ACADIA REALTY TRUST (AKR) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
As of December 31, 2024, there were 210 properties (including properties in development or redevelopment), which we own or have an ownership interest in, within our Core Portfolio and Investment Management. 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 Investment Management. These properties primarily consist of street and urban retail, and suburban shopping centers. See Item 2. Properties for a summary of our wholly-owned and partially-owned retail properties and their physical occupancies at December 31, 2024.
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.
Our primary business objective is to acquire and manage commercial retail properties that will provide cash for distributions to shareholders while also creating the potential for capital appreciation to enhance investor returns. We focus on the following fundamentals to achieve this objective:
•
Own and operate a Core Portfolio of high-quality retail properties located primarily in high-barrier-to-entry, densely populated metropolitan areas and create value through accretive development and re-tenanting activities coupled with the acquisition of high-quality assets that have the long-term potential to outperform the asset class as part of our Core asset recycling and acquisition initiative.
•
Generate additional external growth through an opportunistic yet disciplined acquisition program. We target transactions with high inherent opportunity for the creation of additional value through:
o
value-add investments in street retail properties, located in established and “next generation” submarkets, with re-tenanting or repositioning opportunities,
o
opportunistic acquisitions of well-located real-estate anchored by distressed retailers, and
o
other opportunistic acquisitions which may include high-yield acquisitions and purchases of distressed debt.
•
Some of these investments historically have also included, and may in the future include, joint ventures with private equity and institutional investors for the purpose of making investments in ventures with significant embedded value in their real estate assets. We plan to grow this business and increase revenues earned from our Investment Management Portfolio by increasing our co-investment assets under management in existing or new ventures.
•
Maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth.
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SIGNIFICANT DEVELOPMENTS DURING THE year ended December 31, 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 consolidated financial statements. Refer to Note 12.
Investments
During the year ended December 31, 2024, within our Core Portfolio, we invested in seven Core properties and three Core expansion properties aggregating $132.5 million, inclusive of transaction costs, as follows (Note 2):
•
In September and November of 2024, we acquired three additional properties in development as part of the overall Henderson Avenue expansion project in Dallas, Texas for an aggregate of $14.3 million.
•
On September 19, 2024, we acquired the Bleecker Street Portfolio, a four-property retail portfolio (inclusive of a parking garage) in Manhattan, New York for $20.3 million.
•
On October 11, 2024, we acquired 123-129 N. 6th Street, a retail property located in Brooklyn, New York for $35.3 million.
•
On October 17, 2024, we acquired 92-94 Greene Street, a retail property located in Manhattan, New York for $43.6 million.
•
On October 24, 2024, we acquired 109 N. 6th Street, a retail property located in Brooklyn, New York for $19.0 million.
During the year ended December 31, 2024, within Investment Management we invested our share of equity for non-controlling interests in two properties aggregating $48.0 million (with an aggregate gross asset value of $309.3 million), inclusive of transaction costs, as follows (Note 2, Note 4):
•
On July 3, 2024, we acquired an Investment Management shopping center, the Walk at Highwoods Preserve, located in Tampa, Florida for $31.8 million and subsequently contributed the property to a newly formed unconsolidated joint venture and retained a 20% ownership interest through an investment in a newly formed unconsolidated joint venture which was valued at $6.4 million.
•
On December 12, 2024, we acquired a 15% interest in an unconsolidated venture for $41.6 million, which purchased the LINQ Promenade, an open-air retail, entertainment, and dining district located in Las Vegas, Nevada for $277.5 million, inclusive of transaction costs. In addition, the venture entered into a new $175.0 million property mortgage loan.
In January 2025, within our Core Portfolio, we acquired two properties in New York, New York for approximately $80.0 million and acquired an additional 48% interest in an existing unconsolidated venture, the Renaissance portfolio (Note 4), increasing our existing 20% ownership interest to 68%, for approximately $117.0 million (Note 17).
Dispositions
On May 16, 2024, we contributed our Shops at Grand property to a newly formed unconsolidated joint venture and retained a 5% non-controlling ownership interest which was valued at $2.4 million, resulting in a loss on deconsolidation of $2.2 million related to transaction costs (Note 2).
On October 25, 2024, we contributed our Walk at Highwoods Preserve property to a newly formed unconsolidated joint venture and retained a 20% non-controlling ownership interest which was valued at $6.4 million, resulting in a loss on deconsolidation of $0.4 million related to transaction costs (Note 2, Note 4).
During the year ended December 31, 2024, we disposed of three consolidated Investment Management properties and two unconsolidated Investment Management investments for gross proceeds totaling $100.3 million, 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 June 28, 2024, Fund V sold a consolidated 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).
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•
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 April 15, 2024, the Operating Partnership and the Company entered into a Third Amended and Restated Credit Agreement, with Bank of America, N.A., as administrative agent, to amend its existing senior unsecured credit facility (the “Amended Credit Facility”). The Amended Credit Facility provides for an increase in the existing unsecured revolving credit facility (the “Revolver”) from $300.0 million to $350.0 million, which includes the capacity to issue letters of credit in an amount up to $60.0 million, and the extension of the term from June 29, 2025 to April 15, 2028, with two additional six-month extension options. The Amended Credit Facility also provides for the extension of the term on the existing $400.0 million unsecured term loan (“Term Loan”) from June 29, 2026 to April 15, 2028, with two additional six-month extension options. The Amended Credit Facility has an accordion feature to increase its capacity up to $900 million at the option of the Operating Partnership, subject to customary conditions.
