Acadia Realty Trust — 2013 Form 10-K Summary
Business context and reporting period
Acadia Realty Trust is a fully integrated U.S. equity REIT focused on acquiring, owning, redeveloping and managing retail properties in supply-constrained, densely populated markets, primarily along the East Coast and in Chicago. The filing covers the fiscal year ended December 31, 2013, with comparative information for 2012 and 2011. The Company operates through an UPREIT structure and controlled approximately 97% of Acadia Realty Limited Partnership at year-end.
At December 31, 2013, the Company had 77 Core Portfolio properties totaling approximately 5.3 million square feet and 28 Fund properties totaling approximately 2.8 million operating square feet, excluding seven redevelopment properties. Core Portfolio occupancy was 94% and Fund operating-property occupancy was 95%.
Financial performance and key metrics
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Revenue | $168.3 million | $115.0 million | +46.4% |
| Operating income | $55.9 million | $27.8 million | +101.3% |
| Income from continuing operations | $26.5 million | $9.3 million | +186.0% |
| Net income attributable to common shareholders | $40.1 million | $39.7 million | +1.0% |
| Diluted earnings per share | $0.72 | $0.85 | Down from prior year |
| Funds from operations | $67.1 million | $48.8 million | +37.5% |
| FFO per diluted share | $1.20 | $1.04 | +15.4% |
| Net cash provided by operating activities | $65.2 million | $59.0 million | +10.6% |
| Cash dividends declared per share | $0.86 | $0.72 | +19.4% |
Revenue growth reflected the consolidation of the Brandywine Portfolio, 2012 and 2013 acquisitions, Fund acquisitions, increased interest income and re-tenanting activity. Same-store Core Portfolio NOI increased 7.2% to $46.9 million, primarily due to re-tenanting and occupancy gains. New and renewal leases generated cash-basis rent growth of 6.8% and straight-line rent growth of 18.3%.
Net income was affected by substantial discontinued-operation gains in both periods. In 2013, discontinued operations contributed $18.1 million, including $18.8 million of gains on property sales, but also included a $6.7 million impairment. Consequently, common-shareholder earnings growth was modest despite stronger continuing operations and FFO.
Balance sheet, debt and liquidity
| Metric | December 31, 2013 | December 31, 2012 |
|---|---|---|
| Total assets | $2.265 billion | $1.908 billion |
| Real estate before accumulated depreciation | $1.819 billion | $1.287 billion |
| Mortgage and other notes payable | $1.040 billion | $612.3 million |
| Cash and cash equivalents | $79.2 million | $91.8 million |
| Total equity | $1.122 billion | $1.070 billion |
Debt increased primarily because of acquisitions, the consolidation of Brandywine and financing for redevelopment. Of approximately $1.038 billion of debt, 78% was fixed-rate, including debt fixed through swaps, at a weighted average rate of 5.14%; 22% was floating-rate at a weighted average rate of 1.55%.
Debt maturities totaled $57.1 million in 2014, $273.9 million in 2015 and $316.5 million in 2016. The Company had $218.7 million available under existing revolving facilities, including $137.5 million of corporate availability and $81.2 million under the Fund IV facility, subject to letters of credit and facility terms. A new $150.0 million unsecured revolving facility was undrawn at year-end, except for $12.5 million of letters of credit, and an additional $50.0 million term loan was fully funded.
Cash flow from investing activities was a use of $87.9 million, while financing activities provided $10.0 million. Year-end cash and cash equivalents declined by $12.6 million from 2012. The Company reported $147.0 million of construction commitments, primarily for redevelopment, and stated that it intended to fund these requirements with existing liquidity.
Material changes versus the prior comparable period
- The Company acquired $176.9 million of Core Portfolio properties and Fund IV acquired six properties for $123.2 million during 2013.
- Fund II sold two shopping centers and one self-storage facility for aggregate proceeds of $204.3 million; the Core Portfolio sold the A&P Shopping Center for $18.4 million.
- Effective January 1, 2013, the Brandywine investment was consolidated rather than accounted for under the equity method, adding approximately $16.5 million of Core Portfolio rental income and increasing reported debt and assets.
- Core same-store NOI increased 7.2%, while Core Portfolio and Fund occupancy remained high at 94% and 95%, respectively.
- The Company issued approximately 3.0 million common shares through its ATM program for $80.7 million of net proceeds and issued approximately 1.2 million OP Units in connection with an acquisition.
- Debt increased by approximately $427.4 million year over year, while variable-rate debt increased in absolute terms but declined as a percentage of total debt from 30% to 22%.
- The Company recorded a $1.5 million impairment on Walnut Hill Plaza and a $6.7 million impairment on Fund III’s Sheepshead Bay property.
- Redevelopment and leasing costs totaled $111.5 million, including $89.7 million of redevelopment costs. City Point remained the principal redevelopment project, with estimated additional costs of $30.5 million to $60.5 million.
Outlook, commentary, risks and unusual items
Management emphasized continued growth through Core Portfolio acquisitions, Fund IV investments, redevelopment, re-tenanting and structured financings, while maintaining access to equity, secured and unsecured debt, Fund commitments and property-sale proceeds. No formal earnings guidance was provided in the filing.
- Fund III had $117.5 million of unfunded committed capital and Fund IV had $444.7 million of unfunded committed capital at year-end; these amounts were intended to support redevelopment and future acquisitions.
- City Point had incurred $249.5 million of costs and required estimated additional costs of $30.5 million to $60.5 million. Other redevelopment projects had additional costs that were either estimated or not yet determined.
- Six non-performing notes receivable totaled $18.6 million and were supported by a $3.7 million allowance. The total structured-financing portfolio was $126.7 million, with accrued interest of $5.2 million.
- A 100-basis-point increase in interest rates would increase annual interest expense by approximately $2.2 million on variable-rate debt. Refinancing 2014 and 2015 maturities at rates 100 basis points higher would increase annual interest expense by approximately $3.7 million before noncontrolling-interest effects.
- Retail-sector risks include tenant bankruptcies, lease expirations, co-tenancy provisions, e-commerce, consumer spending weakness, competition, geographic concentration and declining rents or occupancy.
- Development risks include construction delays, cost overruns, permitting, insufficient pre-leasing, financing availability and failure of projects to achieve projected occupancy or returns.
- Pending litigation included a former-employee claim, a Mark Plaza flood-related claim by Kmart seeking damages exceeding $9.0 million, and a City Point contractor claim seeking approximately $8.5 million. Management stated that it believed it had meritorious defenses; the City Point claim could not be estimated.
- Subsequent to year-end, the Company acquired properties for $44.0 million and $7.3 million, received payments on notes receivable, drew $45.0 million on a mortgage loan and funded $12.6 million of a new $19.0 million property loan.
Important facts for investors to verify
- Reconcile 2013 net income and diluted EPS with FFO, continuing operations and discontinued-operation gains to assess recurring earnings quality.
- Review the maturity schedule and refinancing plans for the $57.1 million due in 2014, $273.9 million due in 2015 and $316.5 million due in 2016.
- Evaluate leverage and liquidity after including redevelopment commitments, unconsolidated debt and Fund obligations.
- Assess City Point and other redevelopment projects against remaining cost estimates, financing, pre-leasing and projected returns.
- Monitor lease expirations, particularly the 2014 Core Portfolio expirations representing $10.2 million of annualized rent and Fund expirations representing $9.8 million.
- Review the credit quality, collateral and reserves for the six non-performing notes receivable.
- Confirm the status and potential exposure of the disclosed litigation and environmental contingencies.
- Consider the effects of share issuance, OP Unit issuance and noncontrolling interests on per-share results and distributions.