Market Overview

Acadia Realty Trust Reports Third Quarter 2019 Operating Results

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Acadia Realty Trust (NYSE:AKR) ("Acadia" or the "Company") today reported operating results for the quarter ended September 30, 2019. All per share amounts are on a fully-diluted basis.

Acadia operates dual platforms, comprised of a high-quality core real estate portfolio ("Core Portfolio"), through which the Company owns and operates assets in the nation's most dynamic urban and street-retail corridors, and a series of discretionary, institutional funds ("Funds") that target opportunistic and value-add investments.

Please refer to the tables and notes accompanying this press release for further details on operating results and additional disclosures related to net income, funds from operations ("FFO") and net operating income ("NOI").

Highlights

  • Earnings: Generated GAAP earnings per share of $0.12 and FFO per share of $0.34 for the third quarter
  • Core Portfolio Operating Results:
    • In line with expectations, the Company generated same-property net operating income growth of 3.1% for the third quarter and 4.1% year to date (excluding redevelopments), driven by its street and urban portfolio
    • Continued leasing progress across the portfolio including the execution of several key street leases in New York City
    • Reported 94.9% leased occupancy as of September 30, 2019
  • Core Acquisition Activity: During the third quarter, the Company continued to execute its strategy of building scale in its key street locations by completing core acquisitions of $32.9 million consisting of a previously announced property on Greene Street in Soho ($25.1 million) and adding two properties within its W Armitage Avenue corridor in Lincoln Park ($7.8 million). On Greene Street and W Armitage Avenue, the Company now owns three and seven contiguous buildings, respectively. To date, the Company has acquired, or entered into contracts or agreements in principle to acquire $180.3 million of core acquisitions
  • Fund Acquisition/Disposition Activity: During the third quarter, the Company completed $141.8 million of Fund V investments and $318.0 million year to date. During the third quarter, the Company completed $67.5 million of fund dispositions and $78.0 million year to date in addition to a $15.3 million monetization of a preferred equity investment
  • Balance Sheet: Maintained balance sheet metrics by match-funding and pre-funding its core acquisitions; raising proceeds of $61.6 million during the quarter and $137.8 million through September 30, 2019 at an average gross issuance price per share in excess of $28.60 through the Company's at-the-market ("ATM") program. At September 30, 2019, substantially all of Core Portfolio debt was fixed at an average rate of 3.8% with a debt to EBITDA ratio of 4.7x
  • Guidance Update: The Company tightened its annual 2019 earnings per share and FFO guidance ranges: earnings per share $0.44 to $0.50 and FFO per share $1.40 to $1.42. The FFO guidance for the fourth quarter does not incorporate any significant transactional or other non-recurring items. The Company reaffirms its annual same property net operating income growth guidance of 3.5% to 4.5%

"We reported another strong quarter operationally along with robust investment activity. We have completed approximately $400.0 million of core and fund acquisitions to date with a strong pipeline," stated Kenneth F. Bernstein, President and CEO of Acadia Realty Trust. "We continue to see solid leasing trends with respect to our existing portfolio. With plenty of dry powder, we are well positioned to continue to execute on our accretive external growth initiatives. Looking ahead for the balance of the year and into 2020, while we remain cognizant of the current geopolitical and economic factors, we continue to see opportunities emerging from this volatility."

FINANCIAL RESULTS

A complete reconciliation, in dollars and per share amounts, of net income attributable to common shareholders to FFO attributable to common shareholders and operating income to NOI is included in the financial tables of this release.

Net Income

Net income attributable to common shareholders for the quarter ended September 30, 2019 was $10.5 million, or $0.12 per share. Net income attributable to common shareholders for the quarter ended September 30, 2018 was $9.2 million, or $0.11 per share.

Net income attributable to common shareholders for the nine months ended September 30, 2019 was $31.7 million, or $0.38 per share, including $5.8 million, or $0.07 per share, related to a previously-announced accelerated tenant recapture. Net income attributable to common shareholders for the nine months ended September 30, 2018 was $24.3 million, or $0.29 per share.

FFO

FFO for the quarter ended September 30, 2019 was $31.0 million, or $0.34 per share, compared to $30.1 million, or $0.35 per share for the quarter ended September 30, 2018.

