ACADIA REALTY TRUST quarterly report, Q3 FY2023

Acadia Realty Trust — Q3 2023 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, densely populated U.S. markets. It owns interests in 201 properties across its Core Portfolio and four opportunity funds, with additional structured-financing investments. This unaudited Form 10-Q covers the three and nine months ended September 30, 2023, compared with the corresponding 2022 periods.

At September 30, 2023, operating properties were 91.3% occupied across the Core Portfolio and Funds. Core Portfolio occupancy was 91.9%, while Fund Portfolio occupancy was 90.8%.

Financial performance and key metrics

Metric	Q3 2023	Q3 2022	Nine months 2023	Nine months 2022
Total revenues	$81.4 million	$79.9 million	$253.2 million	$245.7 million
Operating income (loss)	$6.7 million	$(14.0) million	$38.5 million	$51.7 million
Net income (loss)	$(16.3) million	$(89.5) million	$8.5 million	$(61.3) million
Net income (loss) attributable to Acadia	$(1.4) million	$(55.9) million	$21.2 million	$(39.4) million
Diluted EPS	$(0.02)	$(0.61)	$0.21	$(0.43)
Core Portfolio same-property NOI	$27.7 million	$26.2 million	$84.4 million	$79.7 million
Diluted FFO per share and OP unit	$0.26	$0.24	$1.03	$0.82

Q3 operating income margin was approximately 8.2%, compared with negative 17.5% in the prior-year quarter. Nine-month operating income margin was approximately 15.2%, compared with 21.1% in 2022. The margin comparison was affected by prior-year gains on property dispositions and higher 2022 impairment charges.

Rental income increased to $80.0 million in Q3 and $248.8 million for the nine-month period.
Core Portfolio same-property NOI increased 5.8% in Q3 and 5.9% for the nine-month period.
New and renewal Core Portfolio leases produced cash-basis rent growth of 29.5% in Q3 and 20.5% year to date; straight-line rent growth was 39.3% and 30.3%, respectively.
Net cash provided by operating activities was $115.2 million, up from $100.5 million in the prior-year period.
Cash and restricted cash totaled $27.2 million at September 30, 2023, including $19.3 million of cash and $7.9 million of restricted cash.

Balance sheet, debt and liquidity

Total assets were $4.28 billion and total equity was $2.12 billion at September 30, 2023.
Total consolidated debt was $1.832 billion, or $1.820 billion after unamortized premium and debt issuance costs, compared with $1.805 billion and $1.793 billion, respectively, at December 31, 2022.
Approximately 79.5% of debt was fixed or effectively fixed at a weighted-average interest rate of 4.73%; 20.5% was variable-rate debt at a weighted-average rate of 7.30%.
The unsecured Revolver had $107.7 million of availability at September 30, 2023. Management also reported $180.4 million of additional capacity under existing Core Portfolio and Fund revolving facilities.
Debt maturities, excluding available extension options, were $135.0 million during the remainder of 2023 and $252.8 million in 2024. The Company’s pro rata share of unconsolidated debt maturities was $40.9 million for the remainder of 2023 and $50.4 million in 2024.
Operating cash flow exceeded investing cash uses of $90.1 million, but financing activities used $30.1 million, resulting in a $5.0 million decrease in cash and restricted cash during the first nine months.
The Company paid $51.5 million of dividends and distributions on Common Shares and Preferred OP Units during the first nine months. The quarterly distribution was $0.18 per Common Share and OP Unit.

Material changes versus the prior comparable period

Revenue increased 1.8% in Q3 and 3.0% for the first nine months, driven principally by Fund leasing activity, acquisitions and higher Core Portfolio leasing performance.
Q3 net loss attributable to Acadia improved by $54.5 million, primarily because 2022 included substantially larger impairment charges and losses from unconsolidated affiliates.
Nine-month net income attributable to Acadia improved by $60.6 million, although the 2022 period included $49.9 million of gains on property dispositions.
FFO increased 8.8% in Q3 and 27.6% for the first nine months.
Interest expense increased to $24.9 million in Q3 and $68.6 million for the nine-month period, reflecting higher borrowing costs and, in part, higher average debt.
The Company acquired Cypress Creek in Tampa, Florida, for approximately $49.4 million through Fund V and participated in the acquisition of Mohawk Commons through a 90%-owned unconsolidated venture.
The Company received its share of a special Albertsons dividend and received 1.6 million Albertsons shares after the expiration of contractual lock-up restrictions. It held 1.5 million shares with a fair value of $35.2 million at quarter-end and sold 100,000 shares for $2.4 million during Q3.

Guidance, outlook, risks and unusual items

The filing does not provide a formal quantitative earnings or FFO guidance range. Management stated that it continues to see consumer confidence and expects to create value through leasing momentum, development and redevelopment projects, and its leasing pipeline. Management also expects to actively manage the effects of inflation, higher interest rates and economic uncertainty.

Bed Bath & Beyond rejected leases at two Core Portfolio locations and three Fund Portfolio locations following its Chapter 11 filing. The Company accelerated $8.1 million of below-market lease intangible amortization, but reported no material negative impact on cash flows or property values to date.
A $19.3 million Fund IV non-recourse mortgage on the vacant 146 Geary Street property matured in default on July 15, 2023. The property was transferred to the lender through a deed-in-lieu foreclosure on October 27, 2023. The Company recorded a $3.7 million consolidated impairment charge, or $0.9 million at its share.
A Fund V mortgage and the Fund IV secured bridge facility had not met debt-service-coverage requirements at quarter-end. Lenders may require cash sweeps or principal paydowns; the filing states these conditions were not events of default.
One $21.6 million structured-financing note, including accrued interest, remained in default. Management believes the collateral is sufficient to cover the carrying value.
The Renaissance Portfolio, in which Acadia owns 20%, extended a $160.0 million nonrecourse mortgage to November 3, 2023 while pursuing a longer-term extension.
Remaining capital commitments to the Funds were $36.9 million at quarter-end. Estimated costs to complete development and redevelopment projects through 2025 were $50.6 million to $77.0 million in total, with Acadia’s estimated share of $28.7 million to $45.1 million.
Management identified macroeconomic conditions, higher interest rates, refinancing risk, joint-venture dependence, tenant renewals and bankruptcies, property valuation, development execution, environmental matters, cybersecurity, catastrophic events and REIT qualification as key risks.

Most important facts for investors to verify

Progress and pricing of refinancing or extensions for the $135.0 million of consolidated debt maturing during the remainder of 2023 and the $252.8 million maturing in 2024.
Resolution of the 146 Geary Street foreclosure and any additional effects from the property’s transfer or default interest.
Performance of the Fund V mortgage and Fund IV bridge facility subject to debt-service-coverage shortfalls, including any cash sweeps or principal paydowns.
Tenant replacement, leasing costs and cash-flow effects related to Bed Bath & Beyond and other vacancies.
Sustainability of same-property NOI and leasing spreads after separating recurring operating performance from Albertsons dividends, mark-to-market gains, lease-intangible acceleration and other unusual items.
Availability and terms of liquidity sources, including the Revolver, ATM equity program, Fund capital commitments and potential property or investment sales.