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, which further increased the revolving credit facility to $525.0 million and the accordion feature limit to $1.1 billion, maintaining the same terms and conditions. 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).
On August 21, 2024, the Operating Partnership issued $100.0 million aggregate principal amount of senior unsecured notes in a private placement, of which (i) $20.0 million are designated as 5.86% Senior Notes, Series A, due August 21, 2027 (the “Series A Notes”) and (ii) $80.0 million are designated as 5.94% Senior Notes, Series B, due August 21, 2029 (together with the Series A Notes, the “Senior Notes”) pursuant to a note purchase agreement (the “Senior Note Purchase Agreement”), dated July 30, 2024, between the Company, Operating Partnership and the purchasers named therein.
Core Portfolio
In addition to the Amended Credit Facility and senior unsecured notes offering, during the year ended December 31, 2024, we (Note 7):
•
repaid in full the $175.0 million term loan;
•
repaid a Core property mortgage loan totaling $7.3 million at maturity;
•
extended a Core property mortgage loan of $60.0 million (excluding principal reductions of $2.5 million);
•
refinanced and extended two unconsolidated Core property mortgage loans of $103.0 million;
•
made scheduled principal payments totaling $4.3 million.
Investment Management
During the year ended December 31, 2024, through Investment Management, we (Note 7):
•
repaid the Fund V subscription line totaling $80.6 million;
•
entered into a new Investment Management property mortgage loan of $43.4 million;
•
repaid three Investment Management property mortgage loans totaling $7.9 million upon disposition of properties (Note 2);
•
extended and refinanced six Investment Management property mortgage loans totaling $215.0 million (excluding principal reductions of $2.0 million);
•
entered into two unconsolidated Investment Management property mortgage loans totaling $195.5 million (Note 4);
•
extended an Investment Management unconsolidated property mortgage loan of $37.8 million (excluding principal reductions of $2.1 million);
•
repaid two unconsolidated Investment Management property mortgage loans totaling $51.1 million upon dispositions of the properties (Note 4); and
•
made scheduled principal payments totaling $5.4 million.
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Structured Financing Investments
During the year ended December 31, 2024, we originated one note receivable of $7.6 million to a related party, which is collateralized by the borrower’s equity interest in various partnerships, bears interest at 12% and matures on December 31, 2025.
Issuance of Common Shares
During the year ended December 31, 2024, we issued Common Shares through the following public offerings and our ATM Program:
| ($ in thousands, except share and per share data) | Closing Date (b) | Total Shares Sold | Price Per Share, net (d) | Initial Net Proceeds | Forward Proceeds Settled (f) | Remaining Net Proceeds Unsettled | Total Settled Net Proceeds and Unsettled Anticipated Net Proceeds Remaining | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | |||||||||||||||||||||||||
| January 2024 Offering (a) | 1/8/2024 | 6,900,000 | $ | 16.38 | $ | 113,002 | N/A | N/A | $ | 113,002 | |||||||||||||||
| October 2024 Offering (a,e) | 10/2/2024 | 5,750,000 | 22.89 | — | 131,617 | — | 131,617 | ||||||||||||||||||
| ATM Program (b, c) | Various | 21,183,738 | 23.01 | 216,922 | — | 270,515 | 487,437 | ||||||||||||||||||
| 33,833,738 | $ | 21.64 | $ | 329,924 | $ | 131,617 | $ | 270,515 | $ | 732,056 |
(a)
Amounts are inclusive of shares sold pursuant to the exercise in full of the underwriters’ option to purchase additional common stock, which includes (i) 900,000 shares with respect to the January 2024 Offering, and (ii) 750,000 shares with respect to the October 2024 Offering.
(b)
All forward sale agreements require settlement within one-year of the various effective dates.
(c)
Includes 10,910,488 forward shares outstanding under its ATM Program.
(d)
Amounts are presented net of underwriting discounts and fees.
(e)
The Company did not receive any proceeds from the sale of shares at the time it entered into each of the respective forward sale agreements. The Company determined that the ATM forward sales agreements meet the criteria for equity classification and, therefore, are exempt from derivative accounting. The Company recorded the ATM forward sales agreements at fair value at inception, which was determined to be zero. Subsequent changes to fair value are not required under equity classification.
(f)
Amounts are presented net of underwriting discounts and fees and includes other offering costs
Subsequent to the year ended December 31, 2024, we sold a total of 262,211 shares under the ATM Program for an aggregate net value of $6.2 million, all of which were sold subject to the ATM forward sales agreements.
Economic and Other Considerations
Heightened levels of inflation and higher interest rates present risks for our business and our tenants. During 2024, inflation levels began to decrease, but remained elevated relative to the years preceding 2021. While the Federal Reserve made several cuts to interest rates in the second half of 2024 in response to those decreases in inflation levels, it continues to indicate that it will remain data-dependent in determining whether to hold its benchmark rate at current levels or continue to slowly ease interest rates through 2025. We continue to monitor and address risks related to the economy. In recent years, the elevated level of inflation resulted in increased costs for certain goods and services and cost of borrowing. 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.
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RESULTS OF OPERATIONS
See Note 12 in the Notes to Consolidated Financial Statements for an overview of our three reportable segments.
