately $10.0 million that matured July 1. Management believed the related collateral or obligors’ assets were sufficient, but recovery remained uncertain.
- A Brandywine mortgage loan was in default and subject to litigation. The Delaware Superior Court entered a July 27, 2020 judgment of $33.2 million, plus interest and other amounts, jointly and severally against Brandywine Holdings and the Operating Partnership. The company recorded approximately $6.8 million of related charges in the second quarter, of which its share was approximately $1.5 million, and expected to appeal.
- Interest-rate swaps had a fair-value liability of $109.0 million at June 30. A 100-basis-point increase in LIBOR would increase annual interest expense on variable-rate debt by approximately $4.1 million before noncontrolling interests.
- On July 1, 2020, the company obtained a $30 million unsecured term loan maturing June 30, 2021, with an accordion option to increase borrowings to $90 million.
Most important facts for investors to verify
- Future rent collections, concessions, tenant bankruptcies and store reopening rates, especially the substantially weaker Fund Portfolio collection rate.
- Availability of revolver capacity and the company’s ability to refinance or extend 2020–2021 debt maturities without covenant pressure or materially higher borrowing costs.
- Potential additional real estate impairments if retail operating conditions, capitalization rates or property holding periods deteriorate.
- Resolution, appeal status and ultimate cash exposure related to the Brandywine judgment and other loan defaults.
- The timing and amount of any reinstated common dividend and the impact of the distribution suspension on REIT taxable-income compliance.
- Whether FFO performance remains sustainable after excluding the unusual Albertsons investment gains and considering lower same-property NOI.