Acadia Realty Trust
Annual Report 2009

Plain-text annual report

2009 Annual Report Focused. Disciplined. Value-Driven. Financial Highlights In thousands 2009 2008 2007 2006 2005 Total Revenues $ 147,345 $ 137,936 $ 95,092 $ 89,335 $ 87,592 Funds from Operations1 49,613 37,964 42,094 39,860 35,842 Real Estate Owned, at Cost Common Shares Outstanding Operating Partnership Units Outstanding 1,207,406 1,091,995 817,620 613,828 634,871 39,787 32,358 32,184 31,773 31,543 658 648 642 642 653 1 The Company considers funds from operations (“FFO”) as defined by the National Association of RealEstate 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 pre- sented to assist investors in analyzing the performance 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 (losses) from sales of depreciated property and depreciation and amortization. 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 available 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 (losses) from sales of depreciated property, plus deprecia- tion and amortization, and after adjustments for unconsolidated partnerships and joint ventures. To Our Shareholders: Focused. Disciplined. Value-Driven. Dear fellow shareholders, 2009 brought with it a unique and unprecedented set of challenges for both our economy in general and the real estate industry specifically. It was certainly a challenging year for our company as well. If you recall, in early March 2009, the Dow Jones Industrial Average closed around 6,600, down more than 50% from 14,000+ less than 18 months earlier, and the MSCI US REIT index was down approximately 70% over the same period. Additionally, commercial real estate transactional and lending activity remained frozen and, to many, it appeared as though commercial real estate would be the “next shoe to drop.” Kenneth F. Bernstein President and CEO Fortunately, that did not occur. In fact, a year later, we are seeing noticeable signs of healing. First of all, the Dow has significantly recovered, and Acadia, too, ended the year on a positive note with a 12-month total shareholder return of 24%. Secondly, and more importantly for our industry, optimism is beginning to creep back into the real estate capital markets. Although operating fundamentals, a lagging indicator of economic health, will likely continue to be challenged over the next few quarters, positive leasing momentum within our own portfolio encour- ages us that the beginning of an upward trend is not too far off. There are a host of metrics that we can use to forecast a healthy economy. For the shopping center industry, employment gains will be an essential driver to enable consumer spending to return to acceptable levels. Until we see clearer signs of job formation, it is hard for me to be overly optimistic about a strong rebound for retail. Our core portfolio is structured to take advantage of densely-populated, high barrier-to-entry and supply-constrained markets. Furthermore, the majority of our properties are anchored by neces- sity and discount/value retailers, and thus less dependent on discretionary consumer spending. Additionally, our healthy balance sheet and access to growth capital strongly positions us to capitalize on new opportunities as they emerge. It is these key principles — maintaining a healthy balance sheet, a well-located, well-leased core portfolio and an opportunistic growth strategy — that have kept us successfully in business for the past 12 years and earned us the distinction of being the top-performing shopping center REIT of the past decade and one of the top five among all REITs over the same period. It is with good reason that these principles remain in place to this day. Balance Sheet Strength Matters Again At the onset of 2009, with the capital markets still frozen as a result of the prior year’s events, it could not have been clearer that liquidity would be of paramount importance. What was not clear was how long capital would remain unavailable. A weakened balance sheet, especially in the mid- dle of a market correction, can have a significant negative impact on the health of a company’s real estate portfolio and, ultimately, a company’s ability to create long-term shareholder value. If a company has too much debt, the quality of the portfolio often suffers as assets are haphazardly sold, or worse, forfeited, to settle impending debt maturities. Conversely, for those with the financial stamina to weather droughts in liquidity in the capital markets, the potential exists for portfolio enhancement through the opportunistic acquisition of assets from distressed sellers. We learned this lesson the hard way following our reverse merger with Mark Centers Trust in 1998, when we were saddled with a weak balance sheet and a difficult portfolio. This sidelined us in the early stages of what was, in retrospect, an extremely Acadia Realty Trust 2009 Annual Report 1 fruitful period for acquisitions. Fortunately, since that time and, in particular, as the market became heated in the mid 2000s, we proactively pruned the portfolio, opportunistically disposing of the vast majority of our non-core assets and recycling the sale proceeds into higher-quality retail assets located in markets with high barriers-to-entry. As a result, we were neither under-capitalized nor over- exposed when the recession began in December 2007, and our returns have reflected this. Due to our disciplined approach to managing our balance sheet, Acadia began the year in a sound financial position. As of December 31, 2008, the core portfolio had a total of $117 million in cash- on-hand and availability under existing credit facilities. Additionally, including extension options, the core portfolio did not have any debt maturing until December 2011, at which time $107 million of unsecured convertible debt was scheduled to mature. Nevertheless, given the uncertainties in the capital markets, in mid-April, we chose to further fortify our balance sheet by raising $68.7 million of gross proceeds through a secondary equity offering of 5.75 million common shares priced at $11.95 per share. Although it was a difficult decision for many reasons, not the least of which was the fact that the price at issuance was approximately half that of the prior year, the “prudent” path was not with- out benefits. Not only did we use the proceeds to pay down the existing secured line of credit debt, we also used the funds accretively by repurchasing a portion of Acadia’s outstanding convertible debt at a discount. In fact, since the beginning of the fourth quarter of 2008, we have been able to purchase a total of $65 million (in face value) of our convertible debt, which represents more than 50% of the orig- inal balance, at an average 13% yield to maturity. Furthermore, the stock issuance supplemented our liquidity position, providing us with the avail- ability of working capital as well as cash-on-hand for investment in both existing and new ventures. More than 10 months later, Acadia continues to have ample liquidity and limited exposure to debt maturities. As of year-end 2009, the core portfolio had $130 million of cash-on-hand and availability under existing lines of credit and, after giving effect to extension options, has no debt maturing until December 2011. At that time, the remaining $50 million balance of Acadia’s convertible debt will mature. Furthermore, with a debt yield of 12.7%, a debt to EBIDTA ratio of 5.7x and a fixed charge coverage ratio of 3.2x for the 12 months ended December 31, 2009, we believe the portfolio (comprised of the core and pro rata share of our opportunity funds) can be refinanced even at today’s rigorous underwriting standards. Thankfully, compared to a year ago, it is evident that the capital markets have begun the healing process. Although lenders remain appropriately cautious, we’ve seen that there is financing for high-quality projects — even construction financing — available to well-capitalized borrowers with a proven track record. To this point, subsequent to year-end, we closed a $48 million construction loan to finance the development of Canarsie Plaza, a 265,000 square foot shopping center located in Brooklyn, New York, which has been 80% pre- leased to BJ’s Wholesale Club and the New York Police Department. We also successfully completed other financings throughout the past year with lenders who continue to be extremely supportive of our thoughtful approach to a challenging market- place. Needless to say, we are greatly appreciative of this support from our key lenders. Core Portfolio Differentiation Continues Although same-store net operating income for 2009 decreased 2.6% year-over-year, this was, in fact, a stronger performance than we anticipated. Approximately two-thirds of that amount resulted from two events: the bankruptcy of Circuit City and our termination of a lease with Acme Super- market, the dark anchor at our Absecon, New Jersey 2 Acadia Realty Trust 2009 Annual Report shopping center. Given the relative strength of our assets within their respective markets, we have been able to replace a significant portion of this vacancy with credit-worthy tenants who are well- positioned to outperform their peers in spite of the difficult retailing environment. Within the past year, our former Circuit City space has been re-tenanted with Best Buy, and approximately half of the former Acme Supermarket box has been re-leased to two tenants, including Dollar Tree. It is tenants such as these that are the building blocks of a recession-resistant portfolio. Approxi- mately one quarter of the core portfolio is anchored by discount and value-oriented retailers, ranging from Target to T.J.Maxx, and, more significantly, nearly 60% is anchored by necessity-based super- market and drug store retailers, including Stop & Shop and Walgreens. The remaining 15% of the portfolio is comprised of high-quality street retail in inherently valuable locations such as Greenwich, Connecticut and Lincoln Park, Chicago, Illinois. Looking ahead, despite our portfolio’s strategic positioning, it seems likely that market forces will continue to impact same-store net operating income and occupancy in the near term. At the same time, we are seeing preliminary signs of a recovery. While we expect this recovery to be fragile and fragmented, we look forward to improving metrics on the horizon. Well-Positioned for External Growth With our portfolio and balance sheet in a relatively strong position heading into 2009, we were able to focus our attention on external growth. Although acquisition activity across the industry remained quiet, we were able to acquire one property at extremely opportunistic pricing. Cortlandt Towne Center In January 2009, while the vast majority of the world was sidelined from making additional investments, we were able to acquire Cortlandt Towne Center (“Cortlandt”) for $78 million, which represents a substantial discount to replacement cost. Anchored by quality, national retailers such as Walmart, Marshalls, Best Buy and A&P Food Market, the 642,000 square foot shopping center is located in northern Westchester County, New York, where it is the dominant retail property in its high barrier-to-entry submarket. We acquired the property at an attractive 9% going-in unlevered yield and with the “upside” of re-leasing the vacant Linens ‘n Things and Levitz boxes. We realized a portion of this upside during the fourth quarter of 2009, when we executed a lease with Bed Bath & Beyond for the majority of the former Linens ‘n Things space. After giving effect to this lease and a few prospective small shop leases that have gained momentum, the investment’s return is expected to exceed 10% on an unlevered basis and 15% on a levered basis. Fund III Cortlandt was acquired by Acadia’s third discretion- ary investment fund (“Fund III”). Launched in May 2007, Fund III has utilized approximately 30% of its $502.5 million of capital commitments through year-end 2009. We have until 2012 to deploy the balance of the fund’s commitments (approximately $350 million of equity to acquire approximately $1 billion in additional assets). As we look forward to 2010, we will continue to remain poised but patient, confident in our team’s collective cre- ativity and flexibility in dealing with a protracted period of de-levering. With capital accumulating on the sidelines, we suspect that some groups will grow impatient and lose their investment discipline. While this activity might be rewarded in the short run — any invest- ment done in today’s low interest rate environment should be accretive to quarterly earnings — over- paying for assets rarely ends well. Irrespective Acadia Realty Trust 2009 Annual Report 3 of how this cycle matures, we are confident that we have many different means for creating long- term shareholder value without having to stretch beyond our comfort level. Existing Fund Investments Historically, our external growth platform has had a dual investment focus: opportunistic and “value-add.” Retailer Controlled Property Venture: In addition to Cortlandt, a prime example of our opportunistic strategy is our Retailer Controlled Property (“RCP”) Venture, which was launched in early 2004 with our partners Klaff Realty and Lubert-Adler and was designed to unlock the value of retailer-owned real estate. Notable transactions include Mervyns Department Stores and Albertson’s Supermarkets, which we acquired as part of a consortium of investors. Through December 31, 2009, Acadia, through its first and second opportunity funds (“Fund I” and “Fund II,” respectively), has earned a cash-basis profit of $58.0 million from its aggre- gate RCP Venture investments, equating to a 2.0x equity multiple on invested capital. New York Urban/Infill Redevelopment Program: As a complement to our opportunistic investment activities, we have also undertaken a number of “value-add” redevelopments. In 2004, our New York-centric program was formed with our partners, P/A Associates, primarily in response to cap rate compression, which had begun to make the acquisition of stabilized, core-quality real estate at reasonable pricing difficult. Today, the portfolio is steadily progressing toward stabilization and includes ten properties, of which six are operating. Collectively they are 85% retail leased, 77% office leased, one property is under construction and 80% pre-leased, and three are in design. Despite the weakened economy, we continue to gain leasing traction across this portfolio, due to the underlying strength of our real estate and the unfulfilled demand for retail within the densely- populated New York City boroughs and Westchester County. In May, BJ’s Wholesale Club opened at Pelham Manor Shopping Plaza and, since then, has consistently posted strong weekly sales. As previously mentioned, the retailer will also anchor our Canarsie, Brooklyn project. With respect to our three design-phase assets located in Brooklyn and Northern Manhattan, we continue to make progress in our pre-development activities. This spring, we will commence a small first phase (40,000 to 50,000 square feet) of our CityPoint development in downtown Brooklyn. We will commence construction on the balance of that project, as well as the other projects, when we have the appropriate leasing and financing in place. While it is always nice to show activity, the key to these types of developments is to only start them when the time is right. Storage Post Portfolio: Self-storage is a natural, vertical complement to urban retail redevelop- ments. With the goal of maximizing the value of our real estate, we partnered with Storage Post, a New York-based self-storage company, at two of our Fund II urban shopping centers. In addition, Acadia, through Fund II, and Storage Post devel- oped one stand-alone self storage facility in Brooklyn, New York. Subsequently, in February 2008, we completed the acquisition and recapital- ization of an 11-property self storage portfolio with the same operator. Similar to our other three self- storage assets, the properties are located in supply- constrained, dense urban markets in New York and New Jersey with natural barriers-to-entry given the lack of developable land within the immediate trade area. As a result, the portfolio has held up relatively well, considering the severity of the economic downturn. In fact, with respect to our five stabilized properties, occupancy increased from 81.8% as of the fourth quarter of 2008 to 85.3% as of the fourth quarter of 2009. Over the 4 Acadia Realty Trust 2009 Annual Report Our goals are to maintain a healthy balance sheet, build upon our high-quality core portfolio and, through disciplined value-add and opportunistic investing, add value for our stakeholders. Over the past decade, we have achieved an 18% 10-year annual compound total shareholder return, one of the best in the REIT industry, and we are committed to repeating our success in this next decade. Our success was certainly not the result of any one person’s efforts. At Acadia, we have built one of the best, most dedicated teams of real estate professionals that any shareholder (or CEO) could ask for. We have complemented this team with skillful joint venture partners, astute fund investors, reliable lenders and a tremendous board of trustees. I am thankful to all of them for their hard work and commitment over the past decade. And, finally, we are grateful for and appre- ciate the continued support of our shareholders as we head into the next decade. Kenneth F. Bernstein President and CEO same time period, same-store net operating income increased by approximately 5%. While our focus for growth will remain predominantly in the retail area, we look forward to the successful stabiliza- tion of these properties. Mezzanine and Preferred Equity Investments We applied the same criteria — barriers-to-entry, population density, and asset quality — to our mezzanine and preferred equity investments. Most recently, we made two investments in high-quality projects located in Georgetown, Washington D.C. and the Upper West Side of Manhattan. The first was a $48 million investment collateralized by a 23-property retail portfolio with locations along Georgetown’s famed M Street and Wisconsin Avenue. The second was a $41 million investment collateralized by a Trader Joe’s-anchored retail and residential development located at the corner of 72nd Street and Broadway. While all properties and developments came under pressure during 2009, high-quality assets such as these are uniquely well-positioned to regain and retain their value. We suspect that, in retrospect, compared to other investments made during late 2007 and 2008, the blended mid-teens return that we expect to achieve on these two investments will look very attractive. Looking Ahead We are extremely excited as we look ahead to 2010. We believe that we are not only “well-hedged” against any ongoing market disruption, but also well-positioned to take advantage of it. Further- more, given our relatively small size, we know that we do not need to rely on the promise of a “flood” to experience meaningful and profitable acquisition activity. If the economy should recover more aggressively than it currently appears, both our existing and new development projects will surely benefit. Acadia Realty Trust 2009 Annual Report 5 Acadia Core and Opportunity Fund Properties SELF-STORAGE PROPERTIES Suffern, Suffern, New York Yonkers, Westchester, New York Jersey City, Jersey City, New Jersey Webster Avenue, Bronx, New York Linden, Linden, New Jersey Bruckner Boulevard, Bronx, New York New Rochelle, Westchester, New York Long Island City, Queens, New York Fordham Road, Bronx, New York Ridgewood, Queens, New York Lawrence, Lawrence, New York Liberty Avenue, Queens, New York Pelham Plaza, Pelham Manor, New York Atlantic Avenue, Brooklyn, New York RETAIL PROPERTIES Core Portfolio NEW YORK REGION 239 Greenwich Avenue, Greenwich, CT Elmwood Park Shopping Center, Elmwood Park, NJ A&P Shopping Plaza, Boonton, NJ Village Commons Shopping Center, Smithtown, NY The Branch Plaza, Smithtown, NY Amboy Shopping Center, Staten Island, NY Bartow Avenue, Bronx, NY Pacesetter Park Shopping Center, Pomona, NY 2914 Third Avenue, Bronx, NY LA Fitness, Staten Island, NY 200 West 54th Street, New York, NY East 17th Street, New York, NY Crossroads Shopping Center, White Plains, NY NEW ENGLAND REGION Town Line Plaza, Rocky Hill, CT Methuen Shopping Center, Methuen, MA Crescent Plaza, Brockton, MA New Loudon Center, Latham, NY Walnut Hill Plaza, Woonsocket, RI The Gateway, South Burlington, VT MIDWEST REGION Hobson West Plaza, Naperville, IL Clark and Diversey, Chicago, IL Merrillville Plaza, Hobart, IN Route 202 Shopping Center, Wilmington, DE Mark Plaza, Edwardsville, PA Plaza 422, Lebanon, PA Route 6 Mall, Honesdale, PA Chestnut Hill Shoppes, Philadelphia, PA Abington Towne Center, Abington, PA Opportunity Fund Portfolio FUND I PROPERTIES Granville Center, Columbus, OH Tarrytown Centre, Tarrytown, NY Sterling Heights Shopping Center, Sterling Heights, MI Kroger/Safeway Portfolio, various locations FUND II PROPERTIES Oakbrook, Oakbrook, IL 98th Street and Liberty Avenue, Queens, NY 216th Street, New York, NY 260 East 161st Street, Bronx, NY Fordham Place, Bronx, NY Pelham Manor Shopping Plaza, Pelham Manor, NY Sherman Plaza, New York, NY CityPoint, Brooklyn, NY Atlantic Avenue, Brooklyn, NY Canarsie Plaza, Brooklyn, NY FUND III PROPERTIES 125 Main Street, Westport, CT Bloomfield Town Square, Bloomfield Hills, MI Mad River Station, Dayton, OH Cortlandt Towne Center, Mohegan Lake, NY Sheepshead Bay Plaza, Brooklyn, NY MID-ATLANTIC REGION Marketplace of Absecon, Absecon, NJ Ledgewood Mall, Ledgewood, NJ Brandywine Town Center, Wilmington, DE Market Square Shopping Center, Wilmington, DE 6 Acadia Realty Trust 2009 Annual Report Form 10-K Report 2009 Focused. Disciplined. Value-Driven. United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-K (cid:109) (cid:175) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2009 (cid:175) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission File Number 1-12002 ACADIA REALTY TRUST (Exact name of registrant as specified in its charter) Maryland (State of incorporation) 23-2715194 (I.R.S. employer identification no.) 1311 Mamaroneck Avenue, Suite 260, White Plains, NY 10605 (Address of principal executive offices) (914) 288-8100 (Registrant’s telephone number) Securities registered pursuant to Section 12(b) of the Act: Common Shares of Beneficial Interest, $.001 par value (Title of Class) New York Stock Exchange (Name of Exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. (cid:109) YES (cid:175)(cid:202)(cid:202)(cid:202)(cid:202)(cid:202) NO (cid:175) Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act. (cid:109) YES (cid:175)(cid:202)(cid:202)(cid:202)(cid:202)(cid:202) NO (cid:175) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES (cid:175)(cid:202)(cid:202)(cid:202)(cid:202)(cid:202) NO (cid:175) (cid:109) Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES (cid:175)(cid:202)(cid:202)(cid:202)(cid:202)(cid:202) NO (cid:175) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this (cid:109) Form 10-K or any amendment to this Form 10-K. (cid:175) Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act). Large Accelerated Filer (cid:175)(cid:202)(cid:202)(cid:202)(cid:202)(cid:202)Accelerated Filer (cid:175)(cid:202)(cid:202)(cid:202)(cid:202)(cid:202)Non-accelerated Filer (cid:175)(cid:202)(cid:202)(cid:202)(cid:202)(cid:202)(cid:202)Smaller Reporting Company (cid:175) (cid:109) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant as of the last business day of the Registrant’s most recently completed second fiscal quarter was approximately $523.5 million, based on a price of $13.05 per share, the average sales price for the Registrant’s shares of beneficial interest on the New York Stock Exchange on that date. The number of shares of the Registrant’s Common Shares of Beneficial Interest outstanding on March 1, 2010 was 40,111,565. (cid:109) YES (cid:175)(cid:202)(cid:202)(cid:202)(cid:202)(cid:202) NO (cid:175) DOCUMENTS INCORPORATED BY REFERENCE Part III: Portions of the Registrant’s definitive proxy statement relating to its 2010 Annual Meeting of Shareholders presently scheduled to be held May 10, 2010 to be filed pursuant to Regulation 14A. Acadia Realty Trust 2009 Annual Report Acadia Realty Trust Form 10-K Report 2009 Table of Contents Item No. PART I Page 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 PART II 5. Market for Registrant’s Common Equity, Related Shareholder Matters, Issuer Purchases of Equity Securities and Performance Graph . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . 32 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . 48 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 PART III 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . 51 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 PART IV 15. Exhibits, Financial Statements, Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Acadia Realty Trust 2009 Annual Report Special Note Regarding Forward-Looking Statements Certain statements contained in this Annual Report on Form 10-K may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 and as such may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and provide operational support to the operating ventures in which we have a minority equity interest. All of our investments are held by, and all of our operations are conducted through, Acadia Realty Limited Partnership (the “Operating Partnership”) and entities in which the Operating Partnership owns a controlling interest. As of December 31, 2009, the Trust controlled 98% of the Oper- ating Partnership as the sole general partner. As the gen- eral partner, the Trust is entitled to share, in proportion to its percentage interest, in the cash distributions and profits and losses of the Operating Partnership. The limited part- ners generally represent entities or individuals, which con- tributed their interests in certain assets or entities to the expectations are generally identifiable by use of the words Operating Partnership in exchange for common or pre- “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” ferred units of limited partnership interest (“Common OP “believe,” “intend” or “project” or the negative thereof Units” or “Preferred OP Units,” respectively, and collec- or other variations thereon or comparable terminology. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to, those set forth under the headings “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation” in this Form 10-K. These risks and uncertainties should be considered in evaluating any forward-looking statements contained or incorporated by reference herein. PART I ITEM 1. BUSINESS General Acadia Realty Trust (the “Trust”) was formed on March 4, 1993 as a Maryland real estate investment trust (“REIT”). All references to “Acadia,” “we,” “us,” ”our,” and “Com- pany” refer to Acadia Realty Trust and its consolidated subsidiaries. We are a fully integrated, self-managed and self-administered equity REIT focused primarily on the ownership, acquisition, redevelopment and management tively, “OP Units”). Limited partners holding Common OP Units are generally entitled to exchange their units on a one-for-one basis for our common shares of beneficial interest (“Common Shares”). This structure is referred to as an umbrella partnership REIT or “UPREIT.” Business Objectives and Strategies Our primary business objective is to acquire and man- age commercial retail properties that will provide cash for distributions to shareholders while also creating the potential for capital appreciation to enhance investor returns. We focus on the following fundamentals to achieve this objective: (cid:174) Own and operate a Core Portfolio (as defined in Item 2 of this Form 10-K) of community and neighborhood shopping centers and main street retail located in mar- kets with strong demographics and generate internal growth within the Core Portfolio through aggressive redevelopment, re-anchoring and/or leasing activities. (cid:174) Maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to of retail properties, including neighborhood and community sufficient capital to fund future growth. shopping centers and mixed-use properties with retail components. We currently operate 79 properties, which we own or have an ownership interest in. These assets are located primarily in the Northeast, Mid-Atlantic and Midwestern regions of the United States and, in total, comprise approximately eight million square feet. We also have private equity investments in other retail real estate related opportunities including investments for which we (cid:174) Generate external growth through an opportunistic yet disciplined acquisition program. We target transactions with high inherent opportunity for the creation of addi- tional value through redevelopment and leasing and/or transactions requiring creative capital structuring to facilitate the transactions. These transactions may include other types of commercial real estate besides those which we invest in through our Core Portfolio. Acadia Realty Trust 2009 Annual Report 1 These may also include joint ventures with private partners (including the Operating Partnership) and 20% equity investors for the purpose of making investments to the Operating Partnership as a Promote. The Operating in operating retailers with significant embedded value Partnership also earns fees and/or priority distributions for in their real estate assets. asset management services equal to 1.5% of the allocated Investment Strategy — External Growth through Opportunistic Acquisition Platforms The requirements that acquisitions be accretive on a long- term basis based on our cost of capital, as well as increase the overall portfolio quality and value, are core to our acquisition program. As such, we constantly evaluate the invested equity, as well as for property management, leasing, legal and construction services. All such fees and priority distributions are reflected as a reduction in the noncontrolling interest share in income from Opportunity Funds in the Consolidated Financial Statements beginning on page 57 of this Form 10-K. blended cost of equity and debt and adjust the amount of Our acquisition program was executed primarily through acquisition activity to align the level of investment activity Fund I through June 2004. Fund I focused on targeting assets with capital flows. We may also engage in discussions for acquisition that had superior in-fill locations, restricted with public and private entities regarding business combi- competition due to high barriers to entry and in-place nations. In addition to our direct investments in real estate below-market anchor leases with the potential to create assets, we have also capitalized on our expertise in the significant additional value through re-tenanting, timely acquisition, redevelopment, leasing and management of capital improvements and property redevelopment. retail real estate by establishing discretionary opportunity funds in which we earn, in addition to a return on our equity interest and carried interest (“Promote”), fees and priority distributions for our services. To date, we have launched three opportunity funds (“Opportunity Funds”), Acadia As of December 31, 2009, there were 21 assets comprising approximately 1.0 million square feet remaining in Fund I in which the Operating Partnership’s interest in cash flow and income is 37.8% as a result of the Promote. Strategic Opportunity Fund, LP (“Fund I”), Acadia Strategic Fund II Opportunity Fund II, LLC (“Fund II”) and Acadia Strategic Following our success with Fund I, during June of 2004 Opportunity Fund III, LLC (“Fund III”). Due to the level of we formed a second, larger Opportunity Fund, Fund II, and our control, we consolidate these Opportunity Funds for during August of 2004, formed Acadia Mervyn Investors II, financial reporting purposes. Fund I During September of 2001, we and four of our institutional shareholders formed Fund I, and during August of 2004 formed a limited liability company, Acadia Mervyn Inves- tors I, LLC (“Mervyns I”), whereby the investors commit- ted $70.0 million for the purpose of acquiring real estate assets. The Operating Partnership committed an additional $20.0 million in the aggregate to Fund I and Mervyns I, as the general partner or managing member with a 22.2% interest. In addition to a pro-rata return on its invested equity, the Operating Partnership is entitled to a Promote based upon certain investment return thresholds. Cash flow was distributed pro-rata to the partners (including the Operating Partnership) until a 9% cumulative return was LLC (“Mervyns II”), with the investors from Fund I as well as two additional institutional investors, whereby the investors, including the Operating Partnership, committed capital totaling $300.0 million. The Operating Partnership is the managing member with a 20% interest in Fund II and Mervyns II and can invest the committed equity on a discretionary basis within the parameters defined in the Fund II and Mervyns II operating agreements. The terms and structure of Fund II and Mervyns II are substantially the same as Fund I and Mervyns I with the exception that the Preferred Return is 8%. As of December 31, 2009, $223.3 million of Fund II’s and Mervyns II’s capital was invested and the balance of $76.7 million is expected to be utilized to complete development activities for existing Fund II investments. achieved (“Preferred Return”) on, and a return of all capi- Given the market conditions for commercial real estate at tal contributions. During 2006, the Fund I investors received a return of all of their capital invested in Fund I and their unpaid preferred. Accordingly, all cash flow is now distributed 80% to the the time Fund II was formed, we channeled our acquisition efforts through Fund II in two opportunistic strategies described below — the New York Urban Infill Redevelop- ment Initiative and the Retailer Controlled Property Venture. 