Acadia Realty Trust — 2020 Q1 Form 10-Q Summary
Business Context and Reporting Period
Acadia Realty Trust is an equity REIT focused on retail properties in densely populated, supply-constrained U.S. markets. The filing covers the three months ended March 31, 2020. At quarter-end, the Company had interests in 188 properties across its Core Portfolio and four opportunity funds, with consolidated and unconsolidated portfolio occupancy of 89.2% and Acadia’s share of occupancy of 91.6%.
Financial Performance and Key Metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenues | $71.4 million | $74.0 million | Down $2.6 million |
| Operating income (loss) | $(46.3) million | $16.2 million | Down $62.5 million |
| Net income (loss) | $(60.0) million | $2.9 million | Down $63.0 million |
| Net income (loss) attributable to Acadia | $(8.4) million | $12.2 million | Down $20.6 million |
| Basic and diluted EPS | $(0.10) | $0.15 | Down $0.25 |
| FFO attributable to common shareholders and OP unitholders | $27.7 million | $34.7 million | Down $7.0 million |
| Diluted FFO per share/OP unit | $0.30 | $0.39 | Down $0.09 |
| Net cash from operating activities | $27.7 million | $19.8 million | Up $7.9 million |
Reported operating margin was approximately negative 64.9%, compared with approximately 21.9% in the prior-year quarter, primarily because of $51.5 million of impairment charges. Net margin was approximately negative 84.1%, compared with approximately 4.0% in Q1 2019. Same-property Core Portfolio NOI declined 1.4% to $31.3 million. Core Portfolio NOI increased to $34.7 million from $33.7 million, while Core revenues declined because of a $5.7 million below-market lease write-off and increased credit loss reserves.
Cash and cash equivalents were $23.4 million at March 31, 2020, with restricted cash of $14.2 million. Total assets were $4.31 billion and total equity was $2.01 billion. Total indebtedness was $1.83 billion, including $1.17 billion of mortgage and other notes, $480.7 million of unsecured notes and $174.7 million drawn on the revolving credit facility. Approximately 77.6% of debt was fixed or effectively fixed; variable-rate debt represented 22.4%.
At March 31, 2020, $64.8 million was available under the $250.0 million Core Revolver, after borrowings and letters of credit. As of May 4, 2020, availability under the Revolver had declined to $6.3 million, while Fund credit facilities had $148.9 million of availability. Scheduled consolidated debt maturities and amortization were $393.6 million for the remainder of 2020 and $333.8 million in 2021, before considering extension options.
Material Changes Versus the Prior Comparable Period
- Revenue declined 3.5%, primarily because of lease-related write-offs and increased credit loss reserves, partly offset by acquisitions.
- The Company recorded $51.5 million of non-cash impairment charges on Fund properties, compared with none in Q1 2019. Acadia’s pro rata share was $12.4 million.
- Interest expense increased to $18.3 million from $17.9 million, primarily because of higher average Core borrowings.
- FFO declined 20.2% to $27.7 million, and diluted FFO per share declined to $0.30 from $0.39.
- Operating cash flow increased despite the reported loss, primarily because of non-cash depreciation, impairment and credit loss adjustments.
- Investing cash outflows totaled $90.5 million, including $19.1 million for two Core property acquisitions and $59.0 million for notes receivable. No properties were sold during the quarter.
- Financing activities provided $70.4 million, including $122.2 million of unsecured debt proceeds, offset by $22.4 million of share repurchases and $25.2 million of common dividends.
- The Company repurchased 1.22 million common shares for $22.4 million at an average price of $18.29; $122.6 million remained available under the repurchase program.
Guidance, Outlook, Risks and Unusual Items
- The Company withdrew its 2020 guidance on March 31, 2020 because of uncertainty surrounding COVID-19.
- COVID-19 caused numerous retail tenants to close under government mandates. As of April 30, 2020, approximately 34% of consolidated and unconsolidated annualized base rent was from essential businesses and 66% from non-essential businesses.
- April rent collections were over 50% of billed rents and recoveries through April 30, but management expected second-quarter and potentially full-year revenues to be negatively affected by closures, rent deferrals and concessions.
- The Company recorded approximately $3.0 million of additional credit loss reserves related primarily to expected tenant defaults associated with COVID-19.
- Development and redevelopment projects were largely placed on hold. Estimated costs to complete projects through 2022 were $130.2 million to $169.1 million, with Acadia’s estimated share of $86.6 million to $106.1 million.
- Common share and OP unit distributions were suspended for the quarter ending June 30, 2020. The Board had not determined the dividend policy beyond that quarter.
- On April 1, 2020, a $38.7 million note receivable plus $2.0 million of accrued interest was converted into the remaining 24.78% interest in Town Center; the property will be consolidated beginning in Q2 2020.
- On April 7, Fund II called $15.0 million of capital, of which Acadia’s share was $4.3 million. On April 13, Fund IV sold Colonie Plaza for $15.3 million and repaid an $11.6 million mortgage.
- A $26.3 million Brandywine mortgage was in default and subject to litigation. A Delaware court ruled that Brandywine Holdings and the Operating Partnership have recourse liability; a final judgment amount had not been entered as of the filing date. The lender had alleged approximately $33.0 million was owed as of November 9, 2017, excluding additional accruing amounts.
- Interest-rate swaps had a liability fair value of $104.3 million at quarter-end, compared with $39.1 million at December 31, 2019, contributing to a $73.8 million quarterly other comprehensive loss.
Important Facts for Investors to Verify
- Actual second-quarter rent collections, tenant concessions, deferred rent recoveries and tenant defaults following the April 30 disclosure date.
- Availability under the Revolver and Fund facilities, compliance with debt covenants, and the Company’s ability to refinance or extend 2020 and 2021 maturities.
- The final outcome and amount of the Brandywine litigation liability, including any appeal.
- The valuation and subsequent performance of properties subject to the $51.5 million impairment charge.
- The effect of consolidating Town Center and converting the related note receivable in Q2 2020.
- The timing of project resumptions, future development spending and any additional COVID-19-related impairments.
- The Board’s future dividend policy and continued compliance with REIT distribution requirements.