Comparison of Results for the Year Ended December 31, 2024 to the Year Ended December 31, 2023
The results of operations by reportable segment for the year ended December 31, 2024 compared to the year ended December 31, 2023 are summarized in the table below (in millions, totals may not add due to rounding):
| Year Ended | Year Ended | |||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2024 | December 31, 2023 | Increase (Decrease) | ||||||||||||||||||||||||||||||||||||||||||||||
| Core | IM | SF | Total | Core | IM | SF | Total | Core | IM | SF | Total | |||||||||||||||||||||||||||||||||||||
| Rental revenue | $ | 193.6 | $ | 155.9 | $ | — | $ | 349.5 | $ | 200.8 | $ | 132.2 | $ | — | $ | 333.0 | $ | (7.2 | ) | $ | 23.7 | $ | — | $ | 16.5 | |||||||||||||||||||||||
| Other revenue | 6.8 | 3.3 | — | 10.2 | 2.7 | 2.9 | — | 5.6 | 4.1 | 0.4 | — | 4.6 | ||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | (73.5 | ) | (65.5 | ) | — | (138.9 | ) | (76.6 | ) | (59.3 | ) | — | (136.0 | ) | (3.1 | ) | 6.2 | — | 2.9 | |||||||||||||||||||||||||||||
| Property operating expenses | (32.4 | ) | (33.6 | ) | — | (66.0 | ) | (32.5 | ) | (29.4 | ) | — | (61.8 | ) | (0.1 | ) | 4.2 | — | 4.2 | |||||||||||||||||||||||||||||
| Real estate taxes | (29.6 | ) | (16.4 | ) | — | (46.0 | ) | (31.9 | ) | (14.7 | ) | — | (46.7 | ) | (2.3 | ) | 1.7 | — | (0.7 | ) | ||||||||||||||||||||||||||||
| General and administrative expenses | — | — | — | (40.6 | ) | — | — | — | (41.5 | ) | — | — | — | (0.9 | ) | |||||||||||||||||||||||||||||||||
| Impairment charges | (0.5 | ) | (1.2 | ) | — | (1.7 | ) | — | (3.7 | ) | — | (3.7 | ) | 0.5 | (2.5 | ) | — | (2.0 | ) | |||||||||||||||||||||||||||||
| (Loss) gain on disposition of properties | (2.2 | ) | 1.4 | — | (0.8 | ) | — | — | — | — | (2.2 | ) | 1.4 | — | (0.8 | ) | ||||||||||||||||||||||||||||||||
| Operating income | 62.1 | 44.1 | — | 65.7 | 62.5 | 28.0 | — | 49.1 | (0.4 | ) | 16.1 | — | 16.6 | |||||||||||||||||||||||||||||||||||
| Interest income | — | — | 25.1 | 25.1 | — | — | 20.0 | 20.0 | — | — | 5.1 | 5.1 | ||||||||||||||||||||||||||||||||||||
| Equity in earnings of unconsolidated affiliates inclusive of gains on disposition of properties | 4.8 | 10.4 | — | 15.2 | 2.7 | (10.4 | ) | — | (7.7 | ) | 2.1 | 20.8 | — | 22.9 | ||||||||||||||||||||||||||||||||||
| Interest expense | (36.9 | ) | (55.7 | ) | — | (92.6 | ) | (44.5 | ) | (48.7 | ) | — | (93.3 | ) | (7.6 | ) | 7.0 | — | (0.7 | ) | ||||||||||||||||||||||||||||
| Realized and unrealized holding (losses) gains on investments and other | (4.1 | ) | — | (1.0 | ) | (5.0 | ) | 5.8 | 25.0 | (0.3 | ) | 30.4 | (9.9 | ) | (25.0 | ) | (0.7 | ) | (35.4 | ) | ||||||||||||||||||||||||||||
| Income tax provision | — | — | — | (0.2 | ) | — | — | — | (0.3 | ) | — | — | — | 0.1 | ||||||||||||||||||||||||||||||||||
| Net income (loss) | 26.0 | (1.2 | ) | 24.1 | 8.1 | 26.5 | (6.1 | ) | 19.7 | (1.7 | ) | (0.5 | ) | 4.9 | 4.4 | 9.8 | ||||||||||||||||||||||||||||||||
| Net loss attributable to redeemable noncontrolling interests | — | 7.9 | — | 7.9 | — | 8.2 | — | 8.2 | — | 0.3 | — | 0.3 | ||||||||||||||||||||||||||||||||||||
| Net loss attributable to noncontrolling interests | (1.6 | ) | 7.2 | — | 5.6 | (1.9 | ) | 15.3 | — | 13.4 | (0.3 | ) | 8.1 | — | 7.8 | |||||||||||||||||||||||||||||||||
| Net income (loss) attributable to Acadia shareholders | $ | 24.3 | $ | 14.0 | $ | 24.1 | $ | 21.7 | $ | 24.6 | $ | 17.4 | $ | 19.7 | $ | 19.9 | $ | (0.3 | ) | $ | (3.4 | ) | $ | 4.4 | $ | 1.8 |
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 decreased $0.3 million for the year ended December 31, 2024 compared to the prior year as a result of the changes further described below.
Rental revenues for our Core Portfolio decreased $7.2 million for the year ended December 31, 2024 compared to the prior year primarily due to (i) a $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) $1.9 million from the sale of the Shops at Grand property in 2024. These decreases were offset by (i) $2.9 million for new Core acquisitions in 2024 and (ii) $1.5 million from new tenant lease up.
Other revenues increased $4.1 million for the year ended December 31, 2024 compared to the prior year primarily due to the recognition of a $3.5 million forfeited deposit for a property previously under contract for sale in 2024.
Depreciation and amortization for our Core Portfolio decreased $3.1 million for the year ended December 31, 2024 compared to the prior year primarily due to the write off of in-place lease intangible assets for recaptured tenant space in 2023.
Real estate taxes for our Core Portfolio decreased $2.3 million for the year ended December 31, 2024 compared to the prior year primarily due to tax refunds in the current year.