FFO for the nine months ended September 30, 2019 was $97.6 million, or $1.09 per share, including $5.8 million, or $0.07 per share related to previously-announced accelerated tenant recaptures. FFO was $89.1 million, or $1.01 per share, for the nine months ended September 30, 2018.

CORE PORTFOLIO

Core Operating Results

The Company had solid same-property net operating income growth of 3.1% for the third quarter (before redevelopments), as compared to 3.4% in the third quarter of 2018, and 4.1% for the nine months ended September 30, 2019, as compared to 1.1% for the nine months ended September 30, 2018. This was driven by contractual rental growth and profitable re-leasing of key street/urban properties. The Company has delivered approximately 27,800 square feet of space to Uniqlo on State and Washington in Chicago with rent commencement expected during the fourth quarter.

To date, the Company has executed several key street leases including 154 Spring Street (New York City), 135 Prince Street (New York City) and 61 Main Street (Westport, CT).

The Core Portfolio was 93.5% occupied and 94.9% leased as of September 30, 2019 compared to 93.6% occupied and 94.6% leased as of June 30, 2019. The leased rate includes space that is leased but not yet occupied and excludes development and redevelopment properties.

During the third quarter, the Company generated an 18.7% and 4.5% increase in rent on a GAAP and cash basis, respectively, on 17 conforming new and renewal leases aggregating approximately 255,000 square feet.

Core Acquisitions

During the nine months ended September 30, 2019, the Company acquired, or entered into contracts or agreements in principle to acquire, $180.3 million of Core Portfolio properties. Through September 30, 2019, the Company has closed on $82.4 million, which consist of $74.6 million from the previously-announced Core Portfolio acquisitions and $7.8 million in Chicago on W Armitage Ave. Amounts below are inclusive of transaction costs.

Soho, New York, NY. The Company has acquired or entered into contracts to acquire $121.8 million of New York City street retail assets in Soho. To date, of the $121.8 million, $74.6 million consisting of four buildings on Greene Street (three of which are contiguous) have closed and $47.2 million remain under contract at September 30, 2019.

47 Greene Street, New York, NY. In July, the Company acquired 47 Greene Street for $25.1 million in an off-market transaction. 47 Greene Street, which is adjacent to the Company's other Greene Street acquisitions, is a retail property leased to Theory.

The Company expects to complete the remaining Greene Street properties under contract in late 2019 and early 2020.

849 and 912 W Armitage Avenue, Chicago, IL. In September, the Company acquired 849 and 912 W Armitage Avenue for an aggregate of $7.8 million. With these acquisitions, the Company now owns ten buildings (seven of which are contiguous) on this prime stretch of W Armitage Avenue, a premier retail corridor in Lincoln Park with an exciting line-up of retailers including: Allbirds, Bonobos, Warby Parker, Lively, Parachute, Outdoor Voices, Serena & Lily and Marine Layer.

The Melrose Place Collection, Los Angeles, CA. The Company has entered into a contract to acquire five contiguous store fronts on Melrose Place for $47.7 million in Los Angeles, CA. This acquisition expands its existing presence on the West Coast into Southern California. Melrose Place is located within proximity to Beverly Hills and West Hollywood and is leased to a variety of high-quality luxury tenants, including Chloe (a subsidiary of Richemont), The Row, Melanie Grant, L'Agence, Oscar de la Renta and Violet Gray.

Acquisitions completed to date, along with the remaining assets under contract, were pre-funded with equity raised under the Company's ATM program at an average gross price per share in excess of $28.60.

No assurance can be given that the Company will successfully close on the remaining acquisitions under contract, which are subject to customary closing conditions.

FUND PLATFORM

Fund Acquisitions

The Company completed the following acquisitions during the third quarter 2019. Amounts below are inclusive of transaction costs.

Landstown Commons, Virginia Beach, VA (Fund V). In August, Fund V closed on the purchase of Landstown Commons, a 400,000 square-foot shopping center located in Virginia Beach, VA for $87.0 million. The property is anchored by strong retailers including Ross, Best Buy, Ulta, Five Below, Old Navy and Dollar Tree. It benefits from several submarket drivers within five miles of the asset including Naval Station Oceana and several education and medical facilities. As the dominant center in the region, this higher-yielding asset has a diverse mix of necessity, entertainment, food and soft foods retailers that complement the market.

