Acadia Realty Trust 2020 Form 10-K Summary
Business context and reporting period
Acadia Realty Trust is a fully integrated REIT focused on owning, acquiring, developing and managing retail properties in supply-constrained, densely populated U.S. markets. The filing covers the fiscal year ended December 31, 2020; references to fourth-quarter performance are included where disclosed. Operations are conducted through Acadia Realty Limited Partnership under an UPREIT structure, with three reportable segments: Core Portfolio, Funds and Structured Financing.
At year-end, the Company had ownership interests in 187 properties, including 126 Core Portfolio properties totaling approximately 5.6 million square feet and 52 Fund properties totaling approximately 7.3 million square feet, excluding properties under development. Core and Fund operating properties were 89.0% and 85.1% occupied, respectively.
Financial performance and key metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenues | $255.5 million | $295.3 million | Down $39.8 million |
| Operating income (loss) | $(115.4) million | $72.6 million | Down $188.0 million |
| Net income (loss) | $(66.0) million | $21.2 million | Down $87.2 million |
| Net income (loss) attributable to Acadia | $(8.8) million | $53.0 million | Down $61.8 million |
| Basic and diluted EPS | $(0.10) | $0.62 | Down $0.72 |
| FFO attributable to common shareholders and OP unitholders | $114.6 million | $126.9 million | Down $12.3 million |
| Diluted FFO per share/unit | $1.25 | $1.41 | Down $0.16 |
| Net cash provided by operating activities | $102.6 million | $127.2 million | Down $24.6 million |
Reported results were heavily affected by the COVID-19 pandemic. Rental income declined to $251.0 million from $291.2 million. The Company recorded $46.8 million of credit loss reserves related primarily to expected tenant defaults, $2.6 million of rent abatements as its proportionate share, and $85.6 million of impairment charges, of which $20.6 million was attributable to Acadia after noncontrolling interests and unconsolidated interests.
Core Portfolio NOI was $124.3 million, down from $140.2 million. Same-property NOI declined 14.0% to $110.4 million for the year and 14.2% in the fourth quarter. Core Portfolio rent spreads on 47 new and renewal leases were positive, increasing 2.9% on a cash basis and 10.6% on a straight-line basis.
The Company recognized $113.9 million of realized and unrealized holding gains, primarily from the Albertsons investment following its initial public offering. Mervyns II recognized aggregate gains of $95.6 million on Albertsons shares and distributions, of which Acadia’s share was $27.1 million. The Company also recognized an $18.3 million gain on debt extinguishment related to the settlement of Brandywine litigation, of which Acadia’s share was $4.1 million.
Liquidity, debt and capital resources
- Total consolidated debt was $1.770 billion at December 31, 2020, compared with $1.718 billion at year-end 2019. Net indebtedness after unamortized costs and premium was $1.764 billion.
- Fixed or effectively fixed-rate debt totaled $1.143 billion, or 64.6%, at a weighted-average rate of 3.72%. Variable-rate debt totaled $626.9 million, or 35.4%, at a weighted-average rate of 2.39%.
- Debt maturities, excluding extension options, totaled $416.6 million in 2021 and $528.0 million in 2022. Extension options cover $231.3 million of 2021 maturities and $266.3 million of 2022 maturities, subject to customary conditions.
- The Company had $229.9 million of additional capacity under existing consolidated Core and Fund revolving facilities and $19.2 million of cash at consolidated subsidiaries. It also had 81 unleveraged consolidated properties with an aggregate carrying value of approximately $1.6 billion.
- A 100-basis-point increase in interest rates would increase annual interest expense by approximately $6.3 million on variable-rate debt. Refinancing maturing debt at rates 100 basis points higher would increase annual interest expense by approximately $9.7 million before noncontrolling interests.
- Cash paid for common dividends and distributions was reduced as the Board suspended common share and common OP Unit distributions beginning in the second quarter of 2020. Total dividends and distributions paid during the year, including preferred OP Units, were $54.1 million.
- The Company repurchased 1,219,065 common shares for $22.4 million during the first quarter. Approximately $122.6 million remained available under the $200 million repurchase authorization at year-end. No shares were issued under the ATM program in 2020.
