Acadia Realty Trust Annual Report 2003

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FY2003 Annual Report · Acadia Realty Trust

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A C A D I A R E A LT Y T R U S T
A N N UA L R E P O R T 2 0 0 3

M A K I N G

A Y E A R O F E X T R A O R D I N A R Y A C H I E V E M E N T

Before Redevelopment...

...During...

...After Redevelopment

Making Change has been the key to our success. Following the
formation of Acadia in 1998, we launched a multi-year plan focused
on building the three core components of our business. Five years
later, we have achieved our goals in these three key areas through
aggressive change:

■ We have built a strong Core Portfolio of shopping centers.

Please Open

■ We have built a solid Balance Sheet.

■ We have built a highly accretive External Growth Platform.

At Acadia, we Plan Change. We operate in a competitive and dynamic
industry that requires proactive and flexible strategies. Making Change
has been fundamental to our past success — it remains the key to our
Future Success.

On the cover:
Making change within our portfolio — The redevelopment of the Gateway Shopping Center
in South Burlington, Vermont, included the demolition of 90% of this formerly outdated,
partially enclosed mall anchored by an undersized Grand Union supermarket. In its place,
we built a contemporary, open-air shopping center anchored by a 72,000 square foot
state-of-the-art Shaw’s supermarket.

■ We have built a strong Core Portfolio of shopping centers.

Please Open

■ We have built a solid Balance Sheet.

■ We have built a highly accretive External Growth Platform.

Cumulative returns
versus major indices
250

200

150

100

BALANCE SHEET

Acadia
Morgan Stanley REIT Index
S&P 500

F I V E Y E A R S O F E X T R A O R D I N A R Y P E R F O R M A N C E A N D R E T U R N S

Acadia

SOLID (cid:1)

PORTFOLIO

MAR Redevelop the Ledgewood Mall and re-anchor with a new Wal-Mart.

NOV Two centers with former Grand Union supermarkets are

MAY Acquire the Gateway Shopping Center for $6.5 million with plan

re-anchored with Stop & Shop and A&P supermarkets.

SEP

Target opens in a 158,000 square foot, two-level store at the
Abington Towne Center.

to completely redevelop.

DEC Start redevelopment of the Abington Towne Center —

OCT Wal-Mart opens at the Methuen Shopping Center at triple

JUN Redevelop 239 Greenwich Avenue, a main street historic property,
and anchor with a Chico’s fashion store as well as 21 luxury
apartment units.

OCT Commence redevelopment of Methuen Shopping Center — new

Wal-Mart to replace Caldor.

Non-core property dispositions — three properties sold for $9.2 million in 1999.

to re-anchor with a new Target store.

the rent of former Caldor.

Non-core property dispositions continue with sale of the Northwood
Centre for $31.5 million in 2000.

Non-core property dispositions — four properties sold for $71.4 million
in 2001.

Commence the complete redevelopment of the Elmwood Park Shopping
Center, including the demolition of the attached former Grand Union
headquarters office building.

NOV Redevelopment of the Elmwood Park Shopping Center is complete

FEB

with the opening of a new 48,000 Pathmark supermarket and a
new 15,000 Walgreens drug store.

Non-core property dispositions — 20 properties sold for $74.3 million
in 2002.

GROWTH INITIATIVE (cid:1)

STRONG (cid:1)

FEB

Reinstate the dividend (formerly suspended by Mark Centers)
at $0.48 per share.

DEC

1.3 million shares repurchased during 2000 at an average cost
of $5.75 per share under share repurchase plan.

JUL

317,000 shares repurchased year-t0-date at an average cost
of $6.20 under share repurchase plan.

MAR Dividend is increased 8% to $0.52 per share.

OCT Acadia forms a new $300 million acquisition joint venture

(“AKR Fund I”) with four of its key institutional investors.

SEP

AKR Fund acquires three supermarket-anchored shopping cen-
ters for $26.7 million.

JUN Commence a share repurchase plan which allows for total

share repurchases of up to $10 million. 400,000 shares were
repurchased during 1999 at an average cost of $5.02 per share.

67% debt to total market capitalization; fixed-charge coverage of
2.3x [EBITDA/(interest + preferred distributions)].

60% debt to total market capitalization; fixed-charge coverage of 2.2x.

56% debt to total market capitalization; fixed-charge coverage of 2.5x.

51% debt to total market capitalization; fixed-charge coverage of 2.9x.

OCT While some of the Company’s larger institutional shareholders

participated in AKR Fund I, others expressed a desire for liquidity.
Accordingly, Acadia purchases 5.5 million shares in a tender offer
at $6.05 per share ($33.4 million).

Crescent Plaza is re-anchored with Home Depot replacing a former
Bradlees department store.

JUN New 72,000 square foot Shaw’s supermarket opens at the Gateway

Shopping Center redevelopment project.

NOV New Loudon Center is redeveloped with Bon-Ton department store

replacing former Ames.

DEC Plaza 422 redeveloped and re-anchored with Home Depot, also

replacing a former Ames.

JAN AKR Fund I acquires a one million square foot portfolio of 25 Kroger

and Safeway supermarkets for $47.0 million.

FEB

AKR Fund I acquires a one million square foot portfolio located in
Wilmington, Delaware (the “Brandywine Portfolio”) for $88.0 million.

FEB Dividend is increased 11.5% to $0.58 per share.
DEC Dividend is increased 10% to $0.64 per share.

39% debt to total market capitalization;
fixed-charge coverage of 3.0x.

Morgan Stanley
REIT Index

1999

2000

2001

2002

2003

AUG 1998 RD Capital, Inc. acquires control of Mark Centers Trust and renames Acadia Realty Trust. New management arranges $100 million
cash equity infusion and contributes $265 million of property. $70.5 million of the cash was used to deleverage the balance sheet.

1998-2002 Commence our non-core property disposition initiative.

JAN Advisors are engaged to review strategic alternatives.

JAN Kenneth Bernstein is appointed Chief Executive Officer.

OCT The Company and its advisors conclude to continue with

the ongoing business plan as the best means to maximize
shareholder value.

Non-core disposition is completed. A total of 28 properties
consisting of 4.6 million square feet of retail square footage
and 800 apartment units are sold for an aggregate $186.4
million. Total debt retired from the balance sheet as a result
of the initiative is $103.3 million.

Board appoints Lee S. Wielansky as Lead Independent Trustee.
The Board also adopts various new corporate governance initiatives.
Douglas Crocker II, former CEO of Equity Residential, and Lorrence T. Kellar,
former Head of Kroger Co. Finance and Real Estate, elected to the Board.

LOOKING AHEAD TO 2004

JAN

Commence the redevelopment of its Town Line Plaza — to re-anchor with Super Stop & Shop supermarket.

Establish a new venture ($300 million of equity) with Klaff Realty and Lubert-Adler to invest in surplus or underutilized
properties owned or controlled by retailers.

S&P 500

F I N A N C I A L H I G H L I G H T S

2003

2002

2001 1

2000 1

1999 1

In thousands

Total Revenues

Funds from Operations 2

Real Estate Owned, at Cost

Common Shares Outstanding

Operating Partnership Units Outstanding

$ 69,445

$ 69,347

$ 61,282

$ 63,450

$ 58,933

$ 27,664

$ 30,162

$ 13,487

$ 31,789

$ 31,160

$427,628

$ 413,878

$398,416

$ 387,729

$389,111

27,409

1,139

25,257

3,163

28,698

5,250

28,150

6,804

25,724

10,484

1Amounts for 1999 through 2001 have been restated to reflect the activity and balances from continuing operations only. A significant component of our business plan since
1998 was the disposition of non-core properties. We sold 28 properties under this initiative, which was completed during 2002. Consistent with Statement of Financial
Accounting Standards No. 144, the results of operations as well as the assets and liabilities of the sold properties are reported separately as discontinued operations in
the Company’s consolidated financial statements.

2We 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 for an equity REIT due to its widespread acceptance and use within the REIT and analyst communities. FFO is presented to assist investors in ana-
lyzing 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 (or losses) from sales
of property and depreciation and amortization. However, 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 (or losses)
from sales of depreciated property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. We have historically added
back impairments in real estate in calculating FFO, in accordance with prior NAREIT guidance. However, NAREIT, based on discussions with the SEC, has provided revised
guidance that provides that impairments should not be added back to net income in calculating FFO. As such, historical FFO has been restated consistent with this revised
guidance. See Management’s Discussion and Analysis of Financial Condition and Results of Operations – Funds from Operations for the reconciliation of net income to FFO.

Ledgewood Mall, Ledgewood, NJ

Elmwood Park Shopping Center,
Elmwood Park, NJ

Our properties are anchored by
necessity-based and value-oriented
retailers like Shaw’s and Super Stop &
Shop supermarkets, Wal-Mart and
Target department stores, and
Walgreens drugstores.

Acadia Realty Trust (NYSE: AKR),
headquartered in White Plains, NY,
is a fully integrated and self-managed
real estate investment trust (“REIT”)
which specializes in the acquisition,
redevelopment and operation of
shopping centers which are anchored
by necessity-based and value-oriented
retail. Acadia currently owns, or has
ownership interests in, and operates
62 properties totaling approximately
nine million square feet, located
primarily in the Northeast, Mid-
Atlantic and Midwest United States.

A Y E A R O F E X T R A O R D I N A R Y A C H I E V E M E N T

2003 was a year of extraordinary achievement and a critical turning

point for Acadia and its shareholders. We continued to maximize the

value of our existing portfolio with several exciting redevelopments,

and further enhanced our asset base with two significant portfolio

acquisitions. 2003 was also the year in which our stock price significantly

appreciated — gaining important recognition in the investment com-

munity for the successful completion of our multi-year turnaround. It

has been the culmination of several years of hard work, tough decisions,

solid execution and development of long-term relationships.

In 2003, Acadia’s stock was one of the best
performing in the REIT industry, with a total
return of 76%. As pleased as I am with this
return, I am more proud of the fact that over
the past five years, our total return averaged
28% per year, making us one of the top per-
forming shopping center REIT stocks over that
more extended period.

Although we certainly care about quarter-to-
quarter success, looking forward, our primary
objective is to provide our shareholders with
superior risk adjusted returns on a long-term

basis. As we have said in the past, the key to
achieving this goal is to effectively execute
our three-pronged core strategy of focusing
on creating and maintaining a solid portfolio,
a strong balance sheet, and a profitable exter-
nal growth program. Combining this strategy
with a dedicated and experienced manage-
ment team has enabled us to deliver on the
business plan we initiated over five years ago.

S O L I D P O RT F O L I O. While 2002 was a year
of aggressive, non-core dispositions, 2003 was
a year in which we refined and enhanced the

quality of our portfolio. We launched and/or
completed several important redevelopments,
most notably the Gateway Shopping Center,
the Plaza 422 and the New Loudon Shopping
Center. In total, over the course of our multi-
year program, we have redeveloped and/or
re-anchored over 50% of our current portfolio.
Whether it was turning an underperforming
Ames department store into a new Home
Depot anchored center, or converting an
enclosed mall anchored by an undersized
Grand Union supermarket into a new state-
of-the-art Shaw’s supermarket, our redevelop-
ments and re-anchorings have driven growth
in both the cash flow as well as the overall
value of our properties.

ST R O N G B A L A N C E S H E E T. The second key
foundation of our company’s strategy has
been the highly disciplined maintenance of a
strong balance sheet. Along with conservative
debt levels and minimal exposure to floating
rate debt, we have one of the safest dividend
payout ratios in our sector at 61 % for 2003.
To our shareholders this means that, while
other companies may be considering cutting
their dividend, our dividend is safe and has the

opportunity to continue to grow as our earn-
ings grow. Even after raising our dividend 33%
over the past three years, we still have one of
the most conservative dividends in our sector.

EXTERNAL GROWTH. The final component to
providing stability and growth is our external
growth initiative. We have been extremely
fortunate to have the backing of several pro-
minent institutional investors to fuel our
acquisition program. The ability to utilize
a highly accretive discretionary investment
fund as our acquisition platform provides
our shareholders with a way to maximize
their return on invested capital and create
powerful earnings growth without having
to weaken our balance sheet or continually
go to the public markets to raise capital. We
believe that effective capital recycling, along
with leveraging our skills and relationships,
provides for a more powerful external growth
program than simply acquiring, or “aggregat-
ing” assets. We have never believed in growth
for growth’s sake alone.

Through our acquisition fund, Acadia Strategic
Opportunity Fund (“AKR Fund I”), we acquired
two important portfolios in 2003. These two
portfolios, the Brandywine portfolio and the
Kroger/Safeway portfolio, helped contribute
approximately 10% to our earnings in 2003.
This growth is strong evidence that selective

acquisitions, correctly structured, can drama-
tically enhance the earnings of a company of
our size. As of year-end, we had acquired three
portfolios in AKR Fund I. The fund is already
providing a 16% current return on the equity
invested with the majority of the income com-
ing from creditworthy tenants such as Target
Department Store, Lowe’s Home Improvement,
Kroger Supermarket, Bed Bath & Beyond, and
Safeway Supermarket. In addition, substan-
tially all of the mortgage debt is fixed rate,
thus reducing exposure to the risk of rising
interest rates.

Along with the exciting acquisitions discussed
above, we also laid the groundwork for our
retailer-controlled property venture (“RCP
Venture”), which we announced in January
of 2004. The focus of the RCP Venture is to
acquire real estate or leasehold interests
controlled by retailers who are either in need
of capital or wish to maximize the value of
their real estate assets. We formed this ven-
ture with two of the dominant players in
this field of the real estate industry: the Klaff
Organization and its long time investment
partner, Lubert-Adler. We will jointly capitalize
the RCP Venture with $300 million of equity,
with $60 million coming from either Acadia
or AKR Fund I. We expect this venture to be
both highly profitable and complementary
to our core competency.

STRONG MANAGEMENT TEAM. The only way
to successfully execute our aggressive value-
added approach is with a strong management
team. Our goal is to bring intelligence, inten-
sity and integrity to all that we do. We have
assembled a team with the experience and
depth to continue to drive Acadia’s progress.
While markets will go up and down, the
quality, integrity and creativity of our man-
agement team is what will ensure the long-
term success of our company.

STRONG RELATIONSHIPS. I am a firm believer
in the merits of hard work and the building
of relationships as the foundation of success.
Over the last five years we have built on
existing long-term relationships as well as
developed new partners within all our major
constituent groups including retailers, devel-
opers, entrepreneurs, lenders and investors.
For instance, our success in the releasing and
redevelopment of our Plaza 422 property
was the direct result of the strong tenant
relationships that our Director of Leasing,
Joe Povinelli, and his team have formed with
Home Depot over the many years that they
have worked in the industry. As a result of
our strong multi-year and multi-deal relation-
ships with several developers and entrepre-
neurs, we have been fortunate enough to be
presented with opportunities that were far

more attractive and profitable than the aver-
age investments which were widely marketed
to us as well as many of our competitors. We
believe that we have built a reputation as a
company that sellers and developers can part-
ner with and rely upon to successfully complete
complex and profitable transactions.

We also consider ourselves fortunate to have
achieved the recognition and support of the
investment community. We have earned the
trust necessary for this support by diligently
working to present clear, digestible informa-
tion in all of our public documents and filings.
And it has resulted in investors’ strong sup-
port for our stock.

Our focus going forward will be to remain
disciplined, opportunistic and strategic. We
realize that Acadia will not be all things to
all people. We have a strong view that bigger
is not better — better is better. Profits are
not made simply by size, but rather by stick-
ing to the fundamentals and creating value
for our shareholders.

K E N N E T H F. B E R N ST E I N
P R E S I D E N T A N D C E O

Acadia’s Annual Dividend

Acadia’s Five-Year Total Returns
vs. Shopping Center REIT Sector

Greenridge Shopping Center, Scranton, PA

Abington Towne Center, Abington, PA

K E N N E T H F. B E R N ST E I N
P R E S I D E N T A N D C E O

$0.64

$0.58

$0.48

$0.52

2001

2002

2003

2004*

*Increase effective with the dividend for the fourth quarter 2003,
paid January 15, 2004.

250%

200%

150%

100%

50%

-50%

Acadia
Peers

Acadia Realty Trust 2003 Annual Report

Acadia Realty Trust 2003 Annual Report 3

M A K I N G C H A N G E . . . B U I L D I N G A S T R O N G C O R E P O R T F O L I O

Five Years of Continued Success
After integrating the newly acquired Mark Centers Trust portfolio

with existing Acadia properties in 1998, we set into action an aggres-

sive strategy to build a high quality shopping center portfolio. The

first component of our plan was to sell properties which did not meet

our core portfolio criteria of well-located assets in high barrier-to-

entry markets. At the completion of this non-core disposition initiative

in 2002, we had sold 28 properties (mostly assets from the former

Mark portfolio) comprising 4.6 million square feet of retail and 800

apartment units for an aggregate sales price of $186.4 million.

Over the past five years, we have created significant share-
holder value by “making change” at the real estate

level — turning our former Ames and Grand Unions

into Home Depots and Shaw’s supermarkets.

To date, we have redeveloped and/or re-anchored
over 50% of our current portfolio.

The second key component of our port-
folio strategy was, and continues to be,
to redevelop and re-anchor select core
assets. These activities have been the
crucial factors in building our solid port-
folio, and in promoting ongoing strong
internal growth in our current assets.
By continually assessing the physical life
cycle of our assets, the competitive
environments within the local markets
we serve and the needs of our tenants,
we proactively identify opportunities to
strengthen our shopping centers through
redevelopment and re-anchoring through-
out our portfolio.

We have built a solid portfolio through the
redevelopment and re-anchoring of over
50% of our current assets over the last five
years. We’ve discussed some of these in
previous annual reports, including:

■ Installing a two-story Target depart-
ment store in conjunction with the
de-malling of the Abington Town
Center outside of Philadelphia.

■ Replacing Caldor with a new Wal-Mart,
tripling the rent, at our Methuen Shop-
ping Center outside of Boston.

■ Demolishing an attached, multi-story
Grand Union headquarters office
building and replacing the undersized
supermarket with an expanded
Walgreen’s drugstore and a new full
sized Pathmark supermarket at the
Elmwood Park Shopping Center
located outside of New York City.

Our activity this year was on pace with
that of previous years. The following
are key 2003 highlights of our continued
successful execution in our redevelop-
ment program:

HOME DEPOT REPLACES FORMER AMES
AT THE PLAZA 422. Home Depot held its
grand opening during 2003 at our Plaza
422 redevelopment project located in
Lebanon, Pennsylvania. We recaptured an
83,000 square foot former Ames depart-
ment store and demolished the structure
as well as the attached enclosed mall
portion of the old shopping center. We
installed a new 104,000 square foot Home
Depot in its place and are now collecting
rent from Home Depot at a level three
times that of the former Ames. We also
recaptured another 48,000 square feet
at the center and are actively re-tenanting
this space.

BON-TON DEPARTMENT STORE REPLACES

ANOTHER AMES AT THE NEW LOUDON CENTER.
During 2003 we installed a 66,000 square
foot Bon-Ton Department Store at our

New Loudon Center redevelopment proj-
ect located in Latham, New York. Bon-Ton,
which replaced a former Ames, is paying
rent at a 15% increase over that of Ames.
In addition, we leased the remaining
portion of the former Ames space to
Marshall’s, an existing tenant at the
center, which is expanding its current
26,000 square foot store to 37,000 square
feet. We are also currently installing a
new 49,000 square foot Raymour and
Flanigan Furniture store at this center.
Following the completion of this project
in mid-2004, this community shopping
center will be 100% occupied.

GATEWAY SHOPPING CENTER CONVERTED

TO A MODERN, OPEN-AIR SHOPPING CENTER.
Our redevelopment of the Gateway
Shopping Center in South Burlington,
Vermont, included the demolition of

90% of this formerly outdated, partially
enclosed mall which was anchored by
an undersized Grand Union supermarket.
In its place, we built a contemporary,
open-air shopping center anchored by
a 72,000 square foot state-of-the-art
Shaw’s supermarket which opened its
doors for business during 2003.