Property operating expenses for our Core Portfolio decreased $0.1 million for the year ended December 31, 2024 compared to the prior year primarily due to an increase in repairs and maintenance, utility and insurance costs in 2023 offset by increased legal expenses in the current year.
Loss on disposition of properties for our Core Portfolio relates to the deconsolidation of the Shops at Grand property in 2024 (Note 2).
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Equity in (losses) earnings of unconsolidated affiliates for our Core Portfolio increased $2.1 million for the year ended December 31, 2024 compared to the prior year primarily due to tenant lease up and gain on extinguishment of debt from the restructuring of property mortgage debt at a property.
Interest expense for our Core Portfolio decreased $7.6 million for the year ended December 31, 2024 compared to the prior year primarily due to lower average outstanding borrowings in 2024.
Realized and unrealized holding gains (losses) on investments and other for our Core Portfolio decreased $9.9 million for the year ended December 31, 2024 compared to the prior year period primarily due to the fluctuation in unrealized holding gains from its mark-to-market adjustment on its Investment in Albertsons (Note 8).
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 $3.4 million for the year ended December 31, 2024 compared to the prior year as a result of the changes described below.
Revenues for Investment Management increased $23.7 million for the year ended December 31, 2024 compared to the prior year primarily due to (i) $13.7 million from acquisitions in 2023 and 2024, (ii) $5.8 million from new tenant lease-up within Investment Management in 2023 and 2024, and (iii) $5.0 million from higher recoveries as a result of higher property operating expenses in 2024.
Depreciation and amortization for Investment Management increased $6.2 million for the year ended December 31, 2024 compared to the prior year primarily due to property acquisitions in 2023 and 2024.
Property operating expenses, other operating and real estate taxes for Investment Management increased $4.2 million for the year ended December 31, 2024 compared to the prior year primarily due to property acquisitions in 2023 and 2024.
Real estate taxes for Investment Management increased $1.7 million for the year ended December 31, 2024 compared to the prior year primarily due to property acquisitions in 2023 and 2024.
Impairment charges for Investment Management decreased $2.5 million for the year ended December 31, 2024 compared to the prior year (Note 8). Impairment charges totaled $1.2 million during 2024 primarily related to 1964 Union in Fund IV. Impairment charges totaled $3.7 million during 2023 related to 146 Geary Street in Fund IV.
Gain on disposition of properties for Investment Management increased $1.4 million for the year ended December 31, 2024 compared to the prior year 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 (losses) earnings of unconsolidated affiliates for Investment Management increased $20.8 million for the year ended December 31, 2024 compared to the prior year due to the gain on sale of Frederick Crossing and Paramus Plaza in 2024 (Note 4).
Interest expense for Investment Management increased $7.0 million for the year ended December 31, 2024 compared to the prior year primarily due to higher average interest rates and increased principal balances from new acquisitions in 2024.
Realized and unrealized holding gains (losses) on investments and other for Investment Management decreased $25.0 million for the year ended December 31, 2024 compared to the prior year primarily due to a $28.2 million special dividend from Albertsons in 2023, offset by the mark-to-market adjustment on the investment in Albertsons in 2023 (Note 8).
Net loss attributable to noncontrolling interests for Investment Management increased $8.1 million for the year ended December 31, 2024 compared to the prior year based on the noncontrolling interests’ share of the variances discussed above. Net (income) loss attributable to noncontrolling interests for Investment Management includes asset management fees earned by the Company of $8.3 million and $7.2 million for the years ended December 31, 2024 and 2023, respectively.
Structured Financing
The results of operations for our Structured Financing segment are depicted in the table above under the headings labeled “SF.” Interest income for the Structured Financing portfolio increased $5.1 million for the year ended December 31, 2024 compared to the prior year period primarily due to higher cash balances from new note originations and compounding interest on certain of our notes.
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Unallocated
The Company does not allocate general and administrative expense and income taxes to its reportable segments. These unallocated amounts are depicted in the table above under the headings labeled “Total.”
Discussions of 2022 items and comparisons between the year ended December 31, 2023 and 2022, respectively, that are not included in this Report can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
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 Core 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.
A reconciliation of consolidated operating income to net operating income - Core Portfolio follows (in thousands):
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | 2022 | ||||||||||
| Consolidated operating income | $ | 65,659 | $ | 49,076 | $ | 68,230 | ||||||
| Add back: | ||||||||||||
| General and administrative | 40,559 | 41,470 | 44,066 | |||||||||
| Depreciation and amortization | 138,910 | 135,984 | 135,917 | |||||||||
| Impairment charges | 1,678 | 3,686 | 33,311 | |||||||||
| Loss on disposition of properties | 834 | — | — | |||||||||
| Less: | ||||||||||||
| Above/below-market rent, straight-line rent and other adjustments (a) | (17,735 | ) | (20,617 | ) | (20,869 | ) | ||||||
| Gain on disposition of properties | — | — | (57,161 | ) | ||||||||
| Consolidated NOI | 229,905 | 209,599 | 203,494 | |||||||||
| Redeemable noncontrolling interest in consolidated NOI | (6,127 | ) | (4,420 | ) | (1,892 | ) | ||||||
| Noncontrolling interest in consolidated NOI | (69,540 | ) | (59,597 | ) | (58,277 | ) | ||||||
| Less: Operating Partnership's interest in Investment Management NOI included above | (25,496 | ) | (19,816 | ) | (14,476 | ) | ||||||
| Add: Operating Partnership's share of unconsolidated joint ventures NOI (b) | 11,531 | 14,249 | 14,381 | |||||||||
| NOI - Core Portfolio | $ | 140,273 | $ | 140,015 | $ | 143,230 |
a)
Includes straight-line rent reserves.
b)
Does not include the Operating Partnership’s share of NOI from unconsolidated joint ventures within Investment Management.