2 Acadia Realty Trust 2009 Annual Report New York Urban/Infill Redevelopment Initiative any RCP Venture investments is to be distributed to the During September of 2004, through Fund II, we launched participants until they have received a 10% cumulative return our New York Urban Infill Redevelopment Initiative. Despite and a full return of all contributions. Thereafter, remaining the current economy, we believe that retailers continue to cash flow is to be distributed 20% to Klaff (“Klaff’s Promote”) recognize that many of the nation’s urban markets are and 80% to the partners (including Klaff). The Operating underserved from a retail standpoint, and we capitalized Partnership may also earn market-rate fees for property on this situation by investing in redevelopment projects in management, leasing and construction services on behalf dense urban areas where retail tenant demand has effec- of the RCP Venture. While we are primarily a passive part- tively surpassed the supply of available sites. During 2004, ner in the investments made through the RCP Venture, Fund II, together with an unaffiliated partner, P/A Associ- historically we have provided our support in reviewing ates, LLC (“P/A”), formed Acadia-P/A Holding Company, potential acquisitions and operating and redevelopment LLC (“Acadia-P/A”) for the purpose of acquiring, construct- assistance in areas where we have both a presence and ing, developing, owning, operating, leasing and managing expertise. We seek to invest opportunistically with the certain retail or mixed-use real estate properties in the New RCP Venture primarily in any of the following four ways: York City metropolitan area. P/A agreed to invest 10% of required capital up to a maximum of $2.2 million and Fund II, the managing member, agreed to invest the balance to (cid:174) Invest in operating retailers to control their real estate through private equity joint ventures. acquire assets in which Acadia-P/A agreed to invest. See (cid:174) Work with financially healthy retailers to create value Item 7 of this Form 10-K for further information on the from their surplus real estate. Acadia-P/A Joint Venture as detailed in “Liquidity and Capital Resources — New York Urban/Infill Redevelopment Initiative.” To date, Fund II has invested in nine projects, eight of which are in conjunction with P/A, as discussed (cid:174) Acquire properties, designation rights or other control of real estate or leases associated with retailers in bankruptcy. further in “PROPERTY ACQUISITIONS — New York (cid:174) Complete sale leasebacks with retailers in need of capital. Urban/Infill Redevelopment Initiative” below in this Item 1. Retailer Controlled Property Venture (the “RCP Venture”) During 2004, we made our first RCP Venture investment with our participation in the acquisition of Mervyns. From 2006 through 2009, we made additional investments as On January 27, 2004, through Funds I and II, we entered further discussed in “PROPERTY ACQUISITIONS — RCP into an association, known as the RCP Venture, with Klaff Venture” below in this Item 1. Realty, L.P. (“Klaff”) and Lubert-Adler Management, Inc. (“Lubert-Adler”) for the purpose of making investments in surplus or underutilized properties owned by retailers. The initial expected size of the RCP Venture is approximately $300.0 million in equity, of which our share is $60.0 million. Each participant in the RCP Venture has the right to opt out of any potential investment. We would consider expanding the size of the RCP Venture and our share thereof based on investment opportunities. Investments under the RCP Venture are structured as separate joint ventures as there may be other investors participating in certain investments in addition to Klaff, Lubert-Adler and us. Affiliates of Mervyns I and II and Fund II have invested $60.8 million in the RCP Venture to date on a non-recourse basis. While we are not required to invest any additional capital into any of these investments, should additional capital be required and we elect not to contribute our share, our proportionate share in the investment will be reduced. Cash flow from Fund III Following the success of Fund I and the full commitment of Fund II, Fund III was formed during 2007, with 14 institutional investors, including a majority of the investors from Fund I and Fund II, whereby the investors, including the Operating Partnership, committed capital totaling $503.0 million. The Operating Partnership’s share of the committed capital is $100.0 million and it is the sole man- aging member with a 19.9% interest in Fund III and can invest the committed equity on a discretionary basis within the parameters defined in the Fund III operating agreements. The terms and structure of Fund III are substantially the same as the previous Funds with the exception that the Preferred Return is 6%. As of December 31, 2009, $96.5 million of Fund III’s capital was invested. To date, Fund III has invested in 14 projects as discussed further in “PROP- ERTY ACQUISITIONS” below in this Item 1. Acadia Realty Trust 2009 Annual Report 3 Notes Receivable, Preferred Equity and Other Real Estate Related Investments Fund capital commitments and for general working capital purposes. During 2008, we purchased $8.0 million in princi- We may also invest in mortgage loans, preferred equity pal amount of the Notes and purchased an additional investments, other real estate interests and other invest- $57.0 million in principal amount during 2009, all at an ments. As of December 31, 2009, our notes receivable average discount of approximately 19%. and preferred equity investments aggregated $125.2 million, and were collateralized by either the properties (either first or second mortgage liens) or the borrower’s ownership interest in the properties. In addition, certain notes receiv- able are personally guaranteed by principals of the bor- rowers. Interest rates on our notes receivable, mezzanine loan investments and preferred equity investment, ranged from 10% to 22.4% with maturities that range from demand notes to January 2017. Capital Strategy — Balance Sheet Focus and Access to Capital Given the significant turmoil in the capital markets and Operating Strategy — Experienced Management Team with Proven Track Record Our senior management team has decades of experience in the real estate industry. We believe our management team has demonstrated the ability to create value internally through anchor recycling, property redevelopment and strategic non-core dispositions. We have capitalized on our expertise in the acquisition, redevelopment, leasing and management of retail real estate by establishing joint ventures, such as the Opportunity Funds, in which we earn, in addition to a return on our equity interest and Promote, fees and priority distributions. In connection with these the current post-recessionary period, our primary capital joint ventures we have launched several successful acqui- objective is to maintain a strong and flexible balance sheet sition platforms including our New York Urban Infill Rede- through conservative financial practices, including moderate velopment Initiative and RCP Venture. leverage levels, while ensuring access to sufficient capital to fund future growth. We intend to continue financing acquisitions and property redevelopment with sources of capital determined by management to be the most appro- priate based on, among other factors, availability in the current capital markets, pricing and other commercial and financial terms. The sources of capital may include the issuance of public equity, unsecured debt, mortgage and construction loans, and other capital alternatives including the issuance of OP Units. We manage our interest rate risk primarily through the use of fixed rate-debt and, where we use variable rate debt, we use certain derivative Operating functions such as leasing, property management, construction, finance and legal (collectively, the “Operating Departments”) are generally provided by our personnel, providing for fully integrated property management and development. By incorporating the Operating Departments in the acquisition process, acquisitions are appropriately priced giving effect to each asset’s specific risks and returns. Also, because of the Operating Departments involvement with, and corresponding understanding of, the acquisition process, transition time is minimized and management can immediately execute on its strategic plan for each asset. instruments, including London Interbank Offered Rate We typically hold our Core Portfolio properties for long-term (“LIBOR”) swap agreements and interest rate caps as investment. As such, we continuously review the existing discussed further in Item 7A of this Form 10-K. During April 2009, we issued 5.75 million Common Shares and generated net proceeds of approximately $65.0 million. The proceeds were primarily used to purchase a portion of our outstanding convertible notes payable and pay down existing lines of credit. portfolio and implement programs to renovate and mod- ernize targeted centers to enhance the property’s market position. This in turn strengthens the competitive position of the leasing program to attract and retain quality tenants, increasing cash flow and consequently property value. We also periodically identify certain properties for disposition and redeploy the capital to existing centers or acquisitions During December of 2006 and January of 2007, we issued with greater potential for capital appreciation. Our Core $115.0 million of 3.75% unsecured Convertible Notes (the Portfolio consists primarily of neighborhood and commu- “Notes”). See Note 9 to our Consolidated Financial State- nity shopping centers, which are generally dominant centers ments, which begin on page 57 of this Form 10-K for a in high barrier-to-entry markets and are principally anchored discussion of the terms and conditions of the Notes. The by supermarkets and necessity-based retailers. We believe $112.1 million in proceeds, net of related costs, were used these attributes enable our properties to better withstand to retire variable rate debt, provide for future Opportunity the current post recessionary period. 4 Acadia Realty Trust 2009 Annual Report During 2009, 2008 and 2007 we sold three non-core prop- in OPCO. During 2008 and 2007, Mervyns I and Mervyns II erties and redeployed capital to acquire three retail proper- made additional investments in Mervyns totaling $2.9 million. ties as further discussed in “ASSET SALES AND CAPITAL/ The Operating Partnership’s share of the total investment ASSET RECYCLING” below in this Item 1. in Mervyns was $4.9 million. Property Acquisitions RCP Venture Albertson’s In June 2006, the RCP Venture, as part of an investment consortium, participated in the acquisition of 699 stores from Albertson’s and 26 Cub Food stores. Mervyns II’s share of equity invested totaled $20.7 million. The Oper- ating Partnership’s share was $4.2 million. Through December 31, 2009, Mervyns I and Mervyns II have also made add-on investments in Mervyns properties total- ing $5.1 million including $1.7 million in 2009. The Operat- ing Partnership’s share of this amount was $0.8 million. During 2005, Mervyns made a distribution to the investors from the proceeds from the sale of a portion of the portfolio and the refinancing of existing debt, of which a total of $42.7 million was distributed to Mervyns I and Mervyns II. The Operating Partnership’s share of this distribution During February of 2007, Mervyns II received cash distri- amounted to $10.2 million. Subsequently, Mervyns and butions totaling approximately $44.4 million from its own- Mervyns add-ons distributed additional cash totaling $5.0 ership position in Albertson’s. The Operating Partnership’s million. The Operating Partnership’s share of this distribu- share of this distribution amounted to approximately $8.9 tion totaled $1.4 million. million. Mervyns II received additional distributions from this investment totaling $8.8 million in 2007, $10.6 million in 2008, and $2.0 million in 2009. The Operating Partner- ship’s share of these distributions aggregated $4.3 million. Other RCP Venture Investments During 2006, Fund II invested $1.1 million in Shopko and $0.7 million in Marsh. The Operating Partnership’s share of these investments totaled $0.3 million. Fund II received Through December 31, 2009, Mervyns II has made addi- a $1.1 million distribution from the Shopko investment tional add-on investments in Albertson’s totaling $2.4 million during 2007 and a $1.0 million distribution from the Marsh and received distributions totaling $1.2 million. The Oper- investment during 2008, of which the Operating Partner- ating Partnership’s share of these combined amounts was ship’s share totaled $0.4 million. During 2008, Fund II $0.4 million and $0.2 million, respectively. Mervyns Department Stores In September 2004, we made our first RCP Venture invest- ment. Through Mervyns I and Mervyns II, we invested in a consortium to acquire the Mervyns Department Store chain (“Mervyns”) consisting of 262 stores (“REALCO”) and its retail operation (“OPCO”) from Target Corporation. To date, REALCO has disposed of a significant portion of the portfolio. In addition, in November 2007, we sold our interest in OPCO and, as a result, have no further investment made additional investments of $2.0 million in Marsh. The Operating Partnership’s share was $0.4 million. During 2009, Fund II received additional distributions of $1.6 million from Marsh, of which the Operating Partner- ship’s share was $0.3 million. During 2007, Mervyns II invested $2.7 million in REX Stores Corporation. The Operating Partnership’s share was $0.5 million. During 2009, Fund II received a distribu- tion of $0.4 million from REX, of which the Operating Part- nership’s share was $0.1 million. The following table summarizes the RCP Venture investments from inception through December 31, 2009: (dollars in millions) Investor Investment Year acquired Invested capital Distributions Invested capital Distributions Operating Partnership Share Mervyns I and Mervyns II Mervyns Mervyns I and Mervyns II Mervyns add-on investments Mervyns II Mervyns II Fund II Fund II Mervyns II Albertson’s Albertson’s add-on investments 2006/2007 Shopko Marsh Rex 2004 2005/2008 2006 2006 2006 2007 Total $ 26.1 5.1 20.7 2.4 1.1 2.7 2.7 $ 60.8 $ 46.0 1.7 65.8 1.2 1.1 2.6 0.4 $ 118.8 $ 4.9 0.8 4.2 0.4 0.2 0.5 0.5 $ 11.5 $ 11.3 0.3 13.2 0.2 0.2 0.5 0.1 $ 25.8 Acadia Realty Trust 2009 Annual Report 5 New York Urban/Infill Redevelopment Initiative 161st Street — During August of 2005, Acadia-P/A purchased As of December 31, 2009, we had ten New York Urban/ Infill projects. Construction is substantially complete at six of the projects, one is under construction and three are in the design phase as follows: Construction Substantially Complete Fordham Place — During September of 2004, Acadia-P/A purchased 400 East Fordham Road, Bronx, New York. Construction of a 119,000 square foot retail component and 157,000 square foot office tower are complete. The retail component is 100% occupied and the office com- ponent is 34% occupied. The total cost of the project to Acadia-P/A was approximately $130.0 million. Pelham Manor Shopping Plaza — During October of 2004, Acadia-P/A entered into a 95-year, inclusive of extension options, ground lease to redevelop a 16-acre site in Pelham Manor, Westchester County, New York. We demolished the existing industrial and warehouse buildings, and com- pleted construction of a 229,000 square foot community retail center and a 90,000 square foot self-storage facility at a total cost of approximately $62.0 million. Home Depot was originally slated to anchor the project, but announced its decision to curtail plans for expansion. As part of our lease termination agreement with Home Depot, we pur- chased the building that Home Depot had constructed on the site for $10 million, representing approximately half of their cost of construction. The retail center is currently 74% occupied and anchored by a BJ’s Wholesale Club. 244-268 161st Street located in the Bronx, New York for $49.3 million. The redevelopment plan for this currently 99% leased and 84% occupied 10-story office building is to recapture and convert street level office space into retail. Additional redevelopment costs to Acadia-P/A are anticipated to be approximately $16.0 million. Atlantic Avenue — During May of 2007, we, through Fund II and in partnership with Post Management, LLC (“Storage Post”), acquired a property on Atlantic Avenue in Brooklyn, New York. Storage Post is our unaffiliated partner in our self-storage portfolio (see below) and at two of our other New York urban projects with a self-storage component. During 2009, we completed construction of the 110,000 square feet, six-story storage facility and commenced operations. The total cost of the project was approximately $23.0 million. Under Construction Canarsie — During October of 2007, Acadia-P/A acquired a 530,000 square foot warehouse building in Canarsie, Brooklyn for approximately $21.0 million. The development plan for this property includes the demolition of a portion of the warehouse and the construction of a 265,000 square foot mixed-use project consisting of retail and office. The total cost of the redevelopment, including acquisition costs, is expected to be approximately $77.0 million. We had executed a lease with Home Depot to anchor the project. However, during 2008, Home Depot termi- nated their lease and paid us a fee of $24.5 million. The 216th Street — During December of 2005, Acadia-P/A project is currently under construction and 80% pre- acquired a parking garage located at 10th Avenue and leased to BJ’s Wholesale Club and the New York City 216th Street in the Inwood section of Manhattan. During Police Department. 2007, we completed the construction of a 60,000 square foot office building and we relocated an agency of the City of New York, which was a tenant at another of our Urban/ Infill Redevelopment projects, to this location. The total cost to Acadia-P/A for the project, which also includes a 100-space rooftop parking deck, was approximately $28.0 million. Liberty Avenue — During December of 2005, Acadia-P/A acquired the remaining 40-year term of a leasehold interest in land located at Liberty Avenue and 98th Street in Ozone Park (Queens), New York. The property is currently oper- ating and includes approximately 30,000 square feet of retail anchored by a CVS drug store and a 98,500 square foot self-storage facility. The total cost to Acadia-P/A of the redevelopment was approximately $15.0 million. In Design Sherman Plaza — During April of 2005, Acadia-P/A acquired 4650 Broadway located in the Washington Heights/Inwood section of Manhattan. The property, which was occupied by an agency of the City of New York (“NYC”) and a com- mercial parking garage, was acquired for a purchase price of $25.0 million. During 2007 we relocated NYC to Acadia- P/A’s 216th St. redevelopment as discussed above. We are currently reviewing various alternatives to redevelop the site to include retail and office components. CityPoint — During June of 2007, Acadia-P/A and an unaffiliated joint venture partner purchased the leasehold interests in The Gallery at Fulton Street in downtown Brooklyn for approximately $115.0 million, with an option 6 Acadia Realty Trust 2009 Annual Report to purchase the fee position, which is owned by the City During January 2009, we purchased Cortlandt Towne Center of New York, at a later date. Redevelopment plans for the for $78.0 million. The operating property is a 642,000 property, renamed “CityPoint,” include the demolition of square foot shopping center located in Westchester the existing structure (completed) and the development of County, New York. a 1.3 million square foot project to include retail and residen- tial components. Acadia-P/A will participate in the develop- ment of the retail component. Acadia-P/A does not plan on participating in the development of, or have an ownership interest in, the residential component of the project. The current plan calls for the commencement during 2010 of the first of four phases of redevelopment which is expected During November 2007, we acquired 125 Main Street, Westport, Connecticut for approximately $17.0 million. Our plan is to redevelop the existing building into 30,000 square feet of retail and office space. Core Portfolio See Item 2. PROPERTIES for the definition of our to include between 40,000 and 50,000 square feet of retail Core Portfolio. space on five levels. Development of the balance of the project, including the residential component, is expected to occur over multiple years. The project has been conditionally awarded $20.0 million of federal stimulus bond financing to fund construction of the first phase. Please refer to the discussion under the heading “Off Balance Sheet Arrange- ments” in Item 7 of this Form 10-K for a discussion of $26.0 million of debt on this property that will mature in August 2010 and potential additional capital requirements Fund II may have if our unaffiliated joint venture partner determines not to fund its requisite share of capital. Sheepshead Bay — During November of 2007, Fund III acquired a property in Sheepshead Bay, Brooklyn for approximately $20.0 million. The project is currently in the design phase and we have demolished one of two buildings on the existing site and expect to develop a multi-story retail center with approximately 240,000 square feet of gross leasable area. Self-Storage Portfolio During April of 2008, the Operating Partnership acquired a 20,000 square foot single tenant retail property located on 17th Street near 5th Avenue in Manhattan, New York for $9.7 million. During March of 2007, the Operating Partnership purchased a 52,000 square foot single-tenant building located at 1545 East Service Road in Staten Island, New York for $17.0 million and a 10,000 square foot retail commercial condominium at 200 West 54th Street located in Man- hattan, New York for $36.4 million. Preferred Equity, Notes Receivable and Other Real Estate Related Investments During December 2009, the Operating Partnership made a loan for $8.6 million which bears interest at 14.5% with a one year term and one six month extension. During June 2008, the Operating Partnership made a $40.0 million preferred equity investment in a portfolio of 18 properties located primarily in Georgetown, Washing- On February 29, 2008, Fund III, in conjunction with Stor- ton D.C. The portfolio consists of 306,000 square feet of age Post, acquired a portfolio of 11 self-storage properties principally retail space. from Storage Post’s existing institutional investors for approximately $174.0 million. In addition, we, through Fund II, developed three self-storage properties as dis- cussed above. The 14 self-storage property portfolio, located throughout New York and New Jersey, totals During July 2008, the Operating Partnership made a $34.0 million mezzanine loan, which is collateralized by a mixed- use retail and residential development at 72nd Street and Broadway on the Upper West Side of Manhattan. approximately 1,127,000 net rentable square feet, and During September 2008, Fund III made a $10.0 million first is operating at various stages of stabilization. mortgage loan, which is collateralized by land located on Other Investments In addition to the RCP Venture, the New York Urban/Infill and Self-Storage Portfolio investments as discussed above, through Fund III, we have also acquired the following: Long Island, New York. Acadia Realty Trust 2009 Annual Report 7 The following table sets forth our preferred equity and notes receivable investments as of December 31, 2009: Weighted Averages Notes Receivable (dollars in thousands) Investment Principal Accrued Interest Total Stated Effective Interest Rate Extension Interest Maturity Options Date Rate1 (Years) Amount Maturity Dates Underlying Third-Party First Mortgage Loan Georgetown A – 5 property portfolio Georgetown B – 18 property portfolio $ 8,000 $ 994 $ 8,994 9.75% 10.19% 11/2010 2 x 1 year $8,375 2010 through 2012 72nd Street 40,975 3,637 44,612 13.00% 19.48% 40,000 5,405 45,405 13.00% 13.44% 6/2010 2 x 1 year 115,454 1 year 185,000(2) 7/2011 2011 through 2016 2011 with one year extension First mortgage and other notes Mezzanine notes 20,853 15,393 72 20,925 12.87% 13.42% 145 15,538 13.97% 14.83% 2010 2013 1 year N/A N/A — 272,559 2011 through 2019 Total notes receivable $ 125,221 $ 10,253 $ 135,474 12.89% 15.38% 1The effective rate includes upfront points and exit fees. 2The first mortgage amount for 72nd Street represents the maximum availability under the loan. Asset Sales and Capital/Asset Recycling We periodically identify certain core properties for disposition and redeploy the capital to existing centers or acquisitions with greater potential for capital appreciation. Since January of 2007, we have sold the following Core Portfolio assets: Property Location Date Sold Blackman Plaza Village Apartments Colony and GHT Apartments Wilkes-Barre, Pennsylvania Winston-Salem, North Carolina Columbia, Missouri November 2009 April 2008 December 2007 Total GLA 125,264 599,106 625,545 1,349,915 Sales price (dollars in thousands) $ 2,500 23,300 15,512 $ 41,312 Proceeds from these sales in part have been used to fund the Core Portfolio acquisitions as discussed in “PROPERTY ACQUISITIONS” above. Monetization of Fund I Given that Fund I was established as a finite life entity, we are currently engaged in the multi-year process of monetizing the fund’s investments. As of December 31, 2009 there were 21 assets comprising 1.0 million square feet remaining in Fund I as summarized by region below: Location Year Acquired GLA Shopping Center New York Region New York Tarrytown Centre Midwest Region Ohio Granville Centre Michigan Tarrytown Columbus Sterling Heights Shopping Center Detroit Various Regions Kroger/Safeway Portfolio Various (18 properties) Total 8 Acadia Realty Trust 2009 Annual Report 2004 2002 2004 2003 35,291 134,997 154,835 709,400 1,034,523 On February 2, 2009, The Kroger Co. purchased the fee at primarily based on net operating income before depreciation, six locations in Fund I’s Kroger/Safeway Portfolio for $14.6 amortization and certain nonrecurring items. Investments million, resulting in a $5.6 million gain. The Operating Part- in our Core Portfolio are typically held long-term. Given the nership’s share of the gain was $1.6 million. contemplated finite life of our Opportunity Funds, these During April 2008, Fund I sold Haygood Shopping Center located in Virginia Beach, Virginia, for $24.9 million, result- ing in a $6.8 million gain. The Operating Partnership’s share of the gain was $1.3 million. investments are typically held for shorter terms. Fees earned by us as general partner/member of the Opportunity Funds are eliminated in our Consolidated Financial Statements. See Note 3 to our Consolidated Financial Statements, which begin on page 57 of this Form 10-K for information During November 2007, Fund I sold Amherst Marketplace regarding, among other things, revenues from external and Sheffield Crossing, community shopping centers in customers, a measure of profit and loss and total assets Ohio, for $26.0 million, resulting in a $7.5 million gain. The with respect to each of our segments. Operating Partnership’s share of the gain was $2.8 million. Property Redevelopment and Expansion Our redevelopment program focuses on selecting well- Corporate Headquarters and Employees Our executive offices are located at 1311 Mamaroneck Avenue, Suite 260, White Plains, New York 10605, and our located neighborhood and community shopping centers telephone number is (914) 288-8100. As of December 31, within our Core Portfolio and creating significant value 2009, we had 118 employees, of which 90 were located at through re-tenanting and property redevelopment. our executive office and 28 were located at regional prop- Environmental Laws For information relating to environmental laws that may have an impact on our business, please see “Item 1A. Risk Factors — Possible liability relating to environ- mental matters.” Competition There are numerous entities that compete with us in seeking properties for acquisition and tenants that will lease space in our properties. Our competitors include other REITs, financial institutions, insurance companies, pension funds, private companies and individuals. Our properties compete for tenants with similar properties primarily on the basis of location, total occupancy costs (including base rent and operating expenses) and the design and condition of the improvements. Financial Information About Market Segments We have five reportable segments: Core Portfolio, Oppor- tunity Funds, Self-Storage Portfolio, Notes Receivable and Other. Notes Receivable consists of the Company’s notes receivable and preferred equity investments and related interest income. Other primarily consists of management fees and interest income. The accounting policies of the segments are the same as those described in the summary of significant accounting policies set forth in Note 1 to our erty management offices. None of our employees are cov- ered by collective bargaining agreements. Management believes that its relationship with employees is good. Company Website All of our filings with the Securities and Exchange Com- mission, including our annual reports on Form 10-K, quar- terly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursu- ant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available free of charge at our website at www.acadiarealty.com, as soon as reasonably practica- ble after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. These filings can also be accessed through the Securities and Exchange Commission’s website at www.sec.gov. Alternatively, we will provide paper copies of our filings free of charge upon request. If you wish to receive a copy of the Form 10-K, you may contact Robert Masters, Corporate Secretary, at Acadia Realty Trust, 1311 Mamaroneck Avenue, Suite 260, White Plains, NY 10605. You may also call (914) 288-8100 to request a copy of the Form 10-K. Information included or referred to on our website is not incorporated by reference in or otherwise a part of this Form 10-K. Code of Ethics and Whistleblower Policies The Board of Trustees adopted a Code of Ethics for Senior Consolidated Financial Statements, which begin on page 57 Financial Officers that applies to our Chief Executive Officer, of this Form 10-K. We evaluate property performance Senior Vice President-Chief Financial Officer, Senior Vice Acadia Realty Trust 2009 Annual Report 9 President-Chief Accounting Officer, Vice President-Controller, Upon the expiration of current leases for space located in Vice President-Financial Reporting, Director of Taxation our properties, we may not be able to re-let all or a portion and Assistant Controllers. The Board also adopted a Code of that space, or the terms of re-letting (including the cost of Business Conduct and Ethics applicable to all employees, of concessions to tenants) may be less favorable to us as well as a “Whistleblower Policy.” Copies of these docu- than current lease terms. If we are unable to re-let promptly ments are available in the Investor Information section of all or a substantial portion of the space located in our prop- our website. We intend to disclose future amendments to, erties or if the rental rates we receive upon re-letting are or waivers from, our Code of Ethics for Senior Financial significantly lower than current rates, our net income and Officers in the Investor Information section of our website ability to make expected distributions to our shareholders within four business days following the date of such will be adversely affected due to the resulting reduction in amendment or waiver. ITEM 1A. RISK FACTORS If any of the following risks actually occur, our business, results of operations and financial condition would likely rent receipts. There can be no assurance that we will be able to retain tenants in any of our properties upon the expiration of their leases. See “Item 2. Properties — Lease Expirations” in this Annual Report on Form 10-K for additional information as to the scheduled lease expira- suffer. This section includes or refers to certain forward- tions in our portfolio. looking statements. Refer to the explanation of the qualifi- cations and limitations on such forward-looking statements discussed in the beginning of this Form 10-K. We rely on revenues derived from major tenants. We derive significant revenues from certain anchor tenants that occupy space in more than one center. We could be adversely affected in the event of the bankruptcy or insol- vency of, or a downturn in the business of, any of our major tenants, or in the event that any such tenant does not renew its leases as they expire or renews at lower rental rates. Vacated anchor space not only would reduce rental revenues if not re-tenanted at the same rental rates but also could adversely affect the entire shopping center because of the loss of the departed anchor tenant’s cus- tomer drawing power. Loss of customer drawing power also can occur through the exercise of the right that most anchors have to vacate and prevent re-tenanting by paying The current economic environment, while improving, may cause us to lose tenants and may impair our ability to borrow money to purchase properties, refinance existing debt or finance our current rede- velopment projects. Our operations and performance depend on general eco- nomic conditions. The U.S. economy has recently experi- enced a financial downturn, with consumer spending on the decline, credit tightening and unemployment rising. Many financial and economic analysts are predicting that the world economy has entered a prolonged economic downturn characterized by high unemployment, limited availability of credit and decreased consumer and business spending. This economic downturn has and may continue to adversely affect the businesses of many of our tenants. We and the Opportunity Funds may experience higher vacancy rates as well as delays in re-leasing vacant space. rent for the balance of the lease term, or the departure of The current downturn has had, and may continue to have, a “shadow” anchor tenant that owns its own property. In an unprecedented impact on the global credit markets. In addition, in the event that certain major tenants cease to general, credit is currently difficult to obtain. While we occupy a property, such an action may result in a signifi- currently believe we have adequate sources of liquidity, cant number of other tenants having the right to terminate there can be no assurance that we will be able to obtain their leases, or pay a reduced rent based on a percentage mortgage loans to purchase additional properties, obtain of the tenant’s sales, at the affected property, which could financing to complete current redevelopment projects, or adversely affect the future income from such property. successfully refinance our properties as loans become due. See “Item 2. Properties — Major Tenants” for quantified To the extent that the availability of credit continues to be information with respect to the percentage of our mini- limited, it will also adversely impact our preferred equity mum rents received from major tenants. We may not be able to renew current leases and the terms of re-letting (including the cost of concessions to tenants) may be less favorable to us than current lease terms. 10 Acadia Realty Trust 2009 Annual Report and mezzanine investments as counterparties may not be able to obtain the financing required to repay the loans upon maturity. The bankruptcy of, or a downturn in the business of, any of our major tenants or a significant number of our smaller tenants may adversely affect our cash flows and property values. The bankruptcy of, or a downturn in the business of, any of our major tenants causing them to reject their leases, or not renew their leases as they expire, or renew at lower rental rates may adversely affect our cash flows and prop- erty values. Furthermore, the impact of vacated anchor space and the potential reduction in customer traffic may adversely impact the balance of tenants at the center. There are risks relating to investments in real estate. Real property investments are subject to varying degrees of risk. Real estate values are affected by a number of factors, including: changes in the general economic climate, local conditions (such as an oversupply of space or a reduction in demand for real estate in an area), the quality and philosophy of management, competition from other available space, the ability of the owner to provide ade- quate maintenance and insurance and to control variable operating costs. Shopping centers, in particular, may be affected by changing perceptions of retailers or shoppers Certain of our tenants have experienced financial difficul- regarding the safety, convenience and attractiveness of ties and have filed for bankruptcy under Chapter 11 of the the shopping center and by the overall climate for the United States Bankruptcy Code (“Chapter 11 Bankruptcy”). retail industry generally. Real estate values are also affected Pursuant to bankruptcy law, tenants have the right to by such factors as government regulations, interest rate reject their leases. In the event the tenant exercises this levels, the availability of financing and potential liability right, the landlord generally has the right to file a claim under, and changes in, environmental, zoning, tax and for lost rent equal to the greater of either one year’s rent other laws. A significant portion of our income is derived (including tenant expense reimbursements) for remaining from rental income from real property. Our income and terms greater than one year, or 15% of the rent remaining cash flow would be adversely affected if a significant num- under the balance of the lease term, but not to exceed ber of our tenants were unable to meet their obligations, three years rent. Actual amounts to be received in satis- or if we were unable to lease on economically favorable faction of those claims will be subject to the tenant’s final terms a significant amount of space in our properties. In plan of reorganization and the availability of funds to pay the event of default by a tenant, we may experience delays its creditors. Since January 1, 2007, there have been two significant tenant bankruptcies within our portfolio: in enforcing, and incur substantial costs to enforce, our rights as a landlord. In addition, certain significant expen- ditures associated with each equity investment (such as mortgage payments, real estate taxes and maintenance On December 11, 2008, KB Toys (“KB”) filed for protection costs) are generally not reduced when circumstances under Chapter 11 Bankruptcy. KB operated in two locations cause a reduction in income from the investment. in our Core Portfolio, totaling approximately 12,000 square feet. Rental revenues from KB at these locations totaled $0.03 million, $0.3 million, and $0.3 million for the years ended December 31, 2009, 2008 and 2007, respectively. Both leases were rejected by KB in February 2009. Our ability to change our portfolio is limited because real estate investments are illiquid. Equity investments in real estate are relatively illiquid and, therefore, our ability to change our portfolio promptly in response to changed conditions will be limited. Our Board On November 10, 2008, Circuit City Stores Inc. (“Circuit of Trustees may establish investment criteria or limitations City”) filed for protection under Chapter 11 Bankruptcy. as it deems appropriate, but currently does not limit the Circuit City operated at two of our Core Portfolio locations number of properties in which we may seek to invest or totaling approximately 59,278 square feet. Rental revenues on the concentration of investments in any one geographic from Circuit City at these locations totaled $0.1 million, region. We could change our investment, disposition and $1.0 million and $0.7 million for the years ended December 31, financing policies without a vote of our shareholders. 