Over the last five years, we have created
a solid portfolio through our non-core
disposition, property redevelopment and
re-anchoring programs. We now continue
to harvest strong internal growth from
our assets through accretive redevelop-
ment, as well as an aggressive leasing
program that has resulted in overall
portfolio occupancy gains and increases
in rents on new and renewal leases.

The Gateway Shopping Center, South Burlington, VT

Crescent Plaza, Brockton, MA

New Loudon Center, Latham, NY

Before Redevelopment...

...After Redevelopment

Before Redevelopment...

...After Redevelopment

Before Redevelopment...

...After Redevelopment

Acadia Realty Trust 2003 Annual Report 5

A Y E A R O F E X T R A O R D I N A R Y A C H I E V E M E N T . . .

2003 Acquisitions Totaling $135 Million
In 2001, we formulated an external growth strategy which focused on

acquiring assets through a new joint venture formed with four of our

institutional investors (“AKR Fund I”). We purchased a $27 million port-

folio in 2002, consisting of three supermarket-anchored shopping cen-

ters located in Cleveland and Columbus Ohio. At the beginning of 2003,

we sought to acquire $100 million in new assets — an ambitious goal

given the extremely competitive acquisition environment for retail

properties. Another potential hurdle in meeting our acquisition target
was our insistence that acquisitions be highly accretive, in terms of
both earnings and net asset value. Adhering to our opportunistic yet
disciplined acquisition philosophy, we not only met, but exceeded our
goals for 2003 by acquiring two portfolios totaling $135 million.

T W O H I G H LY A CC R E T I V E P O RT F O L I O
A CQ U I S I T I O N S . During 2003, we
acquired the Brandywine Portfolio, a
one-million square foot, open-air retail
complex located in Wilmington, Delaware
for an initial purchase price of $89 million,
or $89 per square foot. The seller of the
property had invested $200 per square
foot in the recent construction of this
center, which is anchored by Target, Lowe’s
and Bed Bath & Beyond. We structured
this transaction with an earn-out compo-
nent related to the future lease-up of a
portion of this center. This offers us the
opportunity to create additional value
without risking capital. Not only does the
10.25% capitalization rate on this trans-
action represent an attractive initial yield,
but given the high-quality tenants and
the earnout feature, it is an ideal blend of
strong location, high credit quality and
future growth potential.

Market Square Shopping Center,
Wilmington, DE

Brandywine Town Center, Wilmington, DE

Fund I, we have already put $160 million
to work. Due to both our size and capital
efficient model, we were able to increase
our earnings growth by 10% during 2003
without overpaying or making indiscrim-
inate acquisitions. Whether we acquire
assets in AKR Fund I, our new RCP venture
(See “Looking Forward” in this Annual
Report), or subsequent AKR Funds, we
intend on remaining opportunistic and
disciplined in our acquisition program.

Is pleased to announce
the acquisition of
The Brandywine Portfolio
One million square feet of retail
for
$86 million
Acquired by
AKR Fund I
Managed by:
Acadia Realty Trust

We also acquired the Kroger-Safeway
Portfolio, a one million square foot Kroger
and Safeway supermarket portfolio for
$48 million, or $48 per square foot. The
projected cash flow on Acadia’s portion
of its equity investment is anticipated to
yield in excess of a 15% return, after fully
amortizing the $35 million related mort-
gage debt over the next six years. At the
end of the lease term in 2009, AKR Fund I
will control one million square feet free
of debt with tremendous redevelopment
and recycle opportunities — providing
additional upside in addition to the
attractive current yield.

CREATING VALUE THROUGH EXPERTISE AND
FLEXIBILITY. Both of these major trans-
actions highlight our ability to use our
skills, flexibility and joint venture struc-
tures to create significant value within
our acquisition program. Of the $300
million of purchasing power in AKR

The Kroger/Safeway Portfolio is
comprised of 25 Safeway and Kroger
supermarket leases. Acadia has been
able to generate superior investment
returns on this acquisition by taking
advantage of the structure of
AKR Fund I.

The Market Square Shopping Center
and Brandywine Towne Center along
with an additional component for which
initial leasing is underway comprise the
Brandywine Portfolio, a one-million square
foot, open-air retail complex located in
Wilmington, Delaware. The portion currently
undergoing lease-up is to be paid for on
an “earn-out” basis — reflective of the
innovative and flexible “deal structuring”
capabilities of Acadia.

Is pleased to announce the
formation of a new venture between
Acadia Realty Trust,
Klaff Realty and
Lubert-Adler
for the purpose of making investments
in surplus or underutilized properties
owned or controlled by retailers

The initial size of the Venture
will be approximately
$300 million in equity

Managed by:
Acadia Realty Trust

Is pleased to announce
the acquisition of
The Kroger Safeway Portfolio
One million square feet
of supermarket leases
for
$49 million
Acquired by
AKR Fund I
Managed by:
Acadia Realty Trust

Acadia Realty Trust 2003 Annual Report

Acadia Realty Trust 2003 Annual Report 7

B Y A N Y S T A N D A R D O F M E A S U R E M E N T . . .

Our Balance Sheet Is Strong
Along with developing a strong portfolio over the last five years, we have
also concentrated on building a strong balance sheet through three key
areas of focus: disciplined use of debt, access to capital and reliable and
growing dividends. As a result, we now have one of the strongest balance
sheets in our peer group.

DISCIPLINED USE OF DEBT. In 1999, our debt
was 67% of our total market capitaliza-
tion — it is now 39%. Similarly, our fixed-
charge coverage ratio (EBITDA / Interest
expense and preferred distributions) was
2.3 times in 1999 — now it is 3.0 times.
We have also eliminated a substantial
amount of our exposure to future increases
in interest rates. Currently, 85% of our debt
is fixed-rate, including our pro-rata share
of joint venture debt. Our current average
cost of debt is only 6%, and we have
locked in long-term, low rates on $62
million, or one third of our debt, through
the use of interest rate swap agreements
with terms extending through 2012.

BUILDING SUFFICIENT ACCESS TO CAPITAL.
Along with the prudent and efficient use
of debt, we have also ensured sufficient
access to equity to fund our various
external growth initiatives as well as
our ongoing portfolio redevelopment
program. One such source is the public
equity market. Many REITs have tapped
this source recently as their stocks are
trading at healthy earnings multiples.
Since Acadia is currently rewarded with
one of the highest earnings multiples
in our sector, we will consider using mar-
ket equity when we are confident we can
deploy our investors’ capital quickly and
in highly accretive deals.

As the public markets are cyclical, we think
it is essential to arrange for alternative
sources of capital. As mentioned in the
previous section of this report, we formed
AKR Fund I with several of our largest
institutional shareholders, resulting in
a strong alignment of interest between
the joint venture and our shareholders.
Because this capital can be accessed on
a discretionary basis and is non-dilutive,
even on a temporary basis, we have been
able to invest it with discipline and on an
opportunistic basis. As a result our invest-
ments have all generated yields ranging
from 15% to 20%.

CONSERVATIVE DIVIDEND POLICY — GROWTH
COMMENSURATE WITH EARNINGS. The final
component in managing our capital is a
rational dividend policy. We have grown
our dividend over 30% over the last three
years while maintaining one of the most
reliable dividends in our sector. Our divi-
dend, with a coverage ratio of 61% of funds
from operations for 2003, was significantly
safer than the average of our peers at 71%.

We have achieved our goals in all three
key balance sheet initiatives and, conse-
quently, we now have a capital structure
better able to withstand uncertain
times and ready access to capital for
our future growth.

Total Market Capitalization as of December 31

27.6

32.1

7.8

0.4

2000

Common Shares

Common O.P. Units

Preferred O.P. Units

Fixed-Rate Debt

Variable-Rate Debt

6.0

33.21

58.2

0.3

2.4

2003

Acadia versus
Shopping Center REIT Sector

Using any of the balance sheet
metrics commonly used in our
industry, Acadia ranks among the
strongest in our peer group.

Acadia

Peers

100%

90%

80%

70%

60%

50%

FFO Payout Ratios

Debt Service Coverage Ratio

Debt to Total Market Capitalization
(includes preferred equity and pro-rata JV debt)

4.0%

3.5%

3.0%

2.5%

2.0%

1.5%

1.0%

Better

Worse

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%

Better

Worse

Better

Worse

Acadia Realty Trust 2003 Annual Report

1Fixed-rate debt includes $86.7 million of notional principal fixed through interest rate swap transactions and conversely,
variable-rate debt excludes this amount.

Acadia Realty Trust 2003 Annual Report 9

L O O K I N G F O R W A R D . . . C O N T I N U I N G T O M A K E C H A N G E

Acadia New Retail Venture —
Additional Pipeline for External Growth
In January 2004, we added an external growth platform with the
formation of a new retailer-controlled property venture (the “RCP

Venture”). Our focus is to acquire properties, leases and designation

rights associated with retailers. To maximize the opportunity for success,

we have teamed up with one of the dominant players in the distressed

retail business.

The initial size of the RCP Venture will
be approximately $300 million in equity,
with Acadia, either directly or through
its fund(s), investing a total of 20% of
the equity. As a component to this trans-
action, Acadia also acquired the rights
to provide asset management, leasing,
disposition, development and construc-
tion services for an existing portfolio of
retail properties.

Over the past five years, we have created
significant shareholder value turning our
Caldor, Ames and Grand Unions into Wal-
Marts, Home Depots and Shaw’s. Through
the RCP Venture, we look forward to creat-
ing further shareholder value in this arena
on a more proactive basis. Retailer-con-
trolled real estate will be a continuing
source of attractive investment opportuni-
ties, consistent with our value-added focus.

TOWN LINE PLAZA ADDED TO REDEVELOP-
MENT PIPELINE. Also in January 2004,
we announced another redevelopment
pipeline addition. We are now re-anchor-
ing the Town Line Plaza, located in Rocky
Hill, Connecticut, with a new Super Stop
& Shop supermarket, replacing a former
GU Markets. The existing building is being
demolished and will be replaced with a
66,000 square foot Super Stop & Shop.
The new supermarket anchor is paying
rent, even during construction, at a 33%
increase over that of the former tenant.

CONTINUED CORPORATE GOVERNANCE
INITIATIVES. During 2003, we enacted
several corporate governance initiatives.
These included naming Lee Wielansky to
the position of Independent Lead Trustee
as well as adding Douglas Crocker II and
Lorrence Kellar as independent members

to our Board of Trustees. In addition, our
Audit, Compensation and Nominating/
Corporate Governance committees are
now comprised entirely of independent
trustees. We also created and published
charters for each of the committees as
well as a Senior Officer Code of Conduct,
a Whistleblower Policy and a Code of
Business Ethics.

In 2004, we continued our corporate
governance initiatives by nominating
Suzanne Hopgood and Wendy Luscombe
to our Board as Independent Trustees.
Their election at our next Annual Meeting
of Shareholders would result in a Board
comprised of six fully independent trustees
and Mr. Bernstein, our President and CEO,
who together will guide Acadia in making
change during 2004 and beyond.

New Loudon Center, Latham, NY

Abington Towne Center, Abington, PA

Walnut Hill Plaza, Woonsocket, RI

As part of the redevelopment of the Town
Line Plaza, we are replacing the existing
anchor with a new 66,000 square foot
Super Stop & Shop supermarket.

Acadia Realty Trust 2003 Annual Report

M I
M I

I L
I L

I N
I N

O H
O H

Headquarters

Regional Offices

Neighborhood and
Community Shopping Centers

Joint Venture Property

P A
P A

N Y
N Y

N J
N J

D E
D E

V T
V T

M A
M A

C T
C T

R I
R I

R E T A I L P R O P E R T I E S

239 Greenwich Avenue
Greenwich, CT

Town Line Plaza
Rocky Hill, CT

Brandywine Town Center
Wilmington, DE

Market Square
Shopping Center
Wilmington, DE

Hobson West Plaza
Naperville, IL

Merrillville Plaza
Hobart, IN

Crescent Plaza
Brockton, MA

Methuen Shopping Center
Methuen, MA

Bloomfield Town Square
Bloomfield Hills, MI

Berlin Shopping Center
Berlin, NJ

Blackman Plaza
Wilkes-Barre, PA

Bradford Towne Centre
Towanda, PA

Elmwood Park
Shopping Center
Elmwood Park, NJ

Ledgewood Mall
Ledgewood, NJ

Marketplace of Absecon
Absecon, NJ

The Branch Plaza
Smithtown, NY

Crossroads Shopping Center
White Plains, NY

New Loudon Center
Latham, NY

Pacesetter Park
Shopping Center
Pomona, NY

Soundview Marketplace
Port Washington, NY

Village Commons
Shopping Center
Smithtown, NY

Amherst Marketplace
Amherst, OH

Granville Center
Columbus, OH

Mad River Station
Dayton, OH

Sheffield Crossing
Sheffield, OH

East End Centre
Wilkes-Barre, PA

Greenridge Plaza
Scranton, PA

Luzerne Street
Shopping Center
Scranton, PA

Mark Plaza
Edwardsville, PA

Pittston Plaza
Pittston, PA

Plaza 422
Lebanon, PA

Route 6 Mall
Honesdale, PA

Walnut Hill Plaza
Woonsocket, RI

The Gateway
Shopping Center
South Burlington, VT

M U L T I - F A M I LY
P R O P E R T I E S

GHT and Colony Apartments
Columbia, MO

Village Apartments
Winston-Salem, NC

Abington Towne Center
Abington, PA

H E A D Q U A R T E R S
White Plains, NY

T R U S T E E S A N D
C O R P O R AT E O F F I C E R S

T R U S T E E S

Kenneth F. Bernstein
President and
Chief Executive Officer
Douglas Crocker II
Former Chief Executive
Officer, Equity Residential
Martin L. Edelman, Esq.
Of Counsel to Paul, Hastings,
Janofsky & Walker, LLP

Alan S. Forman
Director of Investments Office
Yale University
Lorrence T. Kellar
Vice President of
Retail Development,
Continental Properties
Marvin J. Levine, Esq.
Of Counsel to Wachtel &
Masyr, LLP

Lawrence J. Longua
Sr. Vice President
Newmark & Company
Real Estate, Inc.
Lee S. Wielansky
Chairman of the Board and
Chief Executive Officer
Midland Development
Group Inc.

S E N I O R O F F I C E R S

Kenneth F. Bernstein
President and
Chief Executive Officer
Joel Braun
Sr. Vice President,
Chief Investment Officer
Joseph Hogan
Sr. Vice President,
Director of Construction

Robert Masters, Esq.
Sr. Vice President,
General Counsel and
Corporate Secretary
Joseph M. Napolitano
Sr. Vice President
Director of Operations
Michael Nelsen
Sr. Vice President,
Chief Financial Officer
Joseph Povinelli
Sr. Vice President,
Director of Leasing

Acadia Realty Trust 2003 Annual Report

S H A R E H O L D E R I N F O R M A T I O N

C O R P O R A T E H E A D Q U A R T E R S

Acadia Realty Trust
1311 Mamaroneck Avenue
Suite 260
White Plains, NY 10605
Tel: 914.288.8100

I N T E R N E T A D D R E S S
Visit us online at www.acadiarealty.com for
more information about Acadia Realty Trust
and its real estate portfolio. The 2003 Annual
Report is available online, as well as current
news and quarterly financial and operational
supplementary information.

L E G A L C O U N S E L

Paul, Hastings, Janofsky &
Walker, LLP
Park Avenue Tower
75 East 55th Street
New York, NY 10022

A N N U A L M E E T I N G
The annual meeting will be held on May 6,
2004 at 10:00 am at the offices of Paul, Hastings,
Janofsky & Walker, LLP, Park Avenue Tower,
75 East 55th Street, New York, NY 10022.

I N V E S T O R R E L A T I O N S

Jon Grisham
Vice President
Tel: 914.288.8100
email: jgrisham@acadiarealty.com

I N D E P E N D E N T A U D I T O R S

Ernst & Young LLP
5 Times Square
New York, NY 10036

S T O C K E X C H A N G E

New York Stock Exchange
Symbol: AKR

T R A N S F E R A G E N T A N D
R E G I S T R A R

American Stock Transfer & Trust Company
59 Maiden Lane
Plaza Level
New York, NY 10038
Tel: 877.777.0800
website: www.amstock.com
email: info@amstock.com

A copy of the Company’s annual report and
Form 10-K filed with the Securities and
Exchange Commission may be obtained with-
out charge by contacting Investor Relations.

D I V I D E N D R E I N V E S T M E N T
Acadia Realty Trust offers a dividend reinvest-
ment plan that enables its shareholders to
automatically reinvest dividends as well as make
voluntary cash payments toward the purchase
of additional shares. To participate, contact
Acadia Realty Trust’s dividend reinvestment
agent at 800.937.5449 ext. 6820 or write to:

American Stock Transfer & Trust Company
Attn: Dividend Reinvestment Dept.
59 Maiden Lane
Plaza Level
New York, NY 10038

For further information contact Investor Relations.

Dayton,OH
Mad River Station

Smithtown,NY
Village Commons Shopping Center

Pomona,NY
Pacesetter Park Shopping Center

Tel:914.288.8100
White Plains,NY 10605
Suite 260
1311 Mamaroneck Avenue

1311 Mamaroneck Avenue
Suite 260
White Plains, NY 10605
Tel: 914.288.8100

Pacesetter Park Shopping Center
Pomona, NY

Village Commons Shopping Center
Smithtown, NY

Mad River Station
Dayton, OH

For further information contactInvestor Relations.

New York,NY 10038
Plaza Level
59 Maiden Lane
Attn:Dividend ReinvestmentDept.
American Stock Transfer & TrustCompany

agentat800.937.5449 ext.6820or write to:
Acadia Realty Trust’s dividend reinvestment
of additional shares.To participate,contact
voluntary cash payments toward the purchase
automatically reinvestdividends as well as make
mentplan thatenables its shareholders to
Acadia Realty Trustoffers a dividend reinvest-
DIVIDEND REINVESTMENT

outcharge by contacting Investor Relations.
Exchange Commission may be obtained with-
Form 10-K filed with the Securities and
A copy of the Company’s annual reportand

email:info@amstock.com
website:www.amstock.com
Tel:877.777.0800
New York,NY 10038
Plaza Level
59 Maiden Lane
American Stock Transfer & TrustCompany

REGISTRAR
TRANSFER AGENT AND

Symbol:AKR
New York Stock Exchange

STOCK EXCHANGE

New York,NY 10036
5 Times Square
Ernst& Young LLP

INDEPENDENT AUDITORS

email:jgrisham@acadiarealty.com
Tel:914.288.8100
Vice President
Jon Grisham

INVESTOR RELATIONS

75 East55th Street,New York,NY 10022.
Janofsky & Walker,LLP,Park Avenue Tower,
2004 at10:00 am atthe offices of Paul,Hastings,
The annual meeting will be held on May 6,
ANNUAL MEETING

New York,NY 10022
75 East55th Street
Park Avenue Tower
Walker,LLP
Paul,Hastings,Janofsky &

LEGAL COUNSEL

supplementary information.
news and quarterly financial and operational
Reportis available online,as well as current
and its real estate portfolio.The 2003 Annual
more information aboutAcadia Realty Trust
Visitus online atwww.acadiarealty.comfor
INTERNET ADDRESS

Tel:914.288.8100
White Plains,NY 10605
Suite 260
1311 Mamaroneck Avenue
Acadia Realty Trust

CORPORATE HEADQUARTERS

SHAREHOLDER INFORMATION

A C A D I A R E A LT Y T R U S T
S E L E C T E D F I N A N C I A L S 2 0 0 3

M A K I N G

A Y E A R O F E X T R A O R D I N A R Y A C H I E V E M E N T

Before Redevelopment...

