Acadia Realty Trust — Q3 2021 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. It operates through Acadia Realty Limited Partnership and reports three segments: Core Portfolio, Funds, and Structured Financing.
The filing covers the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods. At September 30, 2021, the Company had interests in 182 properties: 130 Core Portfolio properties and 52 properties held through four opportunity funds. Pro rata leased occupancy was 90.3% for the Core Portfolio and 86.1% for the Funds.
Financial performance and key metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Total revenues | $73.4 million | $51.3 million | $217.5 million | $186.5 million |
| Operating income (loss) | $(1.3) million | $(14.0) million | $20.5 million | $(66.1) million |
| Net income (loss) | $31.6 million | $(38.3) million | $34.6 million | $(33.4) million |
| Net income (loss) attributable to Acadia | $12.1 million | $(9.0) million | $21.1 million | $2.0 million |
| Basic and diluted EPS | $0.13 | $(0.10) | $0.24 | $0.02 |
| FFO attributable to common shareholders and OP unitholders | $38.3 million | $15.6 million | $91.0 million | $88.4 million |
| Diluted FFO per share/unit | $0.41 | $0.17 | $0.98 | $0.96 |
Revenue increased approximately 43% year over year in the third quarter and 17% for the first nine months. The Q3 operating margin was approximately negative 1.8%, compared with negative 27.3% in Q3 2020; the nine-month operating margin was approximately 9.4%, compared with negative 35.5% in the prior-year period. The improvement primarily reflected lower COVID-19-related credit loss reserves and rent abatements, reduced impairment charges, property dispositions, and stronger operating performance.
Q3 net income included $47.3 million of realized and unrealized holding gains, primarily a $47.2 million mark-to-market gain on the Company’s Albertsons investment. For the nine-month period, realized and unrealized holding gains totaled $56.5 million. These fair-value gains are not representative of recurring property operations.
Core Portfolio same-property NOI increased 7.0% in Q3 and 1.0% for the first nine months. Core Portfolio new and renewal leases produced cash rent growth of 10.8% in Q3 and 4.0% for the first nine months; straight-line rent growth was 18.5% and 13.6%, respectively.
Cash flow, balance sheet, debt and liquidity
- Net cash provided by operating activities was $72.4 million for the first nine months of 2021, down from $82.5 million in 2020.
- Investing activities used $83.6 million, including $63.4 million for acquisitions, $27.2 million for development and property improvements, and $58.0 million of new structured-financing loans. Property disposition proceeds were $63.9 million.
- Financing activities provided $9.5 million. The Company raised $45.9 million of net equity proceeds through its ATM program and paid $26.2 million of dividends to common shareholders.
- Cash and restricted cash totaled $32.2 million at September 30, 2021, including $17.4 million of unrestricted cash.
- Total debt before unamortized costs and premiums was $1.796 billion, compared with $1.770 billion at December 31, 2020. Reported total indebtedness was $1.788 billion.
- Approximately 62.0% of debt was fixed or effectively fixed, with $1.114 billion at a weighted-average rate of 3.89%; 38.0% was variable-rate debt, with $682.2 million at a weighted-average rate of 2.44%.
- The Company had $193.1 million available under its Core revolving facility and $264.3 million of additional capacity under existing Core and Fund revolving facilities.
- Scheduled consolidated debt maturities were $102.8 million during the remainder of 2021 and $670.1 million in 2022, before available extension options. The Company expects to refinance at least part of these maturities.
- Unconsolidated affiliates had $180.1 million of mortgage debt attributable to the Operating Partnership’s pro rata share.
Material changes versus the prior comparable period
- COVID-19-related credit losses, rent abatements and impairment charges declined substantially. Company-share charges were approximately $5.7 million for the first nine months of 2021 versus $39.3 million in the prior-year period.
- Q3 2021 impairment charges were $9.9 million, relating to Fund IV properties at 27 East 61st Street and 210 Bowery. This compared with no Q3 2020 impairment charge; nine-month impairment charges declined from $51.5 million to $9.9 million.
- Fund V acquired Canton Marketplace in Georgia for approximately $51.0 million, including assumed mortgage debt of $31.8 million, and Monroe Marketplace in Pennsylvania for approximately $44.8 million.
- The Company sold or disposed of several properties for aggregate consolidated proceeds of approximately $66.3 million and recognized $9.8 million of aggregate gains before noncontrolling interests.
- In June 2021, the senior unsecured credit facility was amended, increasing the Revolver to $300 million and the Term Loan to $400 million, for total borrowing capacity of up to $700 million and an accordion feature up to $900 million.
- The Company issued 2.1 million common shares under its ATM program at a weighted-average net price of $22.09 per share. No shares were repurchased during the first nine months of 2021.
- Quarterly common distributions were reinstated in 2021 after suspension from Q2 2020 through Q4 2020. The Q3 2021 distribution was $0.15 per share.
Outlook, management commentary, risks and unusual items
Management stated that COVID-19-related disruptions had substantially ceased as of the filing date. The Company collected or negotiated payment agreements for approximately 97.1% of third-quarter pre-COVID billings in the Core Portfolio and 92.5% in the Funds. Management cautioned that renewed government restrictions or other pandemic effects could materially reduce rent collections, property values, liquidity and operating results.
The Company has two structured-financing loans in default: one Core loan with approximately $21.6 million outstanding, including accrued interest, and one Fund III loan with approximately $10.0 million outstanding, including accrued interest. Management believes the collateral is sufficient to cover the carrying values and noted related personal guarantees.
A conditional settlement with a former tenant and guarantor provides for minimum payments of $5.4 million, subject to the agreement’s terms and collectability. No amount was recognized because of uncertainty regarding collection.
The Company has development and redevelopment projects with estimated remaining total costs of approximately $93.7 million to $120.9 million through 2025, of which its estimated share is approximately $52.4 million to $63.9 million. Most remaining costs are discretionary.
Interest-rate exposure remains material. A 100-basis-point increase in rates on refinanced debt would increase annual interest expense by approximately $7.9 million, or $1.8 million after noncontrolling interests. A 100-basis-point increase in LIBOR on current variable-rate debt would increase annual interest expense by approximately $6.8 million, or $1.6 million after noncontrolling interests.
Other risks include tenant defaults and nonrenewals, refinancing availability, changes in real estate values, joint-venture partner performance, development execution, environmental and catastrophic-event exposure, cybersecurity, LIBOR transition, REIT qualification, and potential loss of key executives. Management reported no material changes to the risk factors in the 2020 Form 10-K, no material litigation exposure expected, and effective disclosure controls as of September 30, 2021.
Important facts for investors to verify
- Reconcile recurring property and fund operating performance with the $47.3 million Q3 fair-value investment gain and assess the impact of excluding that item.
- Review the $102.8 million of 2021 and $670.1 million of 2022 consolidated debt maturities, available extensions, refinancing plans and covenant compliance.
- Monitor rent collections, occupancy, abatements, credit-loss reserves and tenant defaults, particularly in the Funds, where reported collections were 92.5% of pre-COVID third-quarter billings.
- Assess the recoverability and collateral values of the two defaulted structured-financing loans.
- Evaluate liquidity after considering unrestricted cash, revolver availability, unfunded Fund commitments of approximately $71.7 million at the Company level, development obligations and distributions.
- Confirm the sustainability of reinstated distributions and compare dividends with recurring FFO and operating cash flow rather than GAAP net income.
- Review assumptions underlying the $9.9 million impairment charges and remaining development costs, including projected holding periods, net operating income and capitalization rates.