Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
Acadia Realty Trust (the “Trust”, collectively with its consolidated subsidiaries, the “Company”), a Maryland real estate investment trust (“REIT”), is a fully-integrated equity REIT focused on the ownership, acquisition, development, and management of retail properties located primarily in high-barrier-to-entry, supply-constrained, densely populated metropolitan areas in the United States. All of the Company’s assets are held by, and all of its operations are conducted through, Acadia Realty Limited Partnership (the “Operating Partnership”) and entities in which the Operating Partnership owns an interest. As of September 30, 2024 and December 31, 2023, the Trust controlled approximately 96% and 95%, respectively, of the Operating Partnership as the sole general partner and is entitled to share, in proportion to its percentage interest, in the cash distributions and profits and losses of the Operating Partnership.
We own and operate a high-quality core real estate portfolio (“Core” or “Core Portfolio”) in the nation’s most dynamic retail corridors, along with an investment management platform (“Investment Management”). As part of the Investment Management platform, we have active investments through the following opportunity funds, including: Acadia Strategic Opportunity Fund II, LLC (“Fund II”), Acadia Strategic Opportunity Fund III LLC (“Fund III”), Acadia Strategic Opportunity Fund IV LLC (“Fund IV”), and Acadia Strategic Opportunity Fund V LLC (“Fund V” and, collectively with Fund II, Fund III and Fund IV, “the Funds”).
Generally, we focus on the following strategies to enhance the value of our Company and provide long-term, profitable growth:
• maximize internal growth of the Core Portfolio through constant optimization of tenant mix, time-sensitive and cost-effective re-tenanting, and active management of our properties;
• pursue accretive acquisition opportunities for the Core Portfolio with a focus on high-growth, residentially-dense and destination urban retail shopping corridors;
• capitalize on accretive development/redevelopment opportunities and re-tenanting activities in order to maximize the value of Core properties;
• within Investment Management, pursue a wide range of investments in various co-investment vehicles while matching individual investments and return profiles with strategic institutional partners;
• maintain a strong and flexible balance sheet to support our business activities through conservative financial practices while ensuring access to sufficient capital to fund future growth.
As of September 30, 2024, we own or have an ownership interest in 204 properties held through our Core Portfolio and Investment Management platform. Our Core Portfolio consists of those properties either 100% owned, or partially owned through joint venture interests, by the Operating Partnership, or subsidiaries thereof, not including those properties owned through the Investment Management platform. These properties primarily consist of street and urban retail, and suburban shopping centers. The Investment Management platform consists of investment vehicles through which our Operating Partnership and outside institutional investors invest in primarily opportunistic and value-add retail real estate. The majority of our operating income is derived from rental revenues from operating properties, including expense recoveries from tenants, offset by operating and overhead expenses.
42
A summary of our wholly-owned and partially-owned retail properties and their physical occupancies as of September 30, 2024 is as follows:
Number of Properties
Operating Properties
Development or
Redevelopment (1)
Operating
GLA
Occupancy
Core Portfolio:
Chicago Metro
3
36
577,005
82.4
%
New York Metro
1
32
305,275
91.4
%
Los Angeles Metro
—
2
23,757
100.0
%
San Francisco Metro
2
—
—
0.0
%
Dallas Metro
3
14
121,385
88.4
%
Washington DC Metro
—
32
359,020
83.3
%
Boston Metro
—
1
1,050
100.0
%
Suburban
3
25
3,902,450
93.5
%
Total Core Portfolio
12
142
5,289,942
91.4
%
Acadia Share of Total Core Portfolio
12
142
4,923,554
91.7
%
Investment Management:
Fund II
—
1
536,263
78.6
%
Fund III
1
1
4,547
63.6
%
Fund IV
1
22
526,372
88.2
%
Fund V
—
22
7,472,132
92.5
%
Other
—
2
237,593
100.0
%
Total Investment Management
2
48
8,776,907
91.5
%
Acadia Share of Total Investment Management
2
48
1,907,505
90.1
%
Total Core and Investment Management
14
190
14,066,849
91.5
%
Acadia Share of Total Core and Investment Management
14
190
6,831,059
91.2
%
(1) Includes four pre-stabilized properties in the Core Portfolio.
SIGNIFICANT DEVELOPMENTS DURING THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND SUBSEQUENT EVENTS
Segment Reporting
During the second quarter of 2024 we renamed our historical Funds segment as the Investment Management segment. No prior period information was recast and the designation change did not impact our condensed consolidated financial statements. Refer to Note 12 .
Acquisitions
During the nine months ended September 30, 2024, we acquired four Core properties, one Core land parcel, and one consolidated Investment Management property, as follows ( Note 2 ):
• On July 3, 2024, we acquired an Investment Management shopping center, the Walk at Highwoods Preserve, located in Tampa, Florida for $30.8 million, inclusive of transaction costs.
• On September 19, 2024, we acquired a Core development land parcel as part of the overall Henderson Avenue development project in Dallas, Texas for $1.1 million, inclusive of transaction costs.
• On September 19, 2024, we acquired the Bleecker Street Portfolio in the Core, a four-property retail portfolio in Manhattan, New York for $20.3 million, inclusive of transaction costs.
In October 2024, we acquired three Core properties for $96.7 million ( Note 16 ).
43
Dispositions
During the nine months ended September 30, 2024, we deconsolidated one Core property, disposed of two consolidated Investment Management properties and one outparcel, and disposed of two unconsolidated investments, as follows:
• On April 3, 2024, Fund IV sold its consolidated 2207 and 2208-2216 Fillmore Street properties for a total sales price of $14.1 million and repaid the related $6.4 million of debt at closing. Fund IV recognized a gain of $2.4 million, of which the Company’s proportionate share was $0.5 million ( Note 2 ).
• On May 16, 2024, we sold a 95% interest in the Shops at Grand property for a total of $48.3 million and retained a 5% ownership interest through an investment in a newly formed joint venture which was fair valued at $2.4 million. As we now have a noncontrolling interest, we recognized a loss on deconsolidation of $2.2 million related to transaction costs ( Note 2 ).
• On June 28, 2024, Fund V sold an outparcel at Canton Marketplace for $2.2 million and recognized a gain of $0.6 million, of which the Company’s proportionate share was $0.1 million ( Note 2 ).
• On June 28, 2024, Fund IV sold its unconsolidated Paramus Plaza property for a total of $36.8 million and repaid the related debt of $27.9 million. Fund IV recognized a gain of $4.1 million, of which the Company’s proportionate share was $1.0 million ( Note 4 ).
• On September 25, 2024, Fund V sold its unconsolidated Frederick Crossing property for a total of $47.2 million and repaid the related debt of $23.2 million. Fund V recognized a gain of $11.6 million, of which the Company’s proportionate share was $2.3 million ( Note 4 ).