...During...

...After Redevelopment

C O N T E N T S

1 Management’s Discussion and Analysis

13 Report of Independent Auditors

14 Consolidated Balance Sheets

15 Consolidated Statements of Income

17 Consolidated Statements of Shareholders’ Equity

18 Consolidated Statements of Cash Flows

20 Notes to Consolidated Statements

O n t h e C o v e r :
F r o m L e f t t o R i g h t

Elmwood Park Shopping Center
Elmwood Park, NJ

Marketplace of Absecon
Absecon, NJ

Abington Towne Center
Abington, PA

Walnut Hill Plaza
Woonsocket, RI

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Financial Condition and Results
of Operations

The following discussion should be read in conjunction

with the consolidated financial statements (including

the related notes thereto) of Acadia Realty Trust (the

“Company”) appearing elsewhere in this Annual

Report. Certain statements contained in this Annual

Report may contain forward-looking statements within

• Focus on maximizing the return on its existing port-

folio through leasing and property redevelopment

activities. The Company’s redevelopment program is a

significant and ongoing component of managing its

existing portfolio and focuses on selecting well-located

neighborhood and community shopping centers and

creating significant value through re-tenanting and

property redevelopment.

the meaning of Section 27A of the Securities Act of 1933

• Pursue above-average returns though a disciplined

and Section 21E of the Securities and Exchange Act of

and opportunistic acquisition program. The primary

1934 and as such may involve known and unknown

conduits for the Company’s acquisition program are

risks, uncertainties and other factors which may cause

through its existing acquisition joint venture, ASOF,

our actual results, performance or achievements to be

as well as the new venture established to invest in

materially different from future results, performance

surplus or underutilized properties owned or controlled

or achievements expressed or implied by such forward-

by retailers as discussed in the Company’s Annual

looking statements. Forward-looking statements, which

Report on Form 10-K.

are based on certain assumptions and describe the

Company’s future plans, strategies and expectations are

generally identifiable by use of the words “may,” “will,”

“should,” “expect,” “anticipate,” “estimate,” “believe,”

“intend” or “project” or the negative thereof or other

variations thereon or comparable terminology. Factors

which could have a material adverse effect on the oper-

ations and future prospects of the Company include,

but are not limited to those set forth under the head-

ing “Risk Factors” in the Company’s Annual Report on

Form 10-K. These risks and uncertainties should be con-

sidered in evaluating any forward-looking statements

contained or incorporated by reference herein.

Overview

• Maintain a strong balance sheet, which provides the

Company with the financial flexibility to fund both

property redevelopment and acquisition opportunities.

Results of Operations

C O M PA R I S O N O F T H E Y E A R E N D E D
D E C E M B E R 3 1 , 2 0 0 3 ( “ 2 0 0 3 ” ) T O T H E
Y E A R E N D E D D E C E M B E R 3 1 , 2 0 0 2 ( “ 2 0 0 2 ” )

Total revenues increased $98,000 to $69.4 million

for 2003 compared to $69.3 million for 2002.

Minimum rents increased $1.7 million, or 3%, to $50.2

million for 2003 compared to $48.5 million for 2002.

This increase was attributable to an increase in rents

following the redevelopment of the Elmwood Park

The Company currently operates 62 properties, which it

and Gateway shopping centers and an increase in rents

owns or has an ownership interest in, consisting of 58

from re-tenanting activities and renewals of tenant

neighborhood and community shopping centers, one

leases across the portfolio. These increases were par-

enclosed mall, one mixed-use property (retail/residen-

tially offset by a decrease in rents following Ames

tial) and two multi-family properties, which are located

Department Stores’ bankruptcy.

primarily in the Northeast, Mid-Atlantic and Midwest-

ern regions of the United States and, in total, comprise

approximately nine million square feet. The Company

receives income primarily from the rental revenue from

its properties, including recoveries from tenants, offset

by operating and overhead expenses.

In total, expense reimbursements increased $2.1 million,

or 19%, from $11.4 million for 2002 to $13.5 million for 2003.

CAM expense reimbursements increased $1.6 million, or

34%, from $4.7 million in 2002 to $6.3 million in 2003.

This resulted primarily from tenant reimbursements

of higher snow removal costs following the harsh

The Company focuses on three primary areas in execut-

winter of 2003 as well as tenant reimbursements of

ing its business plan as follows:

higher insurance costs throughout the portfolio. Real

estate tax reimbursements increased $457,000 primarily

Acadia Realty Trust 2003 Annual Report

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S continued

as a result of the variance in real estate tax expense as

Plaza redevelopment project. In addition, depreciation

discussed below.

Lease termination income of $3.9 million in 2002 was

primarily the result of the settlement of the Company’s

claim against a former tenant.

expense increased following the Elmwood Park redevel-

opment project being placed in service during the fourth

quarter of 2002 and the Gateway project being placed

in service during the first quarter of 2003. Amortization

expense decreased $443,000, which was primarily

Other income increased $97,000, or 3%, from $3.9 million

attributable to the write-off of deferred leasing costs

in 2002 to $4.0 million in 2003. This was primarily due

during 2002 related to certain tenant leases.

to a lump sum additional rent payment of $1.2 million

received from a former tenant during 2003 in connec-

tion with the re-anchoring of the Branch Plaza and

an increase of $527,000 in management fee income

received from ASOF in 2003. These increases were par-

tially offset by a decrease in interest income during

2003 due to lower interest earning assets, including

cash investments and notes receivable, as well as the

decline in interest rates.

Total operating expenses increased $6.6 million, or 14%,

to $52.6 million for 2003, from $46.0 million for 2002.

Property operating expenses increased $2.9 million, or

24%, to $15.2 million for 2003 compared to $12.3 million

for 2002. This was a result of higher snow removal costs

due to the harsh winter of 2003 and higher insurance

costs throughout the portfolio.

Real estate taxes increased $352,000, or 4%, from $8.4

million in 2002 to $8.8 million in 2003. This increase

was attributable to higher real estate taxes experienced

generally throughout the portfolio and a 2002 adjust-

ment of accrued real estate taxes for an acquired prop-

erty. These increases were primarily offset by a real estate

Interest expense of $11.2 million for 2003 increased

$214,000, or 2%, from $11.0 million for 2002. This was

primarily attributable to a decrease of $528,000 in

capitalized interest in 2003 and a $198,000 increase in

interest expense as a result of higher average interest

rates on the portfolio debt for 2003. These increases

were offset by a $512,000 decrease resulting from lower

average outstanding borrowings during 2003.

Income from discontinued operations decreased $7.9

million due to the timing of property sales in 2002.

C O M PA R I S O N O F T H E Y E A R E N D E D
D E C E M B E R 3 1 , 2 0 0 2 ( “ 2 0 0 2 ” ) T O T H E
Y E A R E N D E D D E C E M B E R 3 1 , 2 0 0 1 ( “ 2 0 0 1 ” )

Total revenues increased $8.0 million, or 13%, to $69.3

million for 2002 compared to $61.3 million for 2001.

Minimum rents increased $1.4 million, or 3%, to $48.5

million for 2002 compared to $47.1 million for 2001.

This increase was attributable to increases in rents

from re-tenanting activities and contractual rent

increases for existing tenants offset by a decrease in

rents following certain tenant bankruptcies.

tax refund agreed to in 2003 related to the appeal of

Percentage rents decreased $117,000, or 10%, to $1.1 million

taxes paid in prior years at the Greenridge Plaza.

for 2002 compared to $1.2 million for 2001. This decrease

General and administrative expense increased $561,000,

or 6%, from $10.2 million for 2002 to $10.7 million for

was primarily attributable to certain tenant bankruptcies

and tenants experiencing lower sales volume.

2003. This increase was primarily attributable to stock-

In total, expense reimbursements increased $535,000,

based compensation. These increases were offset by

or 5%, from $10.9 million for 2001 to $11.4 million for

additional costs paid in 2002 related to the Company’s

2002. Common area maintenance (“CAM”) expense

tender offer and repurchase of its Common Shares.

reimbursements, which comprise the majority of the

Depreciation and amortization increased $3.1 million,

or 21%, from $14.8 million for 2002 to $17.9 million for

2003. Depreciation expense increased $3.5 million. This

was a result of the write-off of $2.7 million of unamor-

tized tenant improvement costs related to the buyout

and termination of the former anchor at the Town Line

variance between years, increased $511,000, or 12%,

from $4.2 million in 2001 to $4.7 million in 2002. This

resulted primarily from tenant reimbursement of

higher insurance costs experienced throughout the

portfolio and an increase in tenant reimbursement

due to increased portfolio occupancy in 2002.

Acadia Realty Trust 2003 Annual Report

Lease termination income of $3.9 million in 2002 was

Interest expense of $11.0 million for 2002 decreased

primarily the result of the settlement of the Company’s

$1.4 million, or 11%, from $12.4 million for 2001. Of the

claim against a former tenant.

decrease, $1.6 million was the result of a lower average

Other income increased $2.4 million, or 154%, from $1.5

million in 2001 to $3.9 million in 2002. This was primarily

due to an increase of $795,000 in asset and property

management fees earned in 2002 from ASOF, $1.0 mil-

lion in interest earned on purchase money notes from

interest rate on the portfolio mortgage debt and

$559,000 was due to higher capitalized interest in

2002. These decreases were offset by a $822,000

increase in interest expense for 2002 due to higher

average outstanding borrowings during 2002.

the sales of properties in 2002 and an increase in inter-

The $149,000 cumulative effect of a change in account-

est income due to higher interest earning assets in 2002.

ing principle in 2001 was a transition adjustment related

Total operating expenses increased $3.2 million, or 7%,

to $46.0 million for 2002, from $42.8 million for 2001.

Property operating expenses increased $677,000, or 6%,

to $12.3 million for 2002 compared to $11.6 million for

2001. This variance was primarily the result of a general

increase during 2002 in property and liability insurance

costs across the portfolio and a reduction in 2001 of

estimated property liability insurance claims related

to prior year policies based on actual claims filed under

these policies. In addition, there was an increase in

non-recurring repairs and maintenance expense experi-

enced throughout the portfolio. These increases were

offset by lower utility expenses following the redevel-

opment of the Elmwood Park Shopping Center and a

decrease in bad debt expense in 2002.

General and administrative expense increased $1.2 million,

or 13%, from $9.0 million for 2001 to $10.2 million for

2002. This increase was primarily attributable to an

increase in third-party professional fees in 2002 as well

as an increase in leasing related salary expense as a

result of the Company’s current accounting policy to

expense all internal leasing costs commencing in 2002.

Depreciation and amortization increased $1.1 million,

or 8%, from $13.7 million for 2001 to $14.8 million for

2002. Depreciation expense increased $591,000. This was

principally a result of increased depreciation expense

related to capitalized tenant installation costs during

2001 and 2002 and the write-off of tenant improvement

costs related to certain tenant leases. Amortization

expense increased $468,000, which was primarily attrib-

utable to the write-off of deferred leasing costs related

to certain tenant leases and increased loan amortization

expense related to financing activity in 2002.

to the valuation of LIBOR caps recognized in connection

with the January 1, 2001 adoption of SFAS No. 133.

Income from discontinued operations increased

$3.1 million due to the timing of property sales in

2002 and 2001.

F U N D S F R O M O P E R A T I O N S

The Company considers 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 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 the perform-

ance of the Company. It is helpful as it excludes various

items included in net income that are not indicative of

the operating performance, such as gains (or losses)

from sales of property and depreciation and amortiza-

tion. However, the Company’s 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 avail-

able to fund all cash needs, including distributions.

It should not be considered as an alternative to net

income for the purpose of evaluating the Company’s

performance or to cash flows as a measure of liquidity.

Consistent with the NAREIT definition, the Company

defines FFO as net income (computed in accordance

with GAAP), excluding gains (or losses) from sales of

depreciated property, plus depreciation and amortiza-

tion, and after adjustments for unconsolidated partner-

ships and joint ventures. The Company historically had

added back impairments in real estate in calculating

Acadia Realty Trust 2003 Annual Report 3

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S continued

FFO, in accordance with prior NAREIT guidance. However,

FFO. As such, historical FFO has been restated consistent

NAREIT, based on discussions with the SEC, has provided

with this revised guidance. The reconciliations of net

revised guidance that provides that impairments

income to FFO for the years ended December 31, 2003,

should not be added back to net income in calculating

2002, 2001, 2000 and 1999 are as follows:

Reconciliation of Net Income (Loss) to Funds from Operations

Net income (loss)

Depreciation of real estate and amortization

of leasing costs:

Wholly owned and consolidated partnerships

Unconsolidated partnerships

Income (loss) attributable to minority interest 1

(Gain) loss on sale of properties

Cumulative effect of change in accounting principle

YEARS ENDED DECEMBER 31,

2003

2002

2001

2000

1999

$ 7,853

$19,399

$ 9,802

$ 19,907

$ 7,195

16,957

2,107

747

—

15,305

662

2,928

(8,132)

—

18,422

627

2,221

19,325

625

5,674

(17,734)

(13,742)

149

—

18,949

626

3,106

1,284

—

Funds from operations

$27,664

$ 30,162

$ 13,487

$ 31,789

$ 31,160

Notes:
1Represents income attributable to Common Operating Partnership Units and does not include distributions paid on Preferred
OP Units.

Liquidity and Capital Resources

U S E S O F L I Q U I D I T Y

The Company’s principal uses of its liquidity are expected

to be for distributions to its shareholders and OP unit-

holders, debt service and loan repayments, and prop-

erty investment which includes the funding of its joint

venture commitments, acquisition, redevelopment,

expansion and re-tenanting activities.

Distributions
In order to qualify as a REIT for Federal income tax

Acadia Strategic Opportunity Fund, LP (“ASOF”)
In September of 2001, the Company committed $20.0

million to a newly formed joint venture formed with

four of its institutional shareholders, who committed

$70.0 million, for the purpose of acquiring a total of

approximately $300.0 million of community and neigh-

borhood shopping centers on a leveraged basis. Since

the formation of ASOF, the Company has used it as the

primary vehicle for the acquisition of assets.

The Company is the manager and general partner

purposes, the Company must currently distribute at

of ASOF with a 22% interest. In addition to a pro-rata

least 90% of its taxable income to its shareholders.

return on its invested equity, the Company is entitled

For the first three quarters during 2003, the Company

to a profit participation based upon certain investment

paid a quarterly dividend of $0.145 per Common Share

return thresholds. Cash flow is to be distributed pro-

and Common OP Unit. In December of 2003, the Board

rata to the partners (including the Company) until they

of Trustees approved and declared a 10% increase in the

have received a 9% cumulative return on, and a return

Company’s quarterly dividend to $0.16 per Common

of all capital contributions. Thereafter, remaining cash

Share and Common OP Unit for the fourth quarter of

flow is to be distributed 80% to the partners (including

2003 which was paid January 15, 2004. On February 26,

the Company) and 20% to the Company. The Company

2004, the Board of Trustees approved and declared a

also earns a fee for asset management services equal

quarterly dividend of $0.16 per Common Share and

to 1.5% of the total equity commitments, as well as

Common OP Unit payable April 15, 2004 to sharehold-

market-rate fees for property management, leasing

ers and OP unitholders of record as of March 31, 2004.

and construction services.

Acadia Realty Trust 2003 Annual Report

To date, ASOF has purchased a total of 30 assets in

Kroger/Safeway Portfolio In January of 2003, ASOF

three separate transactions. Details of the transactions

formed a joint venture (the “Kroger/Safeway JV”) with

completed during 2003 are as follows:

an affiliate of real estate developer and investor AmCap

Brandywine Portfolio In January of 2003, ASOF acquired

a major open-air retail complex located in Wilmington,

Delaware. The approximately 1.0 million square foot

value-based retail complex consists of the following

two properties:

Incorporated (“AmCap”) for the purpose of acquiring a

portfolio of twenty-five supermarket leases. The portfo-

lio, which aggregates approximately 1.0 million square

feet, consists of 25 anchor-only leases with Kroger

(12 leases) and Safeway supermarkets (13 leases).

The majority of the properties are free-standing and all

Market Square Shopping Center is a 103,000 square

are triple-net leases. The Kroger/Safeway JV acquired

foot community shopping center which is 100% leased

the portfolio subject to long-term ground leases with

and anchored by a T.J. Maxx and a Trader Joe’s gourmet

terms, including renewal options, averaging in excess

food market.

Brandywine Town Center is a two phase open-air value

retail center. The first phase (“Phase I”) is approximately

450,000 square feet and 99% occupied, with tenants

including Lowe’s, Bed Bath & Beyond, Regal Cinema,

Michaels, Petsmart, Old Navy, Annie Sez, Thomasville

Furniture and Dick’s Sporting Goods. The second phase

(“Phase II”) consists of approximately 420,000 square feet

of existing space, of which Target occupies 138,000 square

feet. The balance of Phase II is currently not occupied.

The initial investment for the portfolio was approximately

$86.3 million, inclusive of closing and other related acqui-

sition costs. ASOF assumed $38.1 million of fixed rate

debt on the two properties at a blended rate of 8.1%.

A new $30.0 million, 4.7% fixed-rate loan was also

obtained in conjunction with the acquisition and is

collateralized by a portion of the Brandywine Town

Center. The balance of the purchase price was funded

by ASOF, of which the Company’s share was $4.3 million.

ASOF will also pay additional amounts in conjunction

with the lease-up of the current vacant space in Phase II

(the “Earn-out”). The additional investment, depending

on the Earn-out, is projected to be between $42.0 million

and $62.0 million, of which the Company’s share would

be between $9.3 million and $13.8 million. To the extent

ASOF places additional mortgage debt upon the lease-

up of Phase II, the required equity contribution for the

Earn-out would be less. The Earn-out is structured such

that ASOF has no time requirement or payment obliga-

tion for any portion of currently vacant space which it

is unable to lease.

of 80 years, which are master leased to a non-affiliated

entity. The base rental options for the supermarket

leases at the end of their primary lease term in approx-

imately seven years (“Primary Term”) are at an average

of $5.13 per square foot. Although there is no obligation

for the Kroger/Safeway JV to pay ground rent during

the Primary Term, to the extent it exercises an option to

renew a ground lease for a property at the end of the

Primary Term, it will be obligated to pay an average

ground rent of $1.55 per square foot.

The Kroger/Safeway JV acquired the portfolio for $48.9

million (inclusive of closing and other related acquisition

costs), which included the assumption of an aggregate

of $34.5 million of existing fixed-rate mortgage debt,

which is at a blended fixed interest rate of 6.6% and is

fully amortizing over the Primary Term. The individual

mortgages are secured by each individual property and

are not cross-collateralized. ASOF invested 90%, or $11.3

million, of the equity capitalization, of which the Com-

pany’s share was $2.5 million. AmCap contributed 10%,

or $1.2 million. Cash flow is to be distributed to the

Kroger/Safeway JV partners until they have received an

11% cumulative return and a full return of all contribu-

tions. Thereafter, remaining cash flow is to be distributed

75% to ASOF and 25% to AmCap. The Kroger/Safeway JV

agreement also provides for additional allocations of

cash based on ASOF achieving certain minimum invest-

ment returns to be determined on a “look-back” basis.