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Same-Property NOI includes Core Portfolio properties that we owned for both the current and prior period presented, but excludes those properties which we acquired, sold or expected to sell, redeveloped and developed during these periods. The following table summarizes Same-Property NOI for our Core Portfolio (in thousands):
| Year Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | |||||||
| Core Portfolio NOI | $ | 140,273 | $ | 140,015 | ||||
| Less properties excluded from Same-Property NOI | (11,680 | ) | (18,392 | ) | ||||
| Same-Property NOI | $ | 128,593 | $ | 121,623 | ||||
| Percent change from prior year period | 5.7 | % | ||||||
| Components of Same-Property NOI: | ||||||||
| Same-Property Revenues | $ | 183,157 | $ | 175,244 | ||||
| Same-Property Operating Expenses | (54,564 | ) | (53,621 | ) | ||||
| Same-Property NOI | $ | 128,593 | $ | 121,623 |
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 period 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.
| Year Ended December 31, 2024 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Core Portfolio New and Renewal Leases | Cash Basis | Straight- Line Basis | ||||||
| Number of new and renewal leases executed | 70 | 70 | ||||||
| GLA commencing | 626,663 | 626,663 | ||||||
| New base rent | $ | 32.76 | $ | 34.09 | ||||
| Expiring base rent | $ | 30.47 | $ | 29.28 | ||||
| Percent growth in base rent | 7.5 | % | 16.4 | % | ||||
| Average cost per square foot (a) | $ | 7.35 | $ | 7.35 | ||||
| Weighted average lease term (years) | 5.6 | 5.6 |
a)
The average cost per square foot includes tenant improvement costs, leasing commissions and tenant allowances.
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Funds from Operations
We consider funds from operations (“FFO”) as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) to be meaningful non-GAAP measure of operating performance for an equity REIT due to its widespread acceptance and use within the REIT 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 generally accepted accounting principles (“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 investments in Albertsons) in FFO. A reconciliation of net income attributable to Acadia to FFO follows (dollars in thousands, except per share amounts):
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | 2022 | ||||||||||
| Net income (loss) attributable to Acadia shareholders | $ | 21,650 | $ | 19,873 | $ | (35,445 | ) | |||||
| Depreciation of real estate and amortization of leasing costs (net of noncontrolling interests' share) | 107,450 | 109,732 | 104,910 | |||||||||
| Impairment charges (net of noncontrolling interests' share) (a) | 750 | 852 | 58,481 | |||||||||
| Net gain on disposition of properties (net of noncontrolling interests' share) | (1,086 | ) | — | (22,137 | ) | |||||||
| Income (loss) attributable to Common OP Unit holders | 1,067 | 1,282 | (1,800 | ) | ||||||||
| Distributions - Preferred OP Units | 341 | 492 | 492 | |||||||||
| Funds from operations attributable to Common Shareholders and Common OP Unit holders | $ | 130,172 | $ | 132,231 | $ | 104,501 |
a)
Represents the Company’s total share of impairment charges from consolidated assets (Note 8) and allocated impairment charges from investments in and advances to unconsolidated affiliates (Note 4).
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 and property acquisitions and development/re-tenanting activities within our Core Portfolio, (iii) distributions to our Investment Management 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 year ended December 31, 2024, we paid dividends and distributions on our Common Shares, Common OP Units and Preferred OP Units totaling $81.6 million.
Investments
As previously discussed, during the year ended December 31, 2024, within our Core and Investment Management portfolios we invested in 12 new properties aggregating $180.5 million (Note 2, Note 4). In January 2025, within our Core Portfolio, we acquired two new properties for approximately $80.0 million and acquired an additional 48% interest in an existing unconsolidated venture, the Renaissance portfolio (Note 4), increasing our existing 20% ownership interest to 68%, for approximately $117.0 million (Note 17).
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Structured Financing Investments
During the year ended December 31, 2024, we originated one note receivable of $7.6 million (Note 3).
Capital Commitments
During the year ended December 31, 2024, we made capital contributions aggregating $13.0 million to our Funds.
At December 31, 2024, our share of the remaining capital commitments to our Funds aggregated $16.3 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 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 share was $122.5 million.
•
$10.3 million to Fund V. Fund V was launched in August 2016 with total committed capital of $520.0 million of which our share is $104.5 million.
We do not have any additional capital commitments to our Investment Management portfolio.
Development Activities
During the year ended December 31, 2024, capitalized costs associated with development activities totaled $22.7 million (Note 2). At December 31, 2024, we had a total of 18 consolidated projects under development or redevelopment, for which the estimated total cost to complete these projects through 2028 was $45.5 million to $159.5 million. Substantially all remaining development and redevelopment costs are discretionary, which 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 Item 1A. Risk Factors.