- Remaining capital commitments to the Funds totaled $75.4 million, and the Company’s share of estimated remaining costs for development and redevelopment projects was approximately $54.7 million to $67.6 million.
Material changes versus the prior comparable period
- COVID-19 materially reduced tenant collections, rental revenue, occupancy and property values. At December 31, 2020, approximately 88% of Core Portfolio and 82% of Fund Portfolio annualized base rent came from stores that were open or partially open.
- Fourth-quarter 2020 collections of pre-COVID billings were 91% for the Core Portfolio and 82% for the Fund Portfolio as of December 31, 2020. By January 31, 2021, the comparable collection rates were 92% and 84%.
- As of December 31, 2020, the Company had executed 288 pandemic-related rent concession agreements, including 226 deferrals and 60 abatements. Deferred rents totaled $10.7 million, excluding a $2.4 million allowance.
- The Company acquired two Core properties for $19.2 million and made two structured financing loans totaling $59.0 million. It made no new real estate investments within its Fund portfolio.
- Town Center was consolidated after the Company converted a $38.7 million note receivable plus accrued interest into the remaining venture interest. Fund IV also acquired interests in two Broughton Street properties and consolidated them.
- Operating debt mix shifted toward variable-rate exposure: variable-rate debt increased from $314.6 million, or 18.3% of debt, in 2019 to $626.9 million, or 35.4%, in 2020.
- Consolidated cash flow from investing activities improved primarily because 2020 acquisition and investment activity was substantially lower than in 2019. Financing cash flow declined because 2020 lacked the prior-year $145.5 million of net ATM equity proceeds.
Guidance, outlook, commentary, risks and unusual items
The Company withdrew its 2020 guidance on March 31, 2020 after placing certain development and construction projects on hold. It expected to reinstate quarterly common distributions in the first quarter of 2021 if operating conditions continued, subject to Board approval; this was not a guarantee.
Management described pandemic-related disruptions as temporary but stated that prolonged or worsening conditions could materially affect revenues, results, liquidity, debt compliance, refinancing capacity and distributions. Substantially all remaining development and redevelopment spending was discretionary and dependent on renewed tenant interest.
- Fund III and Fund IV debt totaling $115.2 million had not met liquidity requirements at year-end, and three Fund mortgages totaling $124.1 million had not met debt-yield or debt-service-coverage requirements. Lenders could require cash sweeps.
- Two structured financing notes totaling approximately $31.6 million, including accrued interest, had matured without repayment and remained in default; management believed collateral was sufficient to cover carrying values.
- The Company had a $90.1 million fair-value liability on interest-rate swaps, with a weighted-average remaining term of 7.6 years.
- LIBOR discontinuation and transition to an alternative benchmark such as SOFR could affect borrowing costs, hedges, systems and contract economics.
- Material business risks include tenant bankruptcies, lease expirations, anchor-tenant departures, e-commerce competition, geographic concentration, retail property impairment, development execution, environmental liability, climate and catastrophe exposure, cybersecurity, interest rates, refinancing and continued REIT qualification.
- Twenty key tenants accounted for approximately 24.4% of consolidated revenue. Greater New York and Chicago represented 34.2% and 8.2% of Core Portfolio annualized base rent, respectively.
- Subsequent to year-end, Fund IV modified a bridge facility with $79.2 million outstanding, repaid $10.0 million and agreed to repay an additional $5.0 million by September 1, 2021. The facility maturity was extended to December 31, 2021, with a further extension option subject to an additional repayment.
Most important facts for investors to verify
- Whether tenant collections, store openings, occupancy and rent concessions continued improving after January 31, 2021.
- The refinancing, extension or repayment status of the $416.6 million of 2021 and $528.0 million of 2022 consolidated debt maturities.
- Compliance with Fund liquidity, debt-yield and debt-service-coverage covenants and the potential effect of cash sweeps.
- Actual recoveries on defaulted structured financing notes and the adequacy of related collateral and credit-loss reserves.
- Whether impairment assumptions, including holding periods, projected NOI and capitalization rates, remain appropriate as retail property markets recover.
- The timing and terms of any reinstated common distributions and the Company’s ability to satisfy REIT distribution requirements without additional borrowing or asset sales.
- The sustainability of FFO after excluding unusual Albertsons valuation gains, debt-extinguishment gains and other nonrecurring items.