Acadia Realty Trust — 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, supply-constrained U.S. metropolitan markets. The company owns or has interests in 174 properties through its Core Portfolio and four opportunity funds. This unaudited Form 10-Q covers the three months ended March 31, 2019; the comparable period is the three months ended March 31, 2018.
Key financial metrics
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Total revenues | $74.8 million | $63.1 million | +$11.7 million |
| Operating income | $14.2 million | $6.7 million | +$7.5 million |
| Operating margin | 19.0% | 10.6% | Improved |
| Net income attributable to Acadia | $12.2 million | $7.4 million | +$4.8 million |
| Basic and diluted EPS | $0.15 | $0.09 | +$0.06 |
| FFO attributable to common shareholders and OP holders | $34.7 million | $29.1 million | +$5.6 million |
| Diluted FFO per share/OP unit | $0.39 | $0.33 | +$0.06 |
| Net cash from operating activities | $19.8 million | $22.9 million | -$3.1 million |
- Rental income increased to $74.0 million from $50.8 million. The 2019 presentation includes certain tenant reimbursements in lease revenue following adoption of ASC 842; prior-year classifications were not recast.
- Net income attributable to Acadia benefited from a $2.0 million gain on disposition of properties and higher Core and Funds operating income.
- Same-property Core Portfolio NOI increased 4.6% to $30.7 million. Core Portfolio occupancy was 93.1%; occupancy for the total Core and Funds portfolio was 90.5%.
- Cash and cash equivalents were $27.8 million at March 31, 2019, compared with $21.3 million at December 31, 2018. Cash plus restricted cash was $40.3 million.
- Net cash used in investing activities was $93.0 million, principally reflecting $32.0 million of acquisitions, $19.9 million of development and property improvements, and $49.0 million invested in unconsolidated affiliates.
- Net cash provided by financing activities was $78.7 million, including $27.8 million of net ATM equity proceeds, $32.2 million of noncontrolling-interest contributions, and net debt financing activity.
- Total debt was $1.61 billion before unamortized issuance costs and premium, compared with $1.56 billion at December 31, 2018. Approximately 72.8% was fixed or effectively fixed and 27.2% was variable rate.
- Available capacity under existing Core and Fund revolving facilities was $235.2 million. The company also reported $27.7 million of letters of credit outstanding.
- The quarterly common dividend was $0.28 per share, paid April 15, 2019.
Material changes versus the prior comparable period
- Revenue rose 18.5%, primarily from Fund property acquisitions and a Core Portfolio below-market lease write-off associated with a tenant vacancy.
- Operating income more than doubled, while operating margin increased from 10.6% to 19.0%. Expenses also increased, including depreciation and amortization of $30.3 million versus $28.6 million and property operating, other operating and real estate taxes of $21.9 million versus $19.4 million.
- Funds segment revenue increased $6.6 million and segment net income attributable to Acadia increased $1.2 million, primarily from property acquisitions and a $2.0 million gain on the sale of 3104 M Street.
- Core segment net income attributable to Acadia increased $4.5 million, supported by higher revenue and equity earnings from unconsolidated affiliates.
- Structured Financing interest income declined $1.4 million because portions of notes receivable were converted into real estate interests and certain loans were repaid.
- Operating cash flow declined despite higher earnings, primarily because of changes in tenant prepayments and working capital.
- The company adopted ASC 842, Leases, effective January 1, 2019. It recorded $11.9 million of operating lease right-of-use assets and $12.8 million of operating lease liabilities, along with finance lease right-of-use assets and liabilities. No cumulative-effect adjustment was recorded.
- The company issued 970,835 common shares under its ATM program for $27.8 million of net proceeds and made no share repurchases during the quarter.
Outlook, risks, contingencies and unusual items
- No specific full-year earnings, FFO or operating guidance is provided in the filing text.
- Debt maturities and scheduled principal payments total approximately $217.5 million during the remainder of 2019 and $479.7 million in 2020. Management expects to refinance at least part of these obligations or pursue alternatives, but states that financing on acceptable terms may not be available.
- A $26.3 million Core Portfolio mortgage was in default and subject to litigation at March 31, 2019. The loan bears 6.00% interest, excluding 5% default interest.
- The company had approximately $110.7 million of its share of remaining Fund capital commitments, including $80.7 million related to Fund V, and estimated its share of development and redevelopment costs through 2020 at approximately $23.9 million to $39.0 million.
- Construction commitments totaled approximately $69.9 million. Total contractual obligations, including debt principal, debt interest, leases and construction commitments, were approximately $2.14 billion.
- Interest-rate exposure remains material. A 100-basis-point increase in LIBOR would increase annual interest expense on variable-rate debt by approximately $4.4 million before noncontrolling interests. A 1% increase in interest rates would reduce the estimated fair value of consolidated debt by approximately $12.6 million.
- Interest-rate derivatives produced a $13.3 million unrealized loss in other comprehensive income during the quarter, contributing to a $13.9 million reduction in accumulated other comprehensive income.
- Management states that ordinary-course litigation is not expected to have a significant effect on financial position, results or liquidity. Previously disclosed risk factors were not materially changed.
Investor verification checklist
- Verify the refinancing plan, availability and pricing for the 2019 and 2020 debt maturities.
- Review developments and potential outcomes related to the $26.3 million mortgage default and litigation.
- Reconcile revenue growth, particularly the impact of ASC 842 classification changes and the below-market lease write-off.
- Assess Core and Fund occupancy, leasing spreads, tenant concentration and same-property NOI trends.
- Monitor the $110.7 million Fund capital commitment and $23.9 million to $39.0 million estimated development funding requirements.
- Review the effect of interest-rate movements, swaps, caps and upcoming derivative maturities on interest expense and comprehensive income.