Debt
A summary of our consolidated debt, which includes the full amount of Fund related obligations and excludes our pro-rata share of debt at our unconsolidated subsidiaries, is as follows (in thousands):
| December 31, | December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | |||||||
| Total Debt - Fixed and Effectively Fixed Rate | $ | 1,142,592 | $ | 1,454,707 | ||||
| Total Debt - Variable Rate | 405,355 | 426,380 | ||||||
| 1,547,947 | 1,881,087 | |||||||
| Net unamortized debt issuance costs | (10,893 | ) | (11,186 | ) | ||||
| Unamortized premium | 212 | 240 | ||||||
| Total Indebtedness | $ | 1,537,266 | $ | 1,870,141 |
As of December 31, 2024, our consolidated indebtedness aggregated $1,547.9 million, excluding unamortized premium of $0.2 million and unamortized loan costs of $10.9 million, and were 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 January 30, 2025 to April 15, 2035, without regard to available extension options. Taking into consideration $852.0 million of notional principal under variable to fixed-rate swap agreements currently in effect, $1,142.6 million of the portfolio debt, or 73.8%, was fixed at a 5.06% weighted-average interest rate and $405.4 million, or 26.2% was floating at a 7.26% weighted average interest rate as of December 31, 2024. Our variable-rate debt includes $111.2 million of debt subject to interest rate caps.
Without regard to available extension options, at December 31, 2024 there is $471.9 million of debt maturing in 2025 at a weighted-average interest rate of 6.82%; there is $5.7 million of scheduled principal amortization due in 2025; and our share of scheduled 2025 principal payments and maturities on our unconsolidated debt was $17.4 million. In addition, $83.7 million of our total consolidated debt and $71.7 million of our pro-rata share of unconsolidated debt will come due in 2026. As it relates to the aforementioned maturing debt in 2025 and 2026, we have options to extend consolidated debt aggregating $364.3 million and $53.8 million at December 31, 2024, respectively; however, there can be no assurance
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that we will be able to successfully execute any or all of its available extension options. As it relates to the remaining maturing debt in 2025 and 2026, 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 at 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.
Share Repurchase Program
We maintain a share repurchase program under which $122.5 million remains available as of December 31, 2024 (Note 10). The Company did not repurchase any of its Common Shares under this program during the year ended December 31, 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 at December 31, 2024 totaled $16.8 million. Our remaining sources of liquidity are described further below.
Issuances of Common Shares
We have an ATM Program (Note 10) that provides us with an efficient and low-cost vehicle for raising capital through public equity issuances on an as-we-go basis to fund our capital needs. Through this program, we have been able to effectively “match-fund” the required capital for our Core Portfolio and Investment Management acquisitions through the issuance of Common Shares over extended periods employing a price averaging strategy. In addition, from time to time, we have issued and intend to continue to issue, equity in follow-on offerings separate from our ATM Program. Net proceeds raised through our ATM Program and follow-on offerings are primarily used for acquisitions, both for our Core Portfolio and our pro-rata share of Investment Management acquisitions, and for general corporate purposes.
During the year ended December 31, 2024, we issued Common Shares through the following public offerings and our ATM Program:
| ($ in thousands, except share and per share data) | Closing Date (b) | Total Shares Sold | Price Per Share, net (d) | Initial Net Proceeds | Forward Proceeds Settled (f) | Remaining Net Proceeds Unsettled | Total Settled Net Proceeds and Unsettled Anticipated Net Proceeds Remaining | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | |||||||||||||||||||||||||
| January 2024 Offering (a) | 1/8/2024 | 6,900,000 | $ | 16.38 | $ | 113,002 | N/A | N/A | $ | 113,002 | |||||||||||||||
| October 2024 Offering (a,e) | 10/2/2024 | 5,750,000 | 22.89 | — | 131,617 | — | 131,617 | ||||||||||||||||||
| ATM Program (b, c) | Various | 21,183,738 | 23.01 | 216,922 | — | 270,515 | 487,437 | ||||||||||||||||||
| 33,833,738 | $ | 21.64 | $ | 329,924 | $ | 131,617 | $ | 270,515 | $ | 732,056 |
(a)
Amounts are inclusive of shares sold pursuant to the exercise in full of the underwriters’ option to purchase additional common stock, which includes (i) 900,000 shares with respect to the January 2024 Offering, and (ii) 750,000 shares with respect to the October 2024 Offering.
(b)
All forward sale agreements require settlement within one-year of the various effective dates.
(c)
Includes 10,910,488 forward shares outstanding under its ATM Program.
(d)
Amounts are presented net of underwriting discounts and fees.
(e)
The Company did not receive any proceeds from the sale of shares at the time it entered into each of the respective forward sale agreements. The Company determined that the ATM forward sales agreements meet the criteria for equity classification and, therefore, are exempt from derivative accounting. The Company recorded the ATM forward sales agreements at fair value at inception, which was determined to be zero. Subsequent changes to fair value are not required under equity classification.
(f)
Amounts are presented net of underwriting discounts and fees and includes other offering costs.
As of December 31, 2024, we had 10,910,488 forward shares outstanding under our ATM Program for anticipated net proceeds of $270.5 million after issuance costs. In January 2025, we sold a total of 262,211 shares under the ATM Program for an aggregate net value of $6.2 million, all of which were sold subject to the ATM forward sales agreements.
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Investment Management Capital
During the year ended December 31, 2024, Funds IV and V called for capital contributions of $64.0 million, of which our aggregate share was $13.0 million. At December 31, 2024, unfunded capital commitments from noncontrolling interests within our Funds II, III, IV and V were zero, $1.4 million, $18.5 million, and $40.9 million, respectively.
Asset Sales and Other Transactions
As previously discussed, during the year ended December 31, 2024, we sold one Core property, three consolidated Investment Management properties, and two unconsolidated Investment Management properties for aggregate proceeds of $174.0 million (Note 2, Note 4).
During the year ended December 31, 2024, we sold 695,000 shares of Albertsons, generating net proceeds of $14.2 million. As of December 31, 2024, we held 0.8 million shares of Albertsons which had a fair value of $14.8 million (Note 8). In addition, during the year ended December 31, 2024, we recognized dividend income of $0.5 million (Note 8).
