Acadia Realty Trust — Form 10-Q Summary
Reporting period: Three months ended March 31, 2012; filed May 9, 2012. Acadia is an equity REIT focused on retail and urban/infill mixed-use properties, primarily in dense East Coast and Chicago markets. The portfolio comprised 54 Core Portfolio properties and 35 Opportunity Fund properties, or 89 properties in total.
Financial performance and position
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Total revenues | $39.6 million | $37.4 million | +$2.2 million |
| Operating income | $11.7 million | $12.6 million | -$0.9 million |
| Net income | $2.8 million | $9.7 million | -$6.8 million |
| Net income attributable to common shareholders | $4.0 million | $9.4 million | -$5.4 million |
| Diluted EPS | $0.09 | $0.23 | -$0.14 |
| Funds from operations | $9.3 million | $13.6 million | -$4.3 million |
| Diluted FFO per share | $0.21 | $0.33 | -$0.12 |
| Net cash provided by operating activities | $11.9 million | $4.8 million | +$7.1 million |
Revenue increased primarily from acquisitions and leases commencing at redevelopment properties. Interest income declined following repayment of a note in 2011. Operating expenses increased to $28.0 million from $24.9 million, principally due to higher depreciation and amortization, real estate taxes and other operating expenses. The operating margin declined to approximately 29.4% from 33.6%; the comparison was also affected by the $1.7 million debt-extinguishment gain recorded in Q1 2011 and $4.7 million of discontinued-operation income in Q1 2011.
Core Portfolio physical occupancy was 90.3% and leased occupancy was 94.2% at March 31, 2012. Same-store Core Portfolio NOI was $10.4 million, down 3.9% from $10.8 million. New and renewal leases produced cash-basis rent growth of 3.9% and straight-line rent growth of 16.4%. The self-storage portfolio was 88.3% occupied.
Total assets were $1.727 billion at March 31, 2012, compared with $1.653 billion at December 31, 2011. Cash and cash equivalents were $49.7 million, down from $89.8 million. Mortgage and convertible notes payable totaled $812.6 million, compared with $788.8 million at year-end. Total equity was $823.3 million, including $422.1 million of noncontrolling interests.
Material changes and transactions
- Acquired six properties during the quarter for an aggregate purchase price of $41.5 million and acquired, through Fund III, a 50% interest in 640 Broadway for $16.3 million.
- Investing activities used $87.3 million, including $48.7 million for real estate acquisitions, $20.1 million for redevelopment and property improvements, and $17.1 million for notes receivable.
- Financing activities provided $35.3 million, including $38.6 million of noncontrolling-interest contributions and $8.0 million of net ATM equity proceeds. Dividends and distributions paid totaled approximately $8.1 million.
- Established a $75.0 million at-the-market equity program. During the first quarter, approximately 0.8 million common shares generated gross proceeds of $18.2 million and net proceeds of $17.9 million, with $8.2 million received by March 31.
- Fund III received $114.3 million of capital contributions during the first four months of 2012, of which $22.8 million was contributed by the Operating Partnership.
- Subsequent to quarter-end, the Company and Fund III acquired additional Chicago properties and amended a $56.5 million construction loan into a $69.6 million mini-permanent loan.
Liquidity, debt and risks
As of March 31, 2012, approximately 38.8% of consolidated debt was fixed-rate, including swaps, and 61.2% was floating-rate. The Company reported $56.4 million of available capacity under existing credit facilities. Approximately $295.1 million of debt was scheduled to mature in 2012, although $56.5 million had extension options. Management stated that cash on hand might not be sufficient to repay all remaining maturities and that refinancing or other alternatives would be required.
The Company had five interest-rate swaps with aggregate notional value of $49.3 million and three interest-rate caps with aggregate notional value of $75.0 million. Management estimated that a 100-basis-point increase in rates on refinanced debt would increase annual interest expense by approximately $4.3 million before noncontrolling interests; a 100-basis-point LIBOR increase on consolidated variable-rate debt would increase annual interest expense by approximately $5.0 million before noncontrolling interests.
Other risks include economic and retail-market conditions, tenant demand and creditworthiness, leverage and refinancing risk, development and acquisition execution, joint-venture and limited-control risks, uninsured losses, REIT distribution requirements, and environmental or governmental requirements. The filing reported no material changes to the risk factors in the 2011 Form 10-K and no material legal proceedings.
Guidance, outlook and unusual items
The filing provides no formal earnings guidance. Management intends to pursue Core Portfolio acquisitions and redevelopment while using Fund III and potential future funds for external growth. Ten properties under purchase agreements had an aggregate purchase price of $65.8 million, but completion remained subject to customary conditions.
A property damaged by significant flooding in September 2011 was written down by approximately $1.4 million, with an offsetting insurance recovery recorded in prepaid expenses and other assets. The Company had received approximately $6.9 million of insurance proceeds by March 31, 2012 and expected restoration costs and lost rents to be recoverable, subject to a $0.1 million deductible for business interruption coverage.
Management stated that it did not identify impairment of its properties at March 31, 2012. The interim results are not necessarily indicative of full-year 2012 results.
Investor verification items
- Verify the sustainability of revenue growth against the 3.9% decline in same-store Core Portfolio NOI and occupancy levels.
- Reconcile the sharp year-over-year decline in EPS and FFO, particularly the absence of 2011 gains from debt extinguishment and property sales.
- Assess the refinancing plan and available sources for the substantial 2012 debt maturities.
- Monitor floating-rate exposure, swap and cap coverage, and the sensitivity of interest expense to LIBOR and refinancing rates.
- Review acquisition, redevelopment and construction commitments, including the $65.8 million of pending acquisitions and remaining Fund II and Fund III commitments.
- Evaluate insurance recoveries and the timing and cost of rebuilding the flood-damaged property.
- Consider dilution from the ATM program and the effect of noncontrolling interests on common-shareholder results.