Financing Activity
On September 12, 2024, the Operating Partnership and the Company entered into a Consent and Second Amendment (the “Amendment”) to the Third Amended and Restated Credit Agreement, with Bank of America, N.A. as administrative agent, dated as of April 15, 2024, to amend its existing senior unsecured credit facility (the “Credit Facility”). The Amendment provides for an increase in the existing unsecured revolving credit facility under the Credit Facility (the “Revolver”) from $350.0 million to $525.0 million, on the same terms and conditions as the existing Revolver, which includes the capacity to issue letters of credit in an amount up to $60.0 million. The Amendment also increases the capacity limit on the accordion feature under the existing Credit Facility from $900.0 million to $1.1 billion, on the same terms and conditions otherwise set forth in the Credit Facility. The Credit Facility and existing $400.0 million unsecured term loan (“Term Loan”) have a maturity date of April 15, 2028, with two additional six-month extension options. Borrowings under the Revolver and the Term Loan will accrue interest at a floating rate based on SOFR with margins based on leverage or credit rating ( Note 7 ).
Core Portfolio
During the nine months ended September 30, 2024, we ( Note 7 ):
• issued $100.0 million aggregate principal amount of senior unsecured notes in a private placement;
• extended a Core property mortgage loan of $60.0 million (excluding principal reductions of $2.5 million);
• repaid a Core property mortgage loan totaling $7.3 million at maturity;
• repaid in full the $175.0 million term loan;
• made scheduled principal payments totaling $3.8 million.
Investment Management
During the nine months ended September 30, 2024, we ( Note 7 ):
• entered into a new Investment Management property mortgage loan of $43.4 million;
• extended two Investment Management property mortgage loans totaling $67.7 million;
• repaid the Fund V subscription line totaling $80.6 million;
• repaid two consolidated Investment Management property mortgage loans of $6.4 million upon disposition of the properties ( Note 2 );
• repaid a portion of one consolidated Investment Management property mortgage loan of $1.5 million in connect with an outparcel disposition ( Note 2 );
• r epaid two unconsolidated Investment Management property mortgage loans of $51.1M upon dispositions of the properties ( Note 4 ); and
44
• made scheduled principal payments totaling $4.1 million.
Structured Financing Investments
During the nine months ended September 30, 2024, we originated one Core note receivable of $7.6 million to a related party, which is collateralized by the borrower’s equity interest in various partnerships, bears interest at 12% and matures on December 31, 2025.
Common Shares
In January 2024, the Company completed an underwritten offering of 6,900,000 Common Shares (inclusive of the underwriters’ option to purchase 900,000 additional shares) for net proceeds of $113.0 million.
During the nine months ended September 30, 2024, we sold 10,273,250 Common Shares under our ATM Program generating $216.9 million of net proceeds after related issuance costs ( Note 10 ).
In September 2024, the Company entered into an underwriting agreement and forward sales agreements with various underwriters and forward purchasers (the “Forward Sales Agreements”), which is accounted for in equity, to offer and sell 5,750,000 (inclusive of the underwriters exercised option to purchase 750,000 additional shares) of its Common Shares on a forward basis. On October 16, 2024, the Company physically settled the Forward Sale Agreements and received net proceeds of $131.8 million ( Note 16 ).
Economic and Other Considerations
Heightened levels of inflation and higher interest rates present risks for our business and our tenants. We continue to monitor and address risks related to the economy. In recent years, inflation levels were elevated resulting in increased costs for certain goods and services and cost of borrowing. Inflation began to decrease in the second quarter of 2023 but still remains at elevated levels compared to the years preceding 2021. While the Federal Reserve reduced interest rates in September 2024 and may lower interest rates further in 2024 or later periods, we cannot provide any assurance that further interest rate reductions, if any, or other monetary policy changes, will positively affect our business, results of operations or consolidated financial statements. Most of our leases include contractual rent escalations and require tenants to pay their share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation. We believe we manage our properties in a cost-conscious manner to minimize recurring operational expenses and utilize multi-year contracts to alleviate the impact of inflation on our business and our tenants. We also continue to see rising consumer confidence and we expect to continue to add value to our portfolio by executing on our current leasing momentum, our active development and redevelopment projects, and leasing pipeline. We manage our exposure to fluctuations in interest rates primarily through the use of fixed-rate debt and interest rate swap and cap agreements, which qualify for, and are designated as, hedging instruments. Except for increased interest costs, we have not experienced any material negative impacts at this time.
45
RESULTS OF OPERATIONS
See Note 12 in the Notes to Condensed Consolidated Financial Statements for an overview of our three reportable segments: Core Portfolio (“Core”), Investment Management (“IM”) and Structured Financing (“SF”).
Comparison of Results for the Three Months Ended September 30, 2024 to the Three Months Ended September 30, 2023
The results of operations by reportable segment for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 are summarized in the table below (in millions, totals may not add due to rounding):
Three Months Ended
Three Months Ended
September 30, 2024
September 30, 2023
Increase (Decrease)
Core
IM
SF
Total
Core
IM
SF
Total
Core
IM
SF
Total
Revenues
$
45.6
$
42.2
$
—
$
87.7
$
47.3
$
34.1
$
—
$
81.4
$
(1.7
)
$
8.1
$
—
$
6.3
Depreciation and amortization
(17.8
)
(16.7
)
—
(34.5
)
(18.8
)
(14.9
)
—
(33.7
)
(1.0
)
1.8
—
0.8
Property operating expenses and real estate taxes
(13.2
)
(12.4
)
—
(25.5
)
(15.6
)
(11.4
)
—
(27.0
)
(2.4
)
1.0
—
(1.5
)
General and administrative expenses
—
—
—
(10.2
)
—
—
—
(10.3
)
—
—
—
(0.1
)
Impairment charges
—
—
—
—
—
(3.7
)
—
(3.7
)
—
3.7
—
3.7
Operating income
14.6
13.1
—
17.5
12.9
4.1
—
6.7
1.7
9.0
—
10.8
Equity in earnings (losses) of unconsolidated affiliates
0.8
11.0
—
11.8
(0.8
)
(4.0
)
—
(4.9
)
1.6
15.0
—
16.7
Interest income
—
—
7.9
7.9
—
—
5.1
5.1
—
—
2.8
2.8
Realized and unrealized holding (losses) gains on investments and other
(1.1
)
—
(0.4
)
(1.5
)
1.7
—
(0.1
)
1.7
(2.8
)
—
(0.3
)
(3.2
)
Interest expense
(9.5
)
(13.8
)
—
(23.4
)
(11.4
)
(13.5
)
—
(24.9
)
(1.9
)
0.3
—
(1.5
)
Income (loss) from continuing operations before income taxes
4.8
10.3
7.5
12.3
2.5
(13.5
)
5.0
(16.3
)
(2.3
)
(23.8
)
(2.5
)
(28.6
)
Income tax provision
—
—
—
—
—
—
—
—
—
—
—
—
Net income (loss)
4.8
10.3
7.5
12.3
2.5
(13.5
)
5.0
(16.3
)
2.3
23.8
2.5
28.6
Net loss attributable to redeemable noncontrolling interests
—
1.7
—
1.7
—
2.5
—
2.5
—
(0.8
)
—
(0.8
)
Net (income) loss attributable to noncontrolling interests
(0.6
)
(4.9
)
—
(5.5
)
(0.2
)
12.5
—
12.3
(0.4
)
(17.4
)
—
(17.8
)
Net income attributable to Acadia
$
4.2
$
7.0
$
7.5
$
8.4
$
2.3
$
1.5
$
5.0
$
(1.4
)
$
1.9
$
5.5
$
2.5
$
9.8
Core Portfolio
The results of operations for our Core Portfolio segment are depicted in the table above under the headings labeled “Core.” Segment net income attributable to Acadia for our Core Portfolio increased $1.9 million for the three months ended September 30, 2024 compared to the prior year period as a result of the changes further described below.