2009, 2008 and 2007 respectively. Circuit City has rejected both leases. In addition, Circuit City executed a lease at a property owned by Acadia-P/A Holding Company. Circuit City has rejected that lease. On January 16, 2009, Circuit City sought Bankruptcy Court approval to liquidate its assets. We could become highly leveraged, resulting in increased risk of default on our obligations and in an increase in debt service requirements, which could adversely affect our financial condition and results of operations and our ability to pay distributions. Acadia Realty Trust 2009 Annual Report 11 We have incurred, and expect to continue to incur, indebt- edness in furtherance of our activities. Neither our Decla- ration of Trust nor any policy statement formally adopted by our Board of Trustees limits either the total amount of indebtedness or the specified percentage of indebtedness that we may incur. Accordingly, we could become more highly leveraged, resulting in increased risk of default on our obli- gations and in an increase in debt service requirements, which could adversely affect our financial condition and results of operations and our ability to make distributions. Our loan agreements contain customary representations, covenants and events of default. Certain loan agreements require us to comply with certain affirmative and negative covenants, including the maintenance of certain debt service coverage and leverage ratios. We could be adversely affected by poor market conditions where properties are geographically concentrated. Our performance depends on the economic conditions in markets in which our properties are concentrated. We have significant exposure to the greater New York region, from which we derive 36% of the annual base rents within our Core Portfolio. Our operating results could be adversely affected if market conditions, such as an over- supply of space or a reduction in demand for real estate, in this area become more competitive relative to other geographic areas. We have pursued, and may in the future continue to pursue, extensive growth opportunities, which may result in significant demands on our opera- tional, administrative and financial resources. Interest expense on our variable debt as of December 31, We have pursued extensive growth opportunities. This 2009 would increase by $3.4 million annually for a 100 basis expansion has placed significant demands on our opera- point increase in interest rates. We may seek additional tional, administrative and financial resources. The contin- variable-rate financing if and when pricing and other com- ued growth of our real estate portfolio can be expected to mercial and financial terms warrant. As such, we would continue to place a significant strain on our resources. Our consider hedging against the interest rate risk related to future performance will depend in part on our ability to suc- such additional variable-rate debt through interest rate cessfully attract and retain qualified management person- swaps and protection agreements, or other means. nel to manage the growth and operations of our business We enter into interest-rate hedging transactions, including interest rate swaps and cap agreements, with counterparties. There can be no guarantee that the financial condition of these counterparties will enable them to fulfill their obli- gations under these agreements. Competition may adversely affect our ability to pur- chase properties and to attract and retain tenants. There are numerous commercial developers, real estate companies, financial institutions and other investors with greater financial resources than we have that compete with us in seeking properties for acquisition and tenants who will lease space in our properties. Our competitors include other REITs, financial institutions, insurance com- panies, pension funds, private companies and individuals. This competition may result in a higher cost for properties that we wish to purchase. In addition, retailers at our properties face increasing competition from outlet malls, discount shopping clubs, Internet commerce, direct mail and telemarketing, which could (i) reduce rents payable to us; (ii) reduce our ability to attract and retain tenants at our properties; and (iii) lead to increased vacancy rates at our properties. and to finance such acquisitions. In addition, acquired prop- erties may fail to operate at expected levels due to the numerous factors that may affect the value of real estate. There can be no assurance that we will have sufficient resources to identify and manage acquired properties or otherwise be able to maintain our historic rate of growth. Our inability to carry out our growth strategy could adversely affect our financial condition and results of operations. Our earnings growth strategy is based on the acquisition and development of additional properties, including acqui- sitions through co-investment programs such as our Opportunity Funds. In the context of our business plan, “redevelopment” generally means an expansion or reno- vation of an existing property. The consummation of any future acquisitions will be subject to satisfactory comple- tion of our extensive valuation analysis and due diligence review and to the negotiation of definitive documentation. We cannot be sure that we will be able to implement our strategy because we may have difficulty finding new prop- erties, negotiating with new or existing tenants or secur- ing acceptable financing. 12 Acadia Realty Trust 2009 Annual Report Acquisitions of additional properties entail the risk that acquisition opportunity by Fund III would create a material investments will fail to perform in accordance with expec- conflict of interest for us; (iii) we require the acquisition tations, including operating and leasing expectations. Rede- opportunity for a “like-kind” exchange; or (iv) the consider- velopment is subject to numerous risks, including risks of ation payable for the acquisition opportunity is our Common construction delays, cost overruns or uncontrollable events Shares, OP Units or other securities. As a result, we may that may increase project costs, new project commence- not be able to make attractive acquisitions directly and ment risks such as the receipt of zoning, occupancy and may only receive a minority interest in such acquisitions other required governmental approvals and permits, and through Fund III. the incurrence of development costs in connection with projects that are not pursued to completion. Our joint venture investments, including our Opportunity Fund investments may involve risks not otherwise present A component of our growth strategy is through private- for investments made solely by us, including the possibility equity type investments made through our RCP Venture. that our joint venture partner might have different interests These include investments in operating retailers. The or goals than we do. Other risks of joint venture investments inability of the retailers to operate profitably would have an include impasse on decisions, such as a sale, because adverse impact on income realized from these investments. neither we nor a joint venture partner would have full We operate through a partnership structure, which could have an adverse effect on our ability to man- age our assets. Our primary property-owning vehicle is the Operating Partnership, of which we are the general partner. Our acquisition of properties through the Operating Partnership in exchange for interests in the Operating Partnership may permit certain tax deferral advantages to limited partners who contribute properties to the Operating Partnership. Since properties contributed to the Operating Partnership control over the joint venture. Also, there is no limitation under our organizational documents as to the amount of funds that may be invested in joint ventures. Please refer to the discussion under the heading “Off Balance Sheet Arrangements” in Item 7 of this Form 10-K for a discussion of $26.0 million of debt on the CityPoint property that will mature in August 2010 and potential additional capital requirements Fund II may have if our unaffiliated joint venture partner determines not to fund its requisite share of capital. may have unrealized gain attributable to the difference Through our investments in joint ventures we have also between the fair market value and adjusted tax basis in invested in operating businesses that have operational risk such properties prior to contribution, the sale of such in addition to the risks associated with real estate invest- properties could cause adverse tax consequences to ments, including among other risks, human capital issues, the limited partners who contributed such properties. adequate supply of product and material, and merchandis- Although we, as the general partner of the Operating ing issues. Partnership, generally have no obligation to consider the tax consequences of our actions to any limited partner, there can be no assurance that the Operating Partnership will not acquire properties in the future subject to material restrictions designed to minimize the adverse tax conse- quences to the limited partners who contribute such properties. Such restrictions could result in significantly reduced flexibility to manage our assets. Limited control over joint venture investments. Under the terms of our Fund III joint venture, which is similar to the terms of Fund I and Fund II, we are required to first offer to Fund III all of our opportunities to acquire retail shopping centers. We may only pursue opportunities to acquire retail shopping centers directly if (i) our joint venture partner elects not to approve Fund III’s pursuit of an acquisition opportunity; (ii) the ownership of the During 2009, 2008 and 2007, our Fund I and Mervyns I joint ventures provided Promote income. There can be no assurance that the joint ventures will continue to operate profitably and thus provide additional Promote income in the future. Market factors could have an adverse effect on our share price. One of the factors that may influence the trading price of our Common Shares is the annual dividend rate on our Common Shares as a percentage of its market price. An increase in market interest rates may lead purchasers of our Common Shares to seek a higher annual dividend rate, which could adversely affect the market price of our Common Shares. A decline in our share price, as a result of this or other market factors, could unfavorably impact our ability to raise additional equity in the public markets. Acadia Realty Trust 2009 Annual Report 13 The loss of a key executive officer could have an adverse effect on us. From time to time, in connection with the conduct of our business, and prior to the acquisition of any property from Our success depends on the contribution of key manage- a third party or as required by our financing sources, we ment members. The loss of the services of Kenneth F. authorize the preparation of Phase I environmental reports Bernstein, President and Chief Executive Officer, or other and, when necessary, Phase II environmental reports, key executive-level employees could have a material adverse effect on our results of operations. We have with respect to our properties. Based upon these environ- mental reports and our ongoing review of our properties, obtained key-man life insurance for Mr. Bernstein. In addi- we are currently not aware of any environmental condition tion, we have entered into an employment agreement with respect to any of our properties that we believe would with Mr. Bernstein; however, it could be terminated by be reasonably likely to have a material adverse effect on Mr. Bernstein. We have not entered into employment us. There can be no assurance, however, that the environ- agreements with other key executive level employees. mental reports will reveal all environmental conditions at Possible liability relating to environmental matters. Under various federal, state and local environmental laws, our properties or that the following will not expose us to material liability in the future: statutes, ordinances, rules and regulations, as an owner (cid:174) The discovery of previously unknown environmental of real property, we may be liable for the costs of removal conditions; or remediation of certain hazardous or toxic substances at, on, in or under our property, as well as certain other (cid:174) Changes in law; potential costs relating to hazardous or toxic substances (cid:174) Activities of tenants; and (including government fines and penalties and damages for injuries to persons and adjacent property). These laws may impose liability without regard to whether we knew (cid:174) Activities relating to properties in the vicinity of our properties. of, or were responsible for, the presence or disposal of Changes in laws increasing the potential liability for envi- those substances. This liability may be imposed on us in ronmental conditions existing on properties or increasing connection with the activities of an operator of, or tenant the restrictions on discharges or other conditions may at, the property. The cost of any required remediation, result in significant unanticipated expenditures or may removal, fines or personal or property damages and our otherwise adversely affect the operations of our tenants, liability therefore could exceed the value of the property which could adversely affect our financial condition or and/or our aggregate assets. In addition, the presence of results of operations. those substances, or the failure to properly dispose of or remove those substances, may adversely affect our ability to sell or rent that property or to borrow using that prop- erty as collateral, which, in turn, would reduce our reve- nues and ability to make distributions. Uninsured losses or a loss in excess of insured lim- its could adversely affect our financial condition. We carry comprehensive general liability, fire, extended coverage, loss of rent insurance, and environmental liability on most of our properties, with policy specifications and A property can also be adversely affected either through insured limits customarily carried for similar properties. physical contamination or by virtue of an adverse effect However, with respect to those properties where the upon value attributable to the migration of hazardous or leases do not provide for abatement of rent under any toxic substances, or other contaminants that have or circumstances, we generally do not maintain loss of rent may have emanated from other properties. Although our insurance. In addition, there are certain types of losses, tenants are primarily responsible for any environmental such as losses resulting from wars, terrorism or acts of damages and claims related to the leased premises, in God that generally are not insured because they are either the event of the bankruptcy or inability of any of our ten- uninsurable or not economically insurable. Should an unin- ants to satisfy any obligations with respect to the property sured loss or a loss in excess of insured limits occur, we leased to that tenant, we may be required to satisfy such could lose capital invested in a property, as well as the obligations. In addition, we may be held directly liable for anticipated future revenues from a property, while remain- any such damages or claims irrespective of the provisions ing obligated for any mortgage indebtedness or other finan- of any lease. cial obligations related to the property. Any loss of these types would adversely affect our financial condition. 14 Acadia Realty Trust 2009 Annual Report Our Board of Trustees may change our investment policy without shareholder approval. as a REIT. The distribution requirements also severely limit our ability to retain earnings to acquire and improve prop- Our Board of Trustees will determine our investment erties or retire outstanding debt. and financing policies, our growth strategy and our debt, capitalization, distribution, acquisition, disposition and operating policies. Our Board of Trustees may establish investment criteria or limitations as it deems appropriate, but currently does not limit the number of properties in which we may seek to invest or on the concentration of investments in any one geographic region. Although our Board of Trustees has no present intention to revise or amend our strategies and policies, it may do so at any time without a vote by our shareholders. Accordingly, our shareholders’ control over changes in our strategies and policies is limited to the election of trustees, and changes made by our Board of Trustees may not serve the interests of all of our shareholders and could adversely affect our financial condition or results of operations, including our ability to distribute cash to shareholders or qualify as a REIT. Distribution requirements imposed by law limit our operating flexibility. There can be no assurance we have qualified or will remain qualified as a REIT for federal income tax purposes. We believe that we have consistently met the requirements for qualification as a REIT for federal income tax purposes beginning with our taxable year ended December 31, 1993, and we intend to continue to meet these requirements in the future. However, qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code, for which there are only limited judicial or administrative interpretations. No assurance can be given that we have qualified or will remain qualified as a REIT. The Internal Revenue Code provisions and income tax regulations applicable to REITs differ significantly from those applicable to other corporations. The determination of various factual matters and circumstances not entirely within our control can potentially affect our ability to con- tinue to qualify as a REIT. In addition, no assurance can be given that future legislation, regulations, administrative To maintain our status as a REIT for federal income tax interpretations or court decisions will not significantly change purposes, we are generally required to distribute to our the requirements for qualification as a REIT or adversely shareholders at least 90% of our taxable income for each affect the federal income tax consequences of such quali- calendar year. Pursuant to recent IRS pronouncements, fication. Under current law, if we fail to qualify as a REIT, up to 90% of such distribution may be made in Common we would not be allowed a deduction for dividends paid Shares rather than cash. Our taxable income is determined to shareholders in computing our net taxable income. In without regard to any deduction for dividends paid and by addition, our income would be subject to tax at the regular excluding net capital gains. To the extent that we satisfy corporate rates. We also could be disqualified from treat- the distribution requirement, but distribute less than 100% ment as a REIT for the four taxable years following the of our taxable income, we will be subject to federal corpo- year during which qualification was lost. Cash available rate income tax on our undistributed income. In addition, for distribution to our shareholders would be significantly we will incur a 4% nondeductible excise tax on the amount, reduced for each year in which we do not qualify as a if any, by which our distributions in any year are less than REIT. In that event, we would not be required to continue the sum of (i) 85% of our ordinary income for that year; to make distributions. Although we currently intend to (ii) 95% of our capital gain net income for that year and; continue to qualify as a REIT, it is possible that future (iii) 100% of our undistributed taxable income from prior economic, market, legal, tax or other considerations years. We intend to continue to make distributions to our may cause us, without the consent of our shareholders, shareholders to comply with the distribution requirements to revoke the REIT election or to otherwise take action of the Internal Revenue Code and to minimize exposure to that would result in disqualification. federal income and nondeductible excise taxes. Differences in timing between the receipt of income and the payment of expenses in determining our income as well as required debt amortization payments and the capitalization of certain expenses could require us to borrow funds on a short-term basis to meet the distribution requirements that are neces- sary to achieve the tax benefits associated with qualifying Limits on ownership of our capital shares. For the Company to qualify as a REIT for federal income tax purposes, among other requirements, not more than 50% of the value of our capital shares may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) during the last half of each taxable year after 1993, and Acadia Realty Trust 2009 Annual Report 15 such capital shares must be beneficially owned by 100 or In addition, we have entered into an employment agree- more persons during at least 335 days of a taxable year of ment with our Chief Executive Officer and severance 12 months or during a proportionate part of a shorter tax- agreements are in place with our senior vice presidents able year (in each case, other than the first such year). Our which provide that, upon the occurrence of a change in Declaration of Trust includes certain restrictions regarding control of us and either the termination of their employ- transfers of our capital shares and ownership limits that ment without cause (as defined) or their resignation for are intended to assist us in satisfying these limitations. good reason (as defined), those executive officers would These restrictions and limits may not be adequate in all be entitled to certain termination or severance payments cases, however, to prevent the transfer of our capital shares made by us (which may include a lump sum payment in violation of the ownership limitations. The ownership equal to defined percentages of annual salary and prior limit discussed above may have the effect of delaying, years’ average bonuses, paid in accordance with the deferring or preventing someone from taking control of us. terms and conditions of the respective agreement), Actual or constructive ownership of our capital shares in excess of the share ownership limits contained in our Declaration of Trust would cause the violative transfer or ownership to be null and void from the beginning and which could deter a change of control of us that could be in our best interest. Legislative or regulatory tax changes could have an adverse effect on us. subject to purchase by us at a price equal to the lesser There are a number of issues associated with an invest- of (i) the price stipulated in the challenged transaction; ment in a REIT that are related to the federal income tax and (ii) the fair market value of such shares (determined laws, including, but not limited to, the consequences of in accordance with the rules set forth in our Declaration a company’s failing to continue to qualify as a REIT. At of Trust). As a result, if a violative transfer were made, the any time, the federal income tax laws governing REITs or recipient of the shares would not acquire any economic the administrative interpretations of those laws may be or voting rights attributable to the transferred shares. Addi- amended or modified. Any new laws or interpretations tionally, the constructive ownership rules for these limits may take effect retroactively and could adversely affect are complex and groups of related individuals or entities us or our shareholders. Reduced tax rates applicable to may be deemed a single owner and consequently in viola- certain corporate dividends paid to most domestic non- corporate shareholders are not generally available to REIT shareholders since a REIT’s income generally is not subject to corporate level tax. As a result, investment in non-REIT corporations may be viewed as relatively more attractive than investment in REITs by domestic noncor- porate investors. This could adversely affect the market price of the Company’s shares. ITEM 1B. UNRESOLVED STAFF COMMENTS None. tion of the share ownership limits. Concentration of ownership by certain investors. Six institutional shareholders own 5% or more individu- ally, and 48.8% in the aggregate, of our Common Shares. A significant concentration of ownership may allow an investor or a group of investors to exert a greater influ- ence over our management and affairs and may have the effect of delaying, deferring or preventing a change in control of us. Restrictions on a potential change of control. Our Board of Trustees is authorized by our Declaration of Trust to establish and issue one or more series of pre- ferred shares without shareholder approval. We have not established any series of preferred shares. However, the establishment and issuance of a series of preferred shares could make more difficult a change of control of us that could be in the best interest of the shareholders. 16 Acadia Realty Trust 2009 Annual Report ITEM 2. PROPERTIES Shopping Center Properties The discussion and tables in this Item 2 include properties Within our Core Portfolio and Opportunity Funds, we had approximately 500 leases as of December 31, 2009. A majority of our rental revenues were from national tenants. A majority of the income from the properties consists held through our Core Portfolio and our Opportunity Funds. of rent received under long-term leases. These leases We define our Core Portfolio as those properties either generally provide for the payment of fixed minimum rent 100% owned by, or partially owned through joint venture monthly in advance and for the payment by tenants of a interests by, the Operating Partnership, or subsidiaries pro-rata share of the real estate taxes, insurance, utilities thereof, not including those properties owned through our and common area maintenance of the shopping centers. Opportunity Funds. The discussion of the Opportunity Minimum rents and expense reimbursements accounted Funds does not include our investment in a portfolio of for approximately 80% of our total revenues for the year self-storage properties, which are detailed separately ended December 31, 2009. within this Item 2. As of December 31, 2009, approximately 34% of our As of December 31, 2009, excluding two properties under existing leases also provided for the payment of percent- redevelopment, there are 32 properties in our Core Port- age rents either in addition to, or in place of, minimum folio totaling approximately 4.8 million square feet of gross rents. These arrangements generally provide for payment leasable area (“GLA”). Adjusting for our pro-rata ownership to us of a certain percentage of a tenant’s gross sales in share of partially-owned centers, we own approximately excess of a stipulated annual amount. Percentage rents 3.9 million square feet of GLA. The Core Portfolio properties accounted for approximately 0.3% of the total 2009 are located in 12 states and are generally well-established revenues of the Company. community and neighborhood shopping centers anchored by supermarkets or value-oriented retail. The properties are diverse in size, ranging from approximately 10,000 to 875,000 square feet. As of December 31, 2009, our Core Portfolio was 92.9% occupied and 92.6% on a pro-rata ownership basis. Four of our Core Portfolio properties and two of our Opportunity Fund properties are subject to long-term ground leases in which a third party owns and has leased the underlying land to us. We pay rent for the use of the land and are responsible for all costs and expenses associated with the building and improvements at all As of December 31, 2009, we owned and operated 26 six locations. properties totaling 2.1 million square feet of GLA, excluding properties under redevelopment, in our Opportunity Funds. In addition to shopping centers, the Opportunity Funds’ have invested in mixed-use properties, which generally include retail activities, and self-storage properties. The Opportunity Fund properties are located in 15 states. As of December 31, 2009, the properties owned by our Opportunity Funds were, in total, 86.8% occupied. No individual property contributed in excess of 10% of our total revenues for the years ended December 31, 2009, 2008 and 2007. Reference is made to Note 8 to our Con- solidated Financial Statements, which begin on page 57 of this Form 10-K, for information on the mortgage debt pertaining to our properties. The following sets forth more specific information with respect to each of our shopping centers at December 31, 2009: Acadia Realty Trust 2009 Annual Report 17 Shopping Center Location Acquired (A) Interest GLA Year Constructed (C) Ownership Occupancy %(1) 12/31/09 Anchor Tenants Current Lease Expiration/ Lease Option Expiration Core Portfolio NEW YORK REGION Connecticut 239 Greenwich Avenue Greenwich 1998 (A) Fee 16,834 (2) 100% Restoration Hardware 2014/2024 Coach 2016/2021 New Jersey Elmwood Park Shopping Center Elmwood Park 1998 (A) Fee 149,491 92% A&P 2017/2052 A&P Shopping Plaza Boonton 2006 (A) Fee 62,908 92% A&P 2024/2069 Walgreens 2022/2062 New York Village Commons Shopping Center Branch Shopping Plaza Smithtown Smithtown 1998 (A) 1998 (A) Fee LI (3) 87,237 125,751 73% 95% A&P 2013/2028 CVS 2010/— Amboy Road Staten Island 2005 (A) LI (3) 60,090 100% King Kullen 2028/— Bartow Avenue Pacesetter Park Shopping Center West Shore Expressway West 54th Street East 17th Street Crossroads Shopping Center Bronx Pomona Staten Island Manhattan Manhattan White Plains 2005 (C) 1999 (A) 2007 (A) 2007 (A) 2008 (A) 1998 (A) Fee Fee Fee Fee Fee 14,676 96,353 55,000 9,693 19,622 JV (4) 310,742 76% 89% 100% 100% 100% 94% Duane Reade 2013/2018 Stop & Shop 2020/2040 LA Fitness 2021/2036 Stage Deli 2018/— Barnes & Noble 2011/2016 A&P/Waldbaum’s 2012/2032 Kmart 2012/2032 B. Dalton 2012/2022 Modell’s 2014/2019 Pier 1 2012/— Home Goods 2018/2033 Total New York Region NEW ENGLAND REGION Connecticut Town Line Plaza Massachusetts 1,008,397 92% Rocky Hill 1998 (A) Fee 206,346 (5) 98% Stop & Shop 2024/2064 Walmart (5) Methuen Shopping Center Methuen 1998 (A) Fee 130,021 100% DeMoulas Market 2010/2015 Crescent Plaza Brockton 1984 (A) Fee 218,141 91% Supervalu 2012/2042 Walmart 2012/2052 Home Depot 2021/2056 New York New Loudon Center Rhode Island Walnut Hill Plaza Vermont Latham 1982 (A) Fee 255,826 100% Price Chopper 2015/2035 Woonsocket 1998 (A) Fee 284,717 96% Marshall’s 2014/2029 Bon Ton 2014/2034 Raymour and Flanigan 2019/2034 AC Moore 2014/2024 Supervalu 2013/2028 Sears 2013/2033 CVS 2011/2014 The Gateway Shopping Center South Burlington 1999 (A) Fee Total New England Region 101,784 1,196,835 94% 97% Supervalu 2024/2053 18 Acadia Realty Trust 2009 Annual Report Shopping Center Location Acquired (A) Interest GLA Year Constructed (C) Ownership Occupancy %(1) 12/31/09 Anchor Tenants Current Lease Expiration/ Lease Option Expiration MIDWEST REGION Illinois Hobson West Plaza Clark Diversey Indiana Merrillville Plaza Naperville Chicago 1998 (A) 2006 (A) Fee Fee 99,126 19,265 93% 92% Garden Fresh Markets 2012/2032 Merrillville 1998 (A) Fee 235,026 94% T.J.Maxx 2019/2029 JC Penney 2013/2018 Office Max 2013/2028 Pier 1 2014 David’s Bridal 2010/2020 K&G Fashion 2017/2027 Michigan Bloomfield Town Square Bloomfield Hills 1998 (A) Fee 232,181 87% T.J.Maxx 2019/2029 Marshalls 2011/2026 Home Goods 2010/2020 Office Max 2010/2025 Ohio Mad River Station Dayton 1999 (A) Fee 125,984 88% Babies ‘R’ Us 2010/2020 Office Depot 2010/— Pier 1 2010/— Total Midwest Region 711,582 91% Acadia Realty Trust 2009 Annual Report 19 Shopping Center Location Acquired (A) Interest GLA Year Constructed (C) Ownership Occupancy %(1) 12/31/09 Anchor Tenants Current Lease Expiration/ Lease Option Expiration MID-ATLANTIC REGION New Jersey Marketplace of Absecon Absecon 1998 (A) Fee 104,718 65% Rite Aid 2020/2040 Delaware Brandywine Town Center Wilmington 2003 (A) JV (7) 874,908 95% Michaels 2011/2026 Old Navy (The Gap) 2011/2016 PetSmart 2017/2042 Thomasville Furniture 2011/2021 Access Group 2015/2025 Bed, Bath & Beyond 2014/2029 Dick’s Sporting Goods 2013/2028 Lowe’s Home Centers 2018/2048 Regal Cinemas 2017/2037 Target 2018/2058 TransUnion Settlement 2013/2018 Lane Home Furnishings 2015/— MJM Designer 2015/2035 Christmas Tree Shops 2028/2048 Market Square Shopping Center Wilmington 2003 (A) JV (7) 102,047 96% T.J.Maxx 2011/2016 Trader Joe’s 2019/2034 Route 202 Shoping Center Wilmington 2006 (C) LI/JV (3) (7) 19,970 55% Pennsylvania Mark Plaza Edwardsville 1968 (C) LI/Fee (3) 216,401 81% Redner’s Markets 2018/2028 Kmart 2014/2049 Plaza 422 Lebanon 1972 (C) Fee 156,279 100% Home Depot 2028/2058 Route 6 Mall Honesdale 1994 (C) Fee 175,519 99% Kmart 2020/2070 Dunham’s 2016/2031 Chestnut Hill Abington Towne Center Philadelphia Abington 2006 (A) Fee (8) 40,570 1998 (A) Fee 216,369 (6) 68% 99% Total Mid-Atlantic Region Total Core Operating Properties Properties Under Redevelopment 1,906,781 93% 4,823,595 92.9% Rite Aid 2011/2026 Fashion Bug 2016/— Borders 2010/2020 T.J.Maxx 2010/2020 Target (6) 2914 Third Avenue Ledgewood Mall Bronx Ledgewood 2006 (A) 1983 (A) Fee Fee 42,400 79% Dr. J’s 2021/— 517,151 86% Walmart 2019/2049 Total Core Properties 5,383,146 92% Macy’s 2010/2025 The Sports Authority 2012/2037 Marshalls 2014/2034 Ashley Furniture 2010/2020 Barnes and Noble 2010/2035 20 Acadia Realty Trust 2009 Annual Report Shopping Center Location Acquired (A) Interest GLA Year Constructed (C) Ownership Occupancy %(1) 12/31/09 Anchor Tenants Current Lease Expiration/ Lease Option Expiration Opportunity Fund Portfolio Fund I Properties Ohio Granville Centre New York Columbus 2002 (A) Fee 134,997 36% Lifestyle Family Fitness 2017/2027 Tarrytown Shopping Center Tarrytown 2004 (A) Fee 35,291 85% Walgreens 2080/— VARIOUS REGIONS Kroger/Safeway Portfolio Total Fund I Properties Fund II Properties Illinois Oakbrook New York Liberty Avenue 216th Street Fordham Place Various 2003 (A) JV 709,400 100% 18 Kroger/Safeway Supermarkets 879,688 90% Various Oakbrook 2005 (A) LI (3) 112,000 100% Neiman Marcus 2011/2036 New York New York Bronx 2005 (A) 2005 (A) 2004 (A) LI/JV (3) JV JV 26,125 60,000 119,446 100% 100% 82% CVS 2032/2052 City of New York 2027/2032 Best Buy 2019/2039 Sears 2023/2033 Pelham Manor Shopping Plaza Pelham Manor 2004 (A) LI/JV (3) 229,183 74% BJ’s Wholesale Club 2033/2053 Total Fund II Properties Fund III Properties New York 546,754 85% Michaels 2013/2033 Cortlandt Towne Center Mohegan Lake 2009 (A) 641,797 85% Walmart 2018/2048 A&P 2022/2047 United Artists Theatre 2018/2038 Barnes & Noble 2013/2028 Officemax 2013/2028 Petsmart 2014/2034 Modell’s 2013/2023 Michaels 2017/2037 Old Navy 2014/2019 Marshalls 2014/2024 Best Buy 2017/2032 Total Fund III Properties Total Opportunity Fund Operating Properties 641,797 2,068,239 85% 87% Acadia Realty Trust 2009 Annual Report 21 Shopping Center Location Acquired (A) Interest GLA Year Constructed (C) Ownership Occupancy %(1) 12/31/09 Anchor Tenants Current Lease Expiration/ Lease Option Expiration Properties Under Redevelopment Sterling Heights Shopping Center Detroit Sherman Plaza CityPoint Atlantic Avenue Canarsie Plaza Westport Sheepshead Bay 161st Street Total Redevelopment Properties New York Brooklyn Brooklyn Brooklyn Westport Brooklyn Bronx 2004 (A) 2005 (A) 2007 (A) 2007 (A) 2007 (A) 2007 (A) 2007 (A) 2005 (A) JV (9) 154,835 60% JV JV JV JV JV JV JV — — — — — — 227,379 382,214 — — — — — — 84% 74% Target City of New York 2011/— Notes: (5) Includes a 97,300 square foot Walmart which is not owned by us. (1) Does not include space leased for which rent had not yet commenced as of (6) Includes a 157,616 square foot Target Store that is not owned by us. December 31, 2009. (2) In addition to the 16,834 square feet of retail GLA, this property also has 21 apartments comprising 14,434 square feet. (3) We are a ground lessee under a long-term ground lease. (4) We have a 49% investment in this property. (7) We have a 22% investment in this property. (8) Property consists of two buildings. (9) Fund I has a 50% interest in this property. 