Business Context and Reporting Period
Acadia Realty Trust is a fully integrated equity REIT focused on acquiring, redeveloping, owning and managing primarily urban and high-barrier-to-entry retail properties in the United States. This unaudited Form 10-Q covers the three and six months ended June 30, 2015, compared with the corresponding 2014 periods.
At June 30, 2015, the Company had interests in 89 Core Portfolio properties and 56 Fund properties, or 145 properties in total. Core Portfolio physical occupancy was 96.4% and leased occupancy was 97.0%.
Financial Highlights
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total revenue | $53.2 million, versus $49.5 million | $105.6 million, versus $96.2 million |
| Operating income | $13.0 million, versus $18.8 million | $28.2 million, versus $33.6 million |
| Net income | $85.5 million, versus $11.9 million | $124.0 million, versus $31.0 million |
| Net income attributable to common shareholders | $26.5 million, versus $11.5 million | $43.0 million, versus $33.1 million |
| Basic and diluted EPS | $0.38, versus $0.19 | $0.62, versus $0.57 |
| Funds from operations attributable to common shareholders and OP unitholders | $34.8 million, or $0.48 per diluted share/unit | $57.9 million, or $0.80 per diluted share/unit |
| Net cash provided by operating activities | Not separately provided for the quarter | $53.8 million, versus $46.0 million |
Revenue increased 7.4% in the second quarter and 9.8% for the six-month period. Reported operating margins were approximately 24.5% versus 38.0% in the second quarter of 2014 and 26.7% versus 34.9% for the six-month periods, reflecting higher depreciation, general and administrative expenses and a $5.0 million impairment charge.
Core Portfolio same-property NOI increased 3.7% in the second quarter and 3.4% for the six-month period, primarily from contractual rent increases. Core Portfolio occupancy remained strong, and new and renewal lease cash rents increased 6.2% in the quarter and 11.7% year to date.
Balance Sheet, Cash Flow and Liquidity
- Total assets were $3.0 billion at June 30, 2015, compared with $2.7 billion at December 31, 2014.
- Cash and cash equivalents were $104.7 million, down from $217.6 million at year-end 2014. Cash in escrow was $31.8 million and restricted cash was $29.2 million.
- Mortgage and other notes payable were $1.327 billion, up from $1.130 billion. Including swaps, 62.1% of debt was effectively fixed-rate at a weighted average rate of 5.19%; 37.9% was floating-rate at a weighted average rate of 2.05%.
- Net cash used in investing activities was $208.1 million, including $273.1 million of real estate acquisitions, $105.2 million of redevelopment and improvement spending, and $48.2 million of notes receivable issuances. Property sale proceeds were $197.9 million.
- Net cash provided by financing activities was $41.5 million, including $268.8 million of debt proceeds, $188.2 million of debt repayments, $21.1 million of net ATM equity proceeds and $53.3 million of common dividends paid.
- The Company declared $0.48 per common share of dividends during the first six months. It paid $57.0 million of dividends and distributions to common shareholders, Common OP unitholders and LTIP unitholders.
- Total credit facilities were $425.0 million, with $202.9 million borrowed and $209.6 million available at June 30, 2015, excluding consideration of letters of credit.
Material Changes and Unusual Items
- The Company acquired Core Portfolio and Fund properties for an aggregate purchase price of approximately $369.5 million, including City Center in San Francisco, 163 Highland Avenue in Massachusetts, City Point Tower I, 1035 Third Avenue and 801 Madison Avenue.
- The Company sold or disposed of properties and air rights for aggregate proceeds of approximately $300.4 million, generating reported gains of $106.1 million. These included Lincoln Park Centre, White City Shopping Center, City Point air rights and Liberty Avenue.
- Gain-driven earnings included $61.8 million of gains on consolidated property dispositions and $17.1 million representing the Company’s share of a gain on a disposition by an unconsolidated affiliate.
- A $5.0 million impairment charge was recorded on a Brandywine Portfolio property after the loss of a key anchor tenant caused insufficient cash flow to meet debt service. The property secured $26.3 million of non-recourse mortgage debt maturing July 1, 2016; the Operating Partnership’s share of the impairment was $1.1 million.
- The structured financing portfolio increased to $168.9 million from $102.3 million at year-end 2014. The portfolio included three non-performing notes at June 30, 2015; subsequent to quarter-end, three loans with an aggregate June 30 carrying value of $8.0 million were repaid for $12.0 million.
- The Company settled a City Point construction arbitration matter for $3.3 million; the Operating Partnership’s share was $0.6 million.
Outlook, Risks and Contingencies
The filing does not provide formal earnings or operating guidance. Management expects to fund growth through operating cash flow, cash on hand, debt and equity issuance, property sales and unfunded Fund commitments. Nine redevelopment projects had $469.9 million of costs incurred and estimated additional costs of $222.8 million to $280.8 million; the Operating Partnership’s share of additional costs was estimated at $44.6 million to $56.2 million.
- Debt maturities were $141.2 million during 2015 and $434.2 million during 2016 according to the market-risk discussion. The Company stated that cash on hand may not be sufficient to repay all 2015 maturities and expects to refinance at least part of this debt or pursue other alternatives.
- Contractual obligations totaled $1.585 billion, including $1.324 billion of future debt maturities, $140.6 million of interest obligations, $25.2 million of operating lease obligations and $94.6 million of construction commitments.
- A 100-basis-point increase in rates on refinanced debt was estimated to increase annual interest expense by approximately $5.8 million before noncontrolling interests. A 100-basis-point increase in applicable indices would increase annual interest expense on consolidated variable-rate debt by approximately $5.0 million before noncontrolling interests.
- Key risks include real estate market conditions, tenant demand and credit quality, leverage and refinancing risk, redevelopment execution, interest-rate volatility, joint venture and Fund control limitations, REIT distribution requirements, uninsured losses and environmental or governmental requirements.
- Management reported effective disclosure controls and procedures and no material change in internal control over financial reporting.
Important Facts for Investors to Verify
- Separate recurring operating performance from substantial disposition gains when assessing earnings and valuation.
- Reconcile GAAP net income and EPS with FFO, and review the impact of noncontrolling interests.
- Review the timing and refinancing plans for 2015 and 2016 debt maturities, including the Brandywine mortgage.
- Evaluate liquidity after acquisitions, redevelopment commitments, dividends and Fund distributions.
- Assess the credit quality and repayment status of the structured financing portfolio, including non-performing notes and subsequent repayments.
- Confirm redevelopment budgets, completion timing and the Company’s share of remaining funding requirements.
- Consider the effect of future property sales, tenant vacancies, anchor-tenant losses and joint venture interests on recurring NOI.