Revenues for our Core Portfolio decreased $1.7 million for the three months ended September 30, 2024 compared to the prior year period primarily due to (i) $1.5 million from the strategic recapture of tenant space subsequent to September 30, 2023 and (ii) $0.9 million from the sale of the Shops at Grand property in 2024. These decreases were partially offset by (i) $1.0 million from new tenant lease up.
Depreciation and amortization for our Core Portfolio decreased $1.0 million for the three months ended September 30, 2024 compared to the prior year period primarily due to the acceleration of in-place lease intangible assets for a bankrupt tenant in 2023.
Property operating expenses and real estate taxes decreased $2.4 million for the three months ended September 30, 2024 compared to the prior year period primarily due to an increase in repairs and maintenance, utility and insurance costs in 2023.
Equity in earnings of unconsolidated affiliates increased $1.6 million for the three months ended September 30, 2024 compared to the prior year period primarily due to $0.9 million from tenant lease up and $0.8 million from the restructuring of debt at a property.
Realized and unrealized holding (losses) gains on investments and other for our Core Portfolio decreased $2.8 million for the three months ended September 30, 2024 compared to the prior year period primarily due to a change in the mark-to-market adjustment on the Investment in Albertsons ( Note 8 ).
Interest expense for our Core Portfolio decreased $1.9 million for the three months ended September 30, 2024 compared to the prior year period primarily due to lower average outstanding borrowings in 2024.
46
Investment Management (all amounts below are consolidated amounts and are not representative of our proportionate share)
The results of operations for our Investment Management segment are depicted in the table above under the headings labeled “IM.” Segment net income attributable to Acadia for Investment Management increased $5.5 million for the three months ended September 30, 2024 compared to the prior year period as a result of the changes described below.
Revenues for Investment Management increased $8.1 million for the three months ended September 30, 2024 compared to the prior year period primarily due to (i) $2.8 million from property acquisitions in the second half of 2023 and 2024, (ii) $2.4 million from new tenant lease up, and (iii) $1.3 million from higher recoveries as a result of higher property operating expenses in 2024.
Depreciation and amortization for Investment Management increased $1.8 million for the three months ended September 30, 2024 compared to the prior year period primarily due to property acquisitions in the second half of 2023.
Impairment charges for our Investment Management of $3.7 million related to 146 Geary in Fund IV during 2023.
Equity in earnings (losses) of unconsolidated affiliates for Investment Management increased $15.0 million for the three months ended September 30, 2024 compared to the prior year period primarily due to the gain on sale of Frederick Crossing in 2024 ( Note 4 ).
Net (income) loss attributable to noncontrolling interests for Investment Management decreased $17.4 million for the three months ended September 30, 2024 compared to the prior year period based on the noncontrolling interests’ share of the variances discussed above. Net income attributable to noncontrolling interests in Investment Management includes asset management fees earned by the Company of $3.6 million and $2.4 million for the three months ended September 30, 2024 and 2023, respectively.
Structured Financing
Interest income for our Structured Financing portfolio increased $2.8 million for the three months ended September 30, 2024 compared to the prior year period primarily due to higher cash balances and compounding interest on certain of our notes.
Unallocated
The Company does not allocate general and administrative expenses and income taxes to its reportable segments. These unallocated amounts are depicted in the table above under the headings labeled “Total.”
Comparison of Results for the Nine Months Ended September 30, 2024 to the Nine Months Ended September 30, 2023
The results of operations by reportable segment for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 are summarized in the table below (in millions, totals may not add due to rounding):
Nine Months Ended
Nine Months Ended
September 30, 2024
September 30, 2023
Increase (Decrease)
Core
IM
SF
Total
Core
IM
SF
Total
Core
IM
SF
Total
Revenues
$
148.0
$
118.3
$
—
$
266.4
$
153.5
$
99.7
$
—
$
253.2
$
(5.5
)
$
18.6
$
—
$
13.2
Depreciation and amortization
(54.0
)
(49.7
)
—
(103.7
)
(57.5
)
(43.4
)
—
(101.0
)
(3.5
)
6.3
—
2.7
Property operating expenses and real estate taxes
(45.5
)
(37.3
)
—
(82.7
)
(46.7
)
(32.5
)
—
(79.2
)
(1.2
)
4.8
—
3.5
General and administrative expenses
—
—
—
(30.2
)
—
—
—
(30.9
)
—
—
—
(0.7
)
(Loss) gain on disposition of properties
(2.2
)
1.8
—
(0.4
)
—
—
—
—
(2.2
)
1.8
—
(0.4
)
Impairment charges
—
—
—
—
—
(3.7
)
—
(3.7
)
—
3.7
—
3.7
Operating income (loss)
46.3
33.1
—
49.3
49.2
20.1
—
38.5
(2.9
)
13.0
—
10.8
Equity in earnings (losses) of unconsolidated affiliates
3.5
12.4
—
16.0
1.9
(8.2
)
—
(6.3
)
1.6
20.6
—
22.3
Interest income
—
—
18.5
18.5
—
—
14.9
14.9
—
—
3.6
3.6
Realized and unrealized holding (losses) gains on investments and other
(5.1
)
—
(0.8
)
(5.9
)
5.2
25.0
—
30.2
(10.3
)
(25.0
)
(0.8
)
(36.1
)
Interest expense
(29.5
)
(41.1
)
—
(70.7
)
(33.0
)
(35.5
)
—
(68.6
)
(3.5
)
5.6
—
2.1
Income (loss) from continuing operations before income taxes
15.2
4.4
17.7
7.2
23.3
1.4
14.9
8.7
8.1
(3.0
)
(2.8
)
1.5
Income tax provision
—
—
—
(0.2
)
—
—
—
(0.2
)
—
—
—
—
Net income (loss)
15.2
4.4
17.7
7.0
23.3
1.4
14.9
8.5
(8.1
)
3.0
2.8
(1.5
)
Net loss attributable to redeemable noncontrolling interests
—
6.5
—
6.5
—
5.7
—
5.7
—
0.8
—
0.8
Net income attributable to noncontrolling interests
(1.1
)
0.8
—
(0.4
)
(1.8
)
8.9
—
7.1
0.7
(8.1
)
—
(7.5
)
Net income (loss) attributable to Acadia
$
14.1
$
11.7
$
17.7
$
13.1
$
21.5
$
16.0
$
14.9
$
21.2
$
(7.4
)
$
(4.3
)
$
2.8
$
(8.1
)
47
Core Portfolio
The results of operations for our Core Portfolio segment are depicted in the table above under the headings labeled “Core.” Segment net income attributable to Acadia for our Core Portfolio decreased $7.4 million for the nine months ended September 30, 2024 compared to the prior year period as a result of the changes further described below.
