AKR

ACADIA REALTY TRUST - 10-Q Summary (Period Ended Sept 30, 2009)

Business Context and Reporting Period

This is a Quarterly Report (Form 10-Q) for Acadia Realty Trust, a fully-integrated, self-managed equity REIT focused on retail properties, including neighborhood shopping centers, mixed-use properties, and self-storage facilities. The report covers the three and nine months ended September 30, 2009. The Company operates through an umbrella partnership REIT (UPREIT) structure and manages three Opportunity Funds (Fund I, II, and III) alongside its Core Portfolio.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased slightly to $109.3 million, driven by a $2.7 million lease termination fee from Acme and increased rents from new acquisitions (Cortlandt Towne Center) and redevelopment projects (Fordham Place, Pelham Manor).
• Net Income Decline: GAAP Net Income dropped significantly to $8.5 million from $51.4 million. This is primarily due to a $7.1 million gain on debt extinguishment in 2009 (vs. none in 2008) being offset by a $3.7 million impairment charge on a Fund I investment and a $2.5 million abandonment of project costs. Additionally, 2008 included significant gains from the sale of Mervyns locations and Albertson's distributions.
• Equity in Unconsolidated Affiliates: Shifted from a $24.4 million gain in 2008 to a $7.1 million loss in 2009, largely due to the impairment charge and reduced distributions from the Albertson's investment.
• Balance Sheet: Total assets increased by $106 million, primarily due to real estate acquisitions and construction in progress. Mortgage debt increased by $106 million to $759.5 million, while convertible notes decreased by $52.7 million following a repurchase program.

Guidance, Outlook, and Risks

• Outlook: Management notes the U.S. economy is in a recession, predicting a decline in retail sales and potential tenant bankruptcies. While occupancy and NOI have not been materially adversely affected through Q3 2009, the credit market remains severely curtailed, potentially impacting refinancing and acquisition capabilities.
• Liquidity: The Company maintains $117.8 million in cash and $157.8 million in available debt capacity. It recently issued 5.75 million common shares for $65.2 million to repurchase convertible notes and pay down credit lines.
• Debt Maturities: $91.3 million of debt matures in 2009. Management believes extension options will be exercised for most, with remaining balances repayable via existing liquidity or investor commitments.
• Contingencies: A loan servicer alleged non-monetary defaults on two construction loans ($31.7 million and $11.5 million) regarding completion dates. The Company disputes this and is in discussions to resolve the matter, believing it will not have a material adverse effect.
• Unusual Items: Included a $2.5 million charge for abandoned project costs and a $1.7 million reserve for notes receivable due to the loss of an anchor tenant.

Investor Verification Checklist

• Debt Refinancing Risk: Verify the status of the $91.3 million debt maturing in 2009 and the resolution of the alleged defaults on the Pelham Manor and Atlantic Avenue construction loans.
• Impairment Charges: Review the details of the $3.7 million impairment on the Fund I Sterling Heights Shopping Center investment and the $1.7 million reserve for notes receivable.
• Unconsolidated Affiliate Performance: Assess the ongoing performance of the Albertson's and Mervyns investments, which drove significant income in 2008 but contributed to losses in 2009.
• Development Pipeline: Evaluate the completion status and funding requirements for the New York Urban Infill Redevelopment projects (e.g., Canarsie Plaza, 161st Street) which have significant remaining costs.
• FFO vs. Net Income: Note the divergence between GAAP Net Income ($8.5M) and FFO ($39.6M) due to non-cash charges and gains/losses on sales.