22 Acadia Realty Trust 2009 Annual Report Major Tenants No individual retail tenant accounted for more than 5.8% of minimum rents for the year ended December 31, 2009 or occupied more than 6.8% of total leased GLA as of December 31, 2009. The following table sets forth certain information for the 20 largest retail tenants based upon minimum rents in place as of December 31, 2009. The amounts below include our pro-rata share of GLA and annualized base rent for the Operating Partnership’s partial ownership interest in properties, including the Opportunity Funds (GLA and rent in thousands): Percentage of Total Represented by Retail Tenant Annualized Base Rent (1) Total Portfolio GLA (2) Annualized Base Rent (2) $ 3,468,127 2,420,980 3.8% 3.5% Retail Tenant A&P (Waldbaum’s, Pathmark) Supervalu (Shaw’s) TJX Companies (T.J.Maxx, Marshalls, Homegoods) Walmart Sears (Sears, Kmart) Stage Deli Ahold (Stop & Shop) L.A. Fitness Safeway Barnes & Noble Home Depot Restoration Hardware Walgreens Sleepy’s Price Chopper BJ’s Wholesale Club King Kullen Macy’s Kroger Payless Shoesource Total Notes: Total GLA 191,902 175,801 255,843 235,996 341,708 Number of Stores in Portfolio 5 3 10 3 5 1 2 1 2,254,281 1,713,410 1,653,320 4,211 1,403,822 117,911 1,363,237 55,000 1,265,000 12 123,626 1,212,747 4 2 1 3 5 1 1 1 1 6 8 43,260 1,146,102 211,003 1,099,996 12,293 22,692 33,635 77,450 25,881 37,266 73,349 77,383 27,739 1,041,152 854,313 828,474 802,105 772,834 745,320 651,245 626,822 603,259 5.1% 4.7% 6.8% 0.1% 2.4% 1.1% 2.5% 0.9% 4.2% 0.2% 0.5% 0.7% 1.6% 0.5% 0.7% 1.5% 1.5% 0.6% 5.8% 4.0% 3.8% 2.9% 2.8% 2.3% 2.3% 2.1% 2.0% 1.9% 1.8% 1.7% 1.4% 1.4% 1.3% 1.3% 1.2% 1.1% 1.0% 1.0% 75 2,143,949 $ 25,926,546 42.9% 43.1% (1) Base rents do not include percentage rents (except where noted), additional rents for property expense reimbursements, and contrac- tual rent escalations due after December 31, 2009. (2) Represents total GLA and annualized base rent for our retail properties including the Operating Partnership’s pro-rata share of joint venture properties, including the Opportunity Funds. Acadia Realty Trust 2009 Annual Report 23 Lease Expirations The following table shows scheduled lease expirations for retail tenants in place as of December 31, 2009, assuming that none of the tenants exercise renewal options. (GLA and Annualized Base Rent in thousands): Core Portfolio: Leases maturing in Month to Month 2010 2011 2012 2013 2014 2015 2016 2017 2018 Thereafter Total Number of Leases Annualized Base Rent (1) Current Annual Rent Percentage of Total GLA Square Feet Percentage of Total 11 62 62 52 55 57 22 12 18 25 47 423 $ 355 6,013 7,107 6,468 8,803 7,842 5,000 1,940 4,592 7,013 13,055 $ 68,188 1% 9% 10% 9% 13% 12% 7% 3% 7% 10% 19% 100% 17 543 379 555 524 556 285 123 202 403 1,128 4,715 0% 12% 8% 12% 11% 12% 6% 3% 4% 9% 23% 100% Opportunity Funds: Number of Leases 9 6 27(2) 8 6 13 4 1 5 10 22 111 Leases maturing in Month to Month 2010 2011 2012 2013 2014 2015 2016 2017 2018 Thereafter Total Notes: Annualized Base Rent (1) Current Annual Rent Percentage of Total GLA Square Feet Percentage of Total $ 428 239 11,172 859 2,086 2,160 221 177 1,583 2,383 14,595 $ 35,903 1% 1% 31% 2% 6% 6% 1% 0% 4% 7% 41% 100% 31 13 980 38 95 107 9 9 97 198 522 2,099 1% 1% 47% 2% 5% 5% 0% 0% 5% 9% 25% 100% (1) Base rents do not include percentage rents, additional rents for property expense reimbursements, nor contractual rent escalations due after December 31, 2009. (2) Includes 18 Kroger/Safeway leases representing annualized base rent of $6,492 and GLA of 709 square feet. Reference is made to page 27 below for a discussion of the Kroger/Safeway portfolio. 24 Acadia Realty Trust 2009 Annual Report Geographic Concentrations The following table summarizes our retail properties by region as of December 31, 2009. (GLA and Annualized Base Rent in thousands): Region Core Properties: New York Region (3) New England Midwest Mid-Atlantic Total Core Properties Opportunity Funds: Operating Properties: Midwest (4) New York Region (5) Various (Kroger/Safeway GLA (1) Occupied % (2) Annualized Base Rent (2) Annualized Base Rent Per Occupied Square Foot 1,051 1,197 711 2,424 5,383 92% 97% 91% 91% 92% $ 24,453 10,225 8,666 24,844 $ 68,188 $ 25.42 9.66 13.45 12.19 $ 14.50 Percentage of Total Represented by Region GLA 20% 22% 13% 45% Annualized Base Rent 36% 15% 13% 36% 100% 100% 247 1,112 65% 83% $ 1,418 23,044 $ 8.87 24.87 12% 54% 5% 74% Portfolio) (6) 709 100% 6,492 9.15 34% 21% Total Opportunity Fund Operating Properties 2,068 87% $ 30,954 $ 17.23 100% 100% Redevelopment Properties: Midwest (7) New York Region (8) Total Opportunity Fund 155 227 61% 84% $ 563 4,385 $ 6.02 23.09 41% 59% 11% 89% Redevelopment Properties 382 74% $ 4,948 $ 17.46 100% 100% Notes: (1) Property GLA includes a total of 255,000 square feet, which is not owned by us. This square footage has been excluded for calculating annualized base rent per square foot. (2) The above occupancy and rent amounts do not include space that is currently leased, but for which payment of rent had not commenced as of December 31, 2009. (3) We have a 49% interest in two partnerships, which together, own the Crossroads Shopping Center. (4) We have a 37.78% interest in future earnings and distributions from Fund I, which owns one property, and a 20% interest in Fund II, which owns one property. (5) We have a 37.78% interest in future earnings and distributions from Fund I, which owns one property, a 20% interest in Fund II, which has a 99.01% interest in four properties, and a 20% interest in Fund III, which owns one property. (6) Fund I portfolio of 18 triple-net, anchor-only leases with Kroger and Safeway supermarkets. (7) We have a 37.78% interest in future earnings and distributions from Fund I, which has a 50% interest in one property. (8) We have a 20% interest in Fund II, which has a 99.01% interest in one property. Acadia Realty Trust 2009 Annual Report 25 Self-Storage Portfolio During February 2008, through Fund III, we acquired a 95% controlling interest in a portfolio of 11 self-storage properties from Storage Post’s existing institutional investors for approximately $174.0 million. In addition, we, through Fund II, developed three self-storage properties. The 14 self-storage property portfolio, located throughout New York and New Jersey, totals 1,126,708 net rentable square feet, and is operating at various stages of stabilization as detailed in the table below. The portfolio is operated by Storage Post, which is an equity partner. Owner Operating Properties Location Net Rentable Occupancy as of Square Feet December 31, 2009 Stabilized Fund III Suffern Fund III Yonkers Fund III Jersey City Fund III Webster Avenue Fund III Linden Subtotal Stabilized Suffern, New York Westchester, New York Jersey City, New Jersey Bronx, New York Linden, New Jersey Redeveloped — in Lease-up Fund III Bruckner Boulevard Bronx, New York Fund III New Rochelle Fund III Long Island City Westchester, New York Queens, New York Subtotal in Lease-up Total Operating Properties In Initial Lease-up Fund III Fordham Road Fund III Ridgewood Fund III Lawrence Fund II Liberty Avenue Fund II Pelham Plaza Fund II Atlantic Avenue Bronx, New York Queens, New York Lawrence, New York Queens, New York Pelham Manor, New York Brooklyn, New York 78,950 100,523 76,720 36,535 84,235 376,963 89,448 42,203 134,816 266,467 643,430 84,955 88,839 97,693 72,850 62,020 76,921 85.3% 70.9% 79.3% Subtotal in Initial Leaseup 483,278 51.7% Total Self-Storage Portfolio 1,126,708 26 Acadia Realty Trust 2009 Annual Report Kroger/Safeway Portfolio At December 31, 2009, Fund I, together with an unaffiliated assets was made in an effort to defraud creditors. We believe this aspect of the case is without merit. There joint venture partner (“Kroger/Safeway JV”), owns interests, are four other claims relating to transfers of assets of through two master leases with an unaffiliated entity (“Master Lessee”), in 18 triple-net Kroger and Safeway supermarket leases (“Operating Leases”) aggregating approximately 0.7 million square feet. There are six Kroger and 12 Safeway locations in 11 states averaging approximately 39,000 square feet at rents ranging from approximately $3.90 to $7.00 per square foot. The master leases expire in 2011 with the Master Lessee having the option of extending the term of either or both of the master leases. The Kroger/Safeway JV acquired its interest subject to long-term ground leases, which have a term in excess of 80 years inclusive of multiple renewal options. Although there is no obligation for the Kroger/Safeway JV to pay ground rent during the initial term of the master lease, to the extent it exercises an option to renew a ground lease for a property thereafter, it will be obligated to pay an aver- age ground rent of approximately $2.00 per square foot. The Kroger Co. purchased six locations comprising 277,700 square feet, or 28% of the portfolio, during February of 2009 for $14.6 million, resulting in a gain of approximately $5.6 million. The initial Operating Leases expired during 2009. Options on these leases provide for extensions through 2049 at an average rent of approximately $5.00 per square foot upon Mervyns at various times. We believe there are substantial defenses to these claims. The matter is in the early stages of discovery and we believe the lawsuit will not have a material adverse effect on our results of operations or consolidated financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders through the solicitation of proxies or otherwise during the fourth quarter of 2009. PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCK MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (a) Market Information, dividends and record holders of our Common Shares The following table shows, for the period indicated, the high and low sales price for our Common Shares as reported on the New York Stock Exchange, and cash dividends declared during the two years ended December 31, 2009 and 2008: Dividend Per Share the commencement of the initial option period during 2009. Quarter Ended High Low All of the remaining locations exercised their extension options during 2009. ITEM 3. LEGAL PROCEEDINGS We are involved in other various matters of litigation aris- ing in the normal course of business. While we are unable to predict with any certainty the amounts involved, man- agement is of the opinion that, when such litigation is resolved, our resulting net liability, if any, will not have a significant effect on our consolidated financial position or 2009 March 31, 2009 June 30, 2009 September 30, 2009 December 31, 2009 2008 $14.69 15.44 16.51 17.69 $8.50 10.37 11.55 13.31 $0.2100 0.1800 0.1800 0.1800 March 31, 2008 $26.09 $21.17 $0.2100 June 30, 2008 September 30, 2008 December 31, 2008 26.78 26.14 25.23 22.54 21.38 9.04 0.2100 0.2100 0.7600 results of operations. At March 1, 2010, there were 326 holders of record of our In September 2008, we, and certain of our subsidiaries, Common Shares. and other unrelated entities were named as defendants We have determined for income tax purposes that the in an adversary proceeding brought by Mervyn’s LLC composition of dividends for 2009 are as follows. 95% of (“Mervyns”) in the United States Bankruptcy Court for the total dividends distributed to shareholders represented the District of Delaware. This lawsuit involves five claims ordinary income, 4% represented unrecaptured Section alleging fraudulent transfers. The first claim is that, at the 1250 gain and 1% represented Section 1231 gain. The time of the sale of Mervyns by Target Corporation to a dividend for the quarter ended December 31, 2009 was consortium of investors including Acadia, a transfer of paid on February 1, 2010 and will be taxable in 2010. Our Acadia Realty Trust 2009 Annual Report 27 cash flow is affected by a number of factors, including the (b) Issuer purchases of equity securities revenues received from rental properties, our operating We have an existing share repurchase program that autho- expenses, the interest expense on our borrowings, the rizes management, at its discretion, to repurchase up to ability of lessees to meet their obligations to us and unan- $20.0 million of our outstanding Common Shares. The pro- ticipated capital expenditures. Future dividends paid by gram may be discontinued or extended at any time and us will be at the discretion of the Trustees and will depend there is no assurance that we will purchase the full amount on our actual cash flows, our financial condition, capital authorized. There were no Common Shares repurchased requirements, the annual distribution requirements under by us during the fiscal year ended December 31, 2009. the REIT provisions of the Code and such other factors as the Trustees deem relevant. In addition, we have the ability to pay dividends in cash, Common Shares or in any combination of cash (minimum 10%) and Common Shares (maximum 90%). (c) Securities authorized for issuance under equity compensation plans The following table provides information related to our 1999 Share Incentive Plan (the “1999 Plan”), 2003 Share Incentive Plan (the “2003 Plan”) and the 2006 Share Incentive Plan (the “2006 Plan”) as of December 31, 2009: Equity Compensation Plan Information (a) (b) Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column a) Eq uity compensation plans approved by security holders 159,283 Eq uity compensation plans not approved by security holders Total Notes: — 159,283 $18.04 — $18.04 1,037,444 (1) — 1,037,444 (1) (1) 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 exer- cise of options and no participant may receive more than 5,000,000 Common Shares during the term of the 1999 Plan. The 2003 Plan authorizes the issuance of options equal to up to 4% of the total 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. The 2006 Plan authorizes the issuance of a maximum number of 500,000 Common Shares. No participant may receive more than 500,000 Common Shares during the term of the 2006 Plan. Remaining Common Shares available is as follows: Outstanding Common Shares as of December 31, 2009 Outstanding OP Units as of December 31, 2009 Total Outstanding Common Shares and OP Units 12% of Common Shares and OP Units pursuant to the 1999 and 2003 Plans Common Shares pursuant to the 2006 Plan Total Common Shares available under equity compensation plans Less: Issuance of Restricted Shares and LTIP Units Granted Issuance of Options Granted Number of Common Shares remaining available 39,787,018 657,786 40,444,804 4,853,376 500,000 5,353,376 (1,540,413) (2,775,519) 1,037,444 28 Acadia Realty Trust 2009 Annual Report (d) Share Price Performance Graph (1) The following graph compares the cumulative total shareholder return for our Common Shares for the period commencing December 31, 2004 through December 31, 2009 with the cumulative total return on the Russell 2000 Index (“Russell 2000”), the NAREIT All Equity REIT Index (the “NAREIT”) and the SNL Shopping Center REITs (the “SNL”) over the same period. Total return values for the Russell 2000, the NAREIT, the SNL and the Common Shares were calculated based upon cumulative total return assuming the investment of $100.00 in each of the Russell 2000, the NAREIT, the SNL and our Common Shares on December 31, 2004, and assuming reinvestment of dividends. The shareholder return as set forth in the table below is not necessarily indicative of future performance. Comparison of Five-Year Cumulative Total Return among Acadia Realty Trust, the Russell 2000, the NAREIT and the SNL: Total Return Performance 200 175 150 125 100 75 50 e u l a V x e d n I Acadia Realty Trust Russell 2000 NAREIT All Equity REIT Index SNL REIT Retail Shopping Center Index 25 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 Period Ended Index Acadia Realty Trust Russell 2000 NAREIT All Equity REIT Index SNL REIT Retail Shopping Ctr Index 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 100.00 100.00 100.00 100.00 127.93 104.55 112.16 109.12 164.70 123.76 151.49 146.88 175.34 121.82 127.72 120.93 106.43 80.66 79.53 72.81 132.98 102.58 101.79 71.87 (1) The information in this section is not “soliciting material,” is not deemed “filed” with the SEC, and is not to be incorporated by reference into any filing of the Trust under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing. Acadia Realty Trust 2009 Annual Report 29 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth, on a historical basis, our selected financial data. This information should be read in conjunc- tion with our audited Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condi- tion and Results of Operations appearing elsewhere in this Form 10-K. Funds from operations (“FFO”) amounts for the year ended December 31, 2009 have been adjusted as set forth in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Reconciliation of Net Income to Funds from Operations and Adjusted Funds From Operations.” (dollars in thousands, except per share amounts) 2009 2008 2007 2006 2005 Years ended December 31, OPERATING DATA: Revenues Operating expenses Interest expense Depreciation and amortization Gain on sale of land Equity in (losses) earnings of unconsolidated partnerships Impairment of notes receivable Gain on extinguishment of debt Income tax provision (benefit) Income from continuing operations Income from discontinued operations Income from extraordinary item (1) $ 147,345 71,141 32,154 37,218 — (5,297) (1,734) 7,057 1,541 5,317 7,389 — $ 137,936 61,390 28,893 33,334 763 $ 95,092 46,265 24,564 25,114 — $ 89,335 40,525 19,929 23,016 — $ 87,592 36,250 16,166 22,375 — 19,906 6,619 2,559 21,280 (4,392) 1,523 3,362 28,757 8,680 — — — 297 5,471 7,246 27,844 40,561 — — (508) 8,932 25,223 — — — 2,140 31,941 2,657 — 34,155 34,598 Net income 12,706 37,437 Loss (income) attributable to noncontrolling interests in subsidiaries: Continuing operations Discontinued operations Extraordinary item Net loss (income) attributable to noncontrolling 23,282 (4,855) (11,630) (739) 9,558 (606) — — (24,167) 5,594 (829) — (13,650) (322) — interests in subsidiaries 18,427 (12,369) Net income attributable to Common Shareholders $ 31,133 $ 25,068 (15,215) $ 25,346 4,765 $ 38,920 (13,972) $ 20,626 Supplemental Information: Income from continuing operations attributable to Common Shareholders $ 28,599 $ 17,127 $ 15,029 $ 14,526 $ 18,291 Income from discontinued operations attributable to Common Shareholders 2,534 7,941 6,640 24,394 2,335 Income from extraordinary item attributable to Common Shareholders — — 3,677 — — Net income attributable to Common Shareholders $ 31,133 $ 25,068 $ 25,346 $ 38,920 $ 20,626 Basic earnings per share: Income from continuing operations Income from discontinued operations Income from extraordinary item Basic earnings per share Diluted earnings per share: Income from continuing operations Income from discontinued operations Income from extraordinary item Diluted earnings per share $ 0.75 0.07 — $ 0.51 0.23 — $ 0.82 $ 0.74 $ 0.75 0.07 — $ 0.50 0.23 — $ 0.82 $ 0.73 $ $ $ $ 0.45 0.20 0.11 0.76 0.44 0.19 0.11 0.74 $ 0.43 0.72 — $ 0.55 0.07 — $ 1.15 $ 0.62 $ 0.42 0.71 $ 0.55 0.07 — — $ 1.13 $ 0.62 30 Acadia Realty Trust 2009 Annual Report (dollars in thousands, except per share amounts) 2009 2008 2007 2006 2005 Years ended December 31, Weighted average number of Common Shares outstanding – basic – diluted 38,005 38,242 33,813 34,267 33,600 34,282 Cash dividends declared per Common Share $ 0.7500 $ 0.8951 (3) $ 1.0325 BALANCE SHEET DATA: Real estate before accumulated depreciation $ 1,207,406 $ 1,091,995 1,382,464 1,291,383 732,287 47,910 312,185 220,292 532,477 653,543 100,403 227,722 214,506 442,228 $ 817,620 998,783 399,997 105,790 249,717 171,111 420,828 33,789 34,440 $ 0.7550 $ 613,828 851,396 315,147 90,256 250,567 113,737 364,304 33,236 33,501 $ 0.7025 $ 634,871 841,204 372,957 — 220,576 146,290 366,866 Total assets Total mortgage indebtedness Total convertible notes payable Total Common Shareholders’ equity Noncontrolling interests in subsidiaries Total equity OTHER: Funds from Operations, adjusted for extraordinary item (1) (2) Cash flows provided by (used in): Operating activities Investing activities Financing activities 49,613 37,964 42,094 39,860 35,842 47,462 (123,380) 83,035 66,517 (302,265) 199,096 105,294 (208,998) 87,476 39,627 (58,890) 68,359 50,239 (135,470) 159,425 Notes: (1) The extraordinary item only relates to 2007 and represents the Company’s share of an extraordinary gain from its private- equity investment in Albertson’s. The Company considers its private-equity investments to be investments in operating businesses as opposed to real estate. Accordingly, all gains and losses from private-equity investments are included in FFO, which management believes provides a more accurate reflection of the operating performance of the Company. (2) The Company considers funds from operations (“FFO”) as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) to be an appropriate supplemental disclo- sure 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 performance 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 (losses) from sales of depreciated property and depreciation and amortization. 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 gen- erally 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 the Company’s per- formance 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 (losses) from sales of depreciated property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. (3) In addition to the $0.8951 cash dividends declared in 2008, the Company declared a Common Share dividend of $0.4949. Acadia Realty Trust 2009 Annual Report 31 Management’s Discussion and Analysis ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview As of December 31, 2009, we operated 79 properties, which we own or have an ownership interest in, within our Core Portfolio or within our three Opportunity Funds. Our Core Portfolio consists of those properties either 100% owned by, or partially owned through joint venture (cid:174) Own and operate a Core Portfolio of community and neighborhood shopping centers and main street retail located in markets with strong demographics and generate internal growth within the Core Portfolio through aggressive redevelopment, re-anchoring and/or leasing activities. (cid:174) Maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth. interests by the Operating Partnership, or subsidiaries (cid:174) Generate external growth through an opportunistic yet thereof, not including those properties owned through our disciplined acquisition program. We target transactions Opportunity Funds. These 79 properties consist of com- with high inherent opportunity for the creation of addi- mercial properties, primarily neighborhood and community tional value through redevelopment and leasing and/or shopping centers, self-storage and mixed-use properties transactions requiring creative capital structuring to with a retail component. The properties we operate are facilitate the transactions. These transactions may located primarily in the Northeast, Mid-Atlantic and Mid- include other types of commercial real estate besides western regions of the United States. Excluding two prop- those which we invest in through our Core Portfolio. erties under redevelopment, there are 32 properties in our These may also include joint ventures with private equity Core Portfolio totaling approximately 4.8 million square investors for the purpose of making investments in feet. Fund I has 21 properties comprising approximately operating retailers with significant embedded value 1.0 million square feet. Fund II has 10 properties, seven of in their real estate assets. which (representing 1.2 million square feet) are currently operating, one is under construction, and two are in design phase. Three of the properties also include self-storage facilities. We expect the Fund II portfolio will have approxi- mately 2.0 million square feet upon completion of all current construction and anticipated redevelopment activities. Fund III has 14 properties totaling approximately 1.8 million square feet, of which 11 locations representing 0.9 million net rentable square feet are self-storage facilities. The majority of our operating income is derived from rental revenues from these 79 properties, including recoveries from tenants, offset by operating and overhead expenses. As our RCP Venture invests in operating companies, we consider these investments to be private-equity style, as opposed to real estate, investments. Since these are not traditional investments in operating rental real estate but investments in operating businesses, the Operating Partnership invests in these through a taxable REIT sub- sidiary (“TRS”). Our primary business objective is to acquire and manage commercial retail properties that will provide cash for distri- butions to shareholders while also creating the potential for capital appreciation to enhance investor returns. We focus on the following fundamentals to achieve this objective: Business Outlook The U.S. economy is currently in a post-recessionary period, which has resulted in a significant decline in retail sales due to reduced consumer spending. Many financial and economic analysts are predicting that this period will extend beyond 2009. Although the occupancy and net operating income within our portfolio has not been materially adversely affected through December 31, 2009, should retailers continue to experience deteriorating sales performance, the likelihood of additional tenant bankruptcy filings may increase, which would negatively impact our results of operations. In addition to the impact on retailers, this period has had an unprecedented impact on the U.S. credit markets. Traditional sources of financing, such as the commercial-mortgage backed security market, have become severely curtailed, if not eliminated. If these con- ditions continue, our ability to finance new acquisitions or refinance existing debts as they mature will be adversely affected. Accordingly, our ability to generate external growth in income, as well as maintain existing operating income, could be limited. See the “Item 1A. Risk Factors,” including the discussions under the headings “The current economic environment, while improving, may cause us to lose tenants and may impair our ability to borrow money to purchase properties, 32 Acadia Realty Trust 2009 Annual Report refinance existing debt or finance our current redevelopment projects” and “The bankruptcy of, or a downturn in the busi- ness of, any of our major tenants or a significant number of our smaller tenants may adversely affect our cash flows and property values.” Results of Operations Reference is made to Note 3 to the Notes to Consolidated Financial Statements beginning on page 57 of this Form 10-K for an overview of our five reportable segments. Comparison of the year ended December 31, 2009 (“2009”) to the year ended December 31, 2008 (“2008”) (dollars in millions) 2009 2008 Core Opportunity Storage Receivable Core Self- Notes and Other Portfolio Revenues: Minimum rents Percentage rents Expense reimbursements Lease termination income Other property income Management fee income (1) Interest income Other income Portfolio $ 50.7 0.5 13.7 2.8 0.2 — — 1.7 Funds $ 35.7 — 7.2 — 1.4 — — — Portfolio $ 9.8 — — — 1.3 — — — $ — — — — — 2.0 20.3 — Total revenues $ 69.6 $ 44.3 $ 11.1 $ 22.3 Notes Self- Opportunity Storage Receivable Portfolio and Other $ 4.8 — — — 0.8 — — — Funds $ 22.4 — 2.7 24.0 (0.6) — — — $ — — — — 0.6 3.4 14.5 — $ 48.5 $ 5.6 $ 18.5 $ 50.4 0.5 14.1 — 0.3 — — — $ 65.3 (1) Includes fees earned by the Company as general partner/managing member of the Opportunity Funds that are eliminated in con- solidation. The Operating Partnership’s share of these fees are recognized as a reduction in noncontrolling interests. The net balance reflected herein represents third party fees which are not eliminated in consolidation. The increase in minimum rents in the Opportunity Funds Lease termination income in the Core Portfolio for 2009 primarily relates to additional rents following the acquisi- relates to a termination fee earned from Acme at Absecon tion of Cortlandt Towne Center (“2009 Fund Acquisition”) Marketplace. Lease termination income in the Opportunity of $7.5 million and additional leases at Fordham Place Funds for 2008 relates to a termination fee earned, net of and Pelham Manor Shopping Plaza commencing in 2009 costs, from Home Depot at Canarsie Plaza. (“Fordham and Pelham”). The increase in minimum rents in the Storage Portfolio relates to the February 2008 acqui- sition of the Storage Post Portfolio and the Company’s election in 2008 to report the Storage Portfolio activity one month in arrears to enhance the accuracy and timeliness Management fee income decreased primarily as a result of lower fees earned of $0.9 million from the CityPoint development project and lower fees from our Klaff man- agement contracts. of reporting. Accordingly, the year ended December 31, The increase in interest income was the result of higher 2008 reflects nine months of activity while the year ended interest earning assets in 2009, primarily from new notes/ December 31, 2009 reflects twelve months of activity mezzanine financing investments originated during the (“Storage Acquisition”). In addition, the increase in minimum second half of 2008. rents in the Storage Portfolio was also attributable to the full amortization of acquired lease intangible cost during 2009. Other income of $1.7 million in the Core Portfolio was the result of the Company’s retention of a sales contract Expense reimbursements in the Opportunity Funds deposit forfeited during 2009. increased for both real estate taxes and common area maintenance as a result of the 2009 Fund Acquisition as well as Fordham and Pelham. Acadia Realty Trust 2009 Annual Report 33 Management’s Discussion and Analysis continued (dollars in millions) 2009 2008 Core Opportunity Storage Receivable Core Self- Notes Operating Expenses: Property operating Real estate taxes General and administrative Depreciation and amortization Abandonment of project costs Reserve for notes receivable Portfolio $ 12.1 9.3 24.0 17.2 — — Total operating expenses $ 62.6 Funds $ 10.2 5.3 13.5 17.1 2.5 — $ 48.6 Portfolio $ 8.7 2.2 0.1 4.4 — — and Other Portfolio $ (1.2) — (15.6) (1.5) — 1.7 $ 12.2 8.8 26.0 20.3 — — Notes Self- Opportunity Storage Receivable Portfolio and Other $ 5.3 1.3 0.1 3.0 — — Funds $ 7.0 2.0 16.1 10.0 0.6 — $ (0.4) — (17.6) — — 4.4 $ 15.4 $ (16.6) $ 67.3 $ 35.7 $ 9.7 $ (13.6) The increase in property operating expenses in the Oppor- attributable to the bankruptcy of Circuit City. Amortization tunity Funds was primarily the result of the 2009 Fund expense in the Core Portfolio decreased $0.7 million primar- Acquisition as well as Fordham and Pelham. The increase ily as a result of lower amortization expense in 2009 asso- in property operating expenses in the Storage Portfolio ciated with the Klaff management contracts. Depreciation relates to the Storage Acquisition. expense increased $5.0 million and amortization expense The increase in real estate taxes in the Opportunity Funds was primarily attributable to the 2009 Fund Acquisition. The increase in real estate taxes in the Storage Portfolio relates to the Storage Acquisition. increased $2.1 million in the Opportunity Funds primarily due to the 2009 Fund Acquisition as well as Fordham and Pelham. Depreciation expense and amortization expense increased $1.4 million in the Storage Portfolio primarily as a result of the Storage Acquisition as previously discussed. The decrease in general and administrative expense in the Depreciation and amortization expense decreased $1.5 Core Portfolio was primarily attributable to reduced com- million in Other as a result of depreciation associated with pensation expense following staff reductions in the second the elimination of capitalizable costs within the consoli- half of 2008 and in the first half of 2009. The decrease in dated group. general and administrative expense in the Opportunity Funds relates to the reduction in Promote expense attributable to Fund I and Mervyns I. The increase in general and admin- istrative expense in Other primarily relates to the reduction in Fund I and Mervyns I Promote expense eliminated for The $2.5 million abandonment of project costs in 2009 is attributable to the Company’s determination that it most likely will not participate in a specific future develop- ment project. consolidated financial statement presentation purposes. The reserve for notes receivable of $1.7 million in 2009 Depreciation expense in the Core Portfolio decreased $2.4 million in 2009. This was principally a result of increased depreciation expense in 2008 resulting from the write-down of tenant improvements at two properties relates to the establishment of a reserve for a notes receiv- able due to the loss of an anchor tenant at the underlying property. The 2008 reserve for notes receivable of $4.4 million relates to a mezzanine loan. 34 34 Acadia Realty Trust 2009 Annual Report Acadia Realty Trust 2009 Annual Report (dollars in millions) 2009 2008 Core Opportunity Storage Receivable Core Self- Notes Funds Portfolio and Other Portfolio Self- Opportunity Storage Receivable Portfolio and Other Funds Notes $ 0.7 Portfolio Other: Equity in (losses) earnings of unconsolidated affiliates Unconsolidated affiliate impairment reserve Interest expense Gain on debt extinguishment Gain on sale of land Income tax provision Income from discontinued operations Loss (income) attributable to noncontrolling interests in subsidiaries: – Continuing operations – Discontinued operations — (18.7) 7.1 — (1.5) (0.4) — — $ (2.2) $ — $ — $ — $ 19.9 $ — $ — (3.8) (8.4) — — — — (5.0) — — — — — — — — — (19.8) 1.5 0.8 (3.4) — (5.5) — — — — (3.6) — — — — — — — — — — 7.4 — — — 8.7 22.3 — (0.5) — 1.9 (4.9) 0.2 — (15.8) — 0.4 — 3.6 (0.7) Equity in (losses) earnings of unconsolidated affiliates in The gain on sale of land of $0.8 million in the Core Portfolio the Opportunity Funds decreased primarily as a result of relates to a land sale at Bloomfield Town Square in 2008. our pro-rata share of gains from the