Acadia Realty Trust — 2021 Second-Quarter Form 10-Q Summary
Business context and reporting period
Acadia Realty Trust is a fully integrated equity REIT focused on retail properties in densely populated, supply-constrained U.S. markets. The Company operates through Acadia Realty Limited Partnership and owns interests in 180 properties across its Core Portfolio and four opportunity funds, plus a structured-financing portfolio. This unaudited Form 10-Q covers the three and six months ended June 30, 2021, compared with the corresponding 2020 periods.
Key financial metrics
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 |
|---|---|---|---|---|
| Total revenues | $74.7 million | $63.8 million | $144.1 million | $135.2 million |
| Operating income (loss) | $13.2 million | $(5.8) million | $21.8 million | $(52.1) million |
| Net income | $1.2 million | $64.9 million | $3.1 million | $4.9 million |
| Net income attributable to Acadia | $3.9 million | $19.4 million | $9.1 million | $11.0 million |
| Basic and diluted EPS | $0.04 | $0.22 | $0.10 | $0.12 |
| FFO attributable to common shareholders and OP unitholders | $28.3 million | $44.9 million | $52.7 million | $72.7 million |
| Diluted FFO per share/unit | $0.31 | $0.49 | $0.57 | $0.79 |
Reported operating margins were approximately 17.6% for the second quarter and 15.2% for the first six months, versus negative margins in the comparable 2020 periods. The improvement primarily reflects the absence of 2020 impairment charges, lower COVID-19-related credit losses, and gains on property dispositions. FFO declined because the 2020 period included substantial gains from the Company’s Albertsons investment and other effects that were not repeated in 2021.
- Core Portfolio NOI was $33.0 million in the second quarter and $62.9 million for the first six months, compared with $29.9 million and $64.7 million, respectively, in the prior-year periods.
- Same-property Core NOI increased 13.9% in the second quarter but declined 1.7% for the first six months.
- Pro rata leased occupancy at June 30, 2021 was 89.8% for the Core Portfolio and 84.4% for the Funds, compared with 93.3% and 91.1%, respectively, at June 30, 2020.
- Cash provided by operating activities was $51.0 million for the first six months, down from $59.1 million. Investing activities provided $30.9 million, compared with $87.2 million used in 2020. Financing activities used $66.2 million, compared with $46.5 million provided in 2020.
Balance sheet, debt and liquidity
- Total assets were $4.09 billion at June 30, 2021, versus $4.19 billion at December 31, 2020. Net real estate investments were $3.42 billion.
- Cash and cash equivalents were $34.6 million, with restricted cash of $15.1 million. Total cash and restricted cash increased to $49.7 million from $33.9 million at year-end.
- Total indebtedness was $1.66 billion, down from $1.76 billion at December 31, 2020. Approximately 63.0% of debt was fixed or effectively fixed through swaps, and 37.0% was variable rate.
- The amended credit facility increased total borrowing capacity to $700 million, including a $300 million revolver maturing in June 2025 and a $400 million term loan maturing in June 2026. The Company reported $230.6 million of Core revolver availability and approximately $355.2 million of total capacity under existing Core and Fund revolving facilities.
- Scheduled consolidated debt maturities, without extension options, were $213.0 million for the remainder of 2021 and $529.3 million in 2022. Extension options covered $172.4 million of 2021 maturities and $179.4 million of 2022 maturities, but management cautioned that successful execution is not assured.
- The Company sold 2.1 million common shares through its ATM program for $45.7 million of net proceeds during the first six months. Approximately $123.9 million remained available under the ATM program.
Material changes versus the prior comparable period
- Revenue increased 17.1% in the second quarter and 6.6% for the first six months, primarily from lower rent-credit-loss reserves, recoveries of past-due balances, higher tenant recoveries, and the absence of certain 2020 disruptions.
- Operating income improved materially because 2021 included no impairment charges, compared with $51.5 million of impairment charges in the first six months of 2020.
- Realized and unrealized investment gains fell to $2.7 million in the second quarter and $9.2 million for the first six months, from $87.8 million and $87.3 million, respectively, in 2020. The prior-year amounts included large Albertsons-related gains.
- Credit losses and rent abatements attributable to COVID-19 were approximately $3.7 million for the first six months of 2021, compared with $26.1 million in 2020. The Company collected or negotiated payment agreements for approximately 95.6% of second-quarter pre-COVID Core billings and 92.1% for the Funds.
- The Company made no new real estate acquisitions during the first six months, but originated a $16.0 million first-mortgage loan and completed property dispositions generating $63.9 million of consolidated proceeds.
- Quarterly common-share distributions were reinstated in the first quarter of 2021 after being suspended from the second quarter through the fourth quarter of 2020. The second-quarter declared distribution was $0.15 per share.
Outlook, commentary, risks and unusual items
The filing does not provide quantified earnings or FFO guidance. Management stated that COVID-19-related disruptions were substantially over as of the report date, but warned that renewed closures, weaker tenant performance, rent concessions, migration from major cities, or delayed rent payments could materially affect revenue, liquidity and property values.
- Two structured-financing loans remained in default at June 30, 2021, with aggregate amounts including accrued interest of approximately $31.6 million. Management believes the collateral is sufficient to cover carrying values, but recovery timing and ultimate realization remain uncertain.
- Development and redevelopment costs remaining to be funded were estimated at $99.1 million to $126.3 million through 2025, with the Company’s estimated share of $55.5 million to $67.0 million. Most remaining spending is discretionary.
- Unfunded commitments to the Funds attributable to the Company totaled $74.5 million. Construction commitments were approximately $36.3 million, and letters of credit totaled $33.8 million.
- Interest-rate exposure remains material. A 100-basis-point increase in LIBOR would increase annual interest expense by approximately $6.2 million on current variable-rate debt, before noncontrolling interests. Refinancing debt at rates 100 basis points higher could increase annual interest expense by approximately $7.6 million before noncontrolling interests.
- The Company terminated the 110 University Place ground lease, recognized a gain on lease termination, and wrote off related assets and liabilities. It also completed multiple debt extensions and principal paydowns during the period.
- Management reported no defaults on consolidated loan agreements, no material changes to previously disclosed risk factors, and effective disclosure controls as of June 30, 2021.
Important facts for investors to verify
- Ability to refinance or extend the substantial 2021 and 2022 debt maturities on acceptable terms.
- Collection rates, occupancy trends, tenant bankruptcies, concessions and the potential for renewed COVID-19 restrictions.
- Collateral values and recovery prospects for the two defaulted structured-financing loans.
- Whether Core Portfolio same-property NOI and occupancy recover after the first-half decline.
- Cash requirements for Fund commitments, development projects, distributions and debt service relative to operating cash flow and available credit.
- The recurring earnings contribution of property operations versus nonrecurring disposition gains and investment fair-value changes.