Revenues for our Core Portfolio decreased $5.5 million for the nine months ended September 30, 2024 compared to the prior year period primarily due to (i) $7.8 million accelerated amortization of a below-market lease for a bankrupt tenant in 2023, (ii) $2.3 million from the strategic recapture of tenant space subsequent to September 30, 2023, and (iii) $0.9 million from the sale of the Shops at Grand property in 2024. These decreases were offset by (i) $3.5 million for the recognition of a forfeited deposit within Other revenues in the Condensed Consolidated Statements of Operations for a property previously under contract for sale in 2024, and (ii) $1.0 million from new tenant lease up.
Depreciation and amortization for our Core Portfolio decreased $3.5 million for the nine months ended September 30, 2024 compared to the prior year period primarily due to the write-off of in-place lease intangible assets for a bankrupt tenant in 2023.
Property operating expenses and real estate taxes for our Core Portfolio decreased $1.2 million for the nine months ended September 30, 2024 compared to the prior year period primarily due to an increase in repairs and maintenance, utility and insurance costs in 2023 offset by increased legal expense reserves in the current year.
Loss on disposition of property for our Core Portfolio relates to the deconsolidation of the Shops at Grand property in 2024 ( Note 2 ).
Equity in earnings of unconsolidated affiliates increased $1.6 million for the nine months ended September 30, 2024 compared to the prior year period primarily due to $0.9 million from tenant lease up and $0.8 million from the restructuring of debt at a property.
Realized and unrealized holding (losses) gains on investments and other for our Core Portfolio decreased $10.3 million for the nine months ended September 30, 2024 compared to the prior year period primarily due to a change in the mark-to-market adjustment on the Investment in Albertsons ( Note 8 ).
Interest expense for our Core Portfolio decreased $3.5 million for the nine months ended September 30, 2024 compared to the prior year period due to lower average outstanding borrowings in 2024.
Net income attributable to noncontrolling interests for our Core Portfolio increased $0.7 million for the nine months ended September 30, 2024 compared to the prior year period based on the noncontrolling interests’ share of the variances discussed above.
Investment Management (all amounts below are consolidated amounts and are not representative of our proportionate share)
The results of operations for our Investment Management segment are depicted in the table above under the headings labeled “IM.” Segment net income attributable to Acadia for Investment Management decreased $4.3 million for the nine months ended September 30, 2024 compared to the prior year period as a result of the changes described below.
Revenues for Investment Management increased $18.6 million for the nine months ended September 30, 2024 compared to the prior year period primarily due to (i) $12.4 million from acquisitions in 2023 and 2024, (ii) $4.1 million from new tenant lease-up within Investment Management in 2023 and 2024, and (iii) $1.3 million from higher recoveries as a result of higher property operating expenses in 2024.
Depreciation and amortization for Investment Management increased $6.3 million for the nine months ended September 30, 2024 compared to the prior year period primarily due to property acquisitions in 2023.
Property operating expenses and real estate taxes for Investment Management increased $4.8 million for the nine months ended September 30, 2024 compared to the prior year period primarily due to property acquisitions in 2023 and higher property operating expenses within Investment Management in 2024.
Gain on disposition of properties for Investment Management increased $1.8 million for the nine months ended September 30, 2024 compared to the prior year period due to the $3.0 million gain on disposition of two properties at Fund IV and an outparcel at Fund V, offset by a $1.2 million loss related to a previously disposed property ( Note 2 ).
Equity in earnings (losses) of unconsolidated affiliates for Investment Management increased $20.6 million for the nine months ended September 30, 2024 compared to the prior year period primarily due to the gain on disposition of Frederick Crossing and Paramus Plaza in 2024 ( Note 4 ).
48
Realized and unrealized holding (losses) gains on investments and other for the Investment Management decreased $25.0 million for the nine months ended September 30, 2024 compared to the prior year period primarily due to a $28.2 million increase in dividend income from Albertsons in 2023 offset by the mark-to-market adjustment on the investment in Albertsons in 2023 and 2024 ( Note 8 ).
Interest expense for Investment Management increased $5.6 million for the nine months ended September 30, 2024 compared to the prior year period primarily due to higher average interest rates in 2024.
Net (income) loss attributable to noncontrolling interests for Investment Management decreased $8.1 million for the nine months ended September 30, 2024 compared to the prior year period based on the noncontrolling interests’ share of the variances discussed above. Net income attributable to noncontrolling interests in Investment Management includes asset management fees earned by the Company of $8.3 million and $7.2 million for the nine months ended September 30, 2024 and 2023, respectively.
Structured Financing
Interest income for our Structured Financing portfolio increased $3.6 million for the nine months ended September 30, 2024 compared to the prior year period primarily due to higher cash balances and compounding interest on certain of our notes.
Unallocated
The Company does not allocate general and administrative expenses and income taxes to its reportable segments. These unallocated amounts are depicted in the table above under the headings labeled “Total.”
NON-GAAP FINANCIAL MEASURES
Net Property Operating Income
The following discussion of net property operating income (“NOI”) and rent spreads on new and renewal leases includes the activity from both our consolidated and our pro-rata share of unconsolidated properties within our Core Portfolio. Investment Management invests primarily in properties that typically require significant leasing and development. Given that Investment Management is primarily comprised of finite-life investment vehicles, these properties are sold following stabilization. For these reasons, we believe NOI and rent spreads are not meaningful measures for our Investment Management investments.
NOI represents property revenues less property expenses. We consider NOI and rent spreads on new and renewal leases for our Core Portfolio to be appropriate supplemental disclosures of portfolio operating performance due to their widespread acceptance and use within the REIT investor and analyst communities. NOI and rent spreads on new and renewal leases are presented to assist investors in analyzing our property performance, however, our method of calculating these may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
49
A reconciliation of consolidated operating income to net operating income - Core Portfolio follows (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Consolidated operating income
$
17,492
$
6,691
$
49,289
$
38,457
Add back:
General and administrative
10,215
10,309
30,162
30,898
Depreciation and amortization
34,500
33,726
103,721
100,955
Impairment charges
—
3,686
—
3,686
Loss on disposition of properties
—
—
441
—
Less:
Above/below-market rent, straight-line rent and other adjustments (a)
(5,498
)
(3,336
)
(12,975
)
(18,666
)
Consolidated NOI
56,709
51,076
170,638
155,330
Redeemable noncontrolling interest in consolidated NOI
(1,711
)
(861
)
(4,133
)
(3,260
)
Noncontrolling interest in consolidated NOI
(17,060
)
(14,927
)
(52,314
)
(43,132
)
Less: Operating Partnership's interest in Investment Management NOI included above
(6,940
)
(4,656
)
(18,413
)
(14,458
)
Add: Operating Partnership's share of unconsolidated joint ventures NOI (b)
2,291
3,163
8,504
11,263
Core Portfolio NOI
$
33,289
$
33,795
$
104,282
$
105,743
a) Includes straight-line rent reserves.
b) Does not include the Operating Partnership’s share of NOI from unconsolidated joint ventures within Investment Management.