Venture with Klaff Realty, L.P. (“Klaff”)
On January 27, 2004, the Company entered into a

venture (the “Venture”) with Klaff and Klaff’s long time

capital partner Lubert-Adler Management, Inc. (“Lubert-

Acadia Realty Trust 2003 Annual Report 5

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S continued

Adler”) for the purpose of making investments in surplus

project to its redevelopment pipeline as follows:

or underutilized properties owned by retailers. The initial

size of the Venture is expected to be approximately

$300 million in equity based on anticipated investments

of approximately $1 billion. The Venture is currently

exploring investment opportunities, but has not yet made

any commitments. Each participant in the Venture has

the right to opt out of any potential investment. The

Company and its current acquisition fund, ASOF, as well

as possible subsequent joint venture funds sponsored

by the Company, anticipate investing 20% of the equity

of the Venture. Cash flow is to be distributed to the

partners until they have received a 10% cumulative

return and a full return of all contributions. Thereafter,

Gateway Shopping Center — The redevelopment of the

Gateway Shopping Center, formerly a partially enclosed

mini-mall with an undersized Grand Union, included

the demolition of 90% of the existing building and the

construction of a new anchor supermarket. The center

has been converted into a new open-air community

shopping center anchored with a 72,000 square foot

Shaw’s supermarket which opened during March of

2003. Approximately 11,000 square feet of small shop

space remains to be leased at the property. Total costs

for this project, including the original acquisition costs,

aggregated $17.9 million.

remaining cash flow is to be distributed 20% to Klaff

Plaza 422 — Home Depot held its grand opening during

(“Klaff’s Promote”) and 80% to the partners (including

fourth quarter of 2003 at the Plaza 422 redevelopment

Klaff). Profits earned on up to $20.0 million of the

project located in Lebanon, Pennsylvania. The expansion

Company’s contributed capital is not subject to Klaff’s

of the former 83,000 square foot Ames space to a

Promote. The Company will also earn market-rate fees

104,000 square foot Home Depot included the recapture

for property management, leasing and construction

and demolition of the formerly enclosed portion of this

services on behalf of the Venture.

center. The Company is now collecting triple the base

The Company has also acquired Klaff’s rights to provide

asset management, leasing, disposition, development

and construction services for an existing portfolio of

retail properties and/or leasehold interests comprised

of approximately 10 million square feet of retail space

located throughout the United States (the “Klaff Prop-

erties”). The acquisition involves only Klaff’s rights

rent of that which was paid by Ames. In connection

with the redevelopment project, the Company also

recaptured another 48,000 square feet of space, for

which re-leasing is currently underway. The majority

of redevelopment costs were paid directly by Home

Depot. The Company’s share of costs for this project

totaled $402,000.

associated with operating the Klaff Properties and

New Loudon Center — The Bon Ton Department Store

does not include equity interests in assets owned by

also opened for business during the fourth quarter of

Klaff or Lubert-Adler. The Operating Partnership issued

2003 as part of the redevelopment of the New Loudon

$4.0 million of Preferred OP Units to Klaff in considera-

Center located in Latham, New York. Occupying 66,000

tion of this acquisition.

Other
In March 2004, the Company invested $4.1 million in a

loan secured by a shopping center property.

Property Redevelopment and Expansion
The Company’s redevelopment program focuses on

selecting well-located neighborhood and community

shopping centers and creating significant value through

re-tenanting and property redevelopment. During 2003,

the Company substantially completed the redevelopment

of three shopping centers and added an additional

square feet formerly occupied by an Ames department

store, Bon Ton is paying base rent at a 15% increase over

that of Ames. In addition, the Company has leased the

balance of the former Ames space to Marshall’s, an

existing tenant at the center, which will be expanding

its current 26,000 square foot store to 37,000 square

feet. The Company will also install a new 49,000 square

foot Raymour and Flanigan Furniture store at this

center. Following the completion of this project in

mid-2004, this community shopping center will be

100% occupied. Costs incurred to date by the Company

for this project totaled $418,000. The remaining costs

to complete this redevelopment project are to be paid

directly by the above tenants.

Acadia Realty Trust 2003 Annual Report

Town Line Plaza — This project, located in Rocky Hill,

S O U R C E S O F L I Q U I D I T Y

Connecticut, was added to the Company’s redevelop-

The Company intends on using ASOF and the Venture

ment pipeline in December of 2003. The Company is

as the primary vehicle for future acquisitions. Sources

re-anchoring the center with a new Super Stop & Shop

of capital for funding the Company’s joint venture com-

supermarket, replacing a former GU Markets supermar-

mitments, other property acquisitions, redevelopment,

ket. The existing building is being demolished and will

expansion and re-tenanting, as well as future repurchases

be replaced with a 66,000 square foot Super Stop &

of Common Shares are expected to be obtained prima-

Shop. The new supermarket anchor is paying gross rent

rily from cash on hand, additional debt financings and

at a 33% increase over that of the former tenant with

future sales of existing properties. As of December 31,

no interruption in rent payments. Costs to date for this

2003, the Company had a total of approximately

project totaled $1.7 million. All remaining redevelopment

$51.1 million of additional capacity with six lenders,

costs associated with this project, which is anticipated

of which the Company is required to draw $12.7 million

to be completed during the first quarter of 2005, are to

by December 2004, or forego the ability to draw these

be paid by Stop & Shop.

Additionally, for the year ending December 31, 2004,

the Company currently estimates that capital outlays

of approximately $3.0 million to $7.0 million will be

required for tenant improvements, related renovations

and other property improvements.

Share Repurchase
The Company’s repurchase of its Common Shares is

an additional use of liquidity. Upon completion of a

tender offer in February 2002, the Company purchased

a total of 5,523,974 Common Shares and Common OP

Units (collectively, “Shares”), comprised of 4,136,321

Common Shares and 1,387,653 Common OP Units (which

were converted to Common Shares upon tender), at a

Purchase Price of $6.05 per Share. The aggregate purchase

price paid for the 5,523,974 Shares was $33.4 million.

In addition to the tender offer, the Company has an

existing share repurchase program that authorizes

management, at its discretion, to repurchase up to

$20.0 million of the Company’s outstanding Common

Shares. Through March 12, 2004, the Company had

repurchased 1,899,486 Common Shares (net of 152,199

shares reissued) at a total cost of $11.6 million. The pro-

gram may be discontinued or extended at any time and

there is no assurance that the Company will purchase

the full amount authorized.

funds at any time during the remaining term of the

loans. Of the remaining capacity, approximately $3.0

million is subject to additional leasing requirements at

the collateral properties, which the Company has not

yet satisfied. The Company also had cash and cash

equivalents on hand of $14.7 million at December 31,

2003 as well as nine properties that are currently

unencumbered and therefore available as potential

collateral for future borrowings. The Company antici-

pates that cash flow from operating activities will

continue to provide adequate capital for all debt

service payments, recurring capital expenditures and

REIT distribution requirements.

Financing and Debt
At December 31, 2003, mortgage notes payable aggre-

gated $190.4 million and were collateralized by 22 proper-

ties and related tenant leases. Interest on the Company’s

outstanding mortgage indebtedness ranged from 2.6%

to 8.1% with maturities that ranged from April 2005

to June 2013. Taking into consideration $86.7 million

of notional principal under variable to fixed-rate swap

agreements currently in effect, $156.4 million of the

portfolio, or 82%, was fixed at a 6.6% weighted average

interest rate and $34.0 million, or 18% was floating at

a 2.9% weighted average interest rate. There is no debt

maturing in 2004, and $57.8 million is scheduled to

mature in 2005 at a weighted average interest rate of

2.9%. As the Company does not anticipate having suffi-

cient cash on hand to repay such indebtedness, it will

need to refinance this indebtedness or select other

alternatives based on market conditions at that time.

Acadia Realty Trust 2003 Annual Report 7

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S continued

The following summarizes the financing and refinanc-

On October 27, 2003, the Company paid off maturing

ing transactions since December 31, 2002:

loans totaling $7.4 million, which were secured by two

In January 2003, the Company drew down $5.0 million

of the Company’s properties.

of an available $10.0 million facility with a bank and

Effective December 1, 2003, the Company amended an

used the proceeds to partially pay down the outstand-

$8.6 million loan with a bank. An additional $5.0 million

ing principal on another loan with the same lender.

has been made available under the loan as well as

In March 2003, the Company repaid a $3.6 million loan

with a life insurance company.

extending the maturity of the loan until December 1,

2008 with two one-year extension options. In addition,

the interest rate has been reduced to LIBOR plus 140

In April 2003, the Company extended an existing $7.4

basis points. The loan, which is secured by one of the

million revolving facility with a bank through March 1,

Company’s properties, requires the monthly payment of

2008. As of December 31, 2003, there were no outstand-

interest and fixed principal commencing January 1, 2004.

ing amounts under this loan.

In January 2004, the Company entered into a forward

On May 30, 2003, the Company refinanced a $13.3 million

starting swap agreement which commences April 1,

loan with a bank, increasing the outstanding principal

2005. The swap agreement, which extends through

to $16.0 million. The loan, which is secured by one of

January 1, 2011, provides for a fixed rate of 4.345% on

the Company’s properties, requires monthly payment of

$37.7 million of notional principal.

interest at the fixed-rate of 5.2%. Payments of principal

amortized over 30 years commences June 2005 with

the loan maturing in May 2013.

In February 2004, the Company entered into three

forward starting swap agreements as follows:

Commencement Date
10/2/2006

10/2/2006

6/1/2007

Maturity Date
10/1/2011

1/1/2010

3/1/2012

Notional Principal
$11.4 million
$4.6 million
$8.4 million

Rate
4.895%

4.710%

5.140%

These swap agreements have been executed in con-

of $158.4 million which generated net sale proceeds

templation of the finalization of the extension and

to the Company of $82.5 million.

modification of certain mortgage loans currently being

negotiated, although there can be no assurance that

such extensions will be finalized.

Asset Sales
Asset sales are an additional source of liquidity for the

Company. A significant component of the Company’s

business has been its multi-year plan to dispose of

non-core real estate assets. The Company began this

initiative following the RDC Transaction and completed

it in 2002. Non-core assets were identified based on

factors including property type and location, tenant

mix and potential income growth as well as whether a

property complemented other assets within the Com-

pany’s portfolio. The Company sold 28 non-core assets

in connection with this initiative comprising a total of

approximately 4.6 million square feet of retail proper-

ties and 800 multi-family units, for a total sales price

Additionally the Company completed the following

two land sales in 2003 and 2002:

In January 2002, the Company with a joint venture

partner, purchased a three-acre site located in the

Bronx, New York for $3.1 million. Simultaneously, the

Company sold approximately 46% of the land to a

self-storage facility for $3.3 million. The Company’s

share of net proceeds totaled $1.4 million. The Com-

pany currently plans to build and lease a 15,000 square

foot retail building on the remaining parcel.

On November 8, 2002, a joint venture between the

Company and an unaffiliated joint venture partner

completed the sale of a contract to purchase land in

Bethel, Connecticut, to the Target Corporation for $2.4

million. The joint venture received a $1.6 million note

receivable for the net purchase price and additional

Acadia Realty Trust 2003 Annual Report

reimbursements due from the buyer, which was paid

In addition, the Company has non-cancelable ground

in full during 2003. The Company’s share of the net

leases at three of its shopping centers. The Company

proceeds totaled $1.4 million.

Contractual Obligations and
Other Commitments

At December 31, 2003, maturities on the Company’s

mortgage notes ranged from April 2005 to June 2013.

also leases space for its White Plains corporate office for

a term expiring in 2010. The following table summarizes

the Company’s debt maturities, excluding scheduled

monthly amortization payments, and obligations under

non-cancelable operating leases of December 31, 2003:

amounts in millions

Payments due by period

Contractual obligation

Future debt maturities

Operating lease obligations

Total

$176.1

23.1

$199.2

Less than
1 year

$ —

1.0

$ 1.0

1 to 3
years

$57.8

2.0

3 to 5
years

$69.3

2.0

More than
5 years

$49.0

18.1

$59.8

$ 71.3

$ 67.1

Off Balance Sheet Arrangements

The Company has two off balance sheet joint ventures

for the purpose of investing in operating properties

variable-rate mortgage debt as of December 31, 2003

was $1.3 million at an interest rate of 3.1%. Maturities on

these loans range from October 2007 to January 2023.

as follows:

The Company owns a 49% interest in two partnerships

Historical Cash Flow

which own the Crossroads Shopping Center (“Cross-

The following discussion of historical cash flow com-

roads”). The Company accounts for its investment in

pares the Company’s cash flow for the year ended

Crossroads using the equity method of accounting as

December 31, 2003 (“2003”) with the Company’s cash

it has a non-controlling investment in Crossroads, but

flow for the year ended December 31, 2002 (“2002”).

exercises significant influence. As such, the Company’s

financial statements reflect its share of income from,

but not the assets and liabilities of, Crossroads. The

Company’s pro rata share of Crossroads mortgage debt

as of December 31, 2003 was $16.2 million. Interest on

the debt, which matures in October 2007, has been

Cash and cash equivalents were $14.7 million and $45.2

million at December 31, 2003 and 2002, respectively. The

decrease of $30.5 million was a result of the following

increases and decreases in cash flows:

Years Ended December 31,

2003

2002

Variance

effectively fixed at 7.2% through variable to fixed-rate

amounts in millions

swap agreements.

Reference is made to the discussion of ASOF under

“Uses of Liquidity” in this Item 7 for additional detail

related to the Company’s investment in and commit-

ments to ASOF. The Company owns a 22% interest

Net cash provided by

operating activities

$ 19.1

$ 24.9

$ (5.8)

Net cash provided by (used

in) investing activities

(19.4)

24.6

(44.0)

in ASOF for which it also uses the equity method of

Net cash used in

accounting. The Company’s pro rata share of ASOF

financing activities

(30.2)

(58.8)

28.6

fixed-rate mortgage debt as of December 31, 2003

was $24.0 million at a weighted average interest

rate of 6.4%. The Company’s pro rata share of ASOF

Net cash provided by

discontinued operations

—

20.5

(20.5)

9
Acadia Realty Trust 2003 Annual Report 9

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S continued

The variance in net cash provided by operating activities

was primarily due to $3.9 million of lease termination

V A L U A T I O N O F P R O P E R T Y H E L D F O R
U S E A N D S A L E

income received in 2002 which was not repeated in 2003.

On a quarterly basis, the Company reviews the carrying

In addition, there was a net decrease in cash provided

by changes in operating assets and liabilities of $2.0

million, primarily rents receivable.

The variance in net cash (used in) provided by investing

activities was primarily the result of an additional $37.8

million collected on purchase money notes in 2002, a

$2.5 million earn-out payment related to a redevelop-

ment project in 2002, an additional $3.1 million invested

in ASOF in 2003 and $1.2 million of additional expendi-

tures for real estate acquisitions, development and

tenant installation costs during 2003.

The decrease in net cash used in financing activities

resulted primarily from $33.4 million of cash used in

value of both properties held for use and for sale. The

Company records impairment losses and reduces the

carrying value of properties when indicators of impair-

ment are present and the expected undiscounted cash

flows related to those properties are less than their

carrying amounts. In cases where the Company does

not expect to recover its carrying costs on properties

held for use, the Company reduces its carrying cost to

fair value, and for properties held for sale, the Company

reduces its carrying value to the fair value less costs to

sell. For the years ended December 31, 2002 and 2001,

impairment losses of $197,000 and $15.9 million were

recognized related to properties which were held for sale

and subsequently sold. Management does not believe

2002 for the Company’s repurchase of Common Shares

that the values of any properties in its portfolio are

offset by $2.8 million of additional cash used in 2003

impaired as of December 31, 2003.

for the net repayment of debt.

B A D D E B T S

The decrease in net cash provided by discontinued oper-

The Company maintains an allowance for doubtful

ations was primarily a result of $2.9 million in net cash

accounts for estimated losses resulting from the

provided by operating activities at the discontinued

inability of tenants to make payments on arrearages

properties in 2002 and net proceeds in 2002 from the

in billed rents, as well as the likelihood that tenants

sale of such properties.

Critical Accounting Policies

Management’s discussion and analysis of financial

condition and results of operations is based upon the

Company’s consolidated financial statements, which have

been prepared in accordance with GAAP. The preparation

of these consolidated financial statements requires man-

will not have the ability to make payment on unbilled

rents including estimated expense recoveries and

straight-line rent. As of December 31, 2003, the Company

had recorded an allowance for doubtful accounts of

$2.4 million. If the financial condition of the Company’s

tenants were to deteriorate, resulting in an impairment

of their ability to make payments, additional allowances

may be required.

agement to make estimates and judgments that affect

the reported amounts of assets, liabilities, revenues and

Inflation

expenses. The Company bases its estimates on historical

The Company’s long-term leases contain provisions

experience and assumptions that are believed to be rea-

designed to mitigate the adverse impact of inflation

sonable under the circumstances, the results of which

on the Company’s net income. Such provisions include

form the basis for making judgments about carrying

clauses enabling the Company to receive percentage

value of assets and liabilities that are not readily

rents based on tenants’ gross sales, which generally

apparent from other sources. Actual results may differ

increase as prices rise, and/or, in certain cases, escalation

from these estimates under different assumptions or

clauses, which generally increase rental rates during

conditions. The Company believes the following critical

the terms of the leases. Such escalation clauses are

accounting policies affect the significant judgments

often related to increases in the consumer price index

and estimates used by the Company in the preparation

or similar inflation indexes. In addition, many of the

of its consolidated financial statements.

Company’s leases are for terms of less than ten years,

Acadia Realty Trust 2003 Annual Report

which permits the Company to seek to increase rents

is not anticipated that the effect on the Company’s

upon re-rental at market rates if current rents are below

Consolidated Financial Statements would be material.

the then existing market rates. Most of the Company’s

leases require the tenants to pay their share of operating

expenses, including common area maintenance, real

estate taxes, insurance and utilities, thereby reducing

the Company’s exposure to increases in costs and oper-

ating expenses resulting from inflation.

Recently Issued Accounting
Pronouncements

In December 2003, the Financial Accounting Statements

Board (“FASB”) issued FASB Interpretation No. 46 (revised

December 2003), “Consolidation of Variable Interest Enti-

ties” (“FIN 46R”). FIN 46R replaces FASB Interpretation

No. 46,“Consolidation of Variable Interest Entities,” which

was issued in January 2003. In general, a variable inter-

est entity (“VIE”) is a corporation, partnership, trust, or

any other legal structure used for business purposes

that either (a) does not have equity investors with voting

rights or (b) has equity investors that do not provide

sufficient financial resources for the entity to support

its activities. A VIE often holds financial assets, including

loans or receivables, real estate or other property. A VIE

may be essentially passive or it may engage in activities

on behalf of another company. Until now, a company

generally has included another entity in its consolidated

financial statements only if it controlled the entity

through voting interests. FIN 46 changes that by requir-

ing a VIE to be consolidated by a company if that com-

In May 2003, the FASB issued SFAS No. 150, “Accounting

for Certain Financial Instruments with Characteristics of

Both Liabilities and Equity.” This statement establishes

how an issuer classifies and measures certain financial

instruments that have characteristics of both liabilities

and equity. It requires that an issuer classify a financial

instrument that is within the scope of SFAS No. 150 as

a liability because that financial instrument embodies

an obligation of the issuer. For the Company, SFAS 150

was effective for instruments entered into or modified

after May 31, 2003 and otherwise will be effective as

of January 1, 2004, except for mandatorily redeemable

financial instruments. For certain mandatorily redeem-

able financial instruments, SFAS 150 will be effective

for the Company on January 1, 2005. The effective date

has been deferred indefinitely for certain other types

of mandatorily redeemable financial instruments. The

adoption of SFAS No. 150 had no impact on the Company’s

consolidated financial statements. The Company currently

is a majority-owner of a finite life partnership which is

included in the consolidated accounts of the Company.