sale of Mervyns loca- tions in 2008 of $10.4 million, a decrease in distributions in excess of basis from our Albertson’s investment of $7.9 million in 2009 and our pro-rata share of gain from the sale of the Haygood Shopping Center of $3.4 million in 2008. The $3.8 million unconsolidated affiliate impairment reserve in 2009 relates to a Fund I unconsolidated investment. Interest expense in the Core Portfolio decreased $1.1 million in 2009. This was primarily the result of lower interest expense related to the purchase of the Company’s convertible notes payable offset by a $0.7 million write-off of the unamortized premium related to the repayment of a mortgage note payable during 2008. Interest expense in the Opportunity Funds increased $2.9 million in 2009. This was primarily attributable to an increase of $4.2 million due to higher average outstanding borrowings in 2009 and $0.6 million of lower capitalized interest in 2009. These increases were offset by a $2.2 million decrease related The variance in the income tax provision in the Core Port- folio primarily relates to income taxes at the TRS level for our share of income/gains from Mervyns and Albertson’s in 2008. Income from discontinued operations represents activity related to properties sold in 2009 and 2008. Loss (income) attributable to noncontrolling interests in subsidiaries — Continuing operations for the Opportunity Funds primarily represents the noncontrolling interests’ share of all Opportunity Fund activity and ranges from a 77.8% interest in Fund I to an 80.1% interest in Fund III. The variance between 2009 and 2008 represents the non- controlling interests’ share of all the Opportunity Funds variances discussed above. Loss (income) attributable to noncontrolling interests in subsidiaries — Continuing oper- ations in Other relates to the noncontrolling interests’ share of capitalized construction, leasing and legal fees. to lower average interest rates in 2009. Interest expense Loss (income) attributable to noncontrolling interests in in the Storage Portfolio increased $1.4 million in 2009. subsidiaries — Discontinued operations primarily repre- This was primarily due to an increase of $0.9 million due sents the noncontrolling interests’ share of activity related to higher average outstanding borrowings in 2009 as well to properties sold in 2009 and 2008. as an increase of $0.8 million due to higher interest rates in 2009. The gain on debt extinguishment of $7.1 million in 2009 and $1.5 million in 2008 is attributable to the purchase of our convertible debt at a discount. Acadia Realty Trust 2009 Annual Report 35 Management’s Discussion and Analysis continued Comparison of the year ended December 31, 2008 (“2008”) to the year ended December 31, 2007 (“2007”) (dollars in millions) 2008 2007 Core Opportunity Storage Receivable Core Self- Notes Revenues: Minimum rents Percentage rents Expense reimbursements Lease termination income Other property income Management fee income (1) Interest income Other income Portfolio $ 50.4 0.5 14.1 — 0.3 — — — Funds $ 22.4 — 2.7 24.0 (0.6) — — — Portfolio $ 4.8 — — — 0.8 — — — Total revenues $ 65.3 $ 48.5 $ 5.6 and Other Portfolio $ — — — — 0.6 3.4 14.5 — $ 18.5 $ 48.6 0.5 12.4 — 0.8 — — 0.2 $ 62.5 Notes Self- Opportunity Storage Receivable Portfolio and Other $ 0.3 — — — — — — — Funds $ 17.0 — 0.9 — 0.1 — — — $ — — — — — 4.1 10.3 — $ 18.0 $ 0.3 $ 14.4 (1) Includes fees earned by the Company as general partner/managing member of the Opportunity Funds that are eliminated in con- solidation. The Operating Partnership’s share of these fees are recognized as a reduction in noncontrolling interests. The net balance reflected herein represents third party fees which are not eliminated in consolidation. The increase in minimum rents in the Core Portfolio was CAM expense reimbursements in the Core Portfolio attributable to additional rents following the acquisitions increased $1.0 million. As a result of the completion of of 200 West 54th Street, 145 East Service Road and East a multi-year review of CAM billings during 2007 and the 17th Street (“2007/2008 Core Acquisitions”) of $1.8 million. resolution of the majority of all outstanding CAM billing The increase in rents in the Opportunity Funds primarily issues with our tenants, 2007 CAM expense reimburse- relates to additional rents following the acquisition of 125 ments were adversely impacted by charges related to Main Street (“2007 Fund Acquisitions”) of $0.5 million, this settlement and the related accrual adjustments total- 216th Street being placed in service October 1, 2007 of ing $1.0 million. The increase in expense reimbursements $2.1 million, and Pelham Manor Shopping Plaza and Ford- in the Opportunity Funds relates primarily to the billing in ham Plaza being partially placed in service in 2008. The 2008 of previous year’s operating expenses at 161st Street increase in minimum rents in the Storage Portfolio relates for $1.2 million and the billing of previous year’s utility to the acquisition of the Storage Post Portfolio (“2008 charges to an anchor tenant for $0.3 million. Storage Acquisition”). Lease termination income in the Opportunity Funds for Expense reimbursements in the Core Portfolio increased 2008 relates to a termination fee earned, net of costs, for both real estate taxes and common area maintenance from Home Depot at Canarsie Plaza. (“CAM”). Real estate tax reimbursements increased $0.7 million in the Core Portfolio as a result of the 2007/2008 Core Acquisitions as well as general increases in real estate taxes experienced across the Core Portfolio in 2008. The increase in interest income was the result of higher interest earning assets in 2008, primarily from new notes/ mezzanine financing investments. 36 Acadia Realty Trust 2009 Annual Report (dollars in millions) 2008 2007 Core Opportunity Storage Receivable Core Self- Notes Operating Expenses: Property operating Real estate taxes General and administrative Depreciation and amortization Abandonment of project costs Reserve for notes receivable Portfolio $ 12.2 8.8 26.0 20.3 — — Total operating expenses $ 67.3 Funds $ 7.0 2.0 16.1 10.0 0.6 — $ 35.7 Portfolio $ 5.3 1.3 0.1 3.0 — — and Other Portfolio $ (0.4) — (17.6) — — 4.4 $ 10.4 8.1 25.1 17.4 — — Notes Self- Opportunity Storage Receivable Portfolio and Other $ 0.7 — — 0.3 — — Funds $ 3.0 1.3 13.0 7.4 0.1 — $ (0.3) — (15.2) — — — $ 9.7 $ (13.6) $ 61.0 $ 24.8 $ 1.0 $ (15.5) The increase in property operating expenses in the Core increased activity in Opportunity Fund assets and asset Portfolio relates to additional reserves for tenant receivables, management services. The increase in general and including straight line rent. The increase in property operat- administrative expense in the Opportunity Funds primarily ing expenses in the Opportunity Funds was attributable to related to additional Fund III asset management fees of 216th Street being placed in service October 1, 2007 of $2.8 million in 2008 as well as an increase in other profes- $0.6 million, allocated property operating expenses related sional fees. These increases were offset by a $0.8 million to Pelham Manor Shopping Plaza and Fordham Plaza being decrease in Promote expense related to Fund I and partially placed in service in 2008 of $2.3 million as well Mervyns I. The decrease in general and administrative in as additional reserves for tenant receivables, which was “Other” primarily relates to the elimination of the Fund III primarily for straight line rent receivables. The increase asset management fees offset by the elimination of the in property operating expenses in the Storage Portfolio Fund I and Mervyns I Promote expense for consolidated relates to the 2008 Storage Acquisition. financial statement presentation purposes. The increase in real estate taxes in the Core Portfolio was Depreciation expense in the Core Portfolio increased $2.9 due to the 2007/2008 Core Acquisitions as well as general million in 2008. This was principally a result of increased increases in real estate taxes experienced across the Core depreciation expense following the full depreciation of Portfolio. The increase in real estate taxes in the Opportu- tenant improvements at two properties following the nity Funds was primarily attributable to allocated real estate bankruptcy of Circuit City of $2.4 million and increased taxes related to Pelham Manor Shopping Plaza and Ford- depreciation expense resulting from the 2007/2008 Core ham being partially placed in service in 2008. The increase Acquisitions. The increase in depreciation and amortization in real estate taxes in the Storage Portfolio relates to the expense for the Opportunity Funds is primarily related to acquisition of the 2008 Storage Acquisition. 216th Street being placed in service October 1, 2007 as The increase in general and administrative expense in the Core Portfolio was primarily attributable to increased com- pensation expense of $1.1 million for additional personnel hired in the second half of 2007 and in 2008 as well as well as Pelham Manor Shopping Plaza and Fordham Plaza being partially placed in service in 2008. The increase in depreciation and amortization in the Storage Portfolio relates to the acquisition of the 2008 Storage Acquisition. increases in existing employee salaries. In addition, there The reserve for notes receivable of $4.4 million in 2008 was an increase of $0.3 million for other overhead expenses relates to the impairment of a mezzanine loan. following the expansion of our infrastructure related to Acadia Realty Trust 2009 Annual Report 37 Management’s Discussion and Analysis continued (dollars in millions) 2008 2007 Core Opportunity Storage Receivable Core Self- Notes Funds Portfolio and Other Portfolio Self- Opportunity Storage Receivable Portfolio and Other Funds Notes Portfolio $ — (19.8) 1.5 0.8 (3.4) Other: Equity in (losses) earnings of unconsolidated affiliates Interest expense Gain on debt extinguishment Gain on sale of land Income tax provision Income from discontinued operations Extraordinary item Loss (income) attributable to noncontrolling interests in subsidiaries: – Continuing operations – Discontinued operations – Extraordinary item 0.2 — — — — $ 19.9 (5.5) — — — — — $ — (3.6) — — — — — $ — — — — — $ 0.6 (19.4) — — (0.3) $ 5.8 (5.3) — — — 8.7 — — — — 27.8 $ — (0.4) — — — — — $ 0.2 0.5 — — — 7.2 — (15.8) — — 0.4 — — 3.6 (0.7) — — — — 6.5 — (24.2) — — — 3.0 (0.6) — Equity in earnings of unconsolidated affiliates in the The variance in income tax provision in the Core Portfolio Opportunity Funds increased primarily as a result of our primarily relates to income taxes at the TRS level for our pro-rata share of gains from the sale of Mervyns locations share of gains from the sale of Mervyns locations in 2008. in 2008 of $5.2 million, additional distributions in excess of basis from our Albertson’s investment of $7.9 million and our pro-rata share of gain from the sale of the Haygood Income from discontinued operations represents activity related to properties sold in 2009, 2008 and 2007. Shopping Center of $3.3 million. These increases were The extraordinary item in 2007 in the Opportunity Funds partially offset by a decrease in our pro-rata share of relates to the extraordinary gain, net of income taxes, distributions in excess of basis from our investment in from our Albertson’s investment. Hitchcock Plaza of $2.7 million as compared to 2007. Loss (income) attributable to noncontrolling interests in Interest expense in the Core Portfolio increased $0.4 million subsidiaries — Continuing operations for the Opportunity in 2008. This was primarily the result of a $1.1 million Funds primarily represents the noncontrolling interests’ increase attributable to higher average outstanding bor- share of all Opportunity Fund activity and ranges from a rowings in 2008 and a $0.2 million increase related to 77.8% interest in Fund I to an 80.1% interest in Fund III. higher average interest rates in 2008. These increases The variance between 2008 and 2007 represents the non- were offset by a $0.7 million write-off of the unamortized controlling interests’ share of all the Opportunity Funds premium related to the repayment of a mortgage note variances discussed above. Loss (income) attributable to payable in 2008 and a $0.4 million decrease resulting noncontrolling interests in subsidiaries — Continuing oper- from costs associated with a loan payoff in 2007. Interest ations in Notes Receivable and Other relates to the non- expense in the Opportunity Funds increased $0.2 million controlling interests’ share of capitalized construction, in 2008. This was the result of an increase of $3.2 million leasing and legal fees. due to higher average outstanding borrowings in 2008 offset by a $3.1 million decrease related to lower average interest rates in 2008. Interest expense in the Storage Portfolio increased $3.2 million as a result of the 2008 Storage Acquisition. The gain on debt extinguishment of $1.5 million is attrib- utable to the purchase of the Company’s convertible debt at a discount in 2008. The gain on sale of land in 2008 in the Core Portfolio relates to a land parcel sale at Bloomfield Town Square. 38 Acadia Realty Trust 2009 Annual Report Loss (income) attributable to noncontrolling interests in subsidiaries — Discontinued operations primarily represents the noncontrolling interests’ share of activity related to properties sold in 2009, 2008 and 2007. Loss (income) attributable to noncontrolling interests in subsidiaries — Extraordinary item represents the noncon- trolling interests’ share of the extraordinary gain from the Albertson’s investment. Reconciliation of Net Income to Funds from Operations and Adjusted Funds from Operations For the years ended December 31, 2009 2008 2007 2006 2005 (dollars in thousands) Net income attributable to Common Shareholders Depreciation of real estate and amortization of leasing costs: Consolidated affiliates, net of noncontrolling interests’ share Unconsolidated affiliates Income attributable to noncontrolling interests $ 31,133 $ 25,068 $ 25,346 $ 38,920 $ 20,626 18,847 1,603 18,519 1,687 19,669 1,736 20,206 1,806 16,676 746 in operating partnership (1) 465 437 614 803 416 Gain on sale of properties (net of noncontrolling interests’ share) Consolidated affiliates Unconsolidated affiliates Extraordinary item (net of noncontrolling interests’ share and income taxes) (3) Funds from operations (2) Add back: Extraordinary item, net (3) Funds from operations, adjusted for extraordinary item Notes: (2,435) — (7,182) (565) (5,271) — (20,974) (901) 50 (2,672) — 49,613 — — 37,964 — (3,677) 38,417 3,677 — 39,860 — — 35,842 — $ 49,613 $ 37,964 $ 42,094 $ 39,860 $ 35,842 (1) Represents income attributable to Common OP Units and does not include distributions paid to Series A and B Preferred OP Unitholders. (2) The Company considers funds from operations (“FFO”) as defined by 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 performance 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 (losses) from sales of depreciated property and depreciation and amortization. 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 available 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 (losses) from sales of depreciated property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. (3) The extraordinary item represents the Company’s share of estimated extraordinary gain related to its private-equity investment in Albertson’s. The Albertson’s entity has recorded an extraordinary gain in connection with the allocation of purchase price to assets acquired. The Company considers its private-equity investments to be investments in operating businesses as opposed to real estate. Accordingly, all gains and losses from private-equity investments are included in adjusted FFO, which management believes provides a more accurate reflection of the operating performance of the Company. Liquidity and Capital Resources Uses of Liquidity Our principal uses of liquidity are (i) distributions to our Distributions In order to qualify as a REIT for Federal income tax purposes, we must currently distribute at least 90% of our taxable income to our shareholders. For the year ended December shareholders and OP unit holders, (ii) investments which 31, 2009, we paid dividends and distributions on our include the funding of our capital committed to the Common Shares and Common OP Units totaling $29.1 Opportunity Funds and property acquisitions and redevel- million. In addition, in December of 2008, our Board of opment/re-tenanting activities within our Core Portfolio, Trustees approved a special dividend of approximately and (iii) debt service and loan repayments, including the $0.55 per share, or $18.0 million in the aggregate, which repurchase of our Convertible Notes. was associated with taxable gains arising from property dispositions in 2008, which was paid on January 30, 2009, to shareholders of record on December 31, 2008. Ninety Acadia Realty Trust 2009 Annual Report 39 Management’s Discussion and Analysis continued percent of the special dividend was paid with the issuance centers on a leveraged basis. During 2006, the Fund I inves- of 1.3 million Common Shares and 10%, or $1.8 million, was tors received a return of all their invested capital in Fund I paid in cash. Fund I and Mervyns I In September 2001, the Operating Partnership committed $20.0 million to a newly formed Opportunity Fund with four of our institutional shareholders, who committed $70.0 million for the purpose of acquiring a total of approximately $300.0 million of community and neighborhood shopping and their unpaid preferred return. The Operating Partner- ship is entitled to 37.8% of all future income and distribu- tions (Promote and pro-rata share of the remaining 80%). As of December 31, 2009, Fund I has a total of 21 proper- ties totaling 1.0 million square feet as further discussed in “PROPERTY ACQUISITIONS” in Item 1 of this Form 10-K. Shopping Center New York Region New York Location Year Acquired GLA Tarrytown Shopping Center Tarrytown Midwest Region Ohio Granville Centre Michigan Columbus Sterling Heights Shopping Center (1) Detroit Various Regions Kroger/Safeway Portfolio Various Total Notes: 2004 2002 2004 2003 35,291 134,997 154,835 709,400 1,034,523 (1) During 2009, Fund I recorded an impairment reserve of $3.8 million related to this investment. In addition, we, along with our Fund I investors have invested 2004, Fund II, together with an unaffiliated partner, P/A in Mervyns as discussed in Item 1 of this Form 10-K. Associates, LLC (“P/A”), formed Acadia-P/A Holding Fund II and Mervyns II On June 15, 2004, we formed our second opportunity fund, Fund II, and during August 2004, formed Mervyns II with the investors from Fund I as well as two additional institutional investors, whereby the investors, including the Operating Partnership, committed capital totaling $300.0 million. The Operating Partnership is the managing member with a 20% interest in the joint venture. The terms and structure of Fund II are substantially the same as Fund I with the exception that the preferred return is 8%. As of December 31, 2009, $223.3 million had been contributed to Fund II, of which the Operating Partnership’s share was $44.7 million. Fund II has invested in the New York Urban/Infill Rede- velopment and the RCP Venture initiatives and other investments as further discussed in “PROPERTY ACQUISITIONS” in Item 1 of this Form 10-K. Company, LLC (“Acadia-P/A”) for the purpose of acquiring, constructing, developing, owning, operating, leasing and managing certain retail or mixed-use real estate properties in the New York City metropolitan area. P/A agreed to invest 10% of required capital up to a maximum of $2.2 million and Fund II, the managing member, agreed to invest the balance to acquire assets in which Acadia-P/A agrees to invest. Operating cash flow is generally to be distributed pro-rata to Fund II and P/A until each has received a 10% cumulative return and then 60% to Fund II and 40% to P/A. Distributions of net refinancing and net sales proceeds, as defined, follow the distribution of operating cash flow except that unpaid original capital is returned before the 60%/40% split between Fund II and P/A. Upon the liquidation of the last property investment of Acadia-P/A, to the extent that Fund II has not received an 18% internal rate of return (“IRR”) on all of its capital contributions, P/A is obligated to return a portion of its previous distributions, as defined, until Fund II has received New York Urban/Infill Redevelopment Initiative In September 2004, we, through Fund II, launched our an 18% IRR. To date, Fund II has invested in nine New York Urban Infill Redevelopment construction projects, New York Urban Infill Redevelopment initiative. During eight of which were made through Acadia-P/A, as follows: 40 Acadia Realty Trust 2009 Annual Report Location Queens Manhattan Bronx Property Liberty Avenue (1) 216th Street Fordham Place Pelham Manor Shopping Plaza (1) Westchester 161st Street Atlantic Avenue (3) Canarsie Plaza Sherman Plaza CityPoint (1) Bronx Brooklyn Brooklyn Manhattan Brooklyn Year Acquired 2005 2005 2004 2004 2005 2007 2007 2005 2007 Costs to Date $ 15.2 27.7 123.5 58.0 55.3 21.0 32.1 34.1 43.7 Redevelopment (dollars in millions) Anticipated Additional Costs $ — — Estimated Construction Completion Completed Completed Square Feet Upon Completion 125,000 60,000 6.5 Substantially completed 276,000 4.0 Substantially completed 320,000 230,000 9.7 110,000 2.0 265,000 44.9 —(2) —(2) —(2) —(2) (2) (4) Completed First half of 2011 (2) (2) Total Notes: $ 410.6 $ 67.1 1,386,000 (3) P/A is not a partner in this project. (1) Acadia-P/A acquired a ground lease interest at this property. (4) Currently operating but redevelopment activities have (2) To be determined. commenced. RCP Venture See “Property Acquisitions” in Item 1 of this Form 10-K terms and structure of Fund III are substantially the same as the previous Funds, including the Promote structure, for a table summarizing the RCP Venture investments with the exception that the Preferred Return is 6%. As of from inception through December 31, 2009. December 31, 2009, $96.5 million has been invested in Fund III In May 2007, we formed Fund III with 14 institutional investors, including a majority of the investors from Fund I and Fund II with a total of $503.0 million of committed discretionary capital. The Operating Partnership’s share of the committed capital is $100.0 million and it is the sole managing member with a 19.9% interest in Fund III. The Fund III, of which the Operating Partnership contributed $19.2 million. Fund III has invested in the New York Urban/Infill Rede- velopment initiatives and other investments as further discussed in “PROPERTY ACQUISITIONS” in Item 1 of this Form 10-K. The projects are as follows: Property Sheepshead Bay 125 Main Street Location Brooklyn Westport, CT Total Note: Year Acquired 2007 2007 Costs to Date $ 22.7 17.6 $ 40.3 Redevelopment (dollars in millions) Anticipated Additional Costs $ — (1) 5.4 (2) $ 5.4 Square Feet Upon Completion — 30,000 30,000 (1) To be determined. (2) Completion to be determined. During February 2008, Acadia, through Fund III, and in con- a trade area with high barriers to entry for regional and junction with an unaffiliated partner, Storage Post, acquired national retailers. a portfolio of 11 self-storage properties from Storage Post’s existing institutional investors for approximately $174.0 million. The properties are located throughout New York and New Jersey. The portfolio continues to be operated by Storage Post, which is a 5% equity partner. Preferred Equity Investment, Mezzanine Loan Investments and Notes Receivable At December 31, 2009, our preferred equity investment, mezzanine loan investments and notes receivable, net aggregated $125.2 million, with accrued interest thereon During January 2009, Fund III purchased Cortlandt Towne of $10.3 million, and were collateralized by the underlying Center for $78.0 million. The property is a 642,000 square properties, the borrower’s ownership interest in the entities foot shopping center located in Westchester County, NY, that own the properties and/or by the borrower’s personal Acadia Realty Trust 2009 Annual Report 41 Management’s Discussion and Analysis continued guarantee. Effective interest rates on our preferred equity activities, (iii) additional debt financings, (iv) noncontrolling investment, mezzanine loan investments and notes receiv- interests’ unfunded capital commitments of $61.3 million able ranged from 10.0% to 22.4% with maturities through and $325.2 million for Funds II and III, respectively, and January 2017. (v) future sales of existing properties. During December 2009, we made a loan for $8.6 million During 2009, Fund II received capital contributions of which bears interest at 14.5% with a one year term and $31.2 million to fund redevelopment projects and pay one six month extension. down the line of credit of Fund II. Other Investments Acquisitions made during 2007, 2008 and 2009 are dis- cussed in “PROPERTY ACQUISITIONS” in Item 1 of this As of December 31, 2009, we had approximately $139.5 million of additional capacity under existing debt facilities and cash and cash equivalents on hand of $93.8 million. Form 10-K. Property Redevelopment and Expansion Our redevelopment program focuses on selecting well- located neighborhood and community shopping centers and creating significant value through re-tenanting and property redevelopment. Purchase of Convertible Notes Repurchase of the Notes is another use of our liquidity. During 2009, we purchased an additional $57.0 million in face amount of our outstanding convertible notes for $46.7 million. Issuance of Convertible Notes During December of 2006 and January of 2007, we issued $115.0 million of 3.75% Convertible Notes. These notes were issued at par and are due in 2026. The $112.1 million in proceeds, net of related costs, was used to retire variable rate debt, fund capital commitments and general corporate purposes. Shelf Registration Statements and Issuance of Equity During April 2009, we filed a shelf registration on Form S-3 providing for offerings of up to a total of $500.0 million of Common Shares, Preferred Shares and debt securities. Share Repurchase We have an existing share repurchase program that During April 2009, we issued 5.75 million Common Shares and generated net proceeds of approximately $65.0 million. authorizes management, at its discretion, to repurchase The proceeds were primarily used to purchase a portion of up to $20.0 million of our outstanding Common Shares. our outstanding convertible notes payable and pay down The program may be discontinued or extended at any time existing lines of credit. Following this issuance, we have and there is no assurance that we will purchase the full remaining capacity under this registration statement to amount authorized. Under this program we have repur- issue up to approximately $430.0 million of these securities. chased 2.1 million Common Shares, none of which were repurchased after December 2001. As of December 31, 2009, management may repurchase up to approximately $7.5 million of our outstanding Common Shares under this program. Sources of Liquidity We intend on using Fund III, as well as new funds that we may establish in the future, as the primary vehicles for our future acquisitions, including investments in the RCP Venture and New York Urban/Infill Redevelopment Initiative. Additional sources of capital for funding property acquisi- tions, redevelopment, expansion and re-tenanting and RCP Venture investments, are expected to be obtained primarily from (i) the issuance of public equity or debt instruments, (ii) cash on hand and cash flow from operating Asset Sales Asset sales are an additional source of liquidity for us. During November 2009, we sold Blackman Plaza for $2.5 million, which resulted in a gain on sale of $1.5 million. During February 2009, The Kroger Co. purchased the fee at six locations in Fund I’s Kroger/Safeway Portfolio for $14.6 million of which Fund I’s share of the sales proceeds amounted to $8.1 million after the repayment of the mort- gage debt on these properties. During April 2008, we sold a residential complex located in Winston-Salem, North Carolina. During December of 2007, we sold an apartment complex in Columbia, Missouri. These sales are discussed in “ASSET SALES AND CAPITAL/ASSET RECYCLING” in Item 1 of this Form 10-K. 42 Acadia Realty Trust 2009 Annual Report Notes Receivable Repayment and Mezzanine Loan Paydowns During the year ended December 31, 2009, we received 2010 at weighted average interest rates of 2.2%. Of this amount, $2.1 million represents scheduled annual amorti- zation. The loans relating to $80.3 million of the 2010 $12.6 million in loan repayments on several first mortgage maturities provide for extension options, which we believe notes and $1.0 million in paydowns on mezzanine loans. we will be able to exercise. If we are unable to extend Financing and Debt At December 31, 2009, mortgage and convertible notes payable aggregated $780.1 million, net of unamortized premium of $0.1 million, and the mortgage notes were collateralized by 28 properties and related tenant leases. Interest rates on our outstanding indebtedness ranged from 0.72% to 7.18% with maturities that ranged from March 2010 to November 2032. Taking into consideration $83.4 million of notional principal under variable to fixed- rate swap agreements currently in effect, as of December 31, 2009, $439.0 million of the portfolio, or 56%, was fixed at a 5.8% weighted average interest rate and $341.1 million, or 44% was floating at a 3.1% weighted average interest rate. There is $132.6 million of debt maturing in these loans and refinance the balance of $52.3 million, we believe we will be able to repay this debt with existing liquidity, including unfunded capital commitments from the Opportunity Fund investors. As it relates to maturities after 2010, we may not have sufficient cash on hand to repay such indebtedness; we may have to refinance this indebtedness or select other alternatives based on market conditions at that time. Given the current post-recessionary period, refinancing this debt will be very difficult. See “Item 1A. Risk Factors — The current economic environ- ment, while improving, may cause us to lose tenants and may impair our ability to borrow money to purchase prop- erties, refinance existing debt or finance our current rede- velopment projects.” The following table sets forth certain information pertaining to the Company’s secured credit facilities: (dollars in millions) Borrower Total available credit facilities Amount borrowed as of 12/31/08 Acadia Realty, LP Acadia Realty, LP Fund II Fund III Total $ 64.5 30.0 53.5 221.0 $ 369.0 $ 48.9 — 34.7 62.3 $ 145.9 2009 net borrowings (repayments) during the year ended 12/31/09 Amount borrowed as of 12/31/09 Letters of credit outstanding as of 12/31/09 Amount available under credit facilities as of 12/31/09 $ (18.9) $ 30.0 2.0 13.6 77.2 $ 73.9 2.0 48.3 139.5 $ 219.8 $ 4.0 — 5.2 0.5 $ 9.7 $ 30.5 28.0 — 81.0 $ 139.5 Reference is made to Note 8 and Note 9 to our Consolidated Financial Statements, which begin on page 57 of this Form 10-K, for a summary of the financing and refinancing transactions since December 31, 2008. Contractual Obligations and Other Commitments At December 31, 2009, maturities on our mortgage notes centers. We lease space for our White Plains corporate office for a term expiring in 2015. The following table sum- marizes our debt maturities, obligations under non-cancelable ranged from March 2010 to November 2032. In addition, operating leases and construction commitments as of we have non-cancelable ground leases at six of our shopping December 31, 2009: (dollars in millions) Contractual obligations Future debt maturities Interest obligations on debt Operating lease obligations Construction commitments (1) Total Note: Payments due by period Total $ 782.1 145.2 111.6 32.3 $ 1,071.2 Less than 1 year $ 132.6 31.2 4.8 32.3 $ 200.9 1 to 3 years $ 388.5 46.0 9.8 — $ 444.3 3 to 5 years $ 31.8 29.7 10.0 — $ 71.5 More than 5 years $ 229.2 38.3 87.0 — $ 354.5 (1) In conjunction with the redevelopment of our Core Portfolio and Opportunity Fund properties, we have entered into construction commitments with general contractors. We intend to fund these requirements with existing liquidity. Acadia Realty Trust 2009 Annual Report 43 Management’s Discussion and Analysis continued Off Balance Sheet Arrangements We have investments in four joint ventures for the pur- pose of investing in operating properties. We account for these investments using the equity method of accounting Reference is made to Note 4 to our Consolidated Financial Statements, which begin on page 57 of this Form 10-K, for a discussion of our unconsolidated investments. Our pro- rata share of unconsolidated debt related to those invest- as we have a noncontrolling interest. As such, our financial ments is as follows: statements reflect our share of income and loss from but not the assets and liabilities of these joint ventures. (dollars in millions) Investment Crossroads Brandywine CityPoint Sterling Heights Total Pro rata share of mortgage debt Opportunity Funds Operating Partnership Interest rate at December 31, 2009 $ N/A N/A 6.1 2.1 $ 8.2 $ 30.6 36.9 1.2 0.8 $ 69.5 5.37% 5.99% 2.73% 2.08% Maturity date December 2014 July 2016 August 2010 August 2010 As of December 31, 2009, there was $26.0 million of debt at CityPoint scheduled to mature during August of 2010. Years Ended December 31, 2009 2008 Variance There are no options to extend this debt. Fund II and its (dollars in millions) unaffiliated joint venture partner’s (“JV Partner”) share of this debt was $6.1 million and $19.9 million, respectively. If CityPoint is unable to extend the maturity date of this debt, Fund II and its JV Partner may be required to fund their requisite share of capital to repay this obligation. In the event that the JV Partner does not fund its requisite Net cash provided by operating activities Net cash used in investing activities Net cash provided by financing activities share of capital, pursuant to the joint venture agreement, Total $ 47.5 $ 66.5 $ (19.0) (123.4) (302.3) 178.9 83.0 199.1 (116.1) $ 7.1 $ (36.7) $ 43.8 Fund II would have the option to fund the JV Partner’s share of capital to repay this debt either as a loan to the JV Partner or as additional equity in CityPoint. In addition, we have arranged for the provision of four separate letters of credit in connection with certain leases and investments. As of December 31, 2009, there were no outstanding balances under any of the letters of credit. If the letters of credit were fully drawn, the combined maximum amount of exposure would be $9.7 million. Historical Cash Flow The following table compares the historical cash flow for the year ended December 31, 2009 (“2009”) with the cash flow for the year ended December 31, 2008 (“2008”). A discussion of the significant changes in cash flow for 2009 versus 2008 is as follows: A decrease of $19.0 million in net cash provided by operat- ing activities resulted from the following: (i) lease termina- tion income of $24.0 million from Home Depot at Canarsie Plaza in 2008 and (ii) a $13.5 million decrease in distributions (primarily Albertson’s) of operating income from unconsoli- dated affiliates in 2009. These 2009 decreases were offset by a $24.0 million increase in other assets primarily related to additional cash used for the purchase of short term financial instruments in 2008 and the subsequent redemp- tion of these financial instruments in 2009. 44 Acadia Realty Trust 2009 Annual Report A decrease of $178.9 million of net cash used in investing whether an asset is impaired. We record impairment activities resulted from the following: (i) a decrease of losses and reduce the carrying value of properties when $112.4 million in expenditures for real estate, development indicators of impairment are present and the expected and tenant installations in 2009 and (ii) a decrease of undiscounted cash flows related to those properties are $81.5 million in advances of notes receivable in 2009. less than their carrying amounts. In cases where we do These decreases in cash used were offset by (i) an additional not expect to recover our carrying costs on properties $11.7 million in proceeds from the sale of properties in held for use, we reduce our carrying cost to fair value. 