Acadia Realty Trust — 2015 Q3 Form 10-Q Summary
Business context and reporting period
Acadia Realty Trust is an integrated equity REIT focused primarily on high-quality retail properties in supply-constrained, densely populated U.S. metropolitan areas. The filing covers the three and nine months ended September 30, 2015; financial statements are unaudited. At September 30, 2015, the Company had interests in 90 Core Portfolio properties and 52 Fund properties, or 142 properties in total. Core Portfolio physical occupancy was 96.7% and leased occupancy was 97.1%.
Key financial metrics
| Metric | Q3 2015 | Q3 2014 | 9M 2015 | 9M 2014 |
|---|---|---|---|---|
| Total revenues | $56.9 million | $47.7 million | $162.5 million | $143.9 million |
| Operating income | $18.9 million | $15.2 million | $47.1 million | $48.8 million |
| Net income attributable to common shareholders | $13.8 million | $28.6 million | $56.8 million | $61.6 million |
| Basic and diluted EPS | $0.20 | $0.47 | $0.82 | $1.04 |
| Funds from operations attributable to common shareholders and OP unitholders | $28.3 million | $18.7 million | $86.2 million | $58.7 million |
| Diluted FFO per share and OP unit | $0.39 | $0.30 | $1.18 | $0.97 |
| Cash flow from operating activities | Not separately provided for quarter | Not separately provided for quarter | $85.3 million | $61.7 million |
Q3 revenue increased 19.3% year over year, while nine-month revenue increased 13.0%. Q3 operating margin was approximately 33.3%, compared with 31.9% in the prior-year quarter; nine-month operating margin was approximately 29.0%, compared with 33.9% in the prior-year period. The nine-month margin comparison was affected by a $5.0 million impairment charge and higher depreciation and amortization.
- Core Portfolio same-property NOI increased 4.3% in Q3 and 3.7% for the nine-month period, primarily from contractual rent increases and the realization of below-market rents.
- Core Portfolio rent spreads for nine months were 9.6% on a cash basis and 17.4% on a straight-line basis.
- Cash and cash equivalents were $72.8 million at September 30, 2015, down from $217.6 million at December 31, 2014.
- Total assets were $3.0 billion, compared with $2.7 billion at year-end 2014.
- Mortgage and other notes payable were $1.112 billion and unsecured notes payable were $205.5 million at September 30, 2015.
- After interest-rate swaps, 61.6% of mortgage and other debt was effectively fixed-rate and 38.4% was variable-rate.
Material changes versus the prior comparable period
- Revenue growth was driven mainly by Core Portfolio acquisitions, additional structured-financing investments and related interest income.
- Net income attributable to common shareholders declined despite higher revenue because the prior-year period included a substantially larger gain on dispositions of unconsolidated affiliates: $102.9 million in Q3 2014 versus $6.9 million in Q3 2015. For nine months, 2015 included $113.1 million of property disposition gains, compared with $116.0 million in 2014 when gains from discontinued operations are included.
- Nine-month operating income declined to $47.1 million from $48.8 million, reflecting higher depreciation and amortization, increased general and administrative expense, and the $5.0 million impairment charge.
- FFO increased 51.0% for the nine months, supported by higher operating results and lower net gains excluded from FFO.
- The Company acquired approximately $389.1 million of real estate during 2015, including Core Portfolio, Fund II and Fund IV acquisitions, and completed dispositions with aggregate sales proceeds of $327.9 million.
- Net cash used in investing activities increased to $254.5 million from $59.0 million, primarily because of higher acquisitions, redevelopment spending and notes receivable investments.
- The Company issued 0.8 million common shares under its ATM program, generating $26.9 million of net proceeds; $165.4 million remained available under the program at September 30, 2015.
Guidance, outlook, commentary and risks
The filing does not provide formal earnings or FFO guidance. Management expects to continue growing through Core Portfolio acquisitions, redevelopment and re-tenanting, Fund investments, structured financing investments and property dispositions. Fund IV was under contract to acquire approximately $50.3 million of additional property, subject to customary closing conditions.
- Nine redevelopment projects had $506.1 million of costs incurred and estimated additional costs of $186.8 million to $244.8 million. The Operating Partnership’s estimated share of additional costs was $36.1 million to $48.0 million.
- Debt maturities totaled $458.7 million within one year, including $112.7 million maturing in 2015 at a weighted average interest rate of 1.86%. Management expected to refinance at least part of the maturities or pursue alternatives based on market conditions.
- Contractual obligations totaled $1.557 billion, including $1.316 billion of future debt maturities, $133.5 million of debt interest obligations, $23.8 million of operating lease obligations and $83.6 million of construction commitments.
- A Brandywine Portfolio property experienced an anchor-tenant loss, defaulted on its mortgage and resulted in the $5.0 million impairment charge. The related non-recourse mortgage debt was $26.3 million and matured July 1, 2016.
- One note in the $153.4 million structured financing portfolio was non-performing at September 30, 2015. Structured-financing maturities ranged from October 2015 through November 2020.
- A 100-basis-point increase in refinancing rates was estimated to increase annual interest expense by approximately $5.7 million before noncontrolling interests. A 100-basis-point increase in indices on variable-rate debt, net of swaps, was estimated to increase annual interest expense by approximately $5.1 million.
- Material risks include real estate market conditions, tenant creditworthiness and vacancies, leverage and refinancing risk, development execution, interest-rate changes, joint-venture and limited-control risks, environmental and uninsured losses, REIT requirements and reliance on key personnel.
- Subsequent to quarter-end, the Company completed two forward-starting swaps covering $100.0 million of notional principal. Fund IV also acquired two properties and converted a $6.5 million note receivable into an equity interest.
- Two previously disclosed legal matters were settled during 2015: the Mark Plaza flood case for $1.1 million, of which the Company paid $0.3 million, and a City Point contractor dispute for $3.3 million, of which the Operating Partnership’s share was $0.6 million.
Important facts for investors to verify
- Confirm the refinancing, repayment or extension of near-term debt maturities and the availability of credit facilities.
- Assess completion costs, leasing progress and expected returns for the nine redevelopment projects, especially City Point and the Broughton Street Portfolio.
- Monitor occupancy, tenant credit quality and the effect of anchor-tenant vacancies on the Brandywine Portfolio.
- Review the performance, collateral coverage and maturity schedule of the structured financing portfolio, including the non-performing note.
- Distinguish recurring operating performance from gains on property dispositions, impairment charges and other unusual items when evaluating earnings and FFO.
- Reconcile consolidated debt, unconsolidated joint-venture debt, noncontrolling interests and the Company’s actual economic share of cash flows.