The application of SFAS 150 as it relates to finite life

entities has been deferred indefinitely. Based on the

estimated value of the property owned by the partner-

ship at December 31, 2003, the Company estimates that

the minority interest in this partnership would be enti-

tled to approximately $2,080 upon the dissolution of

the partnership.

pany is subject to a majority of the risk of loss from

April 2003, the FASB issued Statement of Financial

the VIE’s activities or entitled to receive a majority of

Accounting Standards (“SFAS”) No. 149, “Amendment

the entity’s residual returns or both. The Company will

of Statement 133 on Derivative Instruments and Hedg-

be required to adopt FIN 46R in the first fiscal period

ing Activities.” This statement amends and clarifies

beginning after March 15, 2004. Upon adoption of FIN

financial reporting for derivative instruments, includ-

46R, the assets, liabilities and non-controlling interests

ing certain derivative instruments embedded in other

of the VIE initially would be measured at their carrying

contracts and for hedging activities under FASB State-

amounts with any difference between the net amount

ment No. 133, “Accounting for Derivative Instruments

added to the balance sheet and any previously recog-

and Hedging Activities.” SFAS No. 149 is generally effec-

nized interest being recognized as the cumulative effect

tive for contracts entered into or modified after June 30,

of an accounting change. If determining the carrying

2003 and for hedging relationships designated after June

amounts is not practicable, fair value at the date FIN

30, 2003. The adoption of SFAS No. 149 had no impact on

46R first applies may be used to measure the assets,

the Company’s consolidated financial statements.

liabilities and non-controlling interest of the VIE. It

Acadia Realty Trust 2003 Annual Report

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S continued

Quantitative and Qualitative
Disclosures About Market Risk

The Company’s primary market risk exposure is to

changes in interest rates related to the Company’s

mortgage debt. See the consolidated financial state-

ments and notes thereto included in this Annual

Report on Form 10-K for certain quantitative details

related to the Company’s mortgage debt.

spreads. As of December 31, 2003, the Company was a

party to five interest rate swap transactions to hedge

the Company’s exposure to changes in interest rates

with respect to $86.7 million of LIBOR based variable-

rate debt, effectively increasing the fixed-rate portion

of its total outstanding debt as of December 31, 2003

to 82%. The Company also has two interest rate swaps

hedging the Company’s exposure to changes in interest

rates with respect to $16.2 million of LIBOR based vari-

Currently, the Company manages its exposure to fluctu-

able rate debt related to its investment in Crossroads.

ations in interest rates primarily through the use of

fixed-rate debt, interest rate swap agreements and

LIBOR caps. As of December 31, 2003, the Company had

total mortgage debt of $190.4 million of which $69.8

million, or 37% was fixed-rate and $120.6 million, or

63%, was variable-rate based upon LIBOR plus certain

Consolidated mortgage debt:

The following table sets forth information as of Decem-

ber 31, 2003 concerning the Company’s long-term debt

obligations, including principal cash flows by scheduled

maturity and weighted average interest rates of matur-

ing amounts (amounts in millions):

Year
2004

2005

2006

2007

2008

Thereafter

Scheduled
Amortization
$3.6

Maturities
$ —

2.8

2.4

1.4

1.2

2.9

57.8

—

61.3

8.0

49.0

Total
3.6
$

60.6

2.4

62.7

9.2

51.9

$14.3

$ 176.1

$ 190.4

Mortgage debt in unconsolidated partnerships (at Company’s pro rata share):

Year

2004–2006

2007

2008

Thereafter

Scheduled
Amortization

Maturities

$ 4.2

1.2

1.0

3.6

$10.0

$ —

16.0

6.7

7.4

$ 30.1

Total

$ 4.2

17.2

7.7

11.0

$ 40.1

Weighted Average
Interest Rate
N/A

3.9%

N/A

3.7%

2.6%

7.1%

Weighted Average
Interest Rate

N/A

6.9%

4.7%

7.1%

Of the Company’s total outstanding debt, $57.8 million

will become due in 2005. As the Company intends on

refinancing some or all of such debt at the then-existing

market interest rates which may be greater than the

current interest rate, the Company’s interest expense

would increase by approximately $578,000 annually if

the interest rate on the refinanced debt increased by

100 basis points. Furthermore, interest expense on the

Company’s variable debt as of December 31, 2003 would

increase by $340,000 annually for a 100 basis point

increase in interest rates. The Company may seek addi-

tional variable-rate financing if and when pricing and

other commercial and financial terms warrant. As such,

the Company 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.

Acadia Realty Trust 2003 Annual Report

R E P O R T O F I N D E P E N D E N T A U D I T O R S

To the Shareholders and Trustees of Acadia Realty Trust

We have audited the accompanying consolidated balance sheets of Acadia Realty Trust and subsidiaries (the “Company”)

as of December 31, 2003 and 2002, and the related consolidated statements of income, shareholders’ equity and

cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the

responsibility of the Company’s management. Our responsibility is to express an opinion on these financial state-

ments based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those

standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial

statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting

the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles

used and significant estimates made by management, as well as evaluating the overall financial statement presen-

tation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated

financial position of Acadia Realty Trust and subsidiaries at December 31, 2003 and 2002, and the consolidated results

of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity

with accounting principles generally accepted in the United States.

New York, New York

March 12, 2004

Acadia Realty Trust 2003 Annual Report

C O N S O L I D A T E D B A L A N C E S H E E T S

I N T H O U S A N D S , E X C E P T P E R S H A R E A M O U N T S

Assets

R E A L E S T A T E I

Land
Buildings and improvements
Construction in progress

Less: accumulated depreciation

Net Real Estate
Cash and cash equivalents
Cash in escrow
Investments in unconsolidated partnerships
Rents receivable, net
Notes receivable
Prepaid expenses
Deferred charges, net
Other assets

Liabilities and Shareholders’ Equity
Mortgage notes payable
Accounts payable and accrued expenses
Dividends and distributions payable
Due to related parties
Deferred gain on sale of properties
Derivative instruments
Other liabilities

Total liabilities

Minority interest in Operating Partnership
Minority interests in majority-owned partnerships

Total minority interests

Shareholders’ equity:
Common Shares, $.001 par value, authorized

100,000,000 shares, issued and outstanding
27,409,141 and 25,257,178 shares, respectively

Additional paid-in capital
Accumulated other comprehensive loss
Deficit

Total shareholders’ equity

December 31,

2003

2002

$ 54,890
366,879
5,859

427,628
101,090

326,538
14,663
3,342
13,630
10,394
3,586
3,127
11,173
1,731

$ 54,890
352,359
6,629

413,878
85,062

328,816
45,168
3,447
6,164
6,959
6,795
2,042
10,360
1,184

$ 388,184

$ 410,935

$190,444
5,804
4,619
48
—
4,044
3,806

208,765

7,875
1,810

9,685

27
177,891
(5,505)
(2,679)

169,734

$ 388,184

$ 202,361
8,528
3,744
174
1,212
5,470
2,998

224,487

22,745
2,380

25,125

25
170,851
(6,874)
(2,679)

161,323

$ 410,935

The accompanying notes are an integral part of these consolidated financial statements.

Acadia Realty Trust 2003 Annual Report

C O N S O L I D A T E D S T A T E M E N T S O F I N C O M E

I N T H O U S A N D S , E X C E P T P E R S H A R E A M O U N T S

R E V E N U E S I

Minimum rents

Percentage rents

Expense reimbursements

Lease termination income

Other property income

Other

Total revenues

O P E R A T I N G E X P E N S E S I

Property operating

Real estate taxes

General and administrative

Depreciation and amortization

Abandoned project costs

Total operating expenses

Operating income

Equity in earnings of unconsolidated partnerships

Interest expense

Gain on sale of land

Minority interest

Income from continuing operations

Discontinued operations:

Operating income from discontinued operations

Impairment of real estate

Gain on sale of properties

Minority interest

Income from discontinued operations

Years Ended December 31,

2003

2002

2001

$ 50,168

$ 48,488

$ 47,086

1,102

13,539

—

749

3,977

69,445

15,170

8,799

10,734

17,909

—

52,612

16,833

2,411

(11,231)

1,187

(1,347)

7,853

—

1,079

11,419

3,945

536

3,880

1,196

10,884

—

589

1,527

69,347

61,282

12,274

8,447

10,173

14,804

274

45,972

23,375

628

(11,017)

1,530

(2,999)

11,517

1,165

(197)

8,132

(1,218)

7,882

11,597

8,427

9,025

13,745

—

42,794

18,488

504

(12,370)

—

(1,466)

5,156

3,972

(15,886)

17,734

(1,025)

4,795

Income before extraordinary item and cumulative effect

of change in accounting principle

Cumulative effect of change in accounting principle

Net income

7,853

—

19,399

—

9,951

(149)

$ 7,853

$ 19,399

$ 9,802

The accompanying notes are an integral part of these consolidated financial statements.

Acadia Realty Trust 2003 Annual Report

C O N S O L I D A T E D S T A T E M E N T S O F I N C O M E continued

I N T H O U S A N D S , E X C E P T P E R S H A R E A M O U N T S

B A S I C E A R N I N G S P E R S H A R E I

Income from continuing operations

Income from discontinued operations

Cumulative effect of change in accounting principle

Basic earnings per share

D I L U T E D E A R N I N G S P E R S H A R E I

Income from continuing operations

Income from discontinued operations

Cumulative effect of change in accounting principle

Diluted earnings per share

The accompanying notes are an integral part of these consolidated financial statements.

Years Ended December 31,

2003

2002

2001

$0.30

—

$0.30

$0.29

—

$0.29

$ 0.46

0.31

—

$ 0.77

$ 0.45

0.31

—

$ 0.76

$ 0.18

0.18

(0.01)

$ 0.35

$ 0.18

0.18

(0.01)

$ 0.35

Acadia Realty Trust 2003 Annual Report

C O N S O L I D A T E D S T A T E M E N T S O F S H A R E H O L D E R S ’ E Q U I T Y

Common Shares

Amount

Additional
Paid-in
Capital

Accumulated
Other
Comprehensive
Loss

Total
Shareholders'
Equity

Deficit

I N T H O U S A N D S , E X C E P T P E R S H A R E A M O U N T S

Balance, December 31, 2000

28,150,472

$ 28

$188,392

$ —

$ (9,103)

$ 179,317

826,884

5,815

Balance, December 31, 2001

28,697,666

Conversion of 826,884 OP Units to

Common Shares by limited partners
of the Operating Partnership
Repurchase of 8,000 OP Units to

Common Shares by limited partners
of the Operating Partnership

Dividends declared ($0.48 per

Common Share)

Repurchase of Common Shares
Reissuance of Common Shares
Purchase of minority interest in
majority-owned partnership

Unrealized loss on valuation of swap

agreements

Income before minority interest
Minority interest’s equity

Conversion of 2,086,736 OP Units to

Common Shares by limited partners
of the Operating Partnership

Dividends declared ($0.52 per

Common Share)

Repurchase of Common Shares
Forfeiture of restricted Common Shares
Unrealized loss on valuation of swap

agreements

Income before minority interest
Minority interest’s equity

Balance, December 31, 2002

Conversion of 2,058,804 OP Units to

Common Shares by limited partners
of the Operating Partnership

Conversion of 632 Preferred OP Units to
Common Shares by limited partners
of the Operating Partnership
Employee restricted share award
Settlement of vested options
Dividends declared ($0.595 per

Common Share)

Employee exercise of 250 options
Unrealized gain on valuation of swap

agreements

Common Shares purchased under
Employee Stock Purchase Plan
Income before minority interest
Minority interest’s equity

Balance, December 31, 2003

—

—
(316,800)
37,110

—

—
—

2,086,736

—
(5,523,974)
(3,250)

—
—
—

25,257,178

2,058,804

82,267
7,832
—

—
250

—

810
—
—

—

—
—
—

—

(1,206)
—
—

(1,206)

—

—
—
—

(5,668)
—
—

(6,874)

—

—
—
—

—
—

—

5,816

(9,802)
—
—

(13,634)
(1,964)
239

—

720

—
12,023
(2,221)

(1,206)
12,023
(2,221)

(9,103)

179,098

—

14,903

(12,975)
—
—

—
22,327
(2,928)

(2,679)

(12,975)
(33,420)
(14)

(5,668)
22,327
(2,928)

161,323

—

14,900

—
—
—

632
410
(750)

(7,853)
—

(16,013)
2

1,369

—

1,369

—
—
—

—
8,600
(747)

8
8,600

(747))

—

—
—
—

—

—
—
—

—
(6)
—

—
—
—

—
—

—

—
—
—

(3,832)
(1,964)
239

720

—
—
—

189,378

14,901

—
(33,414)
(14)

—
—
—

170,851

14,898

632
410
(750)

(8,160)
2

—

8
—
—

27,409,141

$ 27

$ 177,891

$ (5,505)

$ (2,679)

$ 169,734

The accompanying notes are an integral part of these consolidated financial statements

Acadia Realty Trust 2003 Annual Report

C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S

I N T H O U S A N D S , E X C E P T P E R S H A R E A M O U N T S

Cash Flows from Operating Activities

Income from continuing operations after cumulative effect

7,853

$ 11,517

$ 5,007

Years Ended December 31,

2003

2002

2001

of change in accounting principle

Adjustments to reconcile income from continuing operations

to net cash provided by operating activities:

Depreciation and amortization

Gain on sale of land

Minority interests

Abandoned project costs

Equity in earnings of unconsolidated partnerships

Provision for bad debts

Stock-based compensation

Cumulative effect of change in accounting principle

Changes in assets and liabilities

Funding of escrows, net

Rents receivable

Prepaid expenses

Other assets

Accounts payable and accrued expenses

Due to/from related parties

Other liabilities

Net cash provided by operating activities

Cash Flows from Investing Activities

Expenditures for real estate and improvements

Payment of accrued expense related to redevelopment project

Contributions to unconsolidated partnerships

Distributions from unconsolidated partnerships

Collections on purchase money notes

Payment of deferred leasing costs

Net cash provided by (used in) investing activities

The accompanying notes are an integral part of these consolidated financial statements.

17,909

(1,187)

1,347

—

(2,411)

523

—

105

(3,958)

(1,085)

(891)

218

(126)

785

14,804

(1,530)

2,999

274

(628)

447

—

(850)

(1,882)

(429)

346

174

(391)

13,745

—

1,466

—

(504)

741

239

149

937

251

(273)

(1,739)

(4)

417

19,082

24,918

20,521

(13,531)

(2,488)

(6,032)

1,602

3,232

(2,183)

(19,400)

(14,134)

(10,685)

—

(2,956)

1,049

41,042

(355)

24,646

—

(36)

1,252

—

(1,730)

(11,199)

Acadia Realty Trust 2003 Annual Report

I N T H O U S A N D S , E X C E P T P E R S H A R E A M O U N T S

Cash Flows from Financing Activities

Principal payments on mortgage notes payable

Proceeds received on mortgage notes payable

Payment of deferred financing and other costs

Dividends paid

Distributions to minority interests in Operating Partnership

Distributions on Preferred Operating Partnership Units

Distributions to minority interests in majority-owned partnerships

Purchase of minority interest in majority-owned partnerships

Settlement of vested options

Redemption of Operating Partnership Units

Repurchase of Common Shares

Common Shares issued under Employee Stock Purchase Plan

Net cash used in financing activities

Cash flows from discontinued operations:

Net cash provided by discontinued operations

(Decrease) increase in cash and cash equivalents

Cash and cash equivalents, beginning of year

Less: Cash of discontinued operations

Cash and cash equivalents, end of year

Years Ended December 31,

2003

2002

2001

$ (32,917)

$ (16,841)

$ (33,599)

21,000

(241)

(14,896)

(1,207)

(199)

(985)

—

(750)

—

(30,187)

—

(30,505)

45,168

14,663

—

7,758

(812)

(13,131)

(2,023)

(199)

(139)

—

(33,420)

—

(58,807)

20,464

11,221

33,947

45,168

—

51,350

(847)

(13,569)

(2,985)

(199)

(90)

(30)

—

(5,114)

(1,964)

—

(7,047)

10,174

12,449

21,689

34,138

191

$ 14,663

$ 45,168

$ 33,947

S U P P L E M E N T A L D I S C L O S U R E O F C A S H F L O W I N F O R M A T I O N :

Cash paid during the period for interest, net of amounts

capitalized of $403, $931, and $372, respectively

Notes received in connection with sale of properties

Disposition of real estate through assumption of debt

$ 11,242

$ 12,346

$ 19,047

—

$ 22,425

$ 34,757

$ 42,438

—

The accompanying notes are an integral part of these consolidated financial statements.\

Acadia Realty Trust 2003 Annual Report

N O T E S T O C O N S O L I D A T E D S T A T E M E N T S

D E C E M B E R 3 1 , 2 0 0 3

In thousands, except per share amounts

Note 1i

Organization, Basis of Presentation
and Summary of Significant
Accounting Policies

Acadia Realty Trust (the “Company”) is a fully integrated

and self-managed real estate investment trust (“REIT”)

which specializes in the acquisition, redevelopment and

operation of shopping centers which are anchored by

grocery and value-oriented retail.

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 its major-

ity owned partnerships. As of December 31, 2003, the

Company controlled 96% of the Operating Partnership

as the sole general partner. As the general partner, the

Company is entitled to share, in proportion to its percent-

age interest, in the cash distributions and profits and

losses of the Operating Partnership. The limited partners

represent entities or individuals who contributed their

interests in certain properties or partnerships to the

Operating Partnership in exchange for common or

preferred units of limited partnership interest (“Com-

mon or Preferred OP Units”). Limited partners holding

Common OP Units are generally entitled to exchange

with an obligation from the RDC Transaction. The

payment was due upon the commencement of rental

payments from a designated tenant at one of the

properties acquired in the RDC Transaction.

As of December 31, 2003, the Company operated 62

properties, which it owned or had an ownership inter-

est in, consisting of 60 neighborhood and community

shopping centers and two multi-family properties,

located primarily in the Northeast, Mid-Atlantic and

Midwest regions of the United States.

P R I N C I P L E S O F C O N S O L I D A T I O N

The consolidated financial statements include the con-

solidated accounts of the Company and its majority

owned partnerships, including the Operating Partner-

ship. Non-controlling investments in partnerships are

accounted for under the equity method of accounting

as the Company exercises significant influence.

U S E O F E S T I M A T E S

The preparation of the financial statements in conform-

ity with accounting principles generally accepted in the

United States (“GAAP”) requires management to make

estimates and assumptions that affect the amounts

reported in the financial statements and accompanying

notes. Actual results could differ from those estimates.

their units on a one-for-one basis for common shares

P R O P E R T I E S

of beneficial interest of the Company (“Common Shares”).

Real estate assets are stated at cost less accumulated

This structure is commonly referred to as an umbrella

depreciation. Expenditures for acquisition, development,

partnership REIT or “UPREIT.”

On August 12, 1998, the Company completed a major

reorganization (“RDC Transaction”) in which it acquired

twelve shopping centers, five multi-family properties

and a 49% interest in one shopping center along with

certain third party management contracts and promis-

sory notes from real estate investment partnerships

(“RDC Funds”) managed by affiliates of RD Capital, Inc.

In exchange for these and a cash investment of $100,000,

the Company issued 11.1 million Common OP Units and

15.3 million Common Shares to the RDC Funds. After giv-

construction and improvement of properties, as well

as significant renovations are capitalized. Interest costs

are capitalized until construction is substantially com-

plete. Construction in progress includes costs for sig-

nificant shopping center expansion and redevelopment.

Depreciation is computed on the straight-line basis

over estimated useful lives of 30 to 40 years for build-

ings and the shorter of the useful life or lease term

for improvements, furniture, fixtures and equipment.

Expenditures for maintenance and repairs are charged

to operations as incurred.

ing effect to the conversion of the Common OP Units,

The Company reviews its long-lived assets used in oper-

the RDC Funds beneficially owned 72% of the Common

ations for impairment when there is an event, or change

Shares as of the closing of the RDC Transaction. During

in circumstances that indicates impairment in value.