Same-Property NOI includes Core Portfolio properties that we owned for both the current and prior periods presented, but excludes those properties that we acquired, sold or expected to sell, redeveloped and developed during these periods. The following table summarizes Same-Property NOI for our Core Portfolio (dollars in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Core Portfolio NOI
$
33,289
$
33,795
$
104,282
$
105,743
Less properties excluded from Same-Property NOI
(1,516
)
(3,780
)
(8,340
)
(15,014
)
Same-Property NOI
$
31,773
$
30,015
$
95,942
$
90,729
Percent change from prior year period
5.9
%
5.7
%
Components of Same-Property NOI:
Same-Property Revenues
$
45,101
$
43,228
$
136,891
$
130,286
Same-Property Operating Expenses
(13,328
)
(13,213
)
(40,949
)
(39,557
)
Same-Property NOI
$
31,773
$
30,015
$
95,942
$
90,729
50
Rent Spreads on Core Portfolio New and Renewal Leases
The following table summarizes rent spreads on both a cash basis and straight-line basis for new and renewal leases based on leases executed within our Core Portfolio for the periods presented. Cash basis represents a comparison of rent most recently paid on the previous lease as compared to the initial rent paid on the new lease. Straight-line basis represents a comparison of rents as adjusted for contractual escalations, abated rent, and lease incentives for the same comparable leases. The table below includes embedded option renewals for which the renewed rent was equal to or approximated existing base rent.
Three Months Ended September 30, 2024
Nine Months Ended September 30, 2024
Core Portfolio New and Renewal Leases
Cash Basis
Straight-
Line Basis
Cash Basis
Straight-
Line Basis
Number of new and renewal leases executed
12
12
52
52
GLA commencing
185,747
185,747
452,414
452,414
New base rent
$
29.19
$
30.69
$
34.05
$
35.55
Expiring base rent
$
27.78
$
26.99
$
31.89
$
30.59
Percent growth in base rent
5.1
%
13.7
%
6.8
%
16.2
%
Average cost per square foot (a)
$
7.58
$
7.58
$
5.80
$
5.80
Weighted average lease term (years)
5.1
5.1
5.1
5.1
(a) The average cost per square foot includes tenant improvement costs, leasing commissions and tenant allowances.
51
Funds from Operations
We consider funds from operations (“FFO”) as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) to be an appropriate supplemental disclosure of operating performance due to its widespread acceptance and use within the REIT investor and analyst communities. FFO is presented to assist investors in analyzing our performance. It is helpful as it excludes various items included in net income that are not indicative of the operating performance, such as gains (losses) from sales of depreciated property, depreciation and amortization, and impairment of real estate. Our method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. FFO does not represent cash generated from operations as defined by GAAP and is not indicative of cash available to fund all cash needs, including distributions. It should not be considered as an alternative to net income for the purpose of evaluating our performance or to cash flows as a measure of liquidity. Consistent with the NAREIT definition, we define FFO as net income (computed in accordance with GAAP), excluding gains (losses) from sales of depreciated property and impairment of depreciable real estate, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Also consistent with NAREIT’s definition of FFO, the Company has elected to include gains and losses incidental to its main business (including those related to its RCP investments, such as Albertsons) in FFO. A reconciliation of net income (loss) attributable to Acadia to FFO follows (dollars in thousands, except per share data):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Net income (loss) attributable to Acadia
$
8,414
$
(1,426
)
$
13,126
$
21,210
Depreciation of real estate and amortization of leasing costs (net of
noncontrolling interests' share)
26,407
27,351
79,785
82,043
Impairment charges (net of noncontrolling interests' share)
—
852
—
852
Gain on disposition of properties (net of noncontrolling interests' share)
(2,324
)
—
(1,481
)
—
Income attributable to Common OP Unit holders
398
(55
)
704
1,313
Distributions - Preferred OP Units
67
123
274
369
Funds from operations attributable to Common Shareholders and
Common OP Unit holders - Basic and Diluted
$
32,962
$
26,845
$
92,408
$
105,787
Funds From Operations per Share - Diluted
Basic weighted-average shares outstanding, GAAP earnings
108,351,254
95,319,958
104,703,763
95,256,703
Weighted-average OP Units outstanding
7,223,243
6,962,435
7,339,607
6,980,766
Basic weighted-average shares and OP Units outstanding, FFO
115,574,497
102,282,393
112,043,370
102,237,469
Assumed conversion of Preferred OP Units to Common Shares
256,034
463,898
256,034
463,898
Assumed conversion of LTIP units and Restricted Share Units to
Common Shares
1,173,621
—
964,470
—
Diluted weighted-average number of Common Shares and Common
OP Units outstanding, FFO
117,004,152
102,746,291
113,263,874
102,701,367
Diluted Funds from operations, per Common Share and Common OP Unit
$
0.28
$
0.26
$
0.82
$
1.03
52
LIQUIDITY AND CAPITAL RESOURCES
Uses of Liquidity and Cash Requirements
Generally, our principal uses of liquidity are (i) distributions to our shareholders and OP unit holders, (ii) investments, which include the funding of our capital committed to the Funds in our Investment Management platform and property acquisitions and development/re-tenanting activities within our Core Portfolio, (iii) distributions to our Fund investors, (iv) debt service and loan repayments and (v) share repurchases.
Distributions
In order to qualify as a REIT for federal income tax purposes, we must distribute at least 90% of our taxable income to our shareholders. During the nine months ended September 30, 2024, we paid dividends and distributions on our Common Shares and Preferred OP Units totaling $58.7 million.
Investments
During the nine months ended September 30, 2024, we acquired four Core properties, one Core land parcel, and one consolidated Investment Management property, as described below ( Note 2 ):
• In July 2024, through Investment Management, we acquired a shopping center, the Walk at Highwoods Preserve, located in Tampa, Florida for $30.8 million, inclusive of transaction costs.
• In September 2024, we acquired a Core development land parcel as part of the overall Henderson Avenue development project in Dallas, Texas for $1.1 million, inclusive of transaction costs.
• In September 2024, we acquired the Bleecker Street Portfolio in the Core, a four property retail portfolio (inclusive of a parking garage) in New York, New York for $20.3 million, inclusive of transaction costs.
Structured Financing Investments
During the nine months ended September 30, 2024, we originated one Core note receivable of $7.6 million to a related party, which is secured by the borrower’s equity interest in the Renaissance Portfolio, 1238 Wisconsin Avenue, and another Georgetown property, bears interest at 12% and matures on December 31, 2025 ( Note 3 ).