2008 and (ii) a decrease of $6.3 million in collections of For properties held for sale, we reduce our carrying value notes receivable in 2009. The $116.1 million decrease in net cash provided by financing activities resulted from the following decreases in cash for 2009: (i) $114.2 million of additional cash used for repayment of debt in 2009, (ii) an additional $40.7 million of cash used for the purchase of convertible notes in 2009, (iii) a decrease of $21.1 million of proceeds received on borrowings of debt in 2009, and (iv) a decrease of $20.4 to the fair value less costs to sell. For the years ended December 31, 2009, 2008 and 2007, no impairment losses were recognized. Management does not believe that the value of any properties in its portfolio was impaired as of December 31, 2009. Investments in and Advances to Unconsolidated Joint Ventures The Company periodically reviews its investment in million in capital contributions from noncontrolling interests unconsolidated joint ventures for other than temporary in 2009. These 2009 cash decreases were offset by the declines in market value. Any decline that is not expected following: (i) $65.2 million of additional cash from the to be recovered in the next 12 months is considered other issuance of Common Shares, net of costs, in 2009, than temporary and an impairment charge is recorded as a (ii) an additional $13.7 million of distributions to noncon- reduction in the carrying value of the investment. During the trolling interests in 2008, and (iii) an additional $4.5 million year ended December 31, 2009, the Company recorded a of dividends paid to Common Shareholders in 2008. $3.8 million impairment reserve related to a Fund I uncon- Critical Accounting Policies Management’s discussion and analysis of financial condi- solidated joint venture. No impairment charges related to the Company’s investment in unconsolidated joint ventures were recognized for the years ended December 31, 2008 tion and results of operations is based upon our Consoli- and 2007. dated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these Consolidated Financial Statements requires management Bad Debts We maintain an allowance for doubtful accounts for estimated to make estimates and judgments that affect the reported losses resulting from the inability of tenants to make payments amounts of assets, liabilities, revenues and expenses. We on arrearages in billed rents, as well as the likelihood that base our estimates on historical experience and assump- tenants will not have the ability to make payments on tions that are believed to be reasonable under the circum- unbilled rents including estimated expense recoveries. stances, the results of which form the basis for making We also maintain a reserve for straight-line rent receivables. judgments about carrying value of assets and liabilities For the years ended December 31, 2009 and 2008, we that are not readily apparent from other sources. Actual had recorded an allowance for doubtful accounts of $7.0 results may differ from these estimates under different million and $5.7 million, respectively. If the financial condi- assumptions or conditions. We believe the following criti- tion of our tenants were to deteriorate, resulting in an cal accounting policies affect the significant judgments impairment of their ability to make payments, additional and estimates used by us in the preparation of our Con- allowances may be required. solidated Financial Statements. Valuation of Property Held for Use and Sale On a quarterly basis, we review the carrying value of Real Estate Real estate assets are stated at cost less accumulated depreciation. Expenditures for acquisition, development, both properties held for use and for sale. We perform the construction and improvement of properties, as well as impairment analysis by calculating and reviewing net oper- significant renovations are capitalized. Interest costs are ating income on a property-by-property basis. We evaluate capitalized until construction is substantially complete. leasing projections and perform other analyses to conclude Construction in progress includes costs for significant Acadia Realty Trust 2009 Annual Report 45 Management’s Discussion and Analysis continued property expansion and redevelopment. Depreciation is computed on the straight-line basis over estimated useful Notes Receivable and Preferred Equity Investment Real estate notes receivable and preferred equity invest- lives of 30 to 40 years for buildings, the shorter of the ments are intended to be held to maturity and are carried useful life or lease term for tenant improvements and five at cost. Interest income from notes receivable and pre- years for furniture, fixtures and equipment. Expenditures ferred equity investments are recognized on the effective for maintenance and repairs are charged to operations interest method over the expected life of the loan. Under as incurred. Upon acquisitions of real estate, we assess the fair value of acquired assets (including land, buildings and improve- ments, and identified intangibles such as above and below the effective interest method, interest or fees to be col- lected at the origination of the loan or the payoff of the loan is recognized over the term of the loan as an adjust- ment to yield. market leases and acquired in-place leases and customer Allowances for real estate notes receivable and preferred relationships) and acquired liabilities in accordance with the equity investments are established based upon manage- Financial Accounting Standards Board (“FASB”) Accounting ment’s quarterly review of the investments. In performing Standards Codification (“ASC”) Topic 805 “Business Com- this review, management considers the estimated net binations” (formerly Statement of Financial Accounting recoverable value of the loan as well as other factors, Standards [“SFAS”] No. 141, “Business Combinations”) including the fair value of any collateral, the amount and and ASC Topic 350 “Intangibles – Goodwill and Other” status of any senior debt, and the prospects for the borrower. (formerly SFAS No. 142, “Goodwill and Other Intangible Because this determination is based upon projections of Assets”), and allocate purchase price based on these future economic events, which are inherently subjective, assessments. We assess fair value based on estimated the amounts ultimately realized from the loans may differ cash flow projections that utilize appropriate discount materially from the carrying value at the balance sheet and capitalization rates and available market information. date. Interest income recognition is generally suspended Estimates of future cash flows are based on a number of for loans when, in the opinion of management, a full factors including the historical operating results, known recovery of income and principal becomes doubtful. trends, and market/economic conditions that may affect Income recognition is resumed when the suspended loan the property. becomes contractually current and performance is demon- Revenue Recognition and Accounts and Notes Receivable Leases with tenants are accounted for as operating leases. strated to be resumed. During 2009, we provided a $1.7 million reserve on a note receivable as a result of the loss of an anchor tenant at the Minimum rents are recognized on a straight-line basis underlying collateral property. over the term of the respective leases, beginning when the tenant takes possession of the space. Certain of these leases also provide for percentage rents based upon the level of sales achieved by the tenant. Percentage rent is recognized in the period when the tenants’ sales break- point is met. In addition, leases typically provide for the reimbursement to us of real estate taxes, insurance and other property operating expenses. These reimbursements are recognized as revenue in the period the expenses are incurred. We make estimates of the uncollectability of our accounts receivable related to tenant revenues. An allowance for doubtful accounts has been provided against certain tenant accounts receivable that are estimated to be uncollectible. See “Bad Debts” above. Once the amount is ultimately deemed to be uncollectible, it is written off. During 2008, we provided a $4.4 million reserve on a note receivable collateralized by an interest in an entity owning retail complexes associated with seven public rest stops along the toll roads in and around Chicago, Illinois. The note and all accrued interest was subsequently cancelled during 2009. Inflation Our long-term leases contain provisions designed to miti- gate the adverse impact of inflation on our net income. Such provisions include clauses enabling us to receive percentage rents based on tenants’ gross sales, which generally increase as prices rise, and/or, in certain cases, escalation clauses, which generally increase rental rates during the terms of the leases. Such escalation clauses are often related to increases in the consumer price index or similar inflation indexes. In addition, many of our leases 46 Acadia Realty Trust 2009 Annual Report are for terms of less than 10 years, which permits us to Consolidated Financial Statements, which begin on page 57 seek to increase rents upon re-rental at market rates if of this Form 10-K, for certain quantitative details related to current rents are below the then existing market rates. our mortgage debt. Most of our leases require the tenants to pay their share of operating expenses, including common area mainte- nance, real estate taxes, insurance and utilities, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation. Recently Issued Accounting Pronouncements Reference is made to Notes to our Consolidated Financial Statements, which begin on page 57 of this Form 10-K. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Currently, we manage our exposure to fluctuations in interest rates primarily through the use of fixed-rate debt and interest rate swap agreements. As of December 31, 2009, we had total mortgage and convertible notes payable of $780.1 million of which $439.0 million, or 56% was fixed-rate, inclusive of debt with rates fixed through the use of derivative financial instruments, and $341.1 million, or 44%, was variable-rate based upon LIBOR or commer- cial paper rates plus certain spreads. As of December 31, 2009, we were a party to eight interest rate swap trans- actions and one interest rate cap transaction to hedge our exposure to changes in interest rates with respect to $83.4 million and $30.0 million of LIBOR-based variable- Information as of December 31, 2009 rate debt, respectively. Our primary market risk exposure is to changes in interest rates related to our mortgage debt. See Note 8 to our The following table sets forth information as of December 31, 2009 concerning our long-term debt obligations, including principal cash flows by scheduled maturity and weighted average interest rates of maturing amounts (dollars in millions): Consolidated mortgage debt: Year 2010 2011 2012 2013 2014 Thereafter Scheduled Amortization Maturities $ 2.1 2.5 2.5 2.9 2.8 14.2 $ 27.0 $ 130.5 328.6 52.9 8.8 17.3 215.0 $ 753.1 Mortgage debt in unconsolidated partnerships (at our pro-rata share): Year 2010 2011 2012 2013 2014 Thereafter Scheduled Amortization Maturities $ 0.5 0.5 0.5 0.5 0.6 — $ 2.6 $ 2.0 — — — 28.0 36.9 $ 66.9 Total $ 132.6 331.1 55.4 11.7 20.1 229.2 $ 780.1 Total $ 2.5 0.5 0.5 0.5 28.6 36.9 $ 69.5 Weighted Average Interest Rate 2.2% 2.9% 3.8% 5.5% 5.8% 5.9% Weighted Average Interest Rate 2.5% N/A N/A N/A 5.4% 6.0% $132.6 million of our total consolidated debt and $2.5 million market interest rates, which may be greater than the cur- of our pro-rata share of unconsolidated outstanding debt rent interest rate, our interest expense would increase by will become due in 2010. $331.1 million of our total consoli- approximately $4.7 million annually if the interest rate on dated debt and $0.5 million of our pro-rata share of uncon- the refinanced debt increased by 100 basis points. After solidated debt will become due in 2011. As we intend on giving effect to noncontrolling interests, the Company’s refinancing some or all of such debt at the then-existing share of this increase would be $1.7 million. Interest Acadia Realty Trust 2009 Annual Report 47 Management’s Discussion and Analysis continued expense on our variable debt of $341.1 million, net of Interest expense on our variable debt of $248.2 million as variable to fixed-rate swap agreements currently in effect, of December 31, 2008 would have increased $2.5 million as of December 31, 2009 would increase $3.4 million if if LIBOR increased by 100 basis points. Based on our out- LIBOR increased by 100 basis points. After giving effect standing debt balances as of December 31, 2008, the fair to noncontrolling interests, the Company’s share of this value of our total outstanding debt would have decreased increase would be $0.6 million. We may seek additional by approximately $18.1 million if interest rates increased variable-rate financing if and when pricing and other com- by 1%. Conversely, if interest rates decreased by 1%, mercial and financial terms warrant. As such, we would the fair value of our total outstanding debt would have consider hedging against the interest rate risk related to increased by approximately $19.3 million. such additional variable-rate debt through interest rate swaps and protection agreements, or other means. Changes in Market Risk Exposures from 2008 to 2009 Based on our outstanding debt balances as of December 31, Our interest rate risk exposure from December 31, 2008 2009, the fair value of our total consolidated outstanding to December 31, 2009 has increased, as we had $248.2 debt would decrease by approximately $18.3 million if million in variable-rate debt (or 33% of our total debt) at interest rates increase by 1%. Conversely, if interest rates December 31, 2008, as compared to $341.1 million (or decrease by 1%, the fair value of our total outstanding 44% of our total debt) in variable-rate debt at December debt would increase by approximately $20.5 million. 31, 2009. In addition, the amount of our total debt As of December 31, 2009 and 2008, we had preferred equity investments and notes receivable of $125.2 million and $125.6 million, respectively. We determined the esti- mated fair value of our preferred equity investment and notes receivable as of December 31, 2009 and 2008 were $126.4 million and $122.3 million, respectively, by discount- ing future cash receipts utilizing a discount rate equivalent to the rate at which similar notes receivable would be originated under conditions then existing. increased from $753.8 million at December 31, 2008 to $780.1 million at December 31, 2009. This increased amount of debt could expose us to greater fluctuations in the fair value of our debt. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements beginning on page 57 are incor- porated herein by reference. Based on our outstanding preferred equity investments and notes receivable balances as of December 31, 2009, the fair value of our total outstanding preferred equity invest- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ments and notes receivable would decrease by approximately None. $0.7 million if interest rates increase by 1%. Conversely, if interest rates decrease by 1%, the fair value of our total outstanding preferred equity investments and notes receivable would increase by approximately $0.7 million. Summarized Information as of December 31, 2008 As of December 31, 2008, we had total mortgage and convertible notes payable of $753.8 million of which $505.6 million, or 67% was fixed-rate, inclusive of interest rate swaps, and $248.2 million, or 33%, was variable-rate based upon LIBOR plus certain spreads. As of December 31, 2008, we were a party to seven interest rate swap transactions and one interest rate cap transaction to hedge our exposure to changes in interest rates with respect to $73.4 million and $30.0 million of LIBOR-based variable- rate debt, respectively. ITEM 9A. CONTROLS AND PROCEDURES (i) Disclosure Controls and Procedures We conducted an evaluation, under the supervision and with the participation of management including our Chief Executive Officer and Chief Financial Officer, of the effec- tiveness of our disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2009 to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summa- rized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communi- cated to management, including our Chief Executive 48 Acadia Realty Trust 2009 Annual Report Officer and Chief Financial Officer, as appropriate to allow was effective as of December 31, 2009 to provide reasonable timely decisions regarding required disclosure. assurance regarding the reliability of financial reporting and (ii) Internal Control Over Financial Reporting (a) Management’s Annual Report on Internal Control Over Financial Reporting Management of Acadia Realty Trust is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Securities Exchange Act of 1934 Rule 13(a)-15(f). Under the supervision and with the participation of our manage- ment, including our principal executive officer and principal financial officer, we conducted an evaluation of the effec- tiveness of our internal control over financial reporting as of December 31, 2009 as required by the Securities Exchange Act of 1934 Rule 13(a)-15(c). In making this assessment, we used the criteria set forth in the frame- work in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Tread- way Commission (the “COSO criteria”). Based on our evaluation under the COSO criteria, our management concluded that our internal control over financial reporting the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. BDO Seidman, LLP, an independent registered public accounting firm that audited our Financial Statements included in this Annual Report, has issued an attestation report on our internal control over financial reporting as of December 31, 2009, which appears in paragraph (b) of this Item 9A. Acadia Realty Trust White Plains, New York March 1, 2010 Acadia Realty Trust 2009 Annual Report 49 (b) Attestation report of the independent registered public accounting firm The Shareholders and Trustees of Acadia Realty Trust We have audited Acadia Realty Trust and subsidiaries’ internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organiza- tions of the Treadway Commission (the “COSO criteria”). Acadia Realty Trust and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal con- trol over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Report- ing. Our responsibility is to express an opinion on a company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understand- ing of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control, based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with gener- ally accepted accounting principles. A company’s internal control over financial reporting includes those policies and proce- dures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, Acadia Realty Trust and subsidiaries maintained in all material respects effective internal control over financial reporting as of December 31, 2009, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Acadia Realty Trust and subsidiaries as of December 31, 2009 and 2008 and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009 and our report dated March 1, 2010 expressed an unqualified opinion thereon. /s/ BDO Seidman, LLP New York, New York March 1, 2010 50 Acadia Realty Trust 2009 Annual Report ITEM 9B. OTHER INFORMATION None (c) Changes in internal control over financial reporting There was no change in our internal control over financial reporting during our fourth fiscal quarter ended December 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over finan- cial reporting. PART III In accordance with the rules of the SEC, certain information required by Part III is omitted and is incorporated by refer- ence into this Form 10-K from our definitive proxy statement relating to our 2010 annual meeting of stockholders (our “2010 Proxy Statement”) that we intend to file with the SEC no later than April 30, 2010. ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information under the following headings in the 2010 Proxy Statement is incorporated herein by reference: (cid:174) “PROPOSAL 1 — ELECTION OF TRUSTEES” (cid:174) “MANAGEMENT” (cid:174) “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” ITEM 11. EXECUTIVE COMPENSATION The information under the following headings in the 2010 Proxy Statement is incorporated herein by reference: (cid:174) “ACADIA REALTY TRUST COMPENSATION COMMITTEE REPORT” (cid:174) “COMPENSATION DISCUSSION AND ANALYSIS” (cid:174) “EXECUTIVE AND TRUSTEE COMPENSATION” (cid:174) “COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION” ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under the heading “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” in the 2010 Proxy Statement is incorporated herein by reference. The information under Item 5 of this Form 10-K under the heading “(c) Securities authorized for issuance under equity compensation plans” is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information under the following headings in the 2010 Proxy Statement is incorporated herein by reference: (cid:174) “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” (cid:174) “PROPOSAL 1 — ELECTION OF TRUSTEES — Trustee Independence” ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information under the heading “AUDIT COMMITTEE INFORMATION” in the 2010 Proxy Statement is incorporated herein by reference. Acadia Realty Trust 2009 Annual Report 51 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 1. Financial Statements: See “Index to Financial Statements” at page 57 below. 2. Financial Statement Schedule: See “Schedule III — Real Estate and Accumulated Depreciation” at page 98 below. 3. Exhibits: The index of exhibits below is incorporated herein by reference. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized. ACADIA REALTY TRUST (Registrant) By: By: By: /s/ Kenneth F. Bernstein Kenneth F. Bernstein Chief Executive Officer, President and Trustee /s/ Michael Nelsen Michael Nelsen Senior Vice President and Chief Financial Officer /s/ Jonathan W. Grisham Jonathan W. Grisham Senior Vice President and Chief Accounting Officer Dated: March 1, 2010 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature /s/ Kenneth F. Bernstein (Kenneth F. Bernstein) /s/ Michael Nelsen (Michael Nelsen) /s/ Jonathan W. Grisham (Jonathan W. Grisham) /s/ Douglas Crocker II (Douglas Crocker II) /s/ Suzanne Hopgood (Suzanne Hopgood) /s/ Lorrence T. Kellar (Lorrence T. Kellar) /s/ Wendy Luscombe (Wendy Luscombe) /s/ William T. Spitz (William T. Spitz) /s/ Lee S. Wielansky (Lee S. Wielansky) Title Chief Executive Officer, President and Trustee (Principal Executive Officer) Senior Vice President and Chief Financial Officer (Principal Financial Officer) Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) Trustee Trustee Trustee Trustee Trustee Trustee Date March 1, 2010 March 1, 2010 March 1, 2010 March 1, 2010 March 1, 2010 March 1, 2010 March 1, 2010 March 1, 2010 March 1, 2010 52 Acadia Realty Trust 2009 Annual Report EXHIBIT INDEX The following is an index to all exhibits filed with the Annual Report on Form 10-K other than those incorporated by reference herein: Exhibit No. Description 3.1 3.2 3.3 3.4 3.5 4.1 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 10.11 10.12 10.13 10.14 10.15 10.16 10.17 10.18 10.20 10.21 10.22 Declaration of Trust of the Company, as amended (1) Fourth Amendment to Declaration of Trust (4) Amended and Restated By-Laws of the Company (22) Fifth Amendment to Declaration of Trust (32) First Amendment the Amended and Restated Bylaws of the Company (32) Voting Trust Agreement between the Company and Yale University dated February 27, 2002 (14) 1999 Share Option Plan (8) (21) 2003 Share Option Plan (16) (21) Form of Share Award Agreement (17) (21) Form of Registration Rights Agreement and Lock-Up Agreement (18) Registration Rights and Lock-Up Agreement (RD Capital Transaction) (11) Registration Rights and Lock-Up Agreement (Pacesetter Transaction) (11) Contribution and Share Purchase Agreement dated as of April 15, 1998 among Mark Centers Trust, Mark Centers Limited Partnership, the Contributing Owners and Contributing Entities named therein, RD Properties, L.P. VI, RD Properties, L.P. VIA and RD Properties, L.P. VIB (9) Agreement of Contribution among Acadia Realty Limited Partnership, Acadia Realty Trust and Klaff Realty, LP and Klaff Realty, Limited (18) Employment agreement between the Company and Kenneth F. Bernstein dated October 1998 (6) (21) Amendment to employment agreement between the Company and Kenneth F. Bernstein dated January 19, 2007 (26) (21) First Amendment to Employment Agreement between the Company and Kenneth Bernstein dated as of January 1, 2001 (12) (21) Description of Long Term Investment Alignment Program (32) Letter of employment offer between the Company and Michael Nelsen, Sr. Vice President and Chief Financial Officer dated February 19, 2003 (15) (21) Form of Amended and Restated Severance Agreement, dated June 12, 2008, that was entered into with each of Joel Braun, Executive Vice President and Chief Investment Officer; Michael Nelsen, Senior Vice President and Chief Financial Officer; Robert Masters, Senior Vice President, General Counsel, Chief Compliance Officer and Secretary; and Joseph Hogan, Senior Vice President and Director of Construction. (Incorporated by reference to the Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on June 12, 2008) (21) Note Modification Agreement, Note, Mortgage Modification Agreement, Mortgage, Assignment of Leases and Rents and Security Agreement between Acadia-P/A Sherman Avenue LLC and Bank of America N. A. dated January 15, 2009 (32) Mortgage, Assignment of Leases and Rents and Security Agreement from Acadia Cortlandt LLC to Bank of America, N.A. dated July 29, 2009 [Initial Advance], Note made by Acadia Cortlandt LLC in favor of Bank of America, N.A. dated July 29, 2009 [Initial Advance], Mortgage, Assignment of Leases and Rents and Security Agreement from Acadia Cortlandt LLC to Bank of America, N.A. dated July 29, 2009 [Future Advance] and Note made by Acadia Cortlandt LLC in favor of Bank of America, N.A. dated July 29, 2009 [Future Advance] (33) Consolidated, Amended and Restated Term Loan Agreement among Acadia-PA East Fordham Acquisitions, LLC, and Fordham Place Office LLC as borrower and The Lenders Party Hereto as lenders and Eurohypo AG, New York Branch as Administrative Agent; Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing made by Acadia-PA East Fordham Acquisitions, LLC, and Fordham Place Office LLC in favor of Eurohypo AG, New York Branch as Administrative Agent; Replacement Note between Acadia-PA East Fordham Acquisitions, LLC, and Fordham Place Office LLC and Amal- gamated Bank; Replacement Note between Acadia-PA East Fordham Acquisitions, LLC, and Fordham Place Office LLC and Deutsche Genossenschafts – Hypothekenbank AG; Replacement Note between Acadia-PA East Fordham Acquisitions, LLC, and Fordham Place Office LLC and Eurohypo AG, New York Branch; and Replacement Note between Acadia-PA East Fordham Acquisitions, LLC, and Fordham Place Office LLC and TD Bank. All dated November 4, 2009. (34) Secured Promissory Note between RD Absecon Associates, L.P. and Fleet Bank, N.A. dated February 8, 2000 (7) Promissory Note between 239 Greenwich Associates, L.P. and Greenwich Capital Financial Products, Inc. dated May 30, 2003 (18) Open-End Mortgage, Assignment of Leases and Rents, and Security Agreement between 239 Greenwich Associates, L.P. and Greenwich Capital Financial Products, Inc. dated May 30, 2003 (18) Acadia Realty Trust 2009 Annual Report 53 Exhibit No. Description 10.23 10.24 10.25 10.26 10.33 10.34 10.44 10.45 10.46 10.47 10.51 10.52 10.53 10.54 10.55 10.56 10.57 10.58 10.59 10.60 10.61 10.62 10.63 10.64 10.65 Promissory Note between Merrillville Realty, L.P. and Sun America Life Insurance Company dated July 7, 1999 (7) Secured Promissory Note between Acadia Town Line, LLC and Fleet Bank, N.A. dated March 21, 1999 (7) Promissory Note between RD Village Associates Limited Partnership and Sun America Life Insurance Company Dated September 21, 1999 (7) First Amendment to Severance Agreements between the Company and Joel Braun Executive Vice President and Chief Investment Officer, Michael Nelsen, Senior Vice President and Chief Financial Officer, Robert Masters, Senior Vice Presi- dent, General Counsel, Chief Compliance Officer and Secretary and Joseph Hogan, Senior Vice President and Director of Construction dated January 19, 2007 (21) (26) Term Loan Agreement between Acadia Realty L.P. and The Dime Savings Bank of New York, dated March 30, 2000 (10) Mortgage Agreement between Acadia Realty L.P. and The Dime Savings Bank of New York, dated March 30, 2000 (10) Prospectus Supplement Regarding Options Issued under the Acadia Realty Trust 1999 Share Incentive Plan and 2003 Share Incentive Plan (19) (21) Acadia Realty Trust 1999 Share Incentive Plan and 2003 Share Incentive Plan Deferral and Distribution Election Form (19) (21) Amended, Restated And Consolidated Promissory Note between Acadia New Loudon, LLC and Greenwich Capital Financial Products, Inc. dated August 13, 2004 (19) Amended, Restated And Consolidated Mortgage, Assignment Of Leases And Rents And Security Agreement between Acadia New Loudon, LLC and Greenwich Capital Financial Products, Inc. dated August 13, 2004 (19) Mortgage, Assignment of Leases and Rents and Security Agreement between Acadia Crescent Plaza, LLC and Greenwich Capital Financial Products, Inc. dated August 31, 2005 (22) Mortgage, Assignment of Leases and Rents and Security Agreement between Pacesetter/Ramapo Associates and Green- wich Capital Financial Products, Inc. dated October 17, 2005 (22) Loan Agreement between RD Elmwood Associates, L.P. and Bear Stearns Commercial Finance Mortgage, Inc. dated December 9, 2005 (22) Mortgage and Security Agreement between RD Elmwood Associates, L.P. and Bear Stearns Commercial Finance Mortgage, Inc. dated December 9, 2005 (22) Agreement and Plan Of Merger Dated as of December 22, 2005 by and among Acadia Realty Acquisition I, LLC, Ara Btc LLC, ARA MS LLC, ARA BS LLC, ARA BC LLC and ARA BH LLC, Acadia Investors, Inc., AII BTC LLC, AII MS LLC, AII BS LLC, AII BC LLC And AII BH LLC, Samuel Ginsburg 2000 Trust Agreement #1, Martin Ginsburg 2000 Trust Agreement #1, Martin Ginsburg, Samuel Ginsburg and Adam Ginsburg, and GDC SMG, LLC, GDC Beechwood, LLC, Aspen Cove Apart- ments, LLC and SMG Celebration, LLC (23) Amended and Restated Loan Agreement between Acadia Realty Limited Partnership, as lender, and Levitz SL Woodbridge, L.L.C., Levitz SL St. Paul, L.L.C., Levitz SL La Puente, L.L.C., Levitz SL Oxnard, L.L.C., Levitz SL Willowbrook, L.L.C., Levitz SL Northridge, L.L.C., Levitz SL San Leandro, L.L.C., Levitz SL Sacramento, L.L.C., HL Brea, L.L.C., HL Deptford, L.L.C., HL Hayward, L.L.C., HL San Jose, L.L.C., HL Scottsdale, L.L.C., HL Torrance, L.L.C., HL Irvine 1, L.L.C., HL West Covina, L.L.C., HL Glendale, L.L.C. and HL Northridge, L.L.C., each a Delaware limited liability company, Levitz SL Langhorne, L.P. and HL Fairless Hills, L.P., each a Delaware limited partnership (each, together with its permitted successors and assigns, a “Borrower,” and collectively, together with their respective permitted successors and assigns, “Borrowers”), dated June 1, 2006 (24) Consent and Assumption Agreement between Thor Chestnut Hill, LP, Thor Chestnut Hill II, LP, Acadia Chestnut, LLC, Acadia Realty Limited Partnership and Wells Fargo Bank, N.A. dated June 9, 2006, original Mortgage and Security Agreement between Thor Chestnut Hill, LP and Thor Chestnut Hill II, LP and Column Financial, Inc. dated June 5, 2003 and original Assignment of Leases and Rents from Thor Chestnut Hill, LP and Thor Chestnut Hill II, LP to Column Financial, Inc. dated June 2003. (24) Loan Agreement and Promissory Note between RD Woonsocket Associates, L.P. and Merrill Lynch Mortgage Lending, Inc. dated September 8, 2006 (25) Amended and Restated Revolving Loan Agreement dated as of December 19, 2006 by and among RD Abington Associates LP, Acadia Town Line, LLC, RD Methuen Associates LP, RD Absecon Associates, LP, RD Bloomfield Associates, LP, RD Hobson Associates, LP, and RD Village Associates LP, and Bank of America, N.A. and the First Amendment to Amended and Restated Revolving Loan Agreement dated February, 2007. (26) Loan Agreement between Bank of America, N.A. and RD Branch Associates, LP dated December 19, 2006. (26) Loan Agreement between 239 Greenwich Associates Limited Partnership and Wachovia Bank, National Association dated January 25, 2007. (28) Revolving Credit Agreement between Acadia Realty Limited Partnership and Washington Mutual Bank dated March 29, 2007. (28) Loan Agreement between Acadia Merrillville Realty, L.P. and Bear Stearns Commercial Mortgage, Inc dated July 2, 2007. (29) Promissory Note between Acadia Merrillville Realty, L.P. and Bear Stearns Commercial Mortgage, Inc dated July 2, 2007. (29) Loan Agreement Note between APA 216th Street and Bank of America, N.A. dated September 11, 2007. (29) 54 Acadia Realty Trust 2009 Annual Report Exhibit No. Description Promissory Note between APA 216th Street and Bank of America, N.A. dated September 11, 2007. (29) Acquisition and Project Loan agreement between Acadia – PA East Fordham Acquisitions, LLC and Eurohypo AG, New York Branch dated October 5, 2007 (30) Building Loan Agreement between Acadia – PA East Fordham Acquisitions, LLC and Eurohypo AG, New York Branch dated October 5, 2007 (30) Revolving credit agreement between Acadia Strategic Opportunity Fund III, LLC. and Bank of America, N.A. dated October 10, 2007 (30) Mortgage Consolidation and Modification Agreement between Acadia Tarrytown LLC and Anglo Irish Bank Corporation, PLC dated October 30, 2007 (30) Project Loan Agreement between P/A – Acadia Pelham Manor, LLC and Bear Stearns Commercial Mortgage, Inc. dated December 10, 2007 (30) Building Loan Agreement P/A – Acadia Pelham Manor, LLC and Bear Stearns Commercial Mortgage, Inc. dated December 10, 2007 (30) Project Loan Agreement between Acadia Atlantic Avenue, LLC and Bear Stearns Commercial Mortgage, Inc. dated December 26, 2007 (30) Building Loan Agreement between Acadia Atlantic Avenue, LLC and Bear Stearns Commercial Mortgage, Inc. dated December 26, 2007 (30) Certain information regarding the compensation arrangements with certain officers of registrant (Incorporated by reference to Item 5.02 of the registrant’s Form 8-K filed with the SEC on February 4, 2008) Real Estate Purchase and Sale Agreement between Suffern Self Storage, L.L.C., Jersey City Self Storage, L.L.C., Linden Self Storage, L.L.C., Webster Self Storage, L.L.C., Bronx Self Storage, L.L.C., American Storage Properties North LLC, and The Storage Company LLC (collectively, as Seller) and Acadia Storage Post LLC, a Delaware limited liability company, as Buyer, for ten Properties and Storage Facilities located thereon (31) Real Estate Purchase and Sale Agreement between American Storage Properties North LLC , as Seller and Acadia Storage Post Metropolitan Avenue LLC, as Buyer for 4805 Metropolitan Avenue, Unit 2, Maspeth, Queens, New York (31) First Amendment to Real Estate Purchase and Sale Agreement between Suffern Self Storage, L.L.C., Jersey City Self Storage, L.L.C., Linden Self Storage, L.L.C., Webster Self Storage, L.L.C., Bronx Self Storage, L.L.C., American Storage Properties North LLC, and The Storage Company LLC (collectively, “Seller”) and Acadia Storage Post LLC (“Buyer”) (31) Amended and Restated Agreement of Limited Partnership of the Operating Partnership (11) First and Second Amendments to the Amended and Restated Agreement of Limited Partnership of the Operating Partnership (11) Third Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership (18) Fourth Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership (18) List of Subsidiaries of Acadia Realty Trust (34) Consent of Registered Public Accounting Firm to incorporation by reference its reports into Forms S-3 and Forms S-8 (34) Certification of Chief Executive Officer pursuant to rule 13a–14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (34) Certification of Chief Financial Officer pursuant to rule 13a–14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (34) Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (34) Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (34) Certificate of Designation of Series A Preferred Operating Partnership Units of Limited Partnership Interest of Acadia Realty Limited Partnership (2) Certificate of Designation of Series B Preferred Operating Partnership Units of Limited Partnership Interest of Acadia Realty Limited Partnership (18) 10.66 10.67 10.68 10.69 10.70 10.71 10.72 10.73 10.74 10.75 10.76 10.77 10.78 10.79 10.80 10.81 10.82 21 23.1 31.1 31.2 32.1 32.2 99.1 99.2 Notes: (1) (2) (3) Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal Year ended December 31, 1994 Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended June 30, 1997 Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 1998 Acadia Realty Trust 2009 Annual Report 55 (4) (5) (6) (7) (8) Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 1998 Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Registration Statement on Form S-11 (File No. 33-60008) Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 1998 Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 1999 Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Registration Statement on Form S-8 filed September 28, 1999 (9) Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Form 8-K filed on April 20, 1998 (10) (11) (12) (13) Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Form 10-K filed for the fiscal year ended December 31, 2000 Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Registration Statement on Form S-3 filed on March 3, 2000 Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 2001 Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2001 (14) Incorporated by reference to the copy thereof filed as an Exhibit to Yale University’s Schedule 13D filed on September 25, 2002 (15) (16) Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2002 Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Definitive Proxy Statement on Schedule 14A filed April 29, 2003 (17) Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Current Report on Form 8-K filed on July 2, 2003 (18) (19) (20) Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2003 Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2004 Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2004 (21) Management contract or compensatory plan or arrangement (22) Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2005 (23) Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Current Report on Form 8-K filed on January 4, 2006 (24) (25) Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended June 30, 2006 Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 2006 (26) Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Current Report on Form 8-K filed on January 19, 2007 (27) (28) (29) (30) (31) (32) (33) Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2006 Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q filed for the quarter ended March 31, 2007 Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 2007 Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Quarterly Report on Form 10-K filed for the year ended December 31, 2007 Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q filed for the quarter ended March 31, 2008 Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q filed for the quarter ended March 31, 2009 Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 2009 (34) Filed herewith. 