February of 2003, the Company issued OP Units and cash

The Company records impairment losses and reduces

valued at $2,750 to certain limited partners in connection

the carrying value of properties when indicators of

Acadia Realty Trust 2003 Annual Report

impairment are present and the expected undiscounted

C A S H I N E S C R O W

cash flows related to those properties are less than

Cash in escrow consists principally of cash held for

their carrying amounts. In cases where the Company

real estate taxes, property maintenance, insurance,

does not expect to recover its carrying costs on proper-

minimum occupancy and property operating income

ties held for use, the Company reduces its carrying cost

requirements at specific properties as required by certain

to fair value, and for properties held for sale, the Com-

loan agreements.

pany reduces its carrying value to the fair value less

costs to sell. During the year ended December 31, 2002,

an impairment loss of $197 was recognized related to

a property that was sold as of December 31, 2002. For

the year ended December 31, 2001, an impairment loss

of $15,886 was recognized related to properties sold

subsequent to December 31, 2001. Management does

not believe that the values of its properties within the

portfolio are impaired as of December 31, 2003.

D E F E R R E D C O S T S

I N C O M E T A X E S

The Company has made an election to be taxed, and

believes it qualifies as a REIT under Sections 856 through

860 of the Internal Revenue Code of 1986, as amended

(the “Code”). To maintain REIT status for federal income

tax purposes, the Company is generally required to

distribute to its stockholders at least 90% of its REIT

taxable income as well as comply with certain other

requirements as defined by the Code. The Company is not

subject to federal corporate income tax to the extent

Fees and costs paid in the successful negotiation of

that it distributes 100% of its REIT taxable income each

leases have been deferred and are being amortized

year. Accordingly, no provision has been made for Fed-

on a straight-line basis over the terms of the respective

eral income taxes for the Company in the accompany-

leases. Fees and costs incurred in connection with

ing consolidated financial statements. The Company

obtaining financing have been deferred and are being

is subject to state income or franchise taxes in certain

amortized over the term of the related debt obligation.

states in which some of its properties are located.

R E V E N U E R E C O G N I T I O N

Leases with tenants are accounted for as operating

leases. Minimum rents are recognized on a straight-

These state taxes, which in total are not significant,

are included in general and administrative expenses in

the accompanying consolidated financial statements.

line basis over the term of the respective leases. As of

S T O C K - B A S E D C O M P E N S A T I O N

December 31, 2003 and 2002, unbilled rents receivable

Prior to 2002, the Company accounted for stock options

relating to straight-lining of rents were $5,873 and

under Accounting Principles Board Opinion No. 25,

$5,302, respectively.

Percentage rents are recognized in the period when

the tenant sales breakpoint is met.

“Accounting for Stock Issued to Employees” and related

interpretations. Effective January 1, 2002, the Company

adopted the fair value method of recording stock-based

compensation contained in SFAS No. 123, “Accounting

Reimbursements from tenants for real estate taxes, insur-

for Stock-Based Compensation” (“SFAS No. 123”). As such,

ance and other property operating expenses are recog-

all stock options granted after December 31, 2001 are

nized as revenue in the period the expenses are incurred.

reflected as compensation expense in the Company’s

An allowance for doubtful accounts has been provided

against certain tenant accounts receivable that are esti-

mated to be uncollectible. Rents receivable at December

31, 2003 and 2002 are shown net of an allowance for

doubtful accounts of $2,420 and $2,284, respectively.

C A S H A N D C A S H E Q U I V A L E N T S

The Company considers all highly liquid investments

with an original maturity of three months or less when

purchased to be cash equivalents.

consolidated financial statements over their vesting

period based on the fair value at the date the stock-based

compensation was granted. As provided for in SFAS No.

123, the Company elected the “prospective method” for

the adoption of the fair value basis method of account-

ing for employee stock options. Under this method, the

recognition provisions will be applied to all employee

awards granted, modified or settled after January 1, 2002.

Acadia Realty Trust 2003 Annual Report 21

N O T E S T O C O N S O L I D A T E D S T A T E M E N T S continued

The following table illustrates the effect on net income

beginning after March 15, 2004. Upon adoption of FIN

and earnings per share if the Company had applied

46R, the assets, liabilities and non-controlling interests

the fair value based method of accounting for stock-

of the VIE initially would be measured at their carrying

based employee compensation for vested stock options

amounts with any difference between the net amount

granted prior to January 1, 2002. See Note 11 – “Share

added to the balance sheet and any previously recog-

Incentive Plan” for the assumptions utilized in valuing

nized interest being recognized as the cumulative effect

the below vested stock options:

of an accounting change. If determining the carrying

Years Ended December 31,

2003

2002

2001

$ 7,853

$19,399

$9,802

7,829

19,363

9,699

Net income:

As reported

Pro forma

Basic earnings per share:

As reported

Pro forma

$ 0.30

$ 0.77

0.29

0.76

$ 0.35
0.34

Diluted earnings per share:

As reported

Pro forma

$ 0.29

$ 0.76

0.29

0.76

$ 0.34
0.34

R E C E N T A C C O U N T I N G P R O N O U N C E M E N T S

In December 2003, the Financial Accounting Statements

Board (“FASB”) issued FASB Interpretation No. 46 (revised

December 2003), “Consolidation of Variable Interest Enti-

ties” (“FIN 46R”). FIN 46R replaces FASB Interpretation

No. 46,“Consolidation of Variable Interest Entities,” which

was issued in January 2003. In general, a variable interest

entity (“VIE”) is a corporation, partnership, trust, or any

other legal structure used for business purposes that

either (a) does not have equity investors with voting

rights or (b) has equity investors that do not provide

sufficient financial resources for the entity to support

its activities. A VIE often holds financial assets, includ-

ing loans or receivables, real estate or other property.

A VIE may be essentially passive or it may engage in

activities on behalf of another company. Until now, a

company generally has included another entity in its

consolidated financial statements only if it controlled

the entity through voting interests. FIN 46 changes that

amounts is not practicable, fair value at the date FIN

46R first applies may be used to measure the assets,

liabilities and non-controlling interest of the VIE. It is

not anticipated that the effect on the Company’s Con-

solidated Financial Statements would be material.

In May 2003, the FASB issued SFAS No. 150, “Accounting

for Certain Financial Instruments with Characteristics of

Both Liabilities and Equity.” This statement establishes

how an issuer classifies and measures certain financial

instruments that have characteristics of both liabilities

and equity. It requires that an issuer classify a financial

instrument that is within the scope of SFAS No. 150 as a

liability because that financial instrument embodies an

obligation of the issuer. For the Company, SFAS 150 was

effective for instruments entered into or modified after

May 31, 2003 and otherwise will be effective as of January

1, 2004, except for mandatorily redeemable financial

instruments. For certain mandatorily redeemable finan-

cial instruments, SFAS 150 will be effective for the Com-

pany on January 1, 2005. The effective date has been

deferred indefinitely for certain other types of manda-

torily redeemable financial instruments. The adoption

of SFAS No. 150 had no impact on the Company’s consol-

idated financial statements. The Company currently is

a majority-owner of a finite life partnership which is

included in the consolidated accounts of the Company.

The application of SFAS 150 as it relates to finite life

entities has been deferred indefinitely. Based on the

estimated value of the property owned by the partner-

ship at December 31, 2003, the Company estimates that

the minority interest in this partnership would be

entitled to approximately $2,080 upon the dissolution

of the partnership.

by requiring a VIE to be consolidated by a company if

In April 2003, the FASB issued Statement of Financial

that company is subject to a majority of the risk of loss

Accounting Standards (“SFAS”) No. 149, “Amendment

from the VIE’s activities or entitled to receive a majority

of Statement 133 on Derivative Instruments and Hedging

of the entity’s residual returns or both. The Company

Activities.” This statement amends and clarifies financial

will be required to adopt FIN 46R in the first fiscal period

reporting for derivative instruments, including certain

Acadia Realty Trust 2003 Annual Report

derivative instruments embedded in other contracts

A significant component of the Company’s business

and for hedging activities under FASB Statement

plan in prior years was also the disposition of non-core

No. 133, “Accounting for Derivative Instruments and

real estate assets. Under this initiative, which was

Hedging Activities.” SFAS No. 149 is generally effective

completed in 2002, the Company sold a total of two

for contracts entered into or modified after June 30,

apartment complexes and 23 shopping centers.

2003 and for hedging relationships designated after June

30, 2003. The adoption of SFAS No. 149 had no impact on

the Company’s consolidated financial statements.

C O M P R E H E N S I V E I N C O M E

The following table sets forth comprehensive income

for the years ended December 31, 2003, 2002 and 2001:

2003

2002

2001

Dispositions relate to the sale of shopping centers,

multi-family properties and land. Gains from these

sales are generally recognized using the full accrual

method in accordance with SFAS No. 66, “Accounting

for Sales of Real Estate,” providing that certain criteria

relating to the terms of sales are met.

The results of operations of sold properties is reported

$ 7,853 $19,399 $ 9,802

separately as discontinued operations for the years ended

Net income

Other comprehensive

income (loss)1

1,369

(5,668)

(1,206)

Comprehensive income

$9,222 $ 13,731

$ 8,596

1Relates to the changes in the fair value of derivative instru-
ments accounted for as hedges.

The following table sets forth the change in accumu-

lated other comprehensive loss for the years ended

December 31, 2003, 2002 and 2001:
2003

2002

2001

December 31, 2002 and 2001. Revenues from discontin-

ued operations for the years ended December 31, 2002

and 2001 totaled $6,295 and $24,178, respectively.

2 0 0 2 A C Q U I S I T I O N S A N D D I S P O S I T I O N S

On November 8, 2002, the Company and an unaffiliated

joint venture partner completed the sale of a contract

to purchase land in Bethel, Connecticut, to the Target

Corporation for $1,540 after closing and other related

costs. The joint venture received a $1,632 note receivable

for the net purchase price and additional reimburse-

Beginning balance

$6,874

$ 1,206

$ —

ments due from the buyer and deferred recognition of

Unrealized (gain) loss on

valuation of derivative

instruments

Ending balance

(1,369)

5,668

1,206

$ 5,505

$6,874

$1,206

the gain on sale in accordance with SFAS No. 66. The

note was paid in full on January 10, 2003, and as such,

the Company’s share of the deferred gain, or $634, was

recognized in 2003.

On October 11, 2002, the Company sold the Manahawkin

As of December 31, 2003, the balance in accumulated

Village Shopping Center and Valmont Plaza for $16,825

other comprehensive loss was comprised solely of

to two entities affiliated with each other. The Company

unrealized losses on the valuation of swap agreements.

received two purchase money notes in connection with

R E C L A S S I F I C A T I O N S

Certain 2002 and 2001 amounts were reclassified to

conform to the 2003 presentation.

Note 2i

Acquisition and Disposition
of Properties

Currently the primary vehicle for the Company’s acqui-

sition activity is its acquisition joint venture, Acadia

Strategic Opportunity Fund (Note 4).

the sale. The first for $11,000 was repaid in full on Novem-

ber 8, 2002. The second for $1,600, was repaid in full on

April 11, 2003. As part of the transaction, the Company

repaid $3,084 of mortgage debt secured by the Valmont

Plaza. The $4,049 of mortgage debt secured by the

Manahawkin Village Shopping Center was repaid in full

on September 27, 2002, prior to the sale. The Company

recorded a $166 gain on the sale.

On April 24, 2002, the Company sold a multi-property

portfolio for $52,700. The portfolio consists of 17 retail

properties, which are cross-collateralized in a securitized

Acadia Realty Trust 2003 Annual Report 23

N O T E S T O C O N S O L I D A T E D S T A T E M E N T S continued

loan program and in the aggregate contain approxi-

The Company sold its interest in the Marley Run Apart-

mately 2.3 million square feet. As part of the transaction,

ments for $27,400 on May 15, 2001, recognizing a $7,035

the buyer assumed the outstanding mortgage debt of

gain on the sale. Net proceeds from the sale were used

$42,438. The Company retained a senior, preferred inter-

to redeem 680,667 Common OP Units at $7.00 per unit.

est in the acquiring entity in the amount of $6,262, which

The redemption price represented a premium of $0.35

earned an initial annual preferred return of 15%. On

over the market price of the Company’s Common Shares

December 31, 2002, the Company’s interest was purchased

as of the redemption date. These redeemed Common

at par by an affiliate of the purchaser of the portfolio.

OP Units were held by the original owners of the prop-

The Company recorded an $8,134 gain on the sale.

erty who contributed it to the Company in connection

On January 16, 2002, the Company sold Union Plaza, a

218,000 square foot shopping center located in New

Castle, Pennsylvania, for $4,750. The Company received

a $3,563 purchase money note. The note, which matures

January 15, 2005, requires monthly interest of 7% for year

one, increasing at a rate of 1% per annum throughout

the term. As part of the transaction, the Company agreed

to reimburse the purchaser 50% of a former tenant’s

rent, or $22 a month, through July 15, 2003. The Company

with the RDC Transaction. Pursuant to the RDC Transac-

tion, the Company agreed to indemnify the Common

OP Unit holders for any income taxes recognized with

respect to a disposition of the property within five years

following the contribution of the property. As part of

the redemption as discussed above, the Common OP

Unit holders waived their rights to this tax reimburse-

ment, which the Company estimated to be in excess

of $2.00 per Common OP Unit.

recorded a loss of $166 on the sale.

Note 3i

On January 10, 2002, the Company and an unaffiliated

Segment Reporting

joint venture partner purchased a three-acre site located

in the Bronx, New York, for $3,109. Simultaneously, the

joint venture sold approximately 46% of the land to

a self-storage facility for $3,300, recognizing a $1,530

gain on the sale of which the Company’s share was

$957. The joint venture currently plans to develop the

remaining parcel.

2 0 0 1 D I S P O S I T I O N S

The Company has two reportable segments: retail

properties and multi-family properties. The accounting

policies of the segments are the same as those described

in the summary of significant accounting policies. The

Company evaluates property performance primarily based

on net operating income before depreciation, amortiza-

tion and certain nonrecurring items. The reportable

segments are managed separately due to the differing

On December 21, 2001, the Company sold the Glen Oaks

nature of the leases and property operations associated

Apartments, a 463 unit multi-family property located in

with the retail versus residential tenants. The following

Greenbelt, Maryland for $35,100, resulting in an $8,546

table sets forth certain segment information for the

gain on the sale. As part of the transaction, the Company

Company, reclassified for discontinued operations, as of

received a promissory note (which was secured by an

and for the years ended December 31, 2003, 2002, and

irrevocable letter of credit) for $34,757, which was sub-

2001 (does not include unconsolidated partnerships):

sequently paid in January 2002.

On October 4, 2001, the Company sold the Tioga West

shopping center, a 122,000 square foot shopping center

located in Tunkhannock, Pennsylvania, for $3,200 result-

ing in a $908 gain on the sale.

On August 27, 2001 the Company sold the Wesmark

Plaza, a 207,000 square foot shopping center located

in Sumter, South Carolina, for $5,750, recognizing a

$1,245 gain on the sale.

Acadia Realty Trust 2003 Annual Report

2003

2002

2001

Retail Multi-Family

All

Retail Multi-Family

All

Retail Multi-Family

Properties Properties Other

Total

Properties Properties Other

Total

Properties Properties

All
Other

Total

$ 58,150

$ 7,318 $ 3,977 $ 69,445

$ 58,498

$ 6,969

$3,880

$ 69,347

$ 52,756

$ 6,870

$1,656

$ 61,282

19,782

4,187

— $ 23,969

$ 17,030

$ 3,691

$ — $ 20,721

$ 16,662

$ 3,362

$ — $ 20,024

$ 38,368

$ 3,131 $ 3,977 $ 45,476

$ 41,468

$ 3,278

$3,880

$ 48,626

$ 36,094

$ 3,508

$1,656

$ 41,258

$ 16,252

$ 1,336 $

321 $ 17,909

$ 13,287

$ 1,201

$ 316

$ 14,804

$ 12,294

$ 1,097

$ 354

$ 13,745

$ 9,701

$ 1,530 $ — $

11,231

$ 9,390

$ 1,627

$ — $ 11,017

$ 10,468

$ 1,902

$ — $ 12,370

$387,854

$39,774 $ — $ 427,628

$375,482

$38,396

$ — $413,878

$361,075

$ 37,341

$ — $398,416

$ 337,724

$36,830 $13,630 $ 388,184

$368,547

$36,224

$6,164

$410,935

$453,034 $35,736

$5,169

$493,939

5,153

1,207

—

6,360

5,079

1,207

—

6,286

5,079

1,207

—

6,286

$ 12,153

$ 1,378 $ — $

13,531

$ 13,134

$ 1,000

$ — $ 14,134

$ 9,425

$ 1,260

— $ 10,685

Revenues

Property operating expenses
and real estate taxes

Net property income
before depreciation
and amortization

Depreciation and
amortization

Interest expense

Real estate at cost

Total assets

Gross leasable area

(multi-family – 1,474 units)

Expenditures for real
estate and improvements

REVENUES

Total revenues for

reportable segments

$ 71,085

Elimination of intersegment
management fee income

(1,340)

Elimination of intersegment
asset management fee income

(300)

Total consolidated
revenues

PROPERTY OPERATING
EXPENSES AND
REAL ESTATE TAXES

Total property operating

expenses and real estate
taxes for reportable
segments

$ 69,445

$ 25,126

Elimination of intersegment
management fee expense

(1,157)

Total consolidated

expense

$ 23,969

RECONCILIATION TO INCOME
BEFORE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING
PRINCIPLE

Net property income
before depreciation
and amortization

Depreciation and
amortization

General and administrative

Equity in earnings of
unconsolidated
partnerships

Interest expense

Gain on sale of land

Income from discontinued

operations

Minority interest

Income before cumulative
effect of a change in
accounting principle

$ 45,476

(17,909)

(10,734)

2,411

(11,231)

1,187

—

(1,347)

$ 70,413

(1,066)

—

$ 69,347

$ 21,778

(1,057)

$ 20,721

$ 48,626

(14,804)

(10,447)

628

(11,017)

1,530

7,882

(2,999)

$ 62,273

(991)

—

$ 61,282

$ 21,015

(991)

$ 20,024

$ 41,258

(13,745)

(9,025)

504

(12,370)

—

4,795

( 1,466)

7,853

$ 19,399

$ 9,951

Acadia Realty Trust 2003 Annual Report 25

N O T E S T O C O N S O L I D A T E D S T A T E M E N T S continued

Note 4i

Investment in Unconsolidated
Partnerships

Crossroads
The Company owns a 49% interest in the Crossroads

Joint Venture and Crossroads II Joint Venture (collec-

tively, “Crossroads”) which collectively own a 311,000

square foot shopping center in White Plains, New York.

The Company accounts for its investment in Crossroads

using the equity method. Summary financial informa-

tion of Crossroads and the Company’s investment in

and share of income from Crossroads follows:

Balance Sheets

Assets:

Rental property, net

Other assets

Total assets

Liabilities and partners’ equity

Mortgage note payable

Other liabilities

Partners’ equity

Total liabilities and
partners’ equity

Company’s investment

December 31,

2003

2002

7,402

$ 7,603

3,710

3,536

11,112

$ 11,139

$ 32,961

$ 33,575

4,696

5,832

(26,545)

(28,268)

11,112

$ 11,139

3,665

3,241

The unamortized excess of the Company’s investment

over its share of the net equity in Crossroads at the date

of acquisition was $19,580. The portion of this excess

attributable to buildings and improvements is being

amortized over the life of the related property.

Acadia Strategic Opportunity Fund, LP (“ASOF”)
In 2001, the Company formed a joint venture, ASOF,

with four of its institutional investors for the purpose

of acquiring real estate assets. The Company is the sole

general partner with a 22% interest in the joint venture

and is also entitled to a profit participation in excess of

its invested capital based on certain investment return

thresholds. The Company also earns market-rate fees

for asset management as well as for property manage-

ment, construction and leasing services. Decisions

made by the general partner as it relates to purchasing,

financing and disposition of properties are subject to

the unanimous disapproval of the Advisory Committee,

which is comprised of representatives from each of the

four institutional investors.

ASOF owns five shopping centers comprising 1.3 million

square feet. In addition, ASOF and an unaffiliated joint

venture party own a 1.0 million square foot supermarket

portfolio consisting of 25 anchor-only leases with either

Kroger or Safeway Supermarkets.

