ACADIA REALTY TRUST annual report, FY2012

Acadia Realty Trust: FY2012 Form 10-K Summary

Business context and reporting period

Acadia Realty Trust is an integrated equity REIT focused on owning, acquiring, redeveloping and managing retail and urban/infill mixed-use properties, primarily in supply-constrained markets along the U.S. East Coast and in Chicago. The filing covers the fiscal year ended December 31, 2012, with comparative results for 2011 and 2010.

• The Company operated 100 properties: 72 Core Portfolio properties and properties held through four consolidated Opportunity Funds.
• Core Portfolio properties totaled approximately 5.3 million square feet and were 94% occupied at year-end. Opportunity Fund operating properties totaled approximately 2.5 million square feet and were 88% occupied.
• The Trust controlled approximately 99% of the Operating Partnership at December 31, 2012.

Financial and operating metrics

Metric	2012	2011	Change
Revenue	$134.4 million	$115.1 million	+16.8%
Operating income	$34.9 million	$32.1 million	+8.8%
Net income	$89.9 million	$53.7 million	+67.4%
Net income attributable to common shareholders	$39.7 million	$51.6 million	-23.0%
Diluted EPS	$0.85	$1.25	Down from prior year
FFO	$48.8 million	$42.9 million	+13.8%
FFO per diluted share and OP Unit	$1.04	$1.04	Flat
Cash flow from operating activities	$59.7 million	$66.3 million	-10.0%

Operating margin was approximately 25.9% in 2012, compared with approximately 27.9% in 2011. The decline reflects higher depreciation, property operating costs and other expenses associated with portfolio growth. Net income was materially affected by property-sale gains reported in discontinued operations.

• Core Portfolio NOI increased to $53.6 million from $44.6 million. Same-store Core Portfolio NOI increased 3.7% to $40.3 million.
• Core Portfolio rental income increased by $11.3 million, and Opportunity Fund rental income increased by $8.3 million, primarily from acquisitions, re-tenanting and redevelopment lease commencements.
• Cash dividends declared remained $0.72 per common share, or $0.18 per quarter. Dividends and distributions paid on common shares and common OP Units totaled $33.2 million.
• Total assets increased to $1.91 billion from $1.65 billion. Common shareholders’ equity increased to $622.8 million from $384.1 million.
• Cash and cash equivalents were $91.8 million at year-end, compared with $89.8 million in 2011.

Debt, liquidity and capital resources

• Mortgage and convertible notes payable totaled approximately $728.1 million at December 31, 2012, compared with $648.7 million at December 31, 2011.
• Approximately 60% of debt was fixed-rate, including interest-rate swaps, at a weighted average rate of approximately 4.97%; 40% was floating-rate at approximately 3.95%.
• Consolidated debt maturities totaled $109.0 million in 2013, including $6.9 million of scheduled amortization. Management stated that some maturities may require refinancing or other alternatives.
• The Company had approximately $120.4 million of capacity under existing revolving facilities at year-end. In January 2013, it closed a new $150.0 million unsecured revolving credit facility maturing January 31, 2016, with a one-year extension option; no amounts had been drawn as of February 27, 2013.
• Fund IV had $365.9 million of unfunded capital commitments from noncontrolling investors. Fund III had $107.3 million of unfunded commitments.
• Notes receivable, net, increased to $129.3 million from $60.0 million, with effective rates generally ranging from 6.0% to 24.0% and maturities from June 2013 through November 2020.
• The Company issued approximately $223.5 million of common equity net of issuance costs during 2012 through ATM programs and a follow-on offering.

Material changes versus the prior comparable period

• Acadia acquired approximately $224.3 million of Core Portfolio properties, $108.0 million of Fund III properties and $151.2 million of Fund IV properties during 2012.
• Fund IV was formed in 2012 and made its initial acquisitions, including investments in Miami Beach, Maryland and Manhattan.
• The Opportunity Funds sold properties for aggregate proceeds of approximately $445.7 million, including 12 of 14 self-storage properties for $261.6 million. The remaining two self-storage properties were under contract for expected closing in 2013.
• Income from discontinued operations increased to $79.4 million from $48.7 million, primarily because of larger gains on property sales. The resulting gain-driven benefit was largely attributable to noncontrolling interests; common shareholders’ income from discontinued operations declined to $15.7 million from $32.8 million.
• Interest expense declined to $28.8 million from $29.6 million despite higher debt, while variable-rate debt exposure declined from 55% to 40% of total debt.
• Same-store operating performance improved, but diluted EPS declined because of the higher weighted average share count and the prior year’s unusually strong mix of gains and discontinued-operation income.

Guidance, outlook, commentary, risks and unusual items

• Management intends to pursue disciplined Core Portfolio acquisitions, Opportunity Fund investments and selective redevelopment while maintaining moderate leverage and access to multiple capital sources. The filing does not provide formal 2013 earnings or FFO guidance.
• Eight redevelopment projects were in progress or design, with aggregate costs incurred of $239.9 million. CityPoint was under construction with anticipated additional costs of approximately $107.1 million to $197.1 million and expected completion in 2015.
• Total construction commitments were $92.7 million at year-end, and total contractual obligations, including debt, interest, leases and construction commitments, were $1.06 billion.
• The Company received approval for up to $200.0 million of CityPoint construction financing under the EB-5 program; funds were in escrow pending USCIS approval and release conditions.
• A Mervyns-related bankruptcy litigation matter was settled in 2012. The settlement resulted in a $2.0 million charge to the Company, of which the Operating Partnership’s after-tax share was approximately $0.2 million.
• The Company recognized a $2.4 million gain from insurance proceeds related to flood damage at Mark Plaza and a $0.4 million reserve on notes receivable.
• Key risks include tenant bankruptcies and nonrenewals, co-tenancy exposure, e-commerce effects on retailers, geographic concentration in the greater New York region, redevelopment cost overruns and delays, refinancing risk, interest-rate volatility, joint-venture and Opportunity Fund risks, environmental liabilities, and continued REIT qualification.
• A 100-basis-point increase in LIBOR would increase annual interest expense on variable-rate debt by approximately $2.9 million before noncontrolling interests. Management estimated that a 1% increase in market rates would reduce the fair value of consolidated debt by approximately $10.0 million.
• Management reported no material impairment of property at year-end, no material environmental liability known to the Company, and an unqualified audit opinion. Internal control over financial reporting was assessed as effective.

Most important facts for investors to verify

• Whether the Company can refinance or repay the $109.0 million of consolidated debt maturing in 2013 and manage the larger 2015 maturity concentration.
• Actual lease renewals, rent spreads and occupancy trends, particularly for Core Portfolio leases representing 10% of annualized base rent expiring in 2013.
• Progress, funding and final costs of CityPoint and the other redevelopment projects, including the release of EB-5 financing.
• Whether acquisition-driven revenue growth translates into sustained same-store NOI and FFO per share after substantial equity issuance.
• Credit quality and repayment prospects for the $129.3 million notes receivable portfolio, including loans maturing in 2013 and 2014.
• The effect of property-sale gains and discontinued operations on reported net income, EPS and cash available for distribution.
• Future Promote income, distributions and capital requirements from the Opportunity Funds and unconsolidated joint ventures.