Capital Commitments
During the nine months ended September 30, 2024, we made capital contributions aggregating $11.7 million to our Funds.
As of September 30, 2024, our share of the remaining capital commitments to our Funds aggregated $17.5 million as follows:
• $0.5 million to Fund III – Fund III was launched in May 2007 with total committed capital of $450.0 million, of which our original share was $89.6 million. During 2015, we acquired an additional interest, which had an original capital commitment of $20.9 million.
• $5.5 million to Fund IV – Fund IV was launched in May 2012 with total committed capital of $530.0 million, of which our original share was $122.5 million.
• $11.5 million to Fund V – Fund V was launched in August 2016 with total committed capital of $520.0 million, of which our original share was $104.5 million.
Development Activities
During the nine months ended September 30, 2024, capitalized costs associated with development activities totaled $13.9 million ( Note 2 ). As of September 30, 2024, we had a total of 10 consolidated projects under development or redevelopment, for which the estimated total cost to complete these projects through 2028 was $54.0 million to $168.0 million, and our estimated share was approximately $54.0 million to $168.0 million. Substantially all remaining development and redevelopment costs are discretionary, and could be affected by various risks and uncertainties, including, but not limited to, the effects of the current inflationary environment, rising interest rates, and other risks detailed in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2023.
53
Debt
A summary of our consolidated debt, which includes the full amount of Investment Management related obligations and excludes our pro rata share of debt at our unconsolidated subsidiaries, is as follows (in thousands):
September 30,
December 31,
2024
2023
Total Debt - Fixed and Effectively Fixed Rate
$
1,166,142
$
1,454,707
Total Debt - Variable Rate
424,271
426,380
1,590,413
1,881,087
Net unamortized debt issuance costs
(11,017
)
(11,186
)
Unamortized premium
217
240
Total Indebtedness
$
1,579,613
$
1,870,141
As of September 30, 2024, our consolidated indebtedness aggregated $1,590.4 million, excluding unamortized premium of $0.2 million and net unamortized loan costs of $11.0 million, and was collateralized by 31 properties and related tenant leases. Stated interest rates on our outstanding indebtedness ranged from 3.99% to SOFR + 3.75% with maturities that ranged from October 5, 2024 to April 15, 2035, without regard to available extension options. With respect to the debt maturing in 2024, we are actively pursuing refinancing the remaining obligations, though there can be no assurance that we can refinance such obligations on favorable terms or at all. Taking into consideration $875.1 million of notional principal under variable to fixed-rate swap agreements currently in effect, $1,166.1 million of the portfolio debt, or 73.3%, was fixed at a 5.02% weighted average interest rate and $424.3 million, or 26.7%%, was floating at a 7.76% weighted average interest rate as of September 30, 2024. Our variable-rate debt includes $151.0 million of debt subject to interest rate caps.
Without regard to available extension options, as of September 30, 2024, we had $171.9 million of debt maturing in 2024 at a weighted-average interest rate of 5.71%; $1.2 million of scheduled principal amortization due in the remainder of 2024; and our share of scheduled remaining 2024 principal payments and maturities on our unconsolidated debt was $43.4 million. In addition, $542.1 million of our total consolidated debt and $44.8 million of our pro-rata share of unconsolidated debt will come due by September 30, 2025. With respect to the debt maturing in 2024 and 2025, we have options to extend consolidated debt aggregating $0.0 million and $327.0 million as of September 30, 2024 and there can be no assurance that the Company will be able to successfully execute any or all of its available extension options. For the remaining indebtedness, we may not have sufficient cash on hand to repay such indebtedness, and, therefore, we expect to refinance at least a portion of this indebtedness or select other alternatives based on market conditions as these loans mature; however, there can be no assurance that we will be able to obtain financing on acceptable terms or at all. Our ability to obtain financing could be affected by various risks and uncertainties, including, but not limited to, the effects of the current inflationary environment, rising interest rates, and other risks detailed in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2023.
Share Repurchase Program
We maintain a share repurchase program under which $122.5 million remains available as of September 30, 2024 ( Note 10 ). We did not repurchase any shares under this program during the nine months ended September 30, 2024.
Sources of Liquidity
Our primary sources of capital for funding our short-term (less than 12 months) and long-term (12 months and longer) liquidity needs include (i) the issuance of both public equity and OP Units, (ii) the issuance of both secured and unsecured debt, (iii) unfunded capital commitments from noncontrolling interests within Investment Management, (iv) future sales of existing properties, (v) repayments of structured financing investments, (vi) liquidation of marketable securities, and (vii) cash on hand and future cash flow from operating activities. Our cash on hand in our consolidated subsidiaries as of September 30, 2024 totaled $46.2 million. Our remaining sources of liquidity are described further below.
Issuance of Common Shares
In January 2024, the Company completed an underwritten offering of 6,900,000 Common Shares (inclusive of the underwriters’ option to purchase 900,000 additional shares) for net proceeds of $113.0 million.
In September 2024, the Company entered into an underwriting agreement and forward sales agreements with various underwriters and forward purchasers (the “Forward Sales Agreements”), which is accounted for in equity, to offer and sell 5,750,000 (inclusive of the underwriters
54
exercised option to purchase 750,000 additional shares) of its Common Shares on a forward basis. On October 16, 2024, the Company physically settled the Forward Sale Agreements and received net proceeds of $131.8 million.
ATM Program
We have an ATM Program ( Note 10 ) that provides us with an efficient and low-cost vehicle for raising capital through public equity issuances on an as-we-go basis to fund our capital needs. Through this program, we have been able to effectively “match-fund” the required capital for our Core Portfolio and our share of Investment Management acquisitions through the issuance of Common Shares over extended periods employing a price averaging strategy. In addition, from time to time, we have issued and may issue, equity in follow-on offerings separate from our ATM Program. Net proceeds raised through our ATM Program and follow-on offerings are primarily used for acquisitions, both for our Core Portfolio and our pro-rata share of Investment Management acquisitions, and for general corporate purposes. The Company sold 8,533,962 and 10,273,250 Common Shares under its ATM Program during the three and nine months ended September 30, 2024 generating $187.0 million and $216.9 million of net proceeds after related issuance costs, respectively.
Investment Management Capital
During the nine months ended September 30, 2024, Fund V called for capital contributions of $57.8 million, of which our aggregate share was $11.7 million. As of September 30, 2024, unfunded capital commitments from noncontrolling interests within Funds II, III, IV and V were $0, $1.4 million, $18.5 million and $45.9 million, respectively.
Asset Sales and Other Transactions
During the nine months ended September 30, 2024, we deconsolidated one Core property, two consolidated Investment Management properties and one outparcel, and one unconsolidated investment, as follows:
• On April 3, 2024, Fund IV sold its consolidated 2207 and 2208-2216 Fillmore Street properties for a total sales price of $14.1 million and repaid the related $6.4 million of debt at closing. Fund IV recognized a gain of $2.4 million, of which the Company’s proportionate share was $0.5 million ( Note 2 ).
