ACADIA REALTY TRUST quarterly report, Q1 FY2013

Acadia Realty Trust — 2013 Q1 Form 10-Q Summary

Business Context and Reporting Period

Acadia Realty Trust is an equity REIT focused on acquiring, redeveloping, owning and managing retail and urban/infill mixed-use properties primarily in supply-constrained markets along the East Coast and in Chicago. This unaudited filing covers the three months ended March 31, 2013, compared with the three months ended March 31, 2012.

The company had interests in 104 properties: 73 Core Portfolio properties and 31 properties held through four Opportunity Funds.
Core Portfolio physical occupancy was 93.6% and leased occupancy was 94.0% at March 31, 2013.
Effective January 1, 2013, the company began consolidating its 22.22% interest in the Brandywine retail portfolio following changes in financial and operating controls.

Financial Results and Key Metrics

Metric	Q1 2013	Q1 2012	Change
Total revenues	$47.3 million	$29.9 million	+$17.4 million
Operating income	$18.7 million	$7.2 million	+$11.4 million
Income from continuing operations	$10.8 million	$0.5 million	+$10.3 million
Net income	$11.2 million	$2.8 million	+$8.4 million
Net income attributable to common shareholders	$9.6 million	$4.0 million	+$5.6 million
Diluted earnings per share	$0.18	$0.09	+$0.09
Funds from operations	$16.8 million	$9.3 million	+$7.5 million
Diluted FFO per share	$0.31	$0.21	+$0.10
Net cash provided by operating activities	$4.2 million	$11.9 million	-$7.7 million

Revenue growth was driven by 2012 acquisitions, the Brandywine consolidation, leasing and re-anchoring activity, increased interest income, and a $2.5 million collection of a previously written-off note.
Core Portfolio same-store NOI increased 10.9% to $12.1 million. Re-anchoring activities contributed approximately 5.3 percentage points of the increase.
New and renewal lease cash rents increased 6.4% versus expiring rents; the GAAP straight-line increase was 23.3%.
Operating income margin was approximately 39.5% in Q1 2013 versus 24.2% in Q1 2012. The comparison was affected by portfolio growth, consolidation changes and higher depreciation and interest expense.
Net cash used in investing activities was $98.9 million, including the $86.6 million acquisition of 664 North Michigan Avenue and $17.9 million of redevelopment and property improvement costs.
Net cash provided by financing activities was $84.7 million, supported by debt financings and $51.8 million of net common-share issuance proceeds.

Balance Sheet, Debt and Liquidity

Total assets were $2.30 billion at March 31, 2013, compared with $1.91 billion at December 31, 2012.
Cash and cash equivalents were $81.8 million; cash in escrow was $20.3 million and restricted cash was $151.6 million.
Mortgage and other notes payable were $1.10 billion, compared with $727.0 million at year-end 2012. The increase primarily reflected the Brandywine consolidation, new financings and $160.0 million of EB-5 construction proceeds placed in restricted cash.
Approximately 70.5% of debt, or $776.2 million, was fixed-rate or effectively fixed through swaps; 29.5%, or $325.0 million, was floating-rate debt.
Debt maturities in 2013 totaled approximately $58.4 million, including $5.9 million of scheduled amortization. Management expected to refinance at least part of the remaining maturities or pursue alternatives depending on market conditions.
The company had $194.4 million available under its credit facilities, including $137.5 million under a new $150.0 million unsecured revolving facility and $56.9 million under the Fund IV facility, net of outstanding letters of credit.
Unfunded capital commitments from noncontrolling interests in the Opportunity Funds totaled $473.2 million.
The company paid $9.7 million of dividends and distributions to common shareholders, OP unitholders and LTIP holders, and $2.0 million of operating cash distributions to noncontrolling interests in Fund III.

Material Changes Versus the Prior Comparable Period

Total revenues increased approximately 58%, primarily from acquisitions, Brandywine consolidation and Opportunity Fund leasing activity.
Net income attributable to common shareholders increased approximately 140%, while diluted FFO per share increased from $0.21 to $0.31.
Operating cash flow declined 64.3% because of a $17.2 million prepaid ground-rent funding requirement for Fund II’s City Point project, despite increased property operating income.
Interest and other finance expense increased to $10.3 million from $6.6 million, reflecting higher debt balances, the Brandywine consolidation and higher Opportunity Fund borrowings and rates.
Discontinued operations declined to $0.4 million from $2.3 million because fewer properties contributed operating results. Two Opportunity Fund properties were under contract for sale at March 31, 2013.
The company issued 2.0 million common shares through its ATM program during the quarter, generating $52.9 million of net proceeds. Subsequent to quarter-end, it completed the $125.0 million program and established a new ATM program of up to $150.0 million.
Eight redevelopment projects were active, including City Point under construction. Total costs incurred were $263.3 million, with significant additional costs expected, including $84.0 million to $174.0 million for City Point.

Guidance, Outlook, Commentary and Risks

The filing does not provide formal earnings guidance or revised full-year quantitative guidance. Management stated that quarterly results are not necessarily indicative of full-year results.
Management’s strategy remained focused on Core Portfolio acquisitions and redevelopment, disciplined Opportunity Fund investing, and maintaining balance-sheet flexibility.
Management identified potential refinancing risk for 2013 maturities. A 100-basis-point increase in rates on refinanced debt was estimated to increase annual interest expense by approximately $1.2 million, with approximately $0.5 million attributable after noncontrolling interests.
A 100-basis-point increase in LIBOR was estimated to increase annual interest expense on consolidated variable-rate debt by approximately $3.3 million, or $0.8 million after noncontrolling interests.
City Point was subject to an Article 78 proceeding seeking to halt construction and financing activities based on alleged environmental requirements. The company stated that it believed the proceeding was without merit.
Key disclosed risks include economic and real estate market conditions, tenant demand and creditworthiness, acquisition and redevelopment execution, leverage and refinancing, interest-rate movements, limited control over joint ventures, construction and environmental matters, REIT distribution requirements, uninsured losses and dependence on key management personnel.
In May 2013, the company sold its Pelham, New York self-storage facility for $11.9 million, generating $5.2 million of net proceeds after debt repayment.

Most Important Facts for Investors to Verify

Reconcile the significant year-over-year earnings and FFO improvement for acquisition effects, Brandywine consolidation, nonrecurring note collection and other unusual items.
Assess liquidity and refinancing capacity for the $58.4 million of 2013 debt maturities and the broader $1.10 billion debt balance.
Monitor City Point construction progress, the $151.6 million restricted cash balance, remaining construction commitments and the related legal proceeding.
Evaluate the funding requirements and performance of the eight redevelopment projects, particularly City Point and Crossroads Shopping Center.
Review the impact of ATM equity issuance and potential dilution, including the new $150.0 million ATM program.
Assess whether operating cash flow can support dividends, redevelopment spending, acquisitions and debt service given the quarter’s unusually low $4.2 million operating cash flow.
Review exposure to variable interest rates, derivative liabilities and debt maturities, including the company’s stated sensitivity to higher LIBOR and refinancing rates.