Acquisitions completed during 2003 and 2002 were

as follows:

Kroger/Safeway Portfolio In January 2003, ASOF and an

Years Ended December 31,

unaffiliated joint venture party acquired a one million

2003

2002

2001

square foot supermarket portfolio consisting of 25

Statements of Operations

Total revenue

Operating and

other expenses

Interest expense

Depreciation and
amortization

Net income

$8,324

$7,091

$ 7,174

2,465

2,542

2,150

2,722

2,159

2,620

570

547

538

$2,747

$1,672

$ 1,857

Company’s share of

net income

Amortization of excess

investment (see below)

$1,377

$ 934

$ 910

392

Income from partnerships

$ 985

$ 542

$ 518

anchor-only leases with either Kroger or Safeway super-

markets. The portfolio was acquired through long-term

ground leases with terms, including renewal options,

averaging in excess of 80 years, which are master

leased to a non-affiliated entity. The purchase price of

$48,900 (inclusive of closing and other related acquisi-

tion costs) included the assumption of $34,450 of

existing fixed-rate debt which bears interest at a

weighted-average rate of 6.6%. The mortgage debt fully

amortizes over the next seven years, which is cotermi-

nous with the primary lease term of the supermarket

leases. ASOF invested $11,250 of the equity capitalization

of which the Company’s share was $2,500.

Acadia Realty Trust 2003 Annual Report

Brandywine Portfolio In January 2003, ASOF acquired a

The Company accounts for its investment in ASOF using

one million square foot portfolio for an initial purchase

the equity method. Summary financial information of

price of $86,287, inclusive of closing and other related

ASOF and the Company’s investment in and share of

acquisition costs. The portfolio consists of two shopping

income from ASOF follows:

centers located in Wilmington, Delaware. A portion of

one of the properties is currently unoccupied for which

ASOF will pay for on an “earn-out” basis only when it is

leased. At closing, ASOF assumed $38,082 of fixed-rate

Balance Sheets

debt which bears interest at a weighted average rate of

Assets:

6.2% as well as obtained an additional fixed-rate loan of

Rental property, net

$30,000 which bears interest at 4.7%. ASOF invested

equity of $19,270 in the acquisition, of which the

Company’s share was $4,282. On December 6, 2002,

ASOF completed a forward interest rate lock agreement

on $30,000 of anticipated mortgage debt in connection

with this transaction. This forward interest rate lock

agreement was settled at closing in January 2003.

On September 19, 2002, ASOF acquired three supermarket-

anchored shopping centers located in Ohio for a total

Other assets

Total assets

Liabilities and partners’ equity

Mortgage note payable

Other liabilities

Partners’ equity

Total liabilities and
partners’ equity

purchase price of $26,679. ASOF assumed $12,568 of

Company’s investment

December 31,

2003

2002

$ 173,507

$28,046

4,763

5,977

$ 178,270

$34,023

$120,609

$18,450

11,731

45,930

2,418

13,155

$ 178,270

$34,023

$ 9,965

$ 2,923

fixed rate debt on two of the properties at a blended

rate of 8.1%. A new $6,000 loan was obtained on the

third property at a floating rate of LIBOR plus 200 basis

points. The balance of the purchase price was funded

by the joint venture, of which the Company’s share

was $1,802.

Statements of Operations

Total revenue

Operating and other expenses

Management and other fees

Interest expense

Depreciation and amortization

Minority interest

Net income (loss)

Company’s share of net income (loss)1

Year ended
December 31, 2003

Year ended
December 31, 2002

Period from
September 28, 2001
(inception) to
December 31, 2001

$26,008

$ 1,224

$ —

5,017

2,171

6,399

8,055

157

$ 4,209

$ 1,426

342

1,391

350

145

—

$(1,004)

—

402

—

$ (402)

$ (14)

1Reflects the elimination of the Company’s pro-rata share of asset management, property management and leasing fees paid by
ASOF aggregating $491, $309 and $75 for the years ended December 31, 2003, 2002 and 2001, respectively, as these fees are paid to
the Company.

Acadia Realty Trust 2003 Annual Report 27

N O T E S T O C O N S O L I D A T E D S T A T E M E N T S continued

Note 5i

Deferred Charges

Deferred charges consist of the following as of

December 31, 2003 and 2002:

Deferred financing costs

2003

2002

$ 6,392

$ 6,150

made available under the loan as well as extending the

maturity of the loan until December 1, 2008 with two

one-year extension options. In addition, the interest

rate has been reduced to LIBOR plus 140 basis points.

The loan, which is secured by one of the Company’s

properties, requires the monthly payment of interest

and fixed principal commencing January 1, 2004.

Deferred leasing and other costs

15,485

13,302

On October 27, 2003, the Company paid off maturing

21,877

19,452

loans totaling $7,418, which were secured by two of

Accumulated amortization

(10,704)

(9,092)

$ 11,173

$10,360

Note 6i

Mortgage Loans

the Company’s properties.

On May 30, 2003, the Company refinanced a $13,337

loan with a bank, increasing the outstanding principal

to $16,000. The loan, which is secured by one of the

Company’s properties, requires monthly payment of

interest at the fixed-rate of 5.2%. Payments of principal

At December 31, 2003, mortgage notes payable aggre-

amortized over 30 years commences June 2005 with

gated $190,444 and were collateralized by 22 properties

the loan maturing in May 2013.

and related tenant leases. Interest rates ranged from

2.6% to 8.1%. Mortgage payments are due in monthly

installments of principal and/or interest and mature

on various dates through 2013. Certain loans are cross-

collateralized and cross-defaulted as part of a group

In April 2003, the Company extended an existing $7,400

revolving facility with a bank through March 1, 2008.

As of December 31, 2003, there were no outstanding

amounts under this loan.

of properties. The loan agreements contain customary

In March 2003, the Company repaid a $3,551 loan with

representations, covenants and events of default. Certain

a life insurance company.

loan agreements require the Company to comply with

certain affirmative and negative covenants, including

the maintenance of certain debt service coverage and

leverage ratios.

Effective December 1, 2003, the Company amended an

$8,599 loan with a bank. An additional $5,000 has been

In January 2003, the Company drew down $5,000 of

an available $10,000 facility with a bank and used the

proceeds to partially pay down the outstanding princi-

pal on another loan with the same lender.

Acadia Realty Trust 2003 Annual Report

The following table summarizes the Company’s mortgage indebtedness as of December 31, 2003 and 2002:

DECEMBER 31,

2003

2002

Interest Rate at

December 31, 2003

Properties

Monthly

Maturity

Encumbered

Payment Terms

MORTGAGE NOTES PAYABLE — VARIABLE-RATE

First Union National Bank

Metropolitan Life Insurance Company

Washington Mutual Bank, FA

Sun America Life Insurance Company

Fleet National Bank

Washington Mutual Bank, FA

Fleet National Bank

Washington Mutual Bank, FA

Fleet National Bank

— $ 13,388
7,577
—

—

56,950

2.94% (LIBOR + 1.75%)

04/01/05

50,686

9,191

12,009

20,083

4,865

6,256

8,992

—

9,446

2.89% (LIBOR + 1.73%)

12,187

2.92% (LIBOR + 1.75%)

15,637

3.04% (LIBOR + 1.85%)

4,942

2.91% (LIBOR + 1.75%)

6,300

2.91% (LIBOR + 1.75%)

9,108

2.91% (LIBOR + 1.75%)

— (LIBOR + 1.70%)

—

10/01/05

01/01/07

03/15/07

05/01/07

06/01/07

11/22/07

8,598

8,731

2.57% (LIBOR + 1.40%)

12/01/08

(10)

— (LIBOR + 1.50%)

03/01/08

—

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

Total variable-rate debt

120,680

144,266

MORTGAGE NOTES PAYABLE — FIXED-RATE

Anchor National Life Insurance Company

SunAmerica Life Insurance Company

Metropolitan Life Insurance Company

Bank of America, N.A.

RBS Greenwich Capital

Total fixed-rate debt

—

13,425

24,113

16,226

16,000

3,570

13,648

24,495

16,382

—

69,764

58,095

$190,444

$202,361

—

6.46%

8.13%

7.55%

5.19%

—

07/01/07

11/01/10

01/01/11

06/01/13

—

(11)

(12)

(13)

(14)

$ —

—

(15)

—

(15)

(16)

Notes:

(1) New Loudon Center
Ledgewood Mall
Route 6 Plaza
Bradford Towne Centre
Berlin Shopping Center

(2) Village Apartments

(3) Branch Shopping Center
Abington Towne Center
Methuen Shopping Center

(4) Walnut Hill Plaza

(5) Town Line Plaza

(6) Gateway Shopping Center

(7) Smithtown Shopping Center

(8) Elmwood Park Shopping Center;

no amounts are outstanding under
this $20,000 revolving facility

(9) Marketplace of Absecon; no amounts
are outstanding under this $7,400
revolving facility

(11) Merrillville Plaza

(12) Crescent Plaza

East End Centre

(13) GHT Apartments/Colony Apartments

(14) 239 Greenwich Avenue

(15) Monthly principal and interest

(16) Interest only until 5/05; monthly
principal and interest thereafter

Bloomfield Town Square

(10) Soundview Marketplace

Acadia Realty Trust 2003 Annual Report 29

N O T E S T O C O N S O L I D A T E D S T A T E M E N T S continued

The scheduled principal repayments of all mortgage

Company’s Declaration of Trust that prohibits ownership

indebtedness as of December 31, 2003 are as follows:

positions in excess of 4% of the Company. The waiver

2004

2005

2006

2007

2008

Thereafter

$ 3,580

60,544

2,445

62,646

9,144

52,085

$190,444

Note 7i

Shareholders’ Equity and
Minority Interests

C O M M O N S H A R E S

During 2003, the Board of Trustees approved a resolution

permitting one of its institutional shareholders, which

currently owns 6% of the Company’s outstanding

Common Shares, to acquire additional shares through

open market purchases. This waiver of the Company’s

Common Shares ownership limitation, which was

approved in response to a request from this institutional

investor, will permit this shareholder to acquire up to

an additional 3.7% of the Company’s Common Shares

through March 31, 2004, or an aggregate of up to 9.7%

of the Company’s Common Shares.

Through December 31, 2003, the Company had repur-

chased 1,922,788 Common Shares (net of 131,817 Com-

mon Shares reissued) at a total cost of $10,381 under

the expanded share repurchase program that allows

for the repurchase of up to $20,000 of the Company’s

outstanding Common Shares. The repurchased shares

are reflected as a reduction of par value and additional

paid-in capital.

In February 2002, the Company completed a “modified

Dutch Auction” tender offer (the “Tender Offer”) whereby

the Company purchased 5,523,974 Common Shares,

comprised of 4,136,321 Common Shares and 1,387,653

Common OP Units converted to Common Shares, at a

purchase price of $6.05. The aggregate purchase price

paid was $33,400.

Also in February 2002, the Board of Trustees voted to

permit Yale University (“Yale”) to acquire 2,266,667

additional Common Shares from another shareholder

was limited to this particular transaction. Following

this, Yale owned 8,421,759 Common Shares, or 34% of

the Company’s outstanding Common Shares. Addition-

ally, as a condition to approving the waiver, Yale agreed

to establish a voting trust whereby all shares owned

by Yale University in excess of 30% of the Company’s

outstanding Common Shares, will be voted in the same

proportion as all other shares voted, excluding Yale.

M I N O R I T Y I N T E R E S T S

Minority interest in Operating Partnership represents

the limited partners’ interest of 1,139,017 and 3,162,980

units in the Operating Partnership (“Common OP Units”)

at December 31, 2003 and 2002, respectively. During 2003

and 2002, various limited partners converted a total of

2,058,804 and 2,086,736 Common OP Units into Com-

mon Shares on a one-for-one basis, respectively. Ross

Dworman, a trustee of the Company, received 34,841

of Common OP Units through various affiliated entities

during 2003 (Note 8).

Minority interest in Operating Partnership also includes

1,580 and 2,212 units of preferred limited partnership

interests designated as Series A Preferred Units at

December 31, 2003 and 2002, respectively (“Preferred

OP Units”). The Preferred OP Units were issued in

connection with the acquisition of all the partnership

interests of the limited partnership which owns the

Pacesetter Park Shopping Center on November 16, 1999.

Certain Preferred OP Unit holders converted 632 Preferred

OP Units into 84,267 Common OP Units and then into

Common Shares during 2003.

The Preferred OP Units, which have a stated value

of $1,000 each, are entitled to a quarterly preferred

distribution of the greater of (i) $22.50 (9% annually)

per Preferred OP Unit or (ii) the quarterly distribution

attributable to a Preferred OP Unit if such unit were

converted into a Common OP Unit. The Preferred OP

Units are currently convertible into Common OP Units

based on the stated value divided by $7.50. After the

seventh anniversary following their issuance, either

the Company or the holders can call for the conversion

of the Preferred OP Units at the lesser of $7.50 or

the market price of the Common Shares as of the

by granting a conditional waiver of the provision in the

conversion date.

Acadia Realty Trust 2003 Annual Report

Minority interests in majority-owned partnerships

Note 9i

represent third party interests in four properties in

which the Company has a majority ownership position.

Note 8i

Related Party Transactions

The Company currently manages one property in which

a shareholder of the Company has an ownership interest

for which the Company earns a management fee of 3%

of tenant collections. In 2001, the Company terminated

a contract to manage a property owned by a related

party that earned a fee of 3.25% of tenant collections.

Management fees earned by the Company under these

contracts aggregated $212, $229 and $391 for the years

ended December 31, 2003, 2002 and 2001 respectively,

and are included in other revenues in the accompany-

ing consolidated statements of income.

The Company also earns certain management and service

Tenant Leases

Space in the shopping centers and other retail properties

is leased to various tenants under operating leases that

usually grant tenants renewal options and generally

provide for additional rents based on certain operating

expenses as well as tenants’ sales volume.

Minimum future rentals to be received under non-cance-

lable leases for shopping centers and other retail proper-

ties as of December 31, 2003 are summarized as follows:

2004
2005
2006
2007
2008

Thereafter

$ 42,329
38,272
35,675
32,505
27,625
182,243

$358,649

fees in connection with its investment in ASOF (Note 4).

Minimum future rentals above include a total of

Such fees earned by the Company (after adjusting for

$6,169 for two tenants (with six leases), which have

intercompany fees) aggregated $1,689, $1,082 and $338

filed for bankruptcy protection. None of these leases

for the years ended December 31, 2003, 2002 and 2001

have been rejected nor affirmed. During the years

respectively, and are included in other revenues in the

ended December 31, 2003, 2002 and 2001, no single

accompanying consolidated statements of income.

tenant collectively accounted for more than 10% of

As of December 31, 2002, the Company was obligated

the Company’s total revenues.

to issue Common OP Units and cash valued at $2,750

Note 10i

to certain limited partners in connection with the RDC

Transaction. The payment was due upon the commence-

ment of rental payments from a designated tenant at

one of the properties acquired in the RDC Transaction.

In February 2003, Mr. Dworman received 34,841 of these

Common OP Units through various affiliated entities.

Included in the Common OP Units converted to Common

Shares during 2003 and 2002, were 2,300 and 5,000

Common OP Units converted by Mr. Dworman who

then transferred them to a charitable foundation in

accordance with a pre-existing arrangement. In con-

nection with the Company’s Tender Offer, Mr. Dworman

tendered and sold 492,271 Common OP Units (after

converting these to Common Shares on a one-for-one

basis) and 107,729 Common Shares (Note 7).

Lease Obligations

The Company leases land at three of its shopping cen-

ters, which are accounted for as operating leases and

generally provide the Company with renewal options.

The leases terminate during the years 2020 to 2066.

One of these leases provides the Company with options

to renew for additional terms aggregating from 20 to

44 years. The Company leases space for its White Plains

corporate office for a term expiring in 2010. Future

minimum rental payments required for leases having

remaining non-cancelable lease terms are as follows:

2004
2005
2006
2007
2008

Thereafter

954
973
981
995
1,055
18,106

$ 23,064

Acadia Realty Trust 2003 Annual Report 3131

N O T E S T O C O N S O L I D A T E D S T A T E M E N T S continued

Note 11i

Share Incentive Plan

During 1999, the Company adopted the 1999 Share

Incentive Plan (the “1999 Plan”), which replaced both

the 1994 Share Option Plan and the 1994 Non-Employee

Trustees’ Share Option Plan. The 1999 Plan authorizes

the issuance of options equal to up to 8% of the total

Common Shares outstanding from time to time on a

fully diluted basis. However, not more than 4,000,000

of the Common Shares in the aggregate may be issued

pursuant to the exercise of options and no participant

options, share appreciation rights, restricted shares and

performance units (collectively, “Awards”) to officers,

employees and trustees of the Company and consultants

to the Company. The 2003 Plan is generally identical to

the 1999 Plan, except that the maximum number of

Common Shares that the Company may issue pursuant

to the 2003 Plan is four percent of the Common Shares

outstanding from time to time on a fully diluted basis.

However, no participant may receive more than 1,000,000

Common Shares during the term of the 2003 Plan with

respect to Awards.

may receive more than 5,000,000 Common Shares dur-

As of December 31, 2003, the Company has 2,068,150

ing the term of the 1999 Plan. Options are granted by

options outstanding to officers and employees. These

the Share Option Plan Committee (the “Committee”),

fully vested options are for ten-year terms from the

which currently consists of two non-employee Trustees,

grant date and, except for 30,000 options which vested

and will not have an exercise price less than 100% of

fully as of the grant date, vested in three equal annual

the fair market value of the Common Shares and a term

installments which began on the grant date. In addition,

of greater than ten years at the grant date. Vesting of

27,000 options have been issued to non-employee

options is at the discretion of the Committee with the

Trustees of which 14,600 options were vested as of

exception of options granted to non-employee Trustees,

December 31, 2003.

which vest in five equal annual installments beginning

on the date of grant. Pursuant to the 1999 Plan, non-

employee Trustees receive an automatic grant of 1,000

options following each Annual Meeting of Shareholders.

For the year ended December 31, 2003, the Committee

granted a total of 107,834 restricted shares pursuant

to the 2003 Plan to certain officers of the Company

(the “Recipients”). In general, the restricted shares carry

The 1999 Plan also provides for the granting of share

all the rights of Common Shares including voting and

appreciation rights, restricted shares and performance

dividend rights, but may not be transferred, assigned

units/shares. Share appreciation rights provide for the

or pledged until the Recipients have a vested non-

participant to receive, upon exercise, cash and/or Com-

forfeitable right to such shares. Vesting with respect

mon Shares, at the discretion of the committee, equal

to these restricted shares, which is subject to the

to the excess of the market value of the Common Shares

Recipients’ continued employment with the Company

at the exercise date over the market value of the Com-

through the applicable vesting dates, is as follows:

mon Shares at the Grant Date. The Committee will deter-

mine the award and restrictions placed on restricted

shares, including the dividends thereon and the term

of such restrictions. The Committee also determines the

award and vesting of performance units and perform-

i. 39,168 restricted shares, which were granted in lieu

of a portion of the Recipients’ 2002 cash bonus, vested

20% on January 2, 2003 and vest 20% thereafter on

each of the next four anniversaries of such date,

ance shares based on the attainment of specified per-

ii. 34,333 restricted shares vest 20% on January 2, 2004

formance objectives of the Company within a specified

and on each of the next four anniversaries of such date,

performance period. Through December 31, 2003, no

share appreciation rights or performance units/shares

have been awarded.

iii. and 34,333 restricted shares vest 20% on January 2,

2004 and on each of the next four anniversaries of

such date, provided that in addition to the Recipients’

During 2003, the Company adopted the 2003 Share

continued employment through the vesting date, the

Incentive Plan (the “2003 Plan”) because no Common

Company’s total shareholder return, as determined by

Shares remained available for future grants under the

the Committee in its discretion, is 12% or more either

1999 Plan. The 2003 Plan provides for the granting of

for such fiscal year or, on average, for such fiscal year

Acadia Realty Trust 2003 Annual Report

and each other fiscal year occurring after January 2,

to January 1, 2002, the Company had applied the intrinsic

2003 — in which case vesting shall occur for any

value method permitted under SFAS No. 123, as defined

restricted shares that did not vest in a prior fiscal

in Accounting Principles Board Opinion No. 25, “Account-

year based on this 12% condition.

ing for Stock Issued to Employees” and related Interpre-

The total value of the above restricted share awards

on the date of grant was $987 which will be recognized

in expense over the vesting period. During 2003, $410

was recognized in compensation expense. Unearned

compensation of $577 as of December 31, 2003 will be

recognized in expense as such shares vest.

tations, in accounting for stock-based compensation

plans. Accordingly, no compensation expense has been

recognized in the accompanying consolidated financial

statements for the year ended December 31, 2001 related

to the issuance of stock options because the exercise

price of the Company’s employee stock options equaled

or exceeded the market price of the underlying stock on

For the year ended December 31, 2001, the Company

the date of grant. The Company elected the prospective

issued 37,110 restricted shares to employees, which vest

method whereby compensation expense is recognized

equally over three years. No awards of restricted shares

only for those options granted, modified or settled on

were granted for the year ended December 31, 2002.

or after January 1, 2002.

