Acadia Realty Trust — Form 10-Q Summary
Reporting period: Quarterly and year-to-date periods ended September 30, 2019, compared with the corresponding 2018 periods. Acadia is an integrated equity REIT focused primarily on retail properties in densely populated, supply-constrained U.S. markets. At September 30, 2019, it held interests in 182 properties across its Core Portfolio and four opportunity funds.
Key Financial Metrics
| Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Total revenues | $73.3 million | $65.5 million | $217.5 million | $190.0 million |
| Operating income | $21.3 million | $12.1 million | $44.6 million | $25.1 million |
| Net income | $8.8 million | $(2.6) million | $6.5 million | $(9.0) million |
| Net income attributable to Acadia | $10.5 million | $9.2 million | $31.7 million | $24.3 million |
| EPS, basic and diluted | $0.12 | $0.11 | $0.38 | $0.29 |
| FFO attributable to common shareholders and OP unitholders | $31.0 million | $30.1 million | $97.6 million | $89.1 million |
| Diluted FFO per share/unit | $0.34 | $0.35 | $1.09 | $1.01 |
| Net cash provided by operating activities | Not separately provided | Not separately provided | $95.2 million | $67.2 million |
Calculated operating margins were approximately 29.0% in Q3 2019 versus 18.4% in Q3 2018, and approximately 20.5% for the first nine months of 2019 versus 13.2% in the comparable 2018 period. These margins include gains on property dispositions and should not be viewed as recurring property-level margins.
Balance Sheet, Debt and Liquidity
- Total assets were $4.33 billion at September 30, 2019, up from $3.96 billion at December 31, 2018. Net real estate investments increased to $3.54 billion from $3.28 billion.
- Cash and cash equivalents were $48.1 million, with restricted cash of $12.9 million.
- Total consolidated debt was $1.664 billion, compared with $1.560 billion at year-end 2018; reported total indebtedness, net of issuance costs and including premium, was $1.655 billion.
- Approximately 74.3% of debt was fixed or effectively fixed, compared with 64.2% at December 31, 2018. Variable-rate debt represented 25.7% of total debt versus 35.8% at year-end 2018.
- Available capacity under existing Core and Fund revolving facilities was $150.8 million at September 30, 2019. The Core revolving facility was subsequently increased from $150 million to $250 million on October 8, 2019, increasing total credit facility capacity to $600 million, with an accordion feature up to $750 million.
- Debt maturities and scheduled principal payments totaled $121.8 million for the remainder of 2019 and $561.5 million in 2020. Management expects to refinance at least part of these obligations, but cautions that acceptable financing may not be available.
- Operating cash flow increased by $28.0 million year over year, while investing cash outflows increased substantially because of acquisitions and investments in unconsolidated affiliates. Financing activities provided $290.6 million, primarily through equity issuance, debt activity and noncontrolling-interest contributions.
Material Changes Versus the Prior Comparable Period
- Revenue rose 11.9% in Q3 and 14.5% year to date, primarily from property acquisitions, lease-up and growth in the Funds portfolio. Q3 Fund revenue increased $7.4 million.
- Net income attributable to Acadia increased 13.4% in Q3 and 30.6% year to date. The nine-month 2018 period included a consolidated net loss, while 2019 reported net income.
- Q3 2019 included a $5.0 million gain from the expiration of the required holding period for a New Market Tax Credit transaction. This was recorded in other income and is unusual and nonrecurring.
- Gain on disposition of properties increased to $12.1 million in Q3 and $14.1 million year to date, compared with $5.1 million in both comparable 2018 periods.
- FFO increased 3.0% in Q3 and 9.5% year to date, while Q3 diluted FFO per share declined to $0.34 from $0.35 due principally to a larger share and unit base.
- Core Portfolio same-property NOI increased 3.1% in Q3 and 4.1% year to date. Core Portfolio occupancy was 93.0% at September 30, 2019; total Core and Fund occupancy was 89.8%.
- Acadia issued 4.8 million common shares through its ATM program during the first nine months, generating $135.8 million of net proceeds. No shares were repurchased during the period.
- The company acquired approximately $260.3 million of consolidated real estate, invested in additional unconsolidated properties and projects, and sold properties for $83.9 million of gross proceeds.
- Accumulated other comprehensive loss increased to $44.1 million, primarily because of unrealized losses on interest-rate swaps as market interest rates declined.
- ASC Topic 842 lease accounting was adopted January 1, 2019. The company reported no cumulative-effect adjustment, but recognized right-of-use assets and lease liabilities for its lessee arrangements.
Outlook, Risks and Unusual Items
- The filing does not provide a clear quantitative earnings or FFO guidance range.
- Management’s stated strategy is to grow the Core Portfolio, pursue value-add and opportunistic Fund investments, recycle assets and maintain balance-sheet flexibility.
- Eight consolidated properties were under development or redevelopment at September 30, 2019. Estimated total costs to complete these projects through 2020 were $160.1 million to $201.4 million, with Acadia’s estimated share of $95.5 million to $117.4 million.
- Acadia had approximately $77.0 million of its share of remaining Fund capital commitments and $42.9 million of construction commitments.
- A $26.3 million mortgage loan in the Core Portfolio was in default and subject to litigation. The lender alleged that the Operating Partnership could be liable for approximately $33.0 million as of November 2017, excluding additional interest, fees and costs. Management reported that it had valid defenses and expected a decision on summary judgment before the end of 2019.
- The company is exposed to refinancing and interest-rate risk. A 100-basis-point increase in rates on refinanced debt was estimated to increase annual interest expense by approximately $6.9 million, with Acadia’s share after noncontrolling interests estimated at $1.6 million.
- The remaining three properties under the approximately $122.0 million Soho acquisition program were expected to close through early 2020, subject to customary conditions; the filing provides no assurance that all closings will occur.
- Management stated that there were no material changes to previously disclosed risk factors and that disclosure controls were effective as of September 30, 2019.
Investor Verification Priorities
- Verify the refinancing plan and available liquidity for the $121.8 million of near-term debt obligations and $561.5 million due in 2020.
- Monitor the Brandywine mortgage default and related litigation, including any potential guarantee exposure.
- Separate recurring operating performance from the $14.1 million of disposition gains, $5.0 million New Market Tax Credit income and other unusual items.
- Assess dilution from the ATM program and the effect of additional common shares and OP units on per-share FFO.
- Verify progress, funding requirements and returns for the development pipeline and remaining Fund capital commitments.
- Review occupancy, leasing spreads, tenant credit quality and same-property NOI trends, particularly for the lower-occupancy Fund portfolio.