Financing and Debt
As of December 31, 2024, we had $511.0 million of additional capacity under existing Core Portfolio debt facilities. In addition, as of that date within our Core and Investment Management portfolios, we had 137 unleveraged consolidated properties with an aggregate carrying value of approximately $1.9 billion, although there can be no assurance that we would be able to obtain financing for these properties at favorable terms, if at all.
HISTORICAL CASH FLOW
Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
The following table compares the historical cash flow for the year ended December 31, 2024 with the cash flow for the year ended December 31, 2023 (in millions, totals may not add due to rounding):
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Variance | ||||||||||
| Net cash provided by operating activities | $ | 140.4 | $ | 155.8 | $ | (15.4 | ) | |||||
| Net cash used in investing activities | (170.7 | ) | (208.5 | ) | 37.8 | |||||||
| Net cash provided by financing activities | 44.6 | 45.9 | (1.3 | ) | ||||||||
| Increase (decrease) in cash and cash equivalents and restricted cash | $ | 14.4 | $ | (6.9 | ) | $ | 21.3 |
Operating Activities
Net cash provided by operating activities primarily consists of cash inflows from dividend income and rental revenue, and cash outflows for property operating expenses, general and administrative expenses, and interest and debt expense.
Our operating activities provided $15.4 million less cash for the year ended December 31, 2024 as compared to the year ended December 31, 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 used $37.8 million less cash for the year ended December 31, 2024 as compared to the year ended December 31, 2023, primarily due to (i) $89.1 million more cash received from the disposition of properties in 2024, (ii) $19.7 million less cash used in our investments in and advances to unconsolidated affiliates, (iii) $9.7 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) $47.6 million more cash used for the acquisition of real estate, (ii) $19.8 million less cash received from return of capital of unconsolidated affiliates, (iii) $10.7 million more cash used for development, construction and property improvement costs and (iv) $6.9 million more cash used to originate a note receivable.
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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 $1.3 million less cash during the year ended December 31, 2024 as compared to the year ended December 31, 2023, primarily from (i) $428.2 million more cash used to repay debt, (ii) $8.8 million less cash provided by contributions from noncontrolling interests, (iii) $8.5 million more cash used for payment of deferred financing fees, (iv) $7.8 million more used to pay dividends and (iii) $5.6 million more cash distributed to noncontrolling interests. These decreases were offset by $459.9 million more cash provided by the sale of Common Shares.
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 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 | December 31, 2024 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Investment | Ownership Percentage | Pro-rata Share of Mortgage Debt | Effective Interest Rate (a) | Maturity Date | ||||||||||
| Eden Square(b) | 20.8 | % | $ | 4.9 | 6.90 | % | Mar 2025 | |||||||
| Tri-City Plaza | 18.1 | % | 6.4 | 6.16 | % | Oct 2025 | ||||||||
| Frederick County Square | 18.1 | % | 4.5 | 5.36 | % | Jan 2026 | ||||||||
| 650 Bald Hill Rd | 20.8 | % | 3.1 | 3.75 | % | Jun 2026 | ||||||||
| Renaissance Portfolio(c, f) | 20.0 | % | 30.4 | 7.15 | % | Nov 2026 | ||||||||
| 840 N. Michigan | 91.9 | % | 38.6 | 6.50 | % | Dec 2026 | ||||||||
| 3104 M Street(c) | 20.0 | % | 0.8 | 7.65 | % | Jan 2027 | ||||||||
| Wood Ridge Plaza | 18.1 | % | 6.5 | 7.20 | % | Mar 2027 | ||||||||
| La Frontera | 18.1 | % | 10.0 | 6.11 | % | Jun 2027 | ||||||||
| Riverdale FC | 18.0 | % | 6.9 | 6.96 | % | Nov 2027 | ||||||||
| Georgetown Portfolio | 50.0 | % | 7.0 | 4.72 | % | Dec 2027 | ||||||||
| LINQ Promenade(d) | 15.0 | % | 26.3 | 6.15 | % | Dec 2027 | ||||||||
| Shoppes at South Hills(e) | 18.1 | % | 5.8 | 5.95 | % | Mar 2028 | ||||||||
| Mohawk Commons | 18.1 | % | 7.2 | 5.80 | % | Mar 2028 | ||||||||
| The Walk at Highwoods Preserve(e) | 20.0 | % | 4.1 | 6.25 | % | Oct 2028 | ||||||||
| Crossroads Shopping Center(b) | 49.0 | % | 36.8 | 5.78 | % | Nov 2029 | ||||||||
| Gotham Plaza | 49.0 | % | 13.7 | 5.90 | % | Oct 2034 | ||||||||
| Total | $ | 213.0 |
a)
Effective interest rates incorporate the effect of interest rate swaps and caps that were in effect at December 31, 2024, where applicable.
b)
The debt has two available three-month extension options.
c)
The debt has two available 12-month extension options.
d)
The debt has one available 24-month extension option.
e)
The debt has one available 12-month extension option.
f)
In January 2025, the Company increased its ownership in the Renaissance Portfolio to 68% (Note 17).
CRITICAL ACCOUNTING ESTIMATES
Management’s discussion and analysis of financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, referred to as “GAAP”. The preparation of these 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
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the following critical accounting policies affect the significant judgments and estimates used by us in the preparation of our Consolidated Financial Statements.