During the years ended December 31, 2003, 2002 and

2001, the Company recognized compensation expenses

of $516, $121 and $121, respectively, in connection with

restricted share grants. No awards of share appreciation

rights or performance units/shares were granted for

the years ended December 31, 2003, 2002 and 2001.

The Company has used the Black-Scholes option-pricing

model for purposes of estimating the fair value in deter-

mining compensation expense for options granted

for the years ended December 31, 2003 and 2002. The

Company has also used this model for the pro forma

information regarding net income and earnings per

Effective January 1, 2002, the Company adopted the fair

share as required by SFAS No. 123 for options issued for

value method of recording stock-based compensation

the year ended December 31, 2001 as if the Company

contained in SFAS No. 123, “Accounting for Stock-Based

had also accounted for these employee stock options

Compensation.” As such, stock based compensation

under the fair value method. The fair value for the options

awards granted after December 31, 2001 will be expensed

issued by the Company was estimated at the date

over the vesting period based on the fair value at the

of the grant using the following weighted-average

date the stock-based compensation was granted. Prior

assumptions resulting in:

Risk-free interest rate

Dividend yield

Expected life

Expected volatility

Fair value at date of grant (per option)

Years ended December 31,

2003

4.4%

5.8%
10.0 years
18.0%

$0.82

2002

3.3%

7.0%
7.0 years
19.1%

$0.44

2001

5.4%

8.4%
7.0 years
17.7%

$0.27

Acadia Realty Trust 2003 Annual Report 33

N O T E S T O C O N S O L I D A T E D S T A T E M E N T S continued

Changes in the number of shares under all option arrangements are summarized as follows:

Outstanding at beginning of period

Granted

Option price per share granted

Cancelled

Exercisable at end of period

Settled1

Expired

Outstanding at end of year

2003

2,472,400

8,000

$9.11 – $11.66

—

2,082,750

385,250

—

2,095,150

Option prices per share outstanding

$4.89– $11.66

Years Ended December 31,

2002

2,593,400

5,000

$7.10

—

2,313,436

126,000

—

2,472,400

$4.89–$7.50

2001

2,124,600

475,000

$6.00–$7.00

—

2,418,137

6,200

—

2,593,400

$4.89–$7.50

As of December 31, 2003 the outstanding options had a weighted average exercise price of $7.04 and a weighted

average remaining contractual life of approximately 5.1 years.

1Pursuant to the 1999 Plan (except for 250 options exercised during 2003) these options were settled and did not result in the
issuance of any additional Common Shares.

Note 12i

Employee Stock Purchase Plan

During 2003, the Company adopted the Acadia Realty

Trust Employee Stock Purchase Plan (the “Purchase

Plan”), which allows eligible employees of the Company

to purchase Common Shares through payroll deductions.

employee’s annual salary. A plan participant may

contribute up to a maximum of 15% of their compen-

sation but not in excess of $12 for the year ended

December 31, 2003. The Company contributed $110,

$115, and $135 for the years ended December 31, 2003,

2002 and 2001, respectively.

The Purchase Plan provides for employees to purchase

Note 14i

Common Shares on a quarterly basis at a 15% discount

to the closing price of the Company’s Common Shares

on either the first day or the last day of the quarter,

whichever is lower. The amount of the payroll deduc-

tions will not exceed a percentage of the participant’s

annual compensation that the Committee establishes

from time to time, and a participant may not purchase

more than 1,000 Common Shares per quarter. Compen-

sation expense will be recognized by the Company to

the extent of the above discount to the average closing

price of the Common Shares with respect to the appli-

cable quarter. During 2003, 810 Common Shares were

purchased by Employees under the Purchase Plan.

Dividends and
Distributions Payable

On December 9, 2003, the Company declared a cash

dividend for the quarter ended December 31, 2003

of $0.16 per Common Share. The dividend was paid

on January 15, 2004 to shareholders of record as of

December 31, 2003.

The Company has determined that the cash distributed

to the shareholders is characterized as follows for Fed-

eral income tax purposes:

Years Ended December 31,

2003

100%

2002

2001

44%

56%

79%

21%

100%

Note 13i

Employee 401(k) Plan

Ordinary income

Long-term capital gain

The Company maintains a 401(k) plan for employees

under which the Company currently matches 50%

of a plan participant’s contribution up to 6% of the

Acadia Realty Trust 2003 Annual Report

Note 15i

Income Taxes

Dividends and Distributions Payable, Due to Related

Parties and Other Liabilities — The carrying amount

of these assets and liabilities approximates fair value

The Company believes it qualifies as a REIT and there-

due to the short-term nature of such accounts.

fore is not liable for income taxes at the federal level or

in most states for the current year as well as for future

years. Accordingly, for the years ended December 31,

2003, 2002 and 2001, no provision was recorded for

federal or substantially all state income taxes.

The following unaudited table reconciles the Com-

pany’s book net income to REIT taxable income before
dividends paid deduction: No

Derivative Instruments — The fair value of these instru-

ments is based upon the estimated amounts the Com-

pany would receive or pay to terminate the contracts

as of December 31, 2003 and 2002 and is determined

using interest rate market pricing models.

Mortgage Notes Payable — As of December 31, 2003

and 2002, the Company has determined the estimated

fair value of its mortgage notes payable are approximately

Years ended
December 31,
2002
Actual

2003
Estimate

2001
Actual

$193,619 and $208,083, respectively, by discounting future

cash payments utilizing a discount rate equivalent to the

Book net income

$ 7,853

$19,399 $ 9,802

rate at which similar mortgage notes payable would be

originated under conditions then existing.

3,828

(6,802)

2,091

On January 1, 2001, the Company adopted SFAS No. 133,

I N T E R E S T R A T E H E D G E S

Book/tax difference in

depreciation and

amortization

Book/tax difference on

gains/losses from capital

transactions

Other book/tax

differences, net

REIT taxable income

before dividends paid

deduction

—

904

2,595

(326)

1,380

815

$11,355

$ 14,881 $15,303

Note 16i

Financial Instruments

F A I R V A L U E O F F I N A N C I A L I N S T R U M E N T S

SFAS No. 107, “Disclosures About Fair Value of Financial

Instruments” requires disclosure on the fair value of

“Accounting for Derivative Instruments and Hedging

Activities,” as amended by SFAS No. 138, “Accounting

for Certain Derivative Instruments and Certain Hedging

Activities.” In connection with the adoption of SFAS

No. 133, the Company recorded a transition adjustment

of $149 related to the January 1, 2001 valuation of two

LIBOR interest rate caps that hedged $23,203 of variable-

rate mortgage debt. This adjustment is reflected as a

cumulative effect of a change in accounting principle in

the accompanying consolidated statements of income.

In June of 2002, the Company completed two interest

rate swap transactions to hedge the Company’s exposure

to changes in interest rates with respect to $25,047 of

LIBOR based variable rate debt. These agreements, which

are for $15,885 and $9,162 of notional principal, mature on

January 1, 2007 and June 1, 2007, respectively and are at a

financial instruments. Certain of the Company’s assets

weighted average fixed interest rate of 6.2%.

and liabilities are considered financial instruments.

Fair value estimates, methods and assumptions are

set forth below.

Cash and Cash Equivalents, Cash in Escrow, Rents

Receivable, Notes Receivable, Prepaid Expenses,

On July 10, 2002, the Company entered into an interest

rate swap agreement to hedge its exposure to changes

in interest rates with respect to $12,288 of LIBOR based

variable-rate debt. The swap agreement, which matures

on January 1, 2007, provides for a fixed all-in interest

Other Assets, Accounts Payable and Accrued Expenses,

rate of 4.1%.

Acadia Realty Trust 2003 Annual Report 35

N O T E S T O C O N S O L I D A T E D S T A T E M E N T S continued

During 2001, the Company completed two interest rate

comprehensive loss and $229 as a reduction of minority

swap transactions to hedge the Company’s exposure

interest in Operating Partnership. For the years ended

to changes to interest rates with respect to $50,000

December 31, 2003 and 2002, the Company recorded

of LIBOR based variable rate debt. The first swap agree-

in interest expense an unrealized gain (loss) of $51 and

ment, which extends through April 1, 2005, provides

($122), respectively, due to partial ineffectiveness on

for a fixed all-in rate of 6.55% on $30,000 of notional

one of the swaps. The ineffectiveness resulted from

principal. The second swap agreement, which extends

differences between the derivative notional and the

through October 1, 2006, provides for a fixed all-in rate

principal amount of the hedged variable rate debt.

of 6.28% on $20,000 of notional principal.

The Company’s interest rate hedges are designated as

The Company is also a party to two swap agreements

cash flow hedges and hedge the future cash outflows

with a bank through its 49% interest in Crossroads

on mortgage debt. Interest rate swaps that convert

(Note 4). These swap agreements effectively fix the

variable payments to fixed payments, such as those

interest rate on the Company’s pro rata share of the

held by the Company, as well as interest rate caps,

Crossroads mortgage debt.

The following table summarizes the notional values

and fair values of the Company’s derivative financial

instruments as of December 31, 2003. The notional

value does not represent exposure to credit, interest

rate or market risks:

Hedge
Type

Notional
Value

Rate

Interest
Maturity

Fair
Value

LIBOR Swap1 $ 11,974
5,000

LIBOR Swap1

5.94% 6/16/07

$ (1,217)

6.48% 6/16/07

(599)

floors, collars, and forwards are cash flow hedges. The

unrealized gains and losses in the fair value of these

hedges are reported on the balance sheet with a

corresponding adjustment to either accumulated other

comprehensive income or earnings depending on the

type of hedging relationship. For cash flow hedges,

offsetting gains and losses are reported in accumulated

other comprehensive income. Over time, the unrealized

gains and losses held in accumulated other comprehen-

sive income will be reclassified to earnings. This reclas-

sification occurs over the same time period in which the

(1,816)

hedged items affect earnings. Within the next twelve

30,000

4.80%

4/1/05

(1,227)

20,000

4.53% 10/1/06

(1,091)

months, the Company expects to reclassify to earnings

as interest expense approximately $3,462 of the current

balance held in accumulated other comprehensive loss.

LIBOR Swap

8,992

4.47%

6/1/07

15,605

4.32%

1/1/07

12,072

4.11%

1/1/07

(472)

(748)

(506)

(4,044)

$(5,860)

1Relates to the Company’s investments in Crossroads. These
swaps effectively fix the interest rate on the Company’s
pro rata share of mortgage debt. The fair values of these
instruments are reflected as components of the Company’s
investment in Crossroads in the accompanying consolidated
financial statements.

Note 17i

Earnings per Common Share

Basic earnings per share was determined by dividing

the applicable net income to common shareholders

for the year by the weighted average number of Com-

mon Shares outstanding during each year consistent

with SFAS No. 128. Diluted earnings per share reflects

the potential dilution that could occur if securities or

other contracts to issue Common Shares were exercised

or converted into Common Shares or resulted in the

As of December 31, 2003, the derivative instruments

issuance of Common Shares that then shared in the

were reported at their fair value as derivative instru-

earnings of the Company. The following table sets

ments of $4,044 and as a reduction of investments in

forth the computation of basic and diluted earnings

unconsolidated partnerships of $1,816. As of December

per share from continuing operations for the periods

31, 2003, unrealized losses totaling $5,734 represented

indicated. For the year ended December 31, 2001 no

the fair value of the aforementioned derivatives, of

additional shares were reflected as the impact would

which $5,505 was reflected in accumulated other

be anti-dilutive in such years.

Acadia Realty Trust 2003 Annual Report

Numerator:

Income from continuing operations — basic earnings per share

$ 7,853

$ 11,517

$ 5,156

Years ended December 31,

2003

2002

2001

Effect of dilutive securities:

Preferred OP Unit distributions

Numerator for diluted earnings per share

Denominator:

185

8,038

199

11,716

—

5,156

Weighted average shares — basic earnings per share

26,589

25,321

28,313

Effect of dilutive securities:

Employee stock options

Convertible Preferred OP Units

Dilutive potential Common Shares

Denominator for diluted earnings per share

Basic earnings per share from continuing operations

Diluted earnings per share from continuing operations

615

292

907

27,496

0.30

0.29

190

295

485

25,806

$ 0.46

$ 0.45

—

28,313

0.18

The effect of the conversion of Common OP Units is not reflected in the above table as Common OP Units are

exchangeable for Common Shares on a one-for-one basis. The income allocable to such units is allocated on this

same basis and reflected as minority interest in the accompanying consolidated financial statements. As such, the

assumed conversion of these units would have no net impact on the determination of diluted earnings per share.

Acadia Realty Trust 2003 Annual Report 37

N O T E S T O C O N S O L I D A T E D S T A T E M E N T S continued

Note 18i

Summary of Quarterly Financial Information (unaudited)

The quarterly results of operations of the Company for the years ended December 31, 2003 and 2002 are as follows:

Revenue

Income from continuing operations

Income from discontinued operations

Net income

Net income per Common Share — basic:
Income from continuing operations
Income from discontinued operations
Net income

Net income per Common Share — diluted:
Income from continuing operations
Income from discontinued operations
Net income

Cash dividends declared per Common Share

Weighted average Common Shares

outstanding:
Basic

Diluted

Revenue

Income from continuing operations

Income from discontinued operations

Net income

Net income per Common Share — basic:
Income from continuing operations
Income from discontinued operations
Net income

Net income per Common Share — diluted:
Income from continuing operations
Income from discontinued operations
Net income

Cash dividends declared per Common Share

Weighted average Common Shares

outstanding:
Basic

Diluted

MARCH 31
$ 18,125

3,463

—

3,463

$ 0.14
—
0.14

$ 0.145

JUNE 30
$16,465

2,443

—

2,443

$ 0.09
—
0.09

$ 0.145

2003

SEPTEMBER 30
$ 16,704

DECEMBER 31
$ 18,151

TOTAL
$69,445

2,424

—

2,424

$ 0.09
—
0.09

$ 0.145

(477)

—

(477)

$ (0.02)
—
(0.02)

$ 0.160

7,853

—

7,853

$ 0.30
—
0.30

$ 0.29
—
0.29

$ 0.595

25,377,095

26,387,010

27,235,707

27,334,649

26,589,432

25,933,960

27,175,713

28,300,443

28,551,778

27,496,267

2002

MARCH 31
$19,526

JUNE 30
$16,023

SEPTEMBER 30
$16,208

DECEMBER 31
$17,590

6,286

180

6,466

$ 0.24
0.01
0.25

$ 0.13

1,770

2,052

3,822

$ 0.07
0.08
0.15

$ 0.13

1,990

(108)

1,882

$ 0.08
—
0.08

0.13

1,471

5,758

7,229

$ 0.06
0.23
0.29

$ 0.06
0.22
0.28

$ 0.13

TOTAL
$ 69,347

11,517

7,882

19,399

$ 0.46
0.31
0.77

$ 0.45
0.31
0.76

0.52

26,376,443

24,775,053

24,974,176

25,173,874

25,320,631

26,786,454

25,252,842

24,974,176

25,684,405

25,806,035

Acadia Realty Trust 2003 Annual Report

Note 19i

Commitments and Contingencies

Under various Federal, state and local laws, ordinances

and regulations relating to the protection of the envi-

ronment, a current or previous owner or operator of

real estate may be liable for the cost of removal or

remediation of certain hazardous or toxic substances

disposed, stored, generated, released, manufactured or

The Company is involved in various matters of litigation

arising in the normal course of business. While the Com-

pany is unable to predict with certainty the amounts

involved, the Company’s management and counsel are

of the opinion that, when such litigation is resolved,

the Company’s resulting liability, if any, will not have

a significant effect on the Company’s consolidated

financial position or results of operations.

discharged from, on, at, under, or in a property. As such,

Note 20i

the Company may be potentially liable for costs associ-

ated with any potential environmental remediation at

any of its formerly or currently owned properties.

The Company conducts Phase I environmental reviews

with respect to properties it acquires. These reviews

include an investigation for the presence of asbestos,

underground storage tanks and polychlorinated biphenyls

(PCBs). Although such reviews are intended to evaluate

the environmental condition of the subject property

as well as surrounding properties, there can be no

assurance that the review conducted by the Company

will be adequate to identify environmental or other

problems that may exist. Where a Phase I assessment

so recommended, a Phase II assessment was conducted

to further determine the extent of possible environmen-

tal contamination. In all instances where a Phase I or II

assessment has resulted in specific recommendations

for remedial actions, the Company has either taken or

scheduled the recommended remedial action. To mitigate

unknown risks, the Company has obtained environ-

mental insurance for most of its properties, which covers

only unknown environmental risks.

The Company believes that it is in compliance in all

Subsequent Events

In January 2004, the Company formed a joint venture

with Klaff Realty, LP (“Klaff”) and Lubert Adler Manage-

ment, Inc. for the purpose of making investments in

surplus or underutilized properties owned or controlled

by distressed retailers. The Company has also acquired

Klaff’s rights to provide asset management, leasing,

disposition, development and construction services

for an existing portfolio of retail properties and/or

leasehold interests comprised of approximately 10

million square feet of retail space. The rights were

acquired with the issuance of $4.0 million in preferred

Operating Partnership units.

In January 2004, the Company entered into a forward

starting swap agreement which commences April 1,

2005. The swap agreement, which extends through

January 1, 2011, provides for a fixed rate of 4.345% on

$37,667 of notional principal.

In February 2004, the Company entered into three

forward starting swap agreements as follows:

Commencement Maturity

Date

Notional
Principal

Rate

material respects with all Federal, state and local ordi-

10/2/2006

10/1/2011

$ 11,410

4.895%

nances and regulations regarding hazardous or toxic

substances. Management is not aware of any environ-

mental liability that they believe would have a material

adverse impact on the Company’s financial position or

results of operations. Management is unaware of any

instances in which it would incur significant environ-

mental costs if any or all properties were sold, disposed

of or abandoned. However, there can be no assurance

10/2/2006

1/1/2010

4,640

4.710%

6/1/2007

3/1/2012

8,434

5.140%

These swap agreements have been executed in con-

templation of the finalization of the extension and

modification of certain mortgage loans currently

being negotiated.

that any such non-compliance, liability, claim or expen-

On March 11, 2004, the Company invested approximately

diture will not arise in the future.

$4.1 million in a mortgage loan secured by a shopping

center property.

Acadia Realty Trust 2003 Annual Report 39

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1311 Mamaroneck Avenue
Suite 260
White Plains, NY 10605
Tel: 800.227.5570

Pacesetter Park Shopping Center
Pomona, NY

Village Commons Shopping Center
Smithtown, NY

Mad River Station
Dayton, OH