ACADIA REALTY TRUST quarterly report, Q2 FY2013

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 metropolitan areas along the East Coast and in Chicago. This unaudited Form 10-Q covers the three and six months ended June 30, 2013, compared with the corresponding 2012 periods.

At June 30, 2013, the Company had interests in 75 Core Portfolio properties and 33 Opportunity Fund properties, or 108 properties in total. Core Portfolio physical occupancy was 93.7% and leased occupancy was 95.0%.

Financial Performance and Key Metrics

Metric	Three months ended June 30, 2013	Three months ended June 30, 2012	Six months ended June 30, 2013	Six months ended June 30, 2012
Total revenue	$45.9 million	$32.7 million	$93.2 million	$62.7 million
Operating income	$16.8 million	$8.7 million	$35.5 million	$16.0 million
Operating margin	36.5%	26.5%	38.0%	25.5%
Net income	$9.6 million	$11.2 million	$20.8 million	$14.0 million
Net income attributable to common shareholders	$8.8 million	$6.8 million	$18.4 million	$10.8 million
Diluted earnings per share	$0.16	$0.15	$0.34	$0.25
Funds from operations	$17.3 million	$12.2 million	$34.1 million	$21.5 million
Diluted FFO per share	$0.31	$0.27	$0.62	$0.48

Six-month revenue increased 48.9%, while net income attributable to common shareholders increased 69.4% and diluted FFO per share increased 29.2%. Quarterly net income declined year over year because 2012 included greater income from discontinued operations and gains from unconsolidated investments.

Core Portfolio same-store NOI was $12.8 million for the quarter and $24.4 million for the six months, increases of 7.4% and 9.3%, respectively. Core Portfolio NOI, including the Company’s share of relevant unconsolidated ventures, was $17.0 million for the quarter and $33.6 million for the six months.

Cash flow from operating activities was $24.9 million for the six months, compared with $33.1 million in 2012. Cash and cash equivalents were $100.0 million at June 30, 2013, compared with $91.8 million at December 31, 2012. Net cash increased by $8.2 million during the six months.

Balance Sheet, Debt and Liquidity

Total assets were $2.31 billion at June 30, 2013, up from $1.91 billion at December 31, 2012.
Mortgage and other notes payable were $1.092 billion, compared with $727.0 million at year-end 2012. Including swaps, approximately 77.1% of debt was effectively fixed-rate and 22.9% was variable-rate.
Debt maturities were $58.4 million within one year and $460.6 million within one to three years. The Company stated that it expects to refinance at least part of its 2013 maturities or pursue other alternatives.
Credit facilities had total availability of $240.6 million at June 30, including $137.5 million under the unsecured revolving facility and $103.1 million under the Fund IV subscription facility.
Restricted cash totaled $153.0 million, primarily representing proceeds available for City Point construction. Of $193.0 million released under the EB-5 financing program, $40.0 million had been drawn for construction.
Unfunded capital commitments from Opportunity Fund noncontrolling investors totaled $457.6 million.
Six-month financing cash flow was $84.5 million, including $75.9 million of net common-share issuance proceeds. The Company paid $20.8 million in common dividends during the period and declared dividends of $0.42 per common share.

Material Changes Versus the Prior Comparable Period

Revenue growth primarily reflected 2012 and 2013 acquisitions, the consolidation of the Brandywine Portfolio effective January 1, 2013, redevelopment leasing and additional notes receivable interest income.
Two Core Portfolio Chicago acquisitions were completed: 664 North Michigan Avenue for $86.6 million and 8-12 East Walton Street for $22.5 million.
Fund IV acquired interests in 2819 Kennedy Boulevard and Promenade at Manassas for a combined purchase price of $47.0 million, with a $47.3 million cash contribution by Fund IV.
The formerly unconsolidated Brandywine investment became consolidated, increasing reported assets, debt, rental income, operating expenses and depreciation.
Fund III consolidated Nostrand Place after contributing the remaining balance of a mortgage note into a joint venture.
The Company completed a $125.0 million ATM offering and established a new ATM program with capacity of up to $150.0 million. Through June 30, 2013, the new program had generated approximately $20.6 million of net proceeds.
The Company sold a Pelham Manor self-storage facility for $11.9 million, recognizing a $4.2 million gain and receiving $5.2 million of net proceeds after debt repayment.
A $1.5 million impairment charge was recorded for Walnut Hill Plaza because of deterioration in the local economic environment.
Equity in earnings of unconsolidated affiliates declined to $0.8 million for the quarter and $3.1 million for the six months, primarily because 2012 included gains and distributions from unconsolidated investments.

Outlook, Risks, Contingencies and Unusual Items

The filing does not provide formal earnings or FFO guidance. Management describes its strategy as continued acquisition and redevelopment of Core Portfolio assets, opportunistic investments through its funds, and maintaining access to capital.

Eight redevelopment projects had aggregate costs to date of $289.8 million. City Point had $190.3 million of costs incurred and estimated additional costs of $59.7 million to $149.7 million, with anticipated completion in 2015.
Crossroads Shopping Center re-tenanting costs were expected to range from $8.0 million to $11.0 million, with completion expected in 2014.
Six non-performing notes receivable totaled $18.6 million and had a $3.9 million allowance at June 30, 2013.
A 100-basis-point increase in rates on debt refinanced in 2013 and 2014 was estimated to increase annual interest expense by approximately $1.1 million before noncontrolling interests. A 100-basis-point LIBOR increase was estimated to increase annual interest expense on consolidated variable-rate debt by approximately $2.5 million before noncontrolling interests.
Construction commitments totaled $91.5 million, all due within one year. Total contractual obligations were $1.476 billion, including debt principal, interest, operating leases and construction commitments.
A legal proceeding seeks to halt construction and financing activities at City Point based on alleged environmental requirements. Management believes the proceeding is without merit.
A lawsuit filed in July 2013 by Kmart relating to a 2011 flood at Mark Plaza seeks damages exceeding $9.0 million. Management believes the lawsuit is without merit.
One Opportunity Fund property remained marketed for sale after its sale contract expired in July 2013.
Subsequent to quarter-end, the Company acquired 3200-3204 M Street in Georgetown, Washington, D.C. for $11.8 million.
Management reported that disclosure controls and procedures were effective and that there were no material changes in internal control over financial reporting.

Important Facts for Investors to Verify

Reconcile reported growth with the Brandywine consolidation, acquisitions and changes in noncontrolling interests.
Review debt maturities, refinancing assumptions, floating-rate exposure and the availability of credit facilities.
Assess funding needs and completion risks for City Point and the other redevelopment projects.
Evaluate the collectability and collateral coverage of the non-performing notes receivable.
Monitor occupancy, same-store NOI, leasing spreads and the potential impact of re-tenanting costs.
Track the City Point environmental proceeding, the Kmart flood lawsuit and other litigation or contingencies.
Consider dilution from ATM equity issuance, LTIP awards and the Company’s continuing acquisition strategy.
Distinguish recurring operating performance from gains on property sales, impairment charges, discontinued operations and other unusual items.