Two Property Portfolio, Frederick, MD (Fund V). In August, Fund V, a 90% partner in the joint venture with DLC Management Corp., closed on a two-asset portfolio totaling $54.9 million. Both assets are in Frederick, Maryland, a growing market ideally positioned as a suburb to both Washington DC and Baltimore.

Frederick Crossing, a 300,000 square-foot center anchored by Kohl's, Best Buy, Ross and Dollar Tree, was purchased for $33.1 million. The asset is the dominant center in the market with above-average sales and strong stability exhibited through several recent tenant renewals and extensions.

Frederick County Square, a 225,000 square-foot Kmart anchored center was purchased for $21.8 million. This center was purchased well below replacement cost at an attractive yield affording the optionality to accretively redevelop the center to take advantage of an increasing crop of tenants interested in expanding into this growing market.

Fund Dispositions

The Company completed the following dispositions during the third quarter of 2019:

938 W North Avenue, Chicago, IL (Fund IV). In September, Fund IV completed the disposition of 938 W North Avenue for $32.0 million, a three-story, 32,000 square-foot building in Lincoln Park. In November 2013, the Fund acquired the property with the opportunity to recapture Restoration Hardware's prime, below-market corner space. During its ownership, the Fund modernized the facade and leased 100% of the vacant space to lululemon for a new marketplace concept. This sale generated a 6.1% IRR and 1.2x multiple on the Fund's equity investment.

Nostrand Avenue, Brooklyn, NY (Fund III). In August, Fund III completed the disposition of Nostrand Avenue for $27.7 million, a 70,000 square-foot property. In March 2017, the Fund executed an expansion of Silver Star Meat Market, the property's grocery anchor, from 5,000 square-foot to 9,000 square-foot and extended the term of the lease for 20 years to 2037. The property's facade was replaced to present a unified, refreshed look and finished white boxes were delivered to tenants with respect to the second-floor office space. Nostrand Avenue is the primary north-south artery in the neighborhood and has become its main retail shopping corridor. This sale generated a 3.1% IRR and 1.2x multiple on the Fund's equity investment.

JFK Plaza, Waterville, ME (Fund IV). In July, Fund IV completed the disposition of JFK Plaza, a property within the Northeast Grocery Portfolio for $7.8 million. During its ownership, the Fund stabilized the asset through tenant lease extensions with T.J. Maxx and Jo-Ann stores.

The Company does not report return metrics for partial sales of portfolio transactions.

BALANCE SHEET

The Company further strengthened its already solid balance sheet by match and pre-funding its Core acquisition activity. The Company raised proceeds of $61.6 million during the quarter and $137.8 million year to date through September 30, 2019 at an average gross price per share in excess of $28.60 through the Company's ATM program.

Through match funding, the Company strengthened its already-solid, low-leveraged balance sheet. As of September 30, 2019, the Company's net debt to EBITDA ratio for the Core Portfolio was 4.7x, with substantially all of its Core Portfolio debt fixed at an average rate of 3.8%.

During October, the Company exercised the accordion on its credit facility, increasing its revolver capacity from $150.0 million to $250.0 million.

2019 GUIDANCE

The Company tightened its annual 2019 earnings per share and FFO guidance ranges as follows: earnings per share $0.44 to $0.50 and FFO per share $1.40 to $1.42. The FFO guidance for the fourth quarter does not incorporate any significant transactional or other non-recurring items. The Company reaffirms its annual same property net operating income growth guidance of 3.5% to 4.5%.

  • Presented below is the revised 2019 guidance reflecting the accretive impact of its external growth described above and the continued strength in its Core Portfolio compared to the revised second quarter 2019 guidance:

 

 

2019 Guidance

 

 

 

Revised

 

Prior

 

 

 

 

 

 

 

Net income per share attributable to Common Shareholders

 

$0.44 to $0.50

 

$0.39 to $0.46

 

Impact of transactional activity and tenant recapture

 

(0.09) to (0.13)

 

(0.09) to (0.12)

 

Depreciation of real estate and amortization of leasing costs

 

 

 

 

 

(net of noncontrolling interests' share)

 

0.96

 

0.96

 

Gain on disposition of properties (net of noncontrolling interests' share)

 

(0.03)

 

 

Noncontrolling interest in Operating Partnership

 

0.02

 

0.02

 

Funds from operations, prior to

additional transactional activity, per share

 

1.30 to 1.32

 

1.28 to 1.32

 

 

 

 

 

 

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