Acadia Realty Trust — Form 10-Q Summary
Business context and reporting period
Acadia Realty Trust is a fully integrated equity REIT focused on acquiring, owning, redeveloping and managing retail properties in supply-constrained U.S. metropolitan markets. The filing covers the three and six months ended June 30, 2016. The company reported interests in 110 Core Portfolio properties and 58 Fund properties, or 168 properties in total. Core Portfolio physical and leased occupancy were 96.4% and 96.6%, respectively.
Financial performance and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Total revenue | $51.3 million, versus $53.2 million | $104.0 million, versus $105.6 million |
| Operating income | $16.9 million, versus $13.0 million | $31.3 million, versus $28.2 million |
| Net income | $26.2 million, versus $85.5 million | $100.0 million, versus $124.0 million |
| Net income attributable to common shareholders | $17.9 million, or $0.24 per share | $46.8 million, or $0.64 per share |
| Funds from operations | $29.2 million, or $0.37 per diluted share/unit | $60.3 million, or $0.78 per diluted share/unit |
| Net cash from operating activities | Not separately provided | $42.8 million, versus $53.8 million |
Operating margins were approximately 32.8% for the quarter and 30.1% year to date, compared with approximately 24.5% and 26.7% in the respective 2015 periods. Same-property Core Portfolio NOI increased 2.3% in the quarter to $23.7 million and 3.0% year to date to $47.5 million. Revenue growth was supported by structured-finance interest income, while rental revenue declined because of the Brandywine change in control and Fund property dispositions.
Cash and cash equivalents were $83.9 million at June 30, 2016, compared with $72.8 million at December 31, 2015. Investing activities used $86.8 million, primarily for redevelopment, investments in unconsolidated affiliates and structured-finance originations. Financing activities provided $55.1 million, resulting in an $11.1 million increase in cash during the six-month period.
Total debt was $1.254 billion before unamortized costs and premiums, compared with $1.369 billion at year-end 2015. Debt consisted of $712.6 million fixed-rate, including swaps, and $541.6 million variable-rate debt. Credit facilities had $215.8 million of stated availability at June 30, 2016.
Material changes versus the prior comparable period
- Quarterly net income declined substantially because 2015 included a $17.1 million gain on disposition of an unconsolidated property and $61.8 million of property-sale gains, compared with $16.6 million of property-sale gains in 2016. The six-month comparison was similarly affected by lower disposition gains.
- Operating income improved despite lower revenue, reflecting lower property and other operating expenses and the absence of the $5.0 million Brandywine impairment recorded in the second quarter of 2015.
- Interest income increased to $7.4 million in the quarter and $12.1 million year to date, partly because of a $2.1 million reserve recapture following the restructuring of a mezzanine loan and new structured-finance investments.
- Same-property NOI increased due primarily to contractual rent increases and the realization of rent increases from below-market leases. New and renewal lease spreads were 9.4% on a cash basis and 17.0% on a straight-line basis for the quarter.
- The company acquired Core Portfolio and Fund properties with aggregate purchase prices of approximately $204.0 million and sold properties for $153.8 million, generating an $82.0 million gain.
- Brandywine was deconsolidated and accounted for under the equity method. Its $140.0 million non-recourse debt was repaid, and the company provided a $153.4 million loan secured by partners’ ownership interests.
- The company issued common shares under its ATM program and settled part of a forward sale agreement, materially increasing equity capital. Common shares outstanding rose to approximately 74.8 million at June 30, 2016 from 70.3 million at December 31, 2015.
Guidance, outlook, risks and unusual items
The filing does not provide formal earnings or operating guidance. Management reported a $290.6 million acquisition pipeline under contract, subject to customary closing conditions, and Fund IV had an additional $36.6 million pipeline. Ten redevelopment projects had $115.9 million to $178.6 million of anticipated additional costs.
- Approximately $291.2 million of debt was scheduled to mature in 2016, and total contractual debt maturities were $410.8 million within one year. Management stated that available cash may be insufficient to repay all maturities and expects to refinance at least part of the debt or pursue alternatives.
- The company was in default on a $26.3 million non-recourse mortgage loan collateralized by a Brandywine property. The loan matured July 1, 2016.
- One structured-finance note was non-performing as of June 30, 2016; management had not established a reserve based on collateral value.
- Interest-rate exposure remains material: a 100-basis-point increase in relevant indices would increase annual interest expense on consolidated variable-rate debt by approximately $5.4 million, with the company’s share estimated at $2.0 million after noncontrolling interests.
- Derivative liabilities were $16.4 million, and accumulated other comprehensive loss included $15.2 million of unrealized derivative losses. Approximately $4.8 million was expected to be reclassified to interest expense over the following 12 months.
- The second quarter included a $38.8 million out-of-period equity rebalancing adjustment between additional paid-in capital and operating-partnership noncontrolling interest. Management stated it had no impact on total equity, assets, liabilities, income or cash flows.
- Forward-looking results remain subject to real estate market conditions, tenant demand and credit quality, redevelopment and acquisition execution, leverage and refinancing risk, joint-venture control limitations, interest rates, regulatory requirements and REIT distribution obligations.
Important facts for investors to verify
- Progress on refinancing or otherwise resolving the $410.8 million of debt maturities due within one year, including the $26.3 million defaulted loan.
- Performance and collectability of the $273.5 million structured-finance portfolio, including the non-performing note.
- Completion, funding requirements and returns from the $290.6 million acquisition pipeline and redevelopment commitments.
- Effects of Brandywine’s deconsolidation and the related $153.4 million loan on future rental income, equity income and credit exposure.
- Underlying recurring cash earnings and distributions relative to reported net income, which was materially affected by property-sale gains and other unusual items.
- Future dilution from the remaining forward sale agreement and equity issuance programs.