• On May 16, 2024, we sold a 95% interest in the Shops at Grand property for a total of $48.3 million and retained a 5% ownership interest through an investment in a newly formed joint venture which was fair valued at $2.4 million. As we now have a noncontrolling interest, we recognized a loss on deconsolidation of $2.2 million related to transaction costs ( Note 2 ).
• On June 28, 2024, Fund V sold an outparcel at Canton Marketplace property for $2.2 million and recognized a gain of $0.6 million, of which the Company’s proportionate share was $0.1 million ( Note 2 ).
• On June 28, 2024, Fund IV sold its unconsolidated Paramus Plaza property for a total of $36.8 million and repaid the related debt of $27.9 million. Fund IV recognized a gain of $4.1 million, of which the Company’s proportionate share was $1.0 million ( Note 4 ).
• On September 25, 2024, Fund V sold its unconsolidated Frederick Crossing property for $47.2 million and repaid the related debt of $23.2 million. Fund V recognized a gain of $11.6 million, of which the Company’s proportionate share was $2.3 million ( Note 4 ).
During the nine months ended September 30, 2024, we sold 500,000 shares of Albertsons, generating net proceeds of $10.5 million. As of September 30, 2024, we held 0.9 million shares of Albertsons which had a fair value of $17.5 million ( Note 8 ). In addition, during the nine months ended September 30, 2024, we recognized dividend income of $0.4 million ( Note 8 ).
Structured Financing Repayments
During the nine months ended September 30, 2024, the Company received full payment on a $6.0 million Core Portfolio note.
Financing and Debt
As of September 30, 2024, we had $469.0 million of capacity under existing Core Portfolio debt facilities. In addition, as of that date within our Core Portfolio and Investment Management, we had 132 unleveraged consolidated properties with an aggregate carrying value of approximately $1.8 billion, although there can be no assurance that we would be able to obtain financing for these properties at favorable terms, if at all.
55
HISTORICAL CASH FLOW
The following table compares the historical cash flow for the nine months ended September 30, 2024 with the cash flow for the nine months ended September 30, 2023 (in millions, totals may not add due to rounding):
Nine Months Ended September 30,
2024
2023
Variance
Net cash provided by operating activities
$
102.6
$
115.2
$
(12.6
)
Net cash used in investing activities
(50.1
)
(90.1
)
40.0
Net cash used in financing activities
(8.4
)
(30.1
)
21.7
Increase (decrease) in cash and cash equivalents and restricted cash
$
44.0
$
(5.0
)
$
49.0
Operating Activities
Net cash provided by operating activities primarily consists of cash inflows from rental revenue, and cash outflows for property operating expenses, general and administrative expenses and interest and debt expense.
Our operating activities provided $12.6 million less cash for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to the $28.2 million dividend received from our investment in Albertsons in 2023.
Investing Activities
Net cash used in investing activities is impacted by our investments in and advances to unconsolidated affiliates, the timing and extent of our real estate development, capital improvements, and acquisition and disposition activities during the period.
Our investing activities provided $40.0 million more cash for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to (i) $58.7 million more cash received from the disposition of properties in 2024, (ii) $20.8 million less cash used in our investments in and advances to unconsolidated affiliates, (iii) $8.1 million more cash received from the sale of marketable securities, and (iv) $6.0 million more received from the payment of a note receivable. These sources of cash were offset by (i) $27.0 million less cash received from return of capital of unconsolidated affiliates, (ii) $11.1 million more cash used for development, construction and property improvement costs, (iii) $8.2 million more cash used to originate a note receivable and (iv) $6.4 million more cash used for the acquisition of real estate.
Financing Activities
Net cash used in financing activities is impacted by the timing and extent of issuances of debt and equity securities, distributions paid to common shareholders and unitholders of the Operating Partnership, as well as principal and other payments associated with our outstanding indebtedness.
Our financing activities provided $21.7 million more cash during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily from (i) $328.8 million more cash provided by the sale of Common Shares, (ii) $14.3 million more cash provided by contributions from noncontrolling interests, and (iii) $8.0 million less cash distributed to noncontrolling interests. These increases were offset by (i) $317.5 million more cash used to repay debt, (ii) $7.2 million more cash used for payment of deferred financing fees, and (iii) $3.3 million more used to pay dividends.
56
OFF-BALANCE SHEET ARRANGEMENTS
We have the following investments made through joint ventures (that may include, among others, tenancy-in common and other similar investments) for the purpose of investing in operating properties. We account for these investments using the equity method of accounting. As such, our financial statements reflect our investment and our share of income and loss from, but not the individual assets and liabilities, of these joint ventures.
See Note 4 in the Notes to Condensed Consolidated Financial Statements, for a discussion of our unconsolidated investments. The Operating Partnership’s pro-rata share of unconsolidated non-recourse debt related to those investments is as follows (dollars in millions):
Operating Partnership
September 30, 2024
Investment
Ownership
Percentage
Pro-rata Share of
Mortgage Debt
Effective Interest Rate (a)
Maturity Date
Tri-City Plaza (b)
18.1
%
$
6.8
7.25
%
Oct 2024
Crossroads Shopping Center
49.0
%
28.6
3.94
%
Nov 2024
Eden Square
20.8
%
4.9
7.60
%
Nov 2024
Frederick County Square (b)
18.1
%
4.5
5.62
%
Jan 2025
650 Bald Hill Rd
20.8
%
3.1
3.75
%
Jun 2026
Renaissance Portfolio (c)
20.0
%
30.4
7.15
%
Nov 2026
840 N. Michigan
91.9
%
41.6
6.50
%
Dec 2026
3104 M Street (c)
20.0
%
0.8
8.30
%
Jan 2027
Wood Ridge Plaza
18.1
%
6.5
7.24
%
Mar 2027
La Frontera
18.1
%
10.0
6.11
%
Jun 2027
Riverdale FC
18.0
%
6.9
7.22
%
Nov 2027
Georgetown Portfolio
50.0
%
7.0
4.72
%
Dec 2027
Shoppes at South Hills (b)
18.1
%
5.8
5.95
%
Mar 2028
Mohawk Commons
18.1
%
7.2
5.80
%
Mar 2028
Gotham Plaza
49.0
%
13.7
5.90
%
Oct 2034
Total
$
177.8
(a) Effective interest rates incorporate the effect of interest rate swaps and caps that were in effect as of September 30, 2024, where applicable.
(b) The debt has one available 12-month extension option.
(c) The debt has two available 12-month extension options.
CRITICAL ACCOUNTING POLICIES
Management’s discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe there have been no material changes to the items that we disclosed as our critical accounting policies under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our 2023 Annual Report on Form 10-K.
Recently Issued and Adopted Accounting Pronouncements
Reference is made to Note 1 in the Notes to Condensed Consolidated Financial Statements for information about recently issued accounting pronouncements.
ITEM 3. QUANTITATIVE AND QUALITAT IVE DISCLOSURES ABOUT MARKET RISK.