Real Estate and Investments in and Advances to Unconsolidated Affiliates – Impairment of Properties
On a periodic basis, we assess whether there are any indicators that the value of real estate assets, including any related right-of-use (“ROU”), intangible assets, undeveloped land and construction in progress, may be impaired. A property’s value is impaired only if the estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property are less than the carrying value of the property. The determination of undiscounted cash flows requires significant estimates by management. In management’s estimate of cash flows, it considers factors such as expected future sale of an asset or development alternatives, capitalization rates and the undiscounted future cash flows analysis, which is probability-weighted based upon management’s best estimate of the likelihood of the alternative courses of action. Expected future cash flows and recoverability conclusions could be materially impacted by changes in items such as future leasing activity, occupancy, property operating costs, market pricing, our view or strategy relative to a tenant’s business or industry, the manner in which a property is used and the expected hold period of an asset. Subsequent changes in estimated undiscounted cash flows arising from changes in anticipated actions could affect the determination of whether an impairment exists and whether the effects could have a material impact on the Company’s net income. To the extent an impairment has occurred, the loss will be measured as the excess of the carrying amount of the property over the fair value of the property.
The Company is required to make subjective assessments as to whether there are impairments in the value of its real estate properties and other investments. These assessments have a direct impact on the Company’s estimates of the projected future cash flows, anticipated holding periods or market conditions change, its evaluation of the impairment charges may be different, and such differences could be material to the Company’s consolidated financial statements. Plans to hold properties over longer periods decrease the likelihood of recording impairment losses.
During 2024 and 2023, the Company recognized impairment charges on properties of $1.7 million and $3.7 million, respectively. See Note 8 for a discussion of impairments recognized during the periods presented.
Our investments in unconsolidated joint ventures are reviewed for indicators of impairment on a quarterly basis and we record impairment charges when events or circumstances change indicating that a decline in the fair values below the carrying amounts has occurred and such decline is other-than-temporary. This evaluation of the investments in unconsolidated joint ventures is dependent on a number of factors, including the performance of each investment and market conditions. We will record an impairment charge if we determine that a decline in the fair value below the carrying amount of an investment in an unconsolidated joint venture is other-than-temporary. The fair value is calculated using discounted cash flows which is subjective and considers assumptions regarding future occupancy, future rental rates, future capital requirements, debt interest rates and availability, discount rates and capitalization rates that could differ materially from actual results in future periods.
Real Estate – Estimates Related to Valuing Acquired Assets and Liabilities
Upon acquisitions of real estate, we assess the fair value of acquired tangible and intangible assets (including land, buildings, tenant improvements, “above-” and “below-market” leases, leasing and assumed financing origination costs, acquired in-place leases, other identified intangible assets and assumed liabilities) in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805 “Business Combinations” and ASC Topic 350 “Intangibles – Goodwill and Other,” and allocate the purchase price to the acquired assets and assumed liabilities, including land and buildings as if vacant.
We assess fair value based on estimated cash flow projections utilizing appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including historical operating results, known trends, and market/economic conditions. Based on these estimates, we allocate the purchase price to the applicable assets and liabilities based on their relative fair values at date of acquisition. In allocating the purchase price to identified intangible assets and liabilities of an acquired property, the value of above-market and below-market leases is estimated based on the present value of the difference between the contractual amounts, including fixed rate below-market renewal options, to be paid pursuant to the in-place leases and our estimate of the market lease rates and other lease provisions for comparable leases measured over a period equal to the estimated remaining term of the lease. Tenant related intangibles and improvements are amortized on a straight-line basis over the related lease term, including any renewal options. We amortize identified intangibles that have finite lives over the period they are expected to contribute directly or indirectly to the future cash flows of the property or business acquired. We consider qualitative and quantitative factors in evaluating the likelihood of a tenant exercising a below market renewal option and include such renewal options in the calculation of in-place leases. If the value of below-market lease intangibles includes renewal option periods, we include such renewal periods in the amortization period utilized. If a lease terminates prior to its stated expiration, all unamortized amounts relating to that lease are written off.
During the year ended December 31, 2024, we completed 11 asset acquisitions, and the purchase price of each was allocated based on the relative fair values of the assets acquired and liabilities assumed (Note 2).
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Investments in and Advances to Unconsolidated Affiliates – Consolidation
We account for our investments in and advances to unconsolidated affiliates under the equity method of accounting in cases where we exercise significant influence over, but do not control, these entities and are not considered to be the primary beneficiary. We consolidate those joint ventures that we control or which are variable interest entities (each, a “VIE”) and where we are considered to be the primary beneficiary. In all these joint ventures, the rights of the joint venture partner are both protective as well as participating. Unless we are determined to be the primary beneficiary in a VIE, these participating rights preclude us from consolidating these VIE entities. Determining control of the entities can be subjective in assessing which activities of the joint venture most significantly impact the economic performance and whether the rights of the joint venture partner are protective or participating. In making this determination, any new or amended joint venture agreement is assessed by the Company for the activities that most significantly impact the joint venture’s economic performance based on the business purpose and design of the venture. We assess the rights that are conveyed to us in the agreement and evaluate whether we are provided with participating or protective rights over the activities that most significantly impact the entity’s economic performance. We also assess the rights of our joint venture partner. Such participating rights include, among other things, the right to approve/amend the annual budget, leasing of the property to a significant tenant, and approval of financing. If our joint venture partner has substantive participating rights and we are determined not to be the primary beneficiary, we do not consolidate the entity. The assets and liabilities of the consolidated VIEs are described in Note 16.
Recently Issued Accounting Pronouncements
Reference is made to Note 1 for information about recently issued and recently adopted accounting pronouncements.