Acadia Realty Trust — Form 10-Q Summary
Business Context and Reporting Period
Acadia Realty Trust is a fully integrated equity REIT focused on owning, managing and redeveloping retail and urban/infill mixed-use properties, primarily in densely populated, high-barrier-to-entry markets along the East Coast and in Chicago. The filing covers the unaudited three and six months ended June 30, 2012, compared with the same periods in 2011.
- At June 30, 2012, the Company had interests in 91 properties: 57 Core Portfolio properties and 34 properties held through three Opportunity Funds.
- Core Portfolio physical occupancy was 92.6% and leased occupancy was 94.6%.
- The self-storage portfolio was 91.6% occupied.
- Common shares outstanding were approximately 46.1 million as of August 8, 2012.
Financial Highlights
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total revenue | $42.4 million, versus $37.5 million | $81.6 million, versus $74.8 million |
| Operating income | $13.6 million, versus $11.7 million | $25.0 million, versus $24.1 million |
| Income from continuing operations | $8.4 million, versus $2.7 million | $11.0 million, versus $7.5 million |
| Net income attributable to common shareholders | $6.8 million, versus $30.2 million | $10.8 million, versus $39.7 million |
| Diluted EPS | $0.15, versus $0.74 | $0.25, versus $0.98 |
| Funds from operations | $12.2 million, versus $9.6 million | $21.5 million, versus $23.2 million |
| Diluted FFO per share | $0.27, versus $0.23 | $0.48, versus $0.56 |
Revenue growth was driven primarily by rental income from 2011 and 2012 acquisitions, redevelopment and leasing activity, and increased self-storage occupancy and rental rates. Six-month operating income increased modestly despite higher depreciation, acquisition-related costs and other operating expenses.
Reported net income and EPS declined sharply from 2011 because the prior-year periods included substantially larger gains on property sales, including a $28.6 million second-quarter 2011 gain and a $32.5 million six-month 2011 gain. The 2012 second quarter included a $2.7 million gain on sale of property. Equity in earnings of unconsolidated affiliates increased to $4.6 million for the quarter and $4.5 million year to date, compared with $0.1 million and a loss of $0.1 million, respectively, in 2011.
Cash Flow, Balance Sheet, Debt and Liquidity
- Total assets increased to $1.85 billion at June 30, 2012, from $1.65 billion at December 31, 2011.
- Cash and cash equivalents were $66.5 million, compared with $89.8 million at year-end 2011.
- Mortgage and convertible notes payable totaled $854.9 million, compared with $780.6 million at year-end 2011.
- Total equity was $899.5 million, compared with $769.3 million at year-end 2011.
- Net cash provided by operating activities was $33.1 million, compared with $20.2 million in the prior-year period.
- Net cash used in investing activities was $167.6 million, primarily reflecting $111.1 million of acquisitions, $41.7 million of redevelopment and property improvement costs, and $34.5 million of new notes receivable.
- Net cash provided by financing activities was $111.2 million, including $60.7 million of net stock-offering proceeds and $108.1 million of noncontrolling-interest contributions.
- Cash decreased by $23.3 million during the first six months, ending at $66.5 million.
- Approximately $59.9 million of additional capacity remained under existing debt facilities, and total credit-facility availability was reported at $72.6 million before considering other liquidity sources.
At June 30, 2012, 51.4% of consolidated debt was fixed or effectively fixed through swaps, with a weighted average fixed rate of 4.82%; 48.6% was floating-rate debt with a weighted average rate of 4.04%. The Company had $179.7 million of consolidated debt maturing in 2012 and stated that refinancing or other alternatives would be required for at least part of those maturities.
Material Changes Versus the Prior Comparable Period
- Total revenue increased 13.1% for the quarter and 9.1% year to date.
- Core Portfolio same-store NOI increased 4.9% for the quarter but only 0.2% year to date.
- Core Portfolio rental income increased from acquisitions and re-anchoring activities; Opportunity Fund rental income benefited from new acquisitions and redevelopment properties.
- Interest income declined because two notes were fully repaid in 2011, partially offset by new notes and mezzanine investments.
- Equity earnings from unconsolidated affiliates improved materially, partly because of gains from the sale of the Shop Rite at Orchard Center property and distributions related to the Albertsons investment.
- Capital deployment accelerated: acquisitions of real estate increased to $111.1 million from $64.8 million, while redevelopment and improvement expenditures increased to $41.7 million from $27.1 million.
- Net income attributable to common shareholders fell because 2011 benefited from significantly larger property-sale gains and an impairment-related discontinued-operation presentation.
- The Company issued approximately 2.9 million common shares through its ATM program through June 30, generating approximately $64.6 million of net proceeds.
Guidance, Outlook, Commentary and Risks
Management emphasized continued growth through Core Portfolio acquisitions and redevelopment, Opportunity Fund investments, and maintenance of a flexible balance sheet. No formal earnings guidance was provided in the filing.
- Fund IV was formed in May 2012. At June 30, total closed equity commitments were $347.6 million, including $100.0 million attributable to the Operating Partnership. Fund IV was expected to reach $500 million to $550 million of equity and potentially acquire or develop approximately $1.0 billion to $1.5 billion of assets on a leveraged basis.
- By July 31, 2012, Fund IV commitments had increased to $465.1 million from 17 institutional investors.
- During July 2012, the Company acquired 83 Spring Street for $11.5 million and entered into a contract to sell 125 Main Street for $33.5 million.
- The Company estimated $6.0 million to $8.0 million of additional costs for re-anchoring two former A&P supermarket locations.
- A $23.5 million mortgage loan acquired in April 2012 was in maturity default; foreclosure proceedings had commenced and a receiver appointment was pending. The carrying amount of the related note was $18.5 million, and the allowance for notes receivable increased by $5.1 million to $8.4 million.
- A property damaged by flooding remained under restoration. The Company had received approximately $6.9 million of insurance proceeds but was still finalizing claims; management expected restoration costs to be recoverable from insurance.
- Interest-rate risk, refinancing risk, leverage, property-market conditions, tenant creditworthiness, development and acquisition execution, joint-venture control limitations, and access to capital were identified as material risks.
- A 100-basis-point increase in rates on refinanced 2012 and 2013 maturities was estimated to increase annual interest expense by approximately $3.5 million before noncontrolling interests. A 100-basis-point increase in LIBOR was estimated to increase annual interest expense on consolidated variable-rate debt by approximately $4.2 million before noncontrolling interests.
- Management stated that disclosure controls and procedures were effective and that there were no material changes in internal control over financial reporting or material changes to previously disclosed risk factors.
Important Facts for Investors to Verify
- Verify the refinancing plan and available sources of liquidity for the $179.7 million of 2012 debt maturities.
- Assess the sustainability of operating performance excluding property-sale gains and other unusual items, including the decline in year-to-date FFO per share.
- Review the defaulted Brooklyn mortgage loan, foreclosure status, collateral value and adequacy of the $8.4 million notes-receivable allowance.
- Evaluate leverage, floating-rate exposure, derivative coverage and the effect of future interest-rate changes.
- Monitor occupancy, same-store NOI, leasing spreads and the cost and timing of redevelopment projects.
- Confirm the final size, funding obligations, economics and investment pipeline of Fund IV, including the Company’s co-investment and promote interests.
- Review insurance recoveries and remaining exposure related to the flood-damaged property.