Acadia Realty Trust — Q1 2017 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 filing covers the unaudited three months ended March 31, 2017, compared with the three months ended March 31, 2016. At quarter-end, the Company had interests in 182 properties, including 117 Core Portfolio properties and 51 Fund properties, with 9.3 million square feet and 91.4% total operating occupancy.
Key financial metrics
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Total revenue | $62.0 million | $48.0 million | +$14.0 million |
| Operating income | $9.9 million | $9.9 million | Essentially flat |
| Net income | $20.0 million | $73.9 million | -$53.9 million |
| Net income attributable to Acadia | $15.6 million | $28.9 million | -$13.3 million |
| Basic and diluted EPS | $0.18 | $0.40 | -$0.22 |
| FFO attributable to common shareholders and OP unitholders | $35.5 million | $31.1 million | +$4.4 million |
| Diluted FFO per share | $0.40 | $0.41 | -$0.01 |
| Net cash from operating activities | $23.5 million | $18.0 million | +$5.5 million |
| Cash and cash equivalents | $47.7 million | $84.9 million | -$37.2 million |
Revenue growth reflected acquisitions, development placed into service, and a $1.8 million real estate tax reimbursement accrual. Operating expenses increased with the larger portfolio. Consolidated NOI was $36.9 million versus $32.5 million, while Core Portfolio NOI was $33.1 million versus $27.5 million. Core same-property NOI was $25.3 million, up 0.4% year over year.
Net income benefited from $12.7 million of equity earnings and gains from unconsolidated affiliates, including $11.5 million of property disposition gains. Q1 2016 included a $65.4 million gain on the sale of a Fund III property; therefore, the year-over-year decline in GAAP earnings was primarily driven by this unusual prior-year gain. Q1 2017 also included $2.2 million of default interest recognized on a past-due note receivable.
Liquidity, debt and capital resources
- Total consolidated indebtedness was $1.502 billion at March 31, 2017, compared with $1.489 billion at December 31, 2016.
- Approximately 61.0% of debt, or $926.3 million, was fixed or effectively fixed through swaps; $593.1 million, or 39.0%, was variable-rate debt.
- Debt maturities and scheduled principal payments for the remainder of 2017 totaled $273.9 million, with an additional $115.8 million due in 2018. Management stated that refinancing or other alternatives would be required and that financing may not be available on acceptable terms.
- Existing revolving debt facilities provided approximately $148.6 million of additional capacity at quarter-end. The Company also reported 63 unleveraged consolidated properties with carrying value of approximately $1.4 billion.
- Operating cash flow was $23.5 million. Investing activities used $39.3 million, principally for $34.7 million of acquisitions and $27.0 million of development and property improvements. Financing activities used $8.3 million.
- Dividends and distributions paid during the quarter totaled $36.6 million, including a $13.3 million special dividend paid in January 2017. The regular quarterly dividend was $0.26 per common share.
Material developments versus the prior comparable period
- Fund IV acquired Lincoln Place in Fairview Heights, Illinois, for $35.4 million. A Core Portfolio unconsolidated investment acquired 907 King Street in Alexandria, Virginia, for $3.0 million.
- Fund III and Fund IV sold unconsolidated properties for aggregate proceeds of $47.8 million and recognized aggregate property-level gains of $14.5 million; Acadia’s proportionate share of the gains was approximately $2.7 million.
- The Company obtained eight new non-recourse mortgages totaling approximately $93.0 million and reduced Fund IV’s subscription-line balance through net repayments of $74.1 million.
- Real estate under development declined to $510.5 million from $543.5 million after placing $113.2 million of the City Point project into service and reclassifying $76.4 million of real estate into development.
- Fund IV was in compliance with its liquidity covenant at March 31, 2017, after having been out of compliance at December 31, 2016.
- Core Portfolio same-property NOI was essentially flat, despite portfolio-level revenue growth from acquisitions and other items.
Outlook, risks, contingencies and unusual items
- Management expects to refinance at least part of the 2017 maturities but cautioned that refinancing may be unavailable or more expensive. A 100-basis-point increase in rates on refinanced debt would increase annual interest expense by approximately $3.9 million, before noncontrolling interests.
- A 100-basis-point increase in LIBOR would increase interest expense on variable-rate debt by approximately $5.9 million, before noncontrolling interests.
- A $26.3 million Brandywine-related mortgage was in default. In April 2017, the lender sued for approximately $31.0 million including principal, interest, penalties and fees. Management believes the loan is non-recourse to the Company and that the lawsuit is without merit.
- A separate $14.3 million Fund II mortgage was in default because of a breached liquidity covenant.
- One $12.0 million note receivable was in default, but management expected full recovery of principal and recognized interest following an anticipated second-quarter 2017 collateral sale.
- The Company had $149.9 million of its share of remaining Fund capital commitments and $98.3 million to $159.5 million of estimated total costs to complete development projects through 2020; its expected share was approximately $23.6 million to $38.9 million.
- Commitments to construction contractors were $37.9 million. The Company also had potential pro-rata funding obligations of $160.1 million related to lenders of unconsolidated joint ventures.
- Management reported no material changes to previously disclosed risk factors and concluded that disclosure controls were effective as of March 31, 2017.
Most important facts for an investor to verify
- Ability to refinance the $273.9 million of consolidated debt maturing during the remainder of 2017 and the associated interest-rate terms.
- Resolution and potential recourse implications of the Brandywine mortgage litigation and the separate Fund II liquidity-covenant default.
- Actual recovery on the $12.0 million defaulted note receivable and timing of the collateral sale.
- Whether Core same-property NOI acceleration improves beyond the reported 0.4% increase, given the Company’s acquisition-driven revenue growth.
- Funding requirements for the $149.9 million of Fund commitments and development costs, including the Company’s share of future capital needs.
- Cash available after dividends, debt service, acquisitions, development spending and required contributions to joint ventures and Funds.