Information as of September 30, 2024
Our primary market risk exposure is to changes in interest rates related to our mortgage and other debt. See Note 7 in the Notes to Condensed Consolidated Financial Statements, for certain quantitative details related to our mortgage and other debt.
57
Currently, we manage our exposure to fluctuations in interest rates primarily through the use of fixed-rate debt and interest rate swap and cap agreements. As of September 30, 2024, we had total mortgage and other notes payable of $1,590.4 million, excluding the unamortized premium of $0.2 million and net unamortized debt issuance costs of $11.0 million, of which $1,166.1 million, or 73.3% was fixed-rate, inclusive of debt with rates fixed through the use of derivative financial instruments, and $424.3 million, or 26.7%, was variable-rate based upon SOFR or Prime rates plus certain spreads. As of September 30, 2024, we were party to 34 interest rate swaps and four interest rate cap agreements to hedge our exposure to changes in interest rates with respect to $875.1 million and $151.0 million of variable-rate debt, respectively. For a discussion of the risks associated with the discontinuation of LIBOR, see Item 1A. “Risk Factors—Risks Related to Our Liquidity and Indebtedness on our Annual Report on Form 10-K for the year ended December 31, 2023 — If we decided to employ higher leverage levels, we would be subject to increased debt service requirements and a higher risk of default on our debt obligations, which could adversely affect our financial conditions, cash flows and ability to make distributions to our shareholders. In addition, increases or changes in interest rates could cause our borrowing costs to rise and may limit our ability to refinance debt.”
The following table sets forth information as of September 30, 2024 concerning our long-term debt obligations, including principal cash flows by scheduled maturity (without regard to available extension options) and weighted average effective interest rates of maturing amounts (dollars in millions):
Core Consolidated Mortgage and Other Debt
Year
Scheduled
Amortization
Maturities
Total
Weighted Average
Interest Rate
2024 (Remainder)
$
0.4
$
—
$
0.4
—
%
2025
2.0
—
2.0
—
%
2026
4.9
—
4.9
—
%
2027
4.8
45.1
49.9
4.8
%
2028
1.8
576.4
578.2
4.5
%
Thereafter
2.5
173.7
176.2
5.7
%
$
16.4
$
795.2
$
811.6
Investment Management Consolidated Mortgage and Other Debt
Year
Scheduled
Amortization
Maturities
Total
Weighted Average
Interest Rate
2024 (Remainder)
$
0.8
$
171.9
$
172.7
5.7
%
2025
1.2
449.3
450.5
7.2
%
2026
0.4
51.7
52.1
6.5
%
2027
0.5
43.4
43.9
8.0
%
2028
0.2
59.4
59.6
6.0
%
Thereafter
—
—
—
—
%
$
3.1
$
775.7
$
778.8
Mortgage Debt in Unconsolidated Partnerships (at our Pro-Rata Share)
Year
Scheduled
Amortization
Maturities
Total
Weighted Average
Interest Rate
2024 (Remainder)
$
3.2
$
40.2
$
43.4
4.9
%
2025
6.0
4.5
10.5
5.6
%
2026
6.1
60.9
67.0
6.7
%
2027
1.1
29.7
30.8
6.3
%
2028
—
12.4
12.4
5.9
%
Thereafter
—
13.7
13.7
5.9
%
$
16.4
$
161.4
$
177.8
Without regard to available extension options, in the remainder of 2024, $173.1 million of our total consolidated debt and $43.4 million of our pro-rata share of unconsolidated outstanding debt will become due. In addition, $452.5 million of our total consolidated debt and $10.5 million of our pro-rata share of unconsolidated debt will become due in 2025. As it relates to the aforementioned maturing debt in 2024 and 2025, we
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have options to extend consolidated debt aggregating $0.0 million and $327.0 million, respectively; however, there can be no assurance that the Company will be able successfully execute any or all of its available extension options. As we intend on refinancing some or all of such debt at the then-existing market interest rates, which may be greater than the current interest rates, our interest expense would increase by approximately $6.7 million annually if the interest rate on the refinanced debt increased by 100 basis points. After giving effect to noncontrolling interests, our share of this increase would be $2.3 million. Interest expense on our variable-rate debt of $424.3 million, net of variable to fixed-rate swap agreements currently in effect, as of September 30, 2024, would increase $4.2 million if corresponding rate indices increased by 100 basis points. After giving effect to noncontrolling interests, our share of this increase would be $1.2 million. We may seek additional variable-rate financing if and when pricing and other commercial and financial terms warrant. As such, we would consider hedging against the interest rate risk related to such additional variable-rate debt through interest rate swaps and protection agreements, or other means.
Based on our outstanding debt balances as of September 30, 2024, the fair value of our total consolidated outstanding debt would decrease by approximately $10.9 million if interest rates increased by 1%. Conversely, if interest rates decreased by 1%, the fair value of our total outstanding debt would increase by approximately $10.9 million.
As of September 30, 2024, and December 31, 2023, we had consolidated notes receivable of $126.6 million and $124.9 million, respectively. We determined the estimated fair value of our notes receivable by discounting future cash receipts utilizing a discount rate equivalent to the rate at which similar notes receivable would be originated under conditions then existing.
Based on our outstanding notes receivable balances as of September 30, 2024, the fair value of our total outstanding notes receivable would decrease by approximately $0.8 million if interest rates increased by 1%. Conversely, if interest rates decreased by 1%, the fair value of our total outstanding notes receivable would increase by approximately $0.9 million.
Summarized Information as of December 31, 2023
As of December 31, 2023, we had total mortgage and other notes payable of $1,881.1 million, excluding the unamortized premium of $0.2 million and unamortized debt issuance costs of $11.2 million, of which $1,454.7 million, or 77.3%, was fixed-rate, inclusive of debt with rates fixed through the use of derivative financial instruments, and $426.4 million, or 22.7%, was variable-rate based upon LIBOR rates plus certain spreads. As of December 31, 2023, we were party to 36 interest rate swap and three interest rate cap agreements to hedge our exposure to changes in interest rates with respect to $1,249.8 million and $151.4 million of SOFR-based variable-rate debt, respectively.
Interest expense on our variable-rate debt of $426.4 million as of December 31, 2023, would have increased $4.3 million if corresponding rate indices increased by 100 basis points. Based on our outstanding debt balances as of December 31, 2023, the fair value of our total outstanding debt would have decreased by approximately $6.9 million if interest rates increased by 1%. Conversely, if interest rates decreased by 1%, the fair value of our total outstanding debt would have increased by approximately $6.6 million.
Changes in Market Risk Exposures from December 31, 2023 to September 30, 2024
Our interest rate risk exposure from December 31, 2023, to September 30, 2024, has decreased on an absolute basis, as the $426.4 million of variable-rate debt as of December 31, 2023 has decreased to $424.3 million as of September 30, 2024. Our interest rate exposure as a percentage of total debt has increased, as our variable-rate debt accounted for 22.7% of our consolidated debt as of December 31, 2023 compared to 26.7% as of September 30, 2024.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.