56 Acadia Realty Trust 2009 Annual Report ACADIA REALTY TRUST AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Consolidated Balance Sheets as of December 31, 2009 and 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Consolidated Statements of Income for the years ended December 31, 2009, 2008 and 2007 . . . . . . . . . . . . . . . . . . . 60 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2009, 2008 and 2007 . . . . . . . . 62 Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007 . . . . . . . . . . . . . . . 64 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Schedule III – Real Estate and Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Acadia Realty Trust 2009 Annual Report 57 Report of Independent Registered Public Accounting Firm 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, 2009 and 2008 and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009. In connection with our audits of the financial statements we have also audited the accompanying financial statement schedule listed on page 57. These financial state- ments and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 also includes examining, on a test basis, evidence sup- porting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedules. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Acadia Realty Trust and subsidiaries at December 31, 2009, and 2008 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with generally accepted accounting principles in the United States of America. Also, in our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 1 to the consolidated financial statements, the Company retrospectively changed its method of accounting for its convertible debt instruments with the adoption of the guidance originally issued in FSP APB 14-1 “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (ASC Topic 470-20, “Debt with Conversion and Other Options”) effective January 1, 2009. The Company also retrospectively changed its presentation of non-controlling interests with the adoption of the guidance originally issued in SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (ASC Topic 810-10, “Consolidation”) effective January 1, 2009. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Acadia Realty Trust and subsidiaries’ internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organiza- tions of the Treadway Commission (COSO) and our report dated March 1, 2010 expressed an unqualified opinion thereon. BDO Seidman, LLP New York, New York March 1, 2010 58 Acadia Realty Trust 2009 Annual Report Consolidated Balance Sheets (dollars in thousands) Assets Operating real estate: Land Buildings and improvements Construction in progress Less: accumulated depreciation Net operating real estate Real estate under development Cash and cash equivalents Cash in escrow Investments in and advances to unconsolidated affiliates Rents receivable, net December 31, 2009 2008 $ 221,740 $ 192,496 845,751 648,112 2,575 16,618 1,070,066 193,745 857,226 165,067 876,321 692,159 137,340 234,769 93,808 8,582 51,712 16,782 86,691 6,794 54,978 12,648 Notes receivable and preferred equity investment, net 125,221 125,587 Deferred charges, net of amortization Acquired lease intangibles, net of amortization Prepaid expenses and other assets, net of amortization Assets of discontinued operations Liabilities and Shareholders’ Equity Mortgage notes payable Convertible notes payable, net of unamortized discount of $2,105 and $6,597, respectively Acquired lease and other intangibles, net of amortization Accounts payable and accrued expenses Dividends and distributions payable Distributions in excess of income from, and investments in, unconsolidated affiliates Other liabilities Liabilities of discontinued operations Total liabilities Shareholders’ equity: Common shares, $.001 par value, authorized 100,000,000 shares, issued and outstanding 39,787,018 and 32,357,530 shares, respectively Additional paid-in capital Accumulated other comprehensive loss Retained earnings Total Common Shareholders equity Noncontrolling interests in subsidiaries Total equity The accompanying notes are an integral part of these consolidated financial statements. 28,311 22,382 22,005 21,899 19,476 31,692 — 4,690 $ 1,382,464 $ 1,291,383 $ 732,287 $ 653,543 47,910 6,753 17,548 7,377 20,589 17,523 — 100,403 6,506 22,179 25,514 20,633 18,896 1,481 849,987 849,155 40 32 299,014 218,527 (2,994) 16,125 312,185 220,292 (4,508) 13,671 227,722 214,506 532,477 442,228 $ 1,382,464 $ 1,291,383 Acadia Realty Trust 2009 Annual Report 59 Consolidated Statements of Income Years Ended December 31, 2009 2008 2007 (dollars in thousands, except per share amounts) Revenues Minimum rents Percentage rents Expense reimbursements Lease termination income Other property income Management fee income Interest income Other income Total revenues Operating Expenses Property operating Real estate taxes General and administrative Depreciation and amortization Abandonment of project costs Reserve for notes receivable Total operating expenses Operating Income Equity in (losses) earnings of unconsolidated affiliates Impairment of investment in unconsolidated affiliate Interest and other finance expense Gain on debt extinguishment Gain on sale of land Income from continuing operations before income taxes Income tax expense Income from continuing operations Discontinued operations Operating income from discontinued operations Gain on sale of property Income from discontinued operations Extraordinary item Share of extraordinary gain from investment in unconsolidated affiliate Income tax provision Income from extraordinary item Net income Loss (income) attributable to noncontrolling interests in subsidiaries Continuing operations Discontinued operations Extraordinary item Net loss (income) attributable to noncontrolling interests in subsidiaries Net income attributable to Common Shareholders 60 Acadia Realty Trust 2009 Annual Report $ 96,239 477 20,982 2,751 2,895 1,961 20,340 1,700 147,345 29,829 16,812 22,013 37,218 2,487 1,734 110,093 37,252 (1,529) (3,768) (32,154) 7,057 — 6,858 (1,541) 5,317 246 7,143 7,389 — — — $ 77,610 510 16,789 23,961 1,099 3,434 14,533 — $ 65,908 526 13,259 — 855 4,064 10,315 165 137,936 95,092 24,092 12,123 24,545 33,334 630 4,392 13,792 9,415 22,929 25,114 129 — 99,116 71,379 38,820 19,906 — (28,893) 1,523 763 32,119 (3,362) 28,757 1,498 7,182 8,680 23,713 6,619 — (24,564) — — 5,768 (297) 5,471 1,975 5,271 7,246 — — — 30,200 (2,356) 27,844 12,706 37,437 40,561 23,282 (4,855) — 18,427 $31,133 (11,630) (739) — 9,558 (606) (24,167) (12,369) (15,215) $ 25,068 $ 25,346 Consolidated Statements of Income continued (dollars in thousands, except per share amounts) Income from continuing operations attributable to Common Shareholders Income from discontinued operations attributable to Common Shareholders Income from extraordinary item attributable to Common Shareholders Years Ended December 31, 2009 2008 2007 $ 28,599 $ 17,127 $ 15,029 2,534 7,941 6,640 — — 3,677 Net income attributable to Common Shareholders $ 31,133 $ 25,068 $ 25,346 Basic earnings per share Income from continuing operations Income from discontinued operations Income from extraordinary item Basic earnings per share Diluted earnings per share Income from continuing operations Income from discontinued operations Income from extraordinary item Diluted earnings per share $ 0.75 0.07 — $ 0.82 $ 0.75 0.07 — $ 0.82 $ 0.51 0.23 — $ 0.74 $ 0.50 0.23 — $ 0.73 $ 0.45 0.20 0.11 $ 0.76 $ 0.44 0.19 0.11 $ 0.74 The accompanying notes are an integral part of these consolidated financial statements. Acadia Realty Trust 2009 Annual Report 61 Consolidated Statements of Shareholders’ Equity Common Shares Shares Amount Additional Paid-in Capital Accumulated Other Total Common Total Comprehensive Retained Shareholders’ Noncontrolling Shareholders’ Loss Earnings Equity Interests Equity (amounts in thousands, except per share amounts) Balance as originally stated at January 1, 2007 31,773 $ 31 $ 227,555 $ (234) $ 13,767 $ 241,119 $ 113,736 $ 354,855 Adjustment due to ASC 470-20 cumulative effect of accounting change — — 9,544 — (96) 9,448 — 9,448 Revised balance as of January 1, 2007 31,773 31 237,099 (234) 13,671 250,567 113,736 364,303 Conversion of 4,000 Series B Preferred OP Units to Common Shares by limited partners of the Operating Partnership Employee Restricted Share awards Di vidends declared ($1.0325 per Common Share) Employee exercise of 17,474 options to purchase 312 103 — — 1 — 4,000 3,151 (8,349) — — — — — (25,346) Common Shares 17 — 174 — — Common Shares issued under Employee Share Purchase Plan Issuance of Common Shares to Trustees Employee Restricted Shares cancelled Conversion options on Convertible Notes issued (Note 11) Noncontrolling interest distributions Noncontrolling interest contributions Net income Unrealized loss on valuation of swap agreements Amortization of derivative instrument 7 13 (41) — — — — — — — — — — — — — — — Total comprehensive income — — 183 346 (1,094) 1,457 — — — — — — — — — — — — — (921) 202 — — — — — — 25,346 — — 4,000 3,152 (33,695) 174 183 346 (1,094) 1,457 — — 25,346 (921) 202 (4,000) 134 (690) — — — — — (63,691) 110,542 15,216 (136) — — 3,286 (34,385) 174 183 346 (1,094) 1,457 (63,691) 110,542 40,562 (1,057) 202 — — 24,627 15,080 39,707 Balance at December 31, 2007 32,184 32 236,967 (953) 13,671 249,717 171,111 420,828 Employee Restricted Share awards Dividends declared ($1.39 per Common Share) Employee exercise of 110,245 options to 137 — — — 2,917 (20,385) — — — (25,068) 2,917 (45,453) 1,863 (1,192) 4,780 (46,645) purchase Common Shares 110 — Common Shares issued under Employee Share Purchase Plan Issuance of Common Shares to Trustees Employee Restricted Shares cancelled Conversion options on Convertible Notes purchased (Note 11) Noncontrolling interest distributions Noncontrolling interest contributions Net income Unrealized loss on valuation of swap agreements 7 2 (83) — — — — — Reclassification of realized interest on swap agreements — — — — — — — — — — Total comprehensive income — — 841 180 81 (1,997) (77) — — — — — — — — — — — — — — — (4,179) 624 — — — — — — 25,068 — — 841 180 81 (1,997) (77) — — 25,068 (4,179) 624 — — — — — (15,347) 46,014 12,369 (421) 109 841 180 81 (1,997) (77) (15,347) 46,014 37,437 (4,600) 733 — — 21,513 12,057 33,570 Balance at December 31, 2008 32,357 $ 32 $ 218,527 $ (4,508) $ 13,671 $ 227,722 $ 214,506 $ 442,228 62 Acadia Realty Trust 2009 Annual Report Consolidated Statements of Shareholders’ Equity continued Common Shares Shares Amount Additional Paid-in Capital Accumulated Other Total Common Total Comprehensive Retained Shareholders’ Noncontrolling Shareholders’ Loss Earnings Equity Interests Equity (amounts in thousands, except per share amounts) Conversion of 15,666 OP Units to Common Shares by limited partners of the Operating Partnership 16 Issuance of Common Shares through special dividend 1,287 Employee Restricted Share awards Dividends declared ($0.75 per Common Share) Employee exercise of 258,900 options to purchase 253 — $ — 2 — — $ 90 16,190 2,957 — $ — — — — $ — $ 90 $ — — (28,679) 16,192 2,957 (28,679) Common Shares 259 — 1,556 — — 1,556 Common Shares issued under Employee Share Purchase Plan Issuance of Common Shares to Trustees Employee Restricted Shares cancelled 9 25 (359) Issuance of Common Shares, net of issuance costs 5,750 Deferred shares converted to Common Shares 190 Conversion options on Convertible Notes purchased (Note 11) Noncontrolling interest distributions Noncontrolling interest contributions Net income Unrealized loss on valuation of swap agreements — — — — — Reclassification of realized interest on swap agreements — — — — 6 — — — — — — — Total comprehensive income (loss) — — 106 635 (5,423) 65,216 — (840) — — — — — — — — — — — — — — (912) 2,426 — — — 106 635 (5,423) — 65,222 — — — — — (840) — — 31,133 31,133 — — (912) 2,426 (90) — 890 (795) — — — — — — — (1,624) 25,653 (18,427) 319 (140) $ — 16,192 3,847 (29,474) 1,556 106 635 (5,423) 65,222 — (840) (1,624) 25,653 12,706 (593) 2,286 — — 32,647 (18,248) 14,399 Balance at December 31, 2009 39,787 $ 40 $ 299,014 $ (2,994) $ 16,125 $ 312,185 $ 220,292 $ 532,477 The accompanying notes are an integral part of these consolidated financial statements. Acadia Realty Trust 2009 Annual Report 63 Consolidated Statements of Cash Flows Years Ended December 31, 2009 2008 2007 $ 12,706 $ 37,437 $ 40,561 37,242 34,908 28,361 (dollars in thousands) Cash Flows from Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Gain on sale of property Gain on debt extinguishment Amortization of lease intangibles Amortization of mortgage note premium Amortization of discount on convertible debt Non-cash accretion of notes receivable Share compensation expense Equity in losses (earnings) of unconsolidated affiliates Impairment of investment in unconsolidated affiliate Distributions of operating income from unconsolidated affiliates Abandonment of project costs (7,143) (7,057) 5,006 (36) 1,280 (5,352) 3,969 1,529 3,768 880 2,487 Amortization of derivative settlement included in interest expense — Reserve for notes receivable Provision for bad debt Changes in assets and liabilities: Cash in escrows Rents receivable Prepaid expenses and other assets, net Accounts payable and accrued expenses Other liabilities 1,734 4,132 (1,788) (8,370) 8,156 (5,902) 221 (7,945) (1,523) 6,856 (782) 2,101 (2,367) 3,434 (5,271) — 722 (111) 1,991 (148) 3,285 (19,906) (36,819) — — 14,420 36,666 630 — 4,392 3,593 (157) (2,305) 129 202 — 881 667 (2,061) (15,865) 24,074 8,368 1,228 4,962 7,203 Net cash provided by operating activities 47,462 66,517 105,294 Cash Flows from Investing Activities Investment in real estate and improvements Deferred acquisition and leasing costs Investments in and advances to unconsolidated affiliates Return of capital from unconsolidated affiliates Repayments of notes receivable Advances on notes receivable Proceeds from sale of property (127,322) (245,033) (210,356) (11,368) (5,603) 4,705 13,614 (9,362) 11,956 (6,068) (7,918) (1,746) (39,712) 4,052 26,625 19,922 11,071 (90,847) (14,548) 23,627 19,668 Net cash used in investing activities (123,380) (302,265) (208,998) 64 Acadia Realty Trust 2009 Annual Report Consolidated Statements of Cash Flows continued Years Ended December 31, 2009 2008 2007 (dollars in thousands) Cash Flows from Financing Activities Principal payments on mortgage notes Proceeds received on mortgage notes Purchase of convertible notes Proceeds received on convertible notes Increase in deferred financing and other costs Capital contributions from noncontrolling interests in partially-owned affiliates Distributions to noncontrolling interests in partially-owned affiliates Dividends paid to Common Shareholders Distributions to noncontrolling interests in Operating Partnership Distributions on preferred Operating Partnership Units to noncontrolling interests Proceeds from issuance of Common Shares, net of issuance costs Cancellation of Common Shares Common Shares issued under Employee Share Purchase Plan Exercise of options to purchase Common Shares Net cash provided by financing activities Increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of period $ (182,610) 260,065 (46,736) — (1,755) 25,653 (1,624) (30,163) (1,222) (33) 65,222 (5,424) 106 1,556 83,035 7,117 86,691 $ (68,412) $ (165,451) 281,192 222,218 (6,042) — — 15,000 (1,763) (4,128) 46,014 110,542 (15,347) (34,710) (809) (63,662) (26,039) (527) (27) — (86) — (2,102) (1,094) 261 841 529 174 199,096 87,476 (36,652) (16,228) 123,343 139,571 Cash and cash equivalents, end of period $ 93,808 $ 86,691 $ 123,343 Supplemental disclosure of cash flow information: Cash paid during the period for interest, including capitalized interest of $3,516, $6,779, and $3,031, respectively $ 33,699 $ 33,778 $ 26,705 Cash paid for income taxes $ 777 $ 6,633 $ 348 Supplemental disclosure of non-cash investing and financing activities: Acquisition of real estate through assumption of debt $ Issuance of notes receivable in connection with sale of real estate $ — — Dividends paid through the issuance of Common Shares $ 16,192 $ 39,967 $ — $ $ — — $ (18,000) $ — The accompanying notes are an integral part of these consolidated financial statements. Acadia Realty Trust 2009 Annual Report 65 Notes to Consolidated Financial Statements Note 1 Organization, Basis of Presentation and Summary of Significant Accounting Policies Acadia Realty Trust (the “Trust”) and subsidiaries (collec- interest in both Fund I and Mervyns I and is also entitled to a profit participation in excess of its invested capital based on certain investment return thresholds (“Promote”). Cash flow is distributed pro-rata to the partners and members (including the Operating Partnership) until they receive a 9% cumulative return (“Preferred Return”), and tively, the “Company”) is a fully integrated, self-managed the return of all capital contributions. Thereafter, remaining and self-administered equity real estate investment trust cash flow (which is net of distributions and fees to the (“REIT”) focused primarily on the ownership, acquisition, Operating Partnership for management, asset management, redevelopment and management of retail properties, leasing, construction and legal services) is distributed 80% including neighborhood and community shopping centers to the partners (including the Operating Partnership) and and mixed-use properties with retail components. 20% to the Operating Partnership as a Promote. As all As of December 31, 2009, the Company operated 79 properties, which it owns or has an ownership interest in, principally located in the Northeast, Mid-Atlantic and Midwest regions of the United States. All of the Company’s assets are held by, and all of its oper- ations are conducted through, Acadia Realty Limited Part- nership (the “Operating Partnership”) and entities in which the Operating Partnership owns a controlling interest. As of December 31, 2009, the Trust controlled 98% of the Operating Partnership as the sole general partner. As the general partner, the Trust is entitled to share, in proportion to its percentage 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 entities to the Oper- ating Partnership in exchange for common or preferred units of limited partnership interest (“Common or Preferred OP Units”). Limited partners holding Common OP Units contributed capital and accumulated preferred return has been distributed to investors, the Operating Partner- ship is currently entitled to a Promote on all earnings and distributions. During June of 2004, the Company formed Acadia Strate- gic Opportunity Fund II, LLC (“Fund II”), and during August 2004 formed Acadia Mervyn Investors II, LLC (“Mervyns II”), with the investors from Fund I as well as two additional institutional investors with a total of $300.0 million of com- mitted discretionary capital. The Operating Partnership’s share of committed capital is $60.0 million. The Operating Partnership is the managing member with a 20% interest in both Fund II and Mervyns II. The terms and structure of Fund II and Mervyns II are substantially the same as Fund I and Mervyns I, including the Promote structure, with the exception that the Preferred Return is 8%. As of December 31, 2009, the Operating Partnership had contributed $37.1 million to Fund II and $7.6 million to Mervyns II. are generally entitled to exchange their units on a one-for- During May of 2007, the Company formed Acadia Strategic one basis for common shares of beneficial interest of the Opportunity Fund III LLC (“Fund III”) with 14 institutional Trust (“Common Shares”). This structure is referred to as investors, including a majority of the investors from Fund I an umbrella partnership REIT or “UPREIT.” and Fund II with a total of $503.0 million of committed During September of 2001, the Company formed a part- nership, Acadia Strategic Opportunity Fund I, LP (“Fund I”), and during August of 2004 formed a limited liability com- pany, Acadia Mervyn Investors I, LLC (“Mervyns I”), with four institutional investors. The Operating Partnership committed a total of $20.0 million to Fund I and Mervyns I, and the four institutional shareholders committed a total of $70.0 million for the purpose of acquiring real estate investments. As of December 31, 2009, Fund I was fully invested, with the Operating Partnership having contributed $16.5 million to Fund I and $2.7 million to Mervyns I. The Operating Partnership is the general partner of Fund I and sole managing member of Mervyns I, with a 22.2% discretionary capital. The Operating Partnership’s share of the invested capital is $100.0 million and it is the managing member with a 19.9% interest in Fund III. The terms and structure of Fund III are substantially the same as the previous Funds I and II, including the Promote structure, with the exception that the Preferred Return is 6%. As of December 31, 2009, the Operating Partnership had con- tributed $19.2 million to Fund III. Principles of Consolidation The consolidated financial statements include the con- solidated accounts of the Company and its controlling investments in partnerships and limited liability companies in which the Company is presumed to have control in 66 Acadia Realty Trust 2009 Annual Report accordance with Financial Accounting Standards Board statements of Albertson’s to support the equity earnings (“FASB”) Accounting Standards Codification (“ASC”) or losses in accordance with ASC Topic 323 “Investments Topic 810 “Consolidation” (formerly Emerging Issues Task — Equity Method and Joint Ventures” (formerly Account- Force [“EITF”] Issue No. 04-5) (“ASC Topic 810”). The ing Principles Board [“APB”] 18 “Equity Method of ownership interests of other investors in these entities are Accounting for Investments in Common Stock”). recorded as noncontrolling interests. All significant inter- company balances and transactions have been eliminated in consolidation. Investments in entities for which the Company has the ability to exercise significant influence over, but does not have financial or operating control, are accounted for using the equity method of accounting. Accordingly, the Company’s share of the earnings (or loss) of these entities are included in consolidated net income. The Company periodically reviews its investment in uncon- solidated joint ventures for other than temporary losses in investment value. Any decline that is not expected to be recovered is considered other than temporary and an impairment charge is recorded as a reduction in the car- rying value of the investment. During the year ended December 31, 2009, the Company recorded a $3.8 million impairment charge related to a Fund I unconsolidated joint Variable interest entities within the scope of ASC Topic 810 venture. No impairment charges related to the Company’s (formerly FASB Interpretation No. 46-R, “Consolidation of investment in unconsolidated joint ventures were recog- Variable Interest Entities”) are required to be consolidated nized for the years ended December 31, 2008 and 2007. by their primary beneficiary. The primary beneficiary of a variable interest entity is determined to be the party that bears a majority of the entity’s expected losses, receives a majority of its expected returns, or both. Management has evaluated the applicability of ASC Topic 810 to its invest- ments in certain joint ventures and determined that these joint ventures are not variable interest entities or that the Company is not the primary beneficiary and, therefore, consolidation of these ventures is not required. These investments are accounted for using the equity method. Investments in and Advances to Unconsolidated Joint Ventures The Company accounts for its investments in unconsoli- dated joint ventures using the equity method as it does not exercise control over significant asset decisions such as buying, selling or financing nor is it the primary benefi- Use of Estimates Accounting principles generally accepted in the United States of America (“GAAP”) require the Company’s man- agement to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The most significant assumptions and estimates relate to the valuation of real estate, depre- ciable lives, revenue recognition and the collectability of trade accounts receivable. Application of these assump- tions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates. Real Estate Real estate assets are stated at cost less accumulated depreciation. Expenditures for acquisition, development, ciary under ASC Topic 810, as discussed above. The Com- construction and improvement of properties, as well as pany does have significant influence over the investments significant renovations are capitalized. Interest costs are which requires equity method accounting. Under the equity capitalized until construction is substantially complete. method, the Company increases its investment for its proportionate share of net income and contributions to Construction in progress includes costs for significant property expansion and redevelopment. Depreciation is the joint venture and decreases its investment balance by computed on the straight-line basis over estimated useful recording its proportionate share of net loss and distribu- tions. The Company recognizes income for distributions lives of 30 to 40 years for buildings, the shorter of the useful life or lease term for tenant improvements and in excess of its investment where there is no recourse to five years for furniture, fixtures and equipment. Expendi- the Company. For investments in which there is recourse tures for maintenance and repairs are charged to opera- to the Company, distributions in excess of the investment tions as incurred. are recorded as a liability. Although the Company accounts for its investment in Albertson’s (Note 4) under the equity method of accounting, the Company adopted the policy of not recording its equity in earnings or losses of this uncon- solidated affiliate until it receives the audited financial Upon acquisitions of real estate, the Company assesses the fair value of acquired assets (including land, buildings and improvements, and identified intangibles such as above and below market leases and acquired in-place Acadia Realty Trust 2009 Annual Report 67 Notes to Consolidated Financial Statements continued leases and customer relationships) and acquired liabilities these real estate properties are reflected as discontinued in accordance with ASC Topic 805 “Business Combinations” operations in all periods reported. (formerly SFAS No. 141R, “Business Combinations”) and ASC Topic 350 “Intangibles — Goodwill and Other” (formerly SFAS No. 142, “Goodwill and Other Intangible Assets”), and allocates acquisition price based on these assessments. The Company assesses fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property. The Company reviews its long-lived assets used in opera- tions for impairment when there is an event, or change in circumstances that indicates that the carrying amount may not be recoverable. The Company records impairment losses and reduces the carrying value of properties when indicators of impairment are present and the expected undiscounted cash flows related to those properties are less than their carrying amounts. In cases where the Com- pany does not expect to recover its carrying costs on prop- erties 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. During the years ended December 31, 2009, 2008 and 2007, no impairment losses were recognized. Man- On occasion, the Company will receive unsolicited offers from third parties to buy individual Company properties. Under these circumstances, the Company will classify the properties as held for sale when a sales contract is executed with no contingencies and the prospective buyer has funds at risk to ensure performance. Deferred Costs Fees and costs paid in the successful negotiation of leases are deferred and are being amortized on a straight- line basis over the terms of the respective leases. Fees and costs incurred in connection with obtaining financing are deferred and are amortized over the term of the related debt obligation. Management Contracts Income from management contracts is recognized on an accrual basis as such fees are earned. The initial acquisition cost of the management contracts are amortized over the estimated lives of the contracts acquired. Revenue Recognition and Accounts Receivable Leases with tenants are accounted for as operating leases. Minimum rents are recognized on a straight-line basis over the term of the respective leases, beginning when the tenant takes possession of the space. As of December 31, agement does not believe that the values of its properties 2009 and 2008, included in rents receivable, net on the within the portfolio are impaired as of December 31, 2009. accompanying consolidated balance sheet, unbilled rents Sale of Real Estate The Company recognizes property sales in accordance with ASC Topic 970 “Real Estate” (formerly SFAS No. 66, “Accounting for Sales of Real Estate”). The Company generally records the sales of operating properties and outparcels using the full accrual method at closing when the earnings process is deemed to be complete. Sales not qualifying for full recognition at the time of sale are accounted for under other appropriate deferral methods. Real Estate Held for Sale The Company evaluates the held-for-sale classification of its real estate each quarter. Assets that are classified as held for sale are recorded at the lower of their carrying amount or fair value less cost to sell. Assets are generally classified as held for sale once management has initiated an active program to market them for sale and has received a firm purchase commitment. The results of operations of receivable relating to straight-lining of rents were $12.7 million and $11.1 million, respectively. Certain of these leases also provide for percentage rents based upon the level of sales achieved by the tenant. Percentage rent is recognized in the period when the tenants’ sales break- point is met. In addition, leases typically provide for the reimbursement to the Company of real estate taxes, insurance and other property operating expenses. These reimbursements are recognized as revenue in the period the expenses are incurred. The Company makes estimates of the uncollectability of its accounts receivable related to tenant revenues. An allowance for doubtful accounts has been provided against certain tenant accounts receivable that are esti- mated to be uncollectible. Once the amount is ultimately deemed to be uncollectible, it is written off. Rents receivable at December 31, 2009 and 2008 are shown net of an allowance for doubtful accounts of $7.0 million and $5.7 million, respectively. 68 Acadia Realty Trust 2009 Annual Report Notes Receivable and Preferred Equity Investments Notes receivable and preferred equity investments are intended to be held to maturity and are carried at amor- tized cost. Interest income from notes receivable and preferred equity investments are recognized on the effec- tive interest method over the expected life of the loan. Under the effective interest method, interest or fees to be collected at the origination of the loan or the payoff of the loan are recognized over the term of the loan as an adjustment to yield. Allowances for real estate notes receivable are established based upon management’s quarterly review of the invest- ments. In performing this review, management considers the estimated net recoverable value of the loan as well as other factors, including the fair value of any collateral, the amount and status of any senior debt, and the prospects for the borrower. Because this determination is based upon projections of future economic events, which are inherently subjective, the amounts ultimately realized from the loans may differ materially from the carrying value at the balance sheet date. Interest income recogni- tion is generally suspended for loans when, in the opinion of management, a full recovery of income and principal becomes doubtful. Income recognition is resumed when the suspended loan becomes contractually current and performance is demonstrated to be resumed. During 2009, the Company provided a $1.7 million reserve on a note receivable as a result of the loss of an anchor tenant at the underlying collateral property. During 2008, the Company provided a $4.4 million reserve on a note receivable collateralized by an interest in an entity owning retail complexes associated with seven public rest stops along the toll roads in and around Chicago, Illinois. The note and all accrued interest was subsequently cancelled during 2009. Management believes that the balance of notes receivable are collectible as of December 31, 2009. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Restricted Cash and Cash in Escrow Restricted cash and cash in escrow consist principally of cash held for real estate taxes, property maintenance, insurance, minimum occupancy and property operating income requirements at specific properties as required by certain loan agreements. Income Taxes 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 distrib- ute at least 90% of its REIT taxable income to its stock- holders as well as comply with certain other income, asset and organizational requirements as defined in the Code. Accordingly, the Company is generally not subject to Fed- eral corporate income tax to the extent that it distributes 100% of its REIT taxable income each year. Although it may qualify for REIT status for Federal income tax purposes, the Company is subject to state income or franchise taxes in certain states in which some of its prop- erties are located. In addition, taxable income from non- REIT activities managed through the Company’s taxable REIT subsidiary (“TRS”) is fully subject to Federal, state and local income taxes. TRS income taxes are accounted for under the liability method as required by ASC Topic 740 “Income Taxes” (formerly SFAS No. 109, “Accounting for Income Taxes”). Under the liability method, deferred income taxes are recognized for the temporary differences between the financial reporting basis and the tax basis of the TRS income, assets and liabilities. In accordance with ASC Topic 740 “Income Taxes” (formerly FASB Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of SFAS No. 109”), the Company believes that it has appropriate support for the income tax positions taken and, as such, does not have any uncertain tax positions that result in a material impact on the Company’s financial position or results of operation. The prior three years’ income tax returns are subject to review by the Internal Revenue Service. The Company’s policy relating to interest and penalties is to recognize them as a component of the provision for income taxes. Stock-based Compensation The Company accounts for stock options pursuant to ASC Topic 718 “Compensation — Stock Compensation” (for- merly SFAS No. 123R “Accounting for Stock-Based Com- pensation”). As such, all equity based awards are reflected Acadia Realty Trust 2009 Annual Report 69 Notes to Consolidated Financial Statements continued as compensation expense in the Company’s consolidated was effective for financial statements issued for fiscal financial statements over their vesting period based on the years beginning after November 15, 2008. The adoption fair value at the date the stock option was granted. of ASC 815 did not have an impact on the Company’s Recent Accounting Pronouncements In June 2009, the FASB issued ASC Topic 105 “Generally Accepted Accounting Principles” (formerly Statement of Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”) (“ASC Topic 105”). ASC Topic 105 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements that are presented in conformity with GAAP. It establishes the FASB Accounting Standards Codification (“ASC”) as the single source of authoritative accounting principles recognized by the FASB in the preparation of financial state- ments in conformity with GAAP. The ASC does not create new accounting and reporting guidance; rather, it reorga- nizes GAAP pronouncements into approximately 90 topics within a consistent structure. All guidance contained in the ASC carries an equal level of authority. Relevant por- tions of authoritative content, issued by the Securities and Exchange Commission (“SEC”), for SEC registrants, have been included in the ASC. ASC Topic 105 was effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company adopted ASC Topic 105 on September 30, 2009. During December of 2007, the FASB issued ASC Topic 805 “Business Combinations” (formerly SFAS No. 141R, “Business Combinations”) (“ASC Topic 805”). ASC Topic 805 establishes principles and requirements for how an acquirer entity recognizes and measures in its financial statements the identifiable assets acquired (including intangibles), the liabilities assumed and any noncontrolling interest in the acquired entity. Effective January 1, 2009, the Company adopted ASC Topic 805 and it did not have a material impact on the Company’s financial position or results of operations. During March of 2008, the FASB issued ASC Topic 815 “Derivatives and Hedging” (formerly SFAS No. 161 “Disclosures about Derivative Instruments and Hedging Activities — an amendment of SFAS No. 133”) (“ASC Topic 815”). ASC Topic 815 amends SFAS No. 133 to provide additional information about how derivative and hedging activities affect an entity’s financial position, financial per- formance, and cash flows. It requires enhanced disclosures about an entity’s derivatives and hedging activities. ASC 815 financial condition or results of operations. During June of 2008, the FASB ratified ASC Topic 815 (formerly EITF Issue 07-5 “Determining Whether an Instrument [or Embedded Feature] Is Indexed to an Entity’s Own Stock”). Paragraph 11(a) of SFAS 133 specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to the Company’s own stock and (b) classified in stockholders’ equity in the statement of financial position would not be considered a derivative financial instrument. ASC Topic 815 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the SFAF 133 paragraph 11(a) scope exception. ASC Topic 815 became effective on January 1, 2009. The adoption of ASC 815 did not have an impact on the Company’s financial position and results of operations. During October of 2008, the FASB issued ASC Topic 820 “Fair Value Measurements and Disclosures” (formerly FSP FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active”) (“ASC Topic 820”). ASC Topic 820 provides guidance in determining the fair value of a financial asset when there is not an active market for that financial asset. The adop- tion of ASC Topic 820 did not have an impact on the Company’s financial position and results of operations. Effective January 1, 2009, the Company adopted the fol- lowing FASB pronouncements, which required it to retro- spectively restate and reclassify previously disclosed consolidated financial statements. As such, certain prior period amounts have been restated or reclassified in the accompanying unaudited consolidated financial statements to conform to the adoption of these FASB pronouncements. The Company adopted ASC Topic 810 (formerly SFAS No. 160, “Noncontrolling Interests in Consolidated Finan- cial Statements). ASC Topic 810, among other things, provides guidance and establishes amended accounting and reporting standards for noncontrolling interests in a consolidated subsidiary and the deconsolidation of a sub- sidiary. Under ASC Topic 810, the Company now reports noncontrolling interests in subsidiaries as a separate com- ponent of equity in the consolidated financial statements and shows both net income and net loss attributable to the noncontrolling interests and net income attributable 70 Acadia Realty Trust 2009 Annual Report to the controlling interests on the face of the Consolidated recorded as additional paid-in capital was $11.3 million, Statements of Income. The Company adopted ASC Topic 470-20 “Debt with Con- version and Other Options” (formerly FASB Staff Position No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion Including Partial Cash Settlement”), (“ASC Topic 470-20”). ASC Topic 470-20 requires the proceeds from the issuance of convertible debt be allocated between a debt component and an equity component. The debt component is mea- sured based on the fair value of similar debt without an which represented the difference between the proceeds from the issuance of the convertible notes payable and the fair value of the liability at the time of issuance. The additional non-cash interest expense recognized in the Consolidated Statements of Income was $1.3 million and $2.1 million for the fiscal years ended 2009 and 2008, respectively. Accumulated amortization related to the convertible notes payable was $0.7 million and $1.1 million as of December 31, 2009 and December 31, 2008, respectively, after giving effect to repurchases. equity conversion feature, and the equity component is The following table shows the effect of the retrospective determined as the residual of the fair value of the debt application and reclassification of (i) the consolidated balance deducted from the original proceeds received. The result- sheet accounts for the year ended December 31, 2008 ing discount on the debt component is amortized over the and (ii) the consolidated statement of income for the years period the convertible debt is expected to be outstanding, ended December 31, 2008 and 2007 and consolidated which is December 11, 2006 to December 20, 2011, as statement of cash flow accounts for the years ended additional non-cash interest expense. The equity component December 31, 2008 and 2007: (dollars in thousands, except per share amounts) December 31, 2008 Affected Consolidated Balance Sheet Accounts Deferred charges, net of amortization Convertible notes payable Minority interests Additional paid-in capital Retained earnings Noncontrolling interests in subsidiaries Affected Consolidated Income Statement Accounts Depreciation and amortization Interest expense Gain on debt extinguishment Income from continuing operations Net income Net income attributable to Common Shareholders Basic earnings per share Diluted earnings per share Before Adjustment $ 22,072 $ 107,000 $ 214,506 $ 212,007 $ 13,767 $ — Before Adjustment $ 33,390 $ 26,792 $ 1,958 $ 31,237 $ 39,917 $ 27,548 $ $ 0.81 0.80 As Adjusted $ 21,899 $ 100,403 $ — $ 218,527 $ 13,671 $ 214,506 Year Ended December 31, 2008 As Adjusted $ 33,334 $ 28,893 $ 1,523 $ 28,757 $ 37,437 $ 25,068 $ $ 0.74 0.73 Effect of Change $ $ (173) (6,597) $ (214,506) $ $ 6,520 (96) $ 214,506 Effect of Change $ $ $ $ $ $ $ $ 56 (2,101) (435) (2,480) (2,480) (2,480) (0.07) (0.07) Acadia Realty Trust 2009 Annual Report 71 Notes to Consolidated Financial Statements continued (dollars in thousands, except per share amounts) Year Ended December 31, 2007 Affected Consolidated Income Statement Accounts Depreciation and amortization Interest expense Income from continuing operations Net income Net income attributable to Common Shareholders Basic earnings per share Diluted earnings per share Affected Consolidated Statement of Cash Flow Accounts Depreciation and amortization Gain on debt extinguishment Amortization of discount on convertible debt Depreciation and amortization Amortization of discount on convertible debt Before Adjustment $ 25,181 $ 22,573 $ 7,395 $ 42,485 $ 27,270 $ $ 0.81 0.80 Before Adjustment $ 34,964 $ (1,958) $ — Before Adjustment $ 28,428 $ — As Adjusted $ 25,114 $ 24,564 $ 5,471 $ 40,561 $ 25,346 $ $ 0.76 0.74 Year Ended December 31, 2008 As Adjusted $ 34,908 $ (1,523) $ 2,101 Year Ended December 31, 2007 As Adjusted $ 28,361 $ 1,991 Effect of Change $ 67 $ (1,991) $ (1,924) $ (1,924) $ (1,924) $ (0.05) $ (0.06) Effect of Change $ (56) $ 435 $ 2,101 Effect of Change $ (67) $ 1,991 In April 2009, the FASB issued ASC Topic 825 “Financial standards of accounting and disclosure for events that Instruments” (formerly FSP SFAS 107-1 and APB 28-1, occur after the balance sheet date but before the financial “Interim Disclosures About Fair Value of Financial Instru- statements are issued and was effective for interim or ments”) (“ASC Topic 825”). ASC Topic 825 amends SFAS annual periods ending after June 15, 2009. The Company No. 107, “Disclosures about Fair Values of Financial Instru- adopted ASC Topic 855 and the adoption did not have ments” and Accounting Principles Board Opinion No. 28, an impact on the Company’s financial position and results “Interim Financial Reporting,” to require disclosures about of operations. fair value of financial instruments in interim financial state- ments. ASC Topic 825 is effective for interim periods end- ing after June 15, 2009. The Company adopted ASC Topic 825 and has provided the disclosures in Note 10 to the Consolidated Financial Statements. The adoption did not have an impact on the Company’s financial position and results of operations. In June 2009, the FASB issued ASC 810 (formerly SFAS No. 167, “Amendments to FASB Interpretation No. 46[R],” which changes the approach to determining the primary beneficiary of a variable interest entity and requires compa- nies to more frequently assess whether they must consol- idate a variable interest entity. ASC 810 is effective on the first annual reporting period that begins after November In May 2009, the FASB issued ASC Topic 855 “Subsequent 15, 2009. The adoption of ASC 810 on January 1, 2010 Events” (formerly SFAS No. 165 “Subsequent Events”) did not have a material impact on the Company’s financial (“ASC Topic 855”). ASC Topic 855 establishes general position and results of operations. 72 Acadia Realty Trust 2009 Annual Report Comprehensive Income The following table sets forth comprehensive income for Acquisitions On January 29, 2009, the Company acquired the 642,000 the years ended December 31, 2009, 2008 and 2007: square foot Cortlandt Towne Center in Cortlandt, NY for Years Ended December 31, $78.0 million. 2009 2008 2007 On February 29, 2008, the Company acquired a portfolio of (dollars in thousands) Net income attributable to 11 self-storage properties located throughout New York and New Jersey for approximately $174.0 million. The portfolio Common Shareholders $ 31,133 $ 25,068 $25,346 totals approximately 920,000 net rentable square feet. Other comprehensive income (loss) 1,514 (3,555) (719) On April 22, 2008, the Company acquired a 20,000 square foot single tenant retail property located in Manhattan, Comprehensive income attributable to Common Shareholders $ 32,647 $21,513 $24,627 Other comprehensive income relates to the changes in the fair value of derivative instruments accounted for as cash flow hedges and amortization, which is included in interest expense, of derivative instruments. The following table sets forth the change in accumulated other comprehensive loss for the years ended December 31, 2009 and 2008: Accumulated other comprehensive loss Years Ended December 31, 2009 2008 New York for $9.7 million. On March 20, 2007, the Company purchased a retail com- mercial condominium at 200 West 54th Street located in Manhattan, New York. The 10,000 square foot property was acquired for $36.4 million. Additionally, on March 20, 2007, the Company purchased a single-tenant building located at 1545 East Service Road in Staten Island, New York for $17.0 million. On May 31, 2007, the Company purchased a property located on Atlantic Avenue in Brooklyn, New York for $5.0 million. The property was redeveloped into a 110,000 square foot, six-story self-storage facility. On June 13, 2007, the Company (approximately 25% of the invested equity), along with an unaffiliated partner (approximately 75% of the invested equity), acquired a (dollars in thousands) Beginning balance Unrealized loss on valuation of derivative instruments and amortization of derivative Reclassification of loss on derivative instruments to interest expense $ (4,508) $ (953) leasehold interest in The Gallery at Fulton Street and adjacent parking garage located in downtown Brooklyn, New York for $115.0 million. The property has been (912) (4,179) demolished and redevelopment plans for CityPoint are in the design phase. 2,426 624 On October 31, 2007, the Company, in conjunction with an unaffiliated partner, P/A Associates, LLC (collectively, Ending balance $ (2,994) $ (4,508) “Acadia-P/A”) acquired a 530,000 square foot warehouse Note 2 Acquisition and Disposition of Properties and Discontinued Operations A. Acquisition and Disposition of Properties The Company has historically made acquisitions through its Opportunity Funds and the Operating Partnership. building in Canarsie, Brooklyn for approximately $21.0 million. Demolition and construction has commenced on the 320,000 square foot mixed-use project. On November 1, 2007, the Company, and an unaffiliated partner acquired a property in Westport, Connecticut for approximately $17.0 million. The plan is to redevelop the existing building into 30,000 square feet of retail and office use. Acadia Realty Trust 2009 Annual Report 73 Notes to Consolidated Financial Statements continued On November 5, 2007, the Company acquired a property in Sheepshead Bay, Brooklyn for approximately $20.0 million. Dispositions During 2009, 2008 and 2007, the Company disposed of Redevelopment plans for this property are in the the following properties: design phase. (dollars in thousands) Property Blackman Plaza Six Kroger locations Village Apartments Amherst Marketplace and Sheffield Crossing Colony and GHT Apartments Total Year Sold Sales Price Gain/(Loss) GLA 2009 2009 2008 2007 2007 $ 2,500 9,481 23,300 26,000 15,500 $ 76,781 $ 1,506 5,637 7,182 7,516 (2,245) 125,264 277,700 599,106 192,479 625,545 $ 19,596 1,820,094 B. Discontinued Operations In accordance with ASC 205-20 “Presentation of Financial Statements, Discontinued Operations,” which requires discontinued operations presentation for disposals of a “component” of an entity, for all periods presented, the Company reclassified its consolidated statements of income to reflect income and expenses for properties that were sold prior to December 31, 2009, as discontinued opera- tions and reclassified its consolidated balance sheets to reflect assets and liabilities related to such properties as assets and liabilities related to discontinued operations. The combined assets and liabilities as of December 31, 2008 and results of operations of the properties classified as discontinued operations for the years ended December 31, 2009, 2008 and 2007 are summarized as follows: Statement of Operations 2009 2008 2007 Years Ended December 31, (dollars in thousands) Total revenues Total expenses $ 644 $ 4,136 $ 12,948 398 2,638 10,973 Operating Income 246 1,498 1,975 Gain on sale of property 7,143 7,182 5,271 Income from discontinued operations 7,389 8,680 7,246 Income from discontinued operations attributable to noncontrolling interests in subsidaries Income from discontinued operations attributable to Common Shareholders (4,855) (739) (606) $ 2,534 $ 7,941 $ 6,640 December 31, 2008 Note 3 (dollars in thousands) Assets Net real estate Rents receivable, net Prepaid expenses and other assets, net $ 4,635 12 43 Total assets of discontinued operations $ 4,690 Liabilities Mortgage Notes Payable Accounts payable and accrued expenses Other liabilities $ 1,325 57 99 Total liabilities of discontinued operations $ 1,481 Segment Reporting The Company has five reportable segments: Core Portfolio, Opportunity Funds, Self-Storage Portfolio, Notes Receivable and Other. Notes Receivable consists of the Company’s notes receivable and preferred equity investment and related interest income. Other consists primarily of man- agement fees and interest income. 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, amortization and certain nonrecurring items. Investments in the Core Port- folio are typically held long-term. Given the contemplated finite life of the Opportunity Funds, these investments are 74 Acadia Realty Trust 2009 Annual Report typically held for shorter terms. Fees earned by the Com- segment information for the Company, reclassified for pany as the general partner/member of the Opportunity discontinued operations, as of and for the years ended Funds are eliminated in the Company’s consolidated finan- December 31, 2009, 2008, and 2007 (does not include cial statements. The following table sets forth certain unconsolidated affiliates): 2009 Core Portfolio Opportunity Funds Storage Portfolio Notes Receivable Other Elimination Total $ 69,553 $ 44,326 $ 11,166 $ 19,156 $ 23,681 $ (20,537) $ 147,345 (dollars in thousands) Revenues Property operating expenses and real estate taxes 21,335 15,427 11,029 Reserve for notes receivable Abandonment of project costs — — — 2,487 Other expenses 23,983 13,597 — — 3 — 1,734 — — — — — — (1,150) 46,641 — — 1,734 2,487 (15,570) 22,013 Income before depreciation and amortization $ 24,235 $ 12,815 $ 134 $ 17,422 $ 23,681 Depreciation and amortization $ 17,200 $ 17,051 $ 4,437 Interest and other finance expense $ 18,744 $ 8,404 $ 5,006 Real estate at cost $ 475,486 $ 534,393 $ 208,574 $ $ $ — — — $ $ $ (3,817) $ 74,470 (1,470) $ 37,218 — $ 32,154 $ — $ — $ — $ (11,047) $ 1,207,406 Total assets $ 558,240 $ 607,706 $ 196,658 $ 125,221 $ — $ (105,361) $ 1,382,464 Expenditures for real estate and improvements Reconciliation to net income Income before depreciation and amortization Depreciation and amortization Equity in losses of unconsolidated partnerships Interest and other finance expense Gain on debt extinguishment Impairment of investment in unconsolidated affiliate Income tax provision Income from discontinued operations Net income Net loss attributable to noncontrolling interests in subsidiaries Net income attributable to Common Shareholders $ 1,938 $ 119,665 $ 10,996 $ — $ — $ (5,277) $ 127,322 $ 74,470 (37,218) (1,529) (32,154) 7,057 (3,768) (1,541) 7,389 12,706 18,427 $ 31,133 Acadia Realty Trust 2009 Annual Report 75 Notes to Consolidated Financial Statements continued 2008 Core Portfolio Opportunity Funds Storage Portfolio Notes Receivable Other Elimination Total $ 65,347 $ 48,400 $ 5,589 $ 10,903 $ 30,928 $ (23,231) $ 137,936 (dollars in thousands) Revenues Property operating expenses and real estate taxes 20,973 8,954 6,669 Reserve for notes receivable Abandonment of project costs — — — 630 Other expenses 26,007 16,131 — — 58 — 4,392 — — — — — — (381) 36,215 — — 4,392 630 (17,651) 24,545 Income before depreciation and amortization $ 18,367 $ 22,685 $ (1,138) $ 6,511 $ 30,928 $ (5,199) $ 72,154 Depreciation and amortization $ 20,296 $ 10,036 $ 3,002 Interest and other finance expense $ 19,698 $ 5,549 $ 3,650 Real estate at cost $ 474,684 $ 438,260 $ 186,529 $ $ $ — — — $ — $ — $ $ — $ 33,334 (4) $ 28,893 $ — $ (7,478) $ 1,091,995 Total assets $ 567,882 $ 487,182 $ 194,992 $ 125,587 $ — $ (84,260) $ 1,291,383 Expenditures for real estate and improvements Reconciliation to net income Income before depreciation and amortization Depreciation and amortization Equity in earnings of unconsolidated partnerships Interest and other finance expense Gain on sale Gain on debt extinguishment Income tax provision Income from discontinued operations Net income Net loss attributable to noncontrolling interests in subsidiaries Net income attributable to Common Shareholders $ 18,424 $ 94,191 $ 135,391 $ — $ — $ (2,973) $ 245,033 $ 72,154 (33,334) 19,906 (28,893) 763 1,523 (3,362) 8,680 37,437 (12,369) $ 25,068 76 Acadia Realty Trust 2009 Annual Report 2007 Core Portfolio Opportunity Funds Storage Portfolio Notes Receivable Other Elimination Total $ 62,520 $ 17,901 $ 291 $ 3,682 $ 31,065 $ (20,367) $ 95,092 18,467 — 4,264 129 25,217 12,903 756 — — — — — — — — (280) 23,207 — 129 (15,191) 22,929 (dollars in thousands) Revenues Property operating expenses and real estate taxes Abandonment of project costs Other expenses Income (loss) before depreciation and amortization $ 18,836 $ 605 $ (465) $ 3,682 $ 31,065 $ (4,896) $ 48,827 Depreciation and amortization $ 17,394 $ 7,409 Interest and other finance expense $ 19,430 $ 5,291 $ $ 311 $ — $ — 359 $ — $ — $ $ — $ 25,114 (516) $ 24,564 Real estate at cost $ 458,042 $ 350,699 $ 12,407 $ — $ — $ (3,528) $ 817,620 Total assets $ 578,310 $ 403,844 $ 15,200 $ 57,662 $ — $ (56,233) $ 998,783 $ 58,575 $ 149,453 $ 6,626 $ — $ — $ (4,298) $ 210,356 Expenditures for real estate and improvements Reconciliation to net income Income before depreciation and amortization Depreciation and amortization Equity in earnings of unconsolidated partnerships Interest and other finance expense Income tax provision Income from discontinued operations Extraordinary item Net income Net loss attributable to noncontrolling interests in subsidiaries Net income attributable to Common Shareholders Note 4 $ 48,827 (25,114) 6,619 (24,564) (297) 7,246 27,844 40,561 (15,215) $ 25,346 investment in which the RCP Venture participants elect to invest is to be distributed to the participants until they have received a 10% cumulative return and a full return of all related contributions. Thereafter, remaining cash flow is to be distributed 20% to Klaff and 80% to the partners (including Klaff). Investments in and Advances to Unconsolidated Affiliates Retailer Controlled Property Venture ("RCP Venture”) During January of 2004, the Company commenced the The table below summarizes the Company’s invested RCP Venture with Klaff Realty, LP (“Klaff”) and Lubert- capital and distributions received from its RCP Venture Adler Management, Inc., through a limited liability com- investments. pany (“KLA”), for the purpose of making investments in surplus or underutilized properties owned by retailers. As of December 31, 2009, the Company has invested $60.8 million through the RCP Venture on a non-recourse basis. Upon formation, it was contemplated the RCP Venture would invest $300.0 million, of which the Company’s share would be $60.0 million. Cash flow from any individual Mervyns Department Stores In September 2004, the Company made its first RCP Venture investment. Through Mervyns I and Mervyns II, the Company invested in a consortium to acquire the Mervyns Department Store chain (“Mervyns”) consisting of 262 stores (“REALCO”) and its retail operation (“OPCO”) Acadia Realty Trust 2009 Annual Report 77 Notes to Consolidated Financial Statements continued from Target Corporation. To date, REALCO has disposed Through December 31, 2009, the Company has received of a significant portion of the portfolio. In addition, in additional distributions from this investment totaling November 2007, the Company sold its interest in OPCO $21.3 million. and, as a result, has no further investment in OPCO. Subsequent to the initial acquisition, the Company, through Mervyns I and Mervyns II, made additional investments of $2.9 million. Through December 31, 2009, the Company, through Mervyns II, made Add-On investments in Albertson’s total- ing $2.4 million and received distributions totaling $1.2 million. The Company accounts for these Add-On investments using During the year ended December 31, 2009, REALCO the cost method due to the minor ownership interest and recorded an impairment charge on its investment in certain the inability to exert influence over KLA’s operating and locations and leasehold interests of which Mervyns I and II financial policies. recognized a combined loss of $3.1 million. The Operating Partnership’s share of this loss, net of taxes, was $0.6 million. Other RCP Investments During 2006, the Company, through Fund II, made invest- Through December 31, 2009, the Company, through ments of $1.1 million in Shopko and $0.7 million in Marsh. Mervyns I and Mervyns II, made additional investments in During 2007, Fund II received a $1.1 million cash distribu- locations that are separate from the original investment tion from the Shopko investment representing 100% of its (“Add-On Investments”) in Mervyns totaling $5.1 million. invested capital. As of December 31, 2009, the Company, The Company accounts for these Add-On Investments through Fund II, made investments of $2.0 million in addi- using the cost method due to the minor ownership inter- tional Add-On investments in Marsh and has received est and the inability to exert influence over KLA’s operating distributions totaling $2.6 million. and financial policies. Albertson’s During July of 2007, the RCP Venture acquired a portfolio of 87 retail properties from Rex Stores Corporation, which During June of 2006, the RCP Venture made its second the Company invested through Mervyns II. The Company’s investment as part of an investment consortium, acquiring share of this investment was $2.7 million. In December of Albertson’s and Cub Foods, of which the Company’s share 2009, the Company received distributions of $0.4 million. was $20.7 million. During February of 2007, the Company received a cash distribution of $44.4 million from this investment, which was sourced from the disposition of certain operating stores and a refinancing of the remaining assets held by Albertson’s. The Company recognized The Company accounts for these other investments using the cost method due to its minor ownership interest and the inability to exert influence over KLA’s operating and financial policies. distributions in excess of its invested capital in income, The following table summarizes the Company’s RCP Venture including $30.2 million characterized as extraordinary investments from inception through December 31, 2009: consistent with the accounting treatment by Albertson’s. Operating Partnership Share (dollars in thousands) Investment Investor Mervyns I and Mervyns II Mervyns Year Acquired 2004 Invested Capital and Advances Distributions Invested Capital and Advances Distributions $ 26,058 $ 45,966 $ 4,901 $ 11,251 Mervyns I and Mervyns II Mervyns add-on investments 2005/2008 Mervyns II Mervyns II Fund II Fund II Mervyns II Total Albertson’s 2006 Albertson’s add-on investments 2006/2007 Shopko Marsh Rex Stores 2006 2006 2007 5,126 20,717 2,409 1,100 2,667 2,701 $ 60,778 1,703 753 283 65,757 4,239 13,151 1,215 1,100 2,639 386 220 533 243 220 528 400 $ 118,780 535 $ 11,567 80 $ 25,756 78 Acadia Realty Trust 2009 Annual Report Brandywine Portfolio has determined that CityPoint is a variable interest entity, The Company owns a 22.2% interest in a one million and the Company is not the primary beneficiary. The Com- square foot retail portfolio located in Wilmington, Dela- pany’s maximum exposure is its current investment balance ware (the “Brandywine Portfolio”) that is accounted for of $37.4 million. using the equity method. Crossroads The Company owns a 49% interest in the Crossroads Joint Venture and Crossroads II (collectively, “Crossroads”), which collectively own a 311,000 square foot shopping center located in White Plains, New York that is accounted for using the equity method. Other Investments Fund I Investments Fund I owns a 50% interest in the Sterling Heights Shop- ping Center which is accounted for using the equity method of accounting. During 2009, Fund I recorded an impairment As of December 31, 2009, there was $26.0 million of debt at CityPoint scheduled to mature during August of 2010. There are no options to extend this debt. Fund II and its unaffiliated joint venture partner’s (“JV Partner”) share of this debt was $6.1 million and $19.9 million, respectively. If CityPoint is unable to extend the maturity date of this debt, Fund II and its JV Partner may be required to fund their requisite share of capital to repay this obligation. In the event that the JV Partner does not fund its requisite share of capital, pursuant to the joint venture agreement, Fund II would have the option to fund the JV Partner’s share of capital to repay this debt either as a loan to the JV Partner or as additional equity in CityPoint. charge of $3.8 million related to this investment. The following tables summarize the Company’s invest- Fund II Investments Fund II’s approximately 25% investment in CityPoint is accounted for using the equity method. The Company ments in unconsolidated affiliates as of December 31, 2009, December 31, 2008 and December 31, 2007. Acadia Realty Trust 2009 Annual Report 79 Notes to Consolidated Financial Statements continued December 31, 2009 RCP Venture Brandywine Other CityPoint Portfolio Crossroads Investments Total (dollars in thousands) Balance Sheets Assets Rental property, net Real estate under development $ — — $ — $ 127,091 $ 4,968 $ 10,631 $ 142,690 166,381 — — — — — — 166,381 209,407 Investment in unconsolidated affiliates 209,407 — Other assets Total assets Liabilities and partners’ equity Mortgage note payable Other liabilities Partners equity (deficit) — 3,265 11,388 4,322 1,976 20,951 $ 209,407 $ 169,646 $ 138,479 $ 9,290 $ 12,607 $ 539,429 $ — — $ 25,990 $ 166,200 $ 62,295 $ 4,200 $ 258,685 2,096 7,762 977 1,250 12,085 209,407 141,560 (35,483) (53,982) 7,157 268,659 Total liabilities and partners’ equity $ 209,407 $ 169,646 $ 138,479 $ 9,290 $ 12,607 $ 539,429 Company’s investment in and advances to unconsolidated affiliates $ 12,832 $ 37,357 $ — $ — $ 1,523 $ 51,712 Share of distributions in excess of share of income and investment in unconsolidated affiliates $ — $ — $ (8,212) $ (12,377) $ — $ (20,589) December 31, 2008 RCP Venture Brandywine Other CityPoint Portfolio Crossroads Investments Total (dollars in thousands) Balance Sheets Assets Rental property, net Real estate under development $ — — $ — $ 129,679 $ 5,143 $ 11,481 $ 146,303 159,922 — — — — — — 159,922 295,168 Investment in unconsolidated affiliates 295,168 — Other assets Total assets Liabilities and partners’ equity Mortgage note payable Other liabilities Partners equity (deficit) — 3,983 8,769 5,283 2,770 20,805 $ 295,168 $ 163,905 $ 138,448 $ 10,426 $ 14,251 $ 622,198 $ — — $ 34,000 $ 166,200 $ 63,176 $ 5,173 $ 268,549 2,307 7,895 2,072 1,083 13,357 295,168 127,598 (35,647) (54,822) 7,995 340,292 Total liabilities and partners’ equity $ 295,168 $ 163,905 $ 138,448 $ 10,426 $ 14,251 $ 622,198 Company’s investment in and advances to unconsolidated affiliates Share of distributions in excess of share of income and investment in unconsolidated affiliates $ 18,066 $ 33,445 $ — $ — $ 3,467 $ 54,978 $ — $ — $ (8,236) $ (12,397) $ — $ (20,633) 80 Acadia Realty Trust 2009 Annual Report Year Ended December 31, 2009 RCP Venture Brandywine Portfolio Crossroads Other Investments Total (dollars in thousands) Statement of Operations Total revenue Operating and other expenses Interest expense $ — — — Equity in losses of unconsolidated affiliates (30,568) Depreciation and amortization Gain on sale of property, net Net (loss) income $ 20,740 6,045 10,102 — 3,479 — — — $ (30,568) $ 1,114 Company’s share of net (loss) income $ (2,213) $ 249 Impairment reserve Amortization of excess investment — — — — Company’s share of net (loss) income $ (2,213) $ 249 $ 8,420 2,726 3,437 — 568 — $ 1,689 $ 824 — (388) $ 436 $ 1,675 1,080 247 — 1,105 (390) $ 30,835 9,851 13,786 (30,568) 5,152 (390) $ (1,147) $ (28,912) $ (1) (3,768) — $ (1,141) (3,768) (388) $ (3,769) $ (5,297) Year Ended December 31, 2008 RCP Venture Brandywine Portfolio Crossroads Other Investments Total (dollars in thousands) Statement of Operations Total revenue Operating and other expenses Interest expense $ — — — Equity in earnings of unconsolidated affiliates 177,775 Depreciation and amortization Gain on sale of property, net Net income (loss) Company’s share of net income (loss) Amortization of excess investment — — $ 177,775 $ 16,784 — $ 19,782 6,535 10,130 — 3,799 — (682) (151) — $ $ Company’s share of net income (loss) $ 16,784 $ (151) $ 7,894 3,116 3,461 — 650 — $ 667 $ 326 (391) $ (65) $ 2,781 1,909 542 — 884 6,838 $ 6,284 $ 30,457 11,560 14,133 177,775 5,333 6,838 $ 184,044 $ 3,338 $ 20,297 — (391) $ 3,338 $ 19,906 Year Ended December 31, 2007 RCP Venture Brandywine Portfolio Crossroads Other Investments Total (dollars in thousands) Statement of Operations Total revenue Operating and other expenses Interest expense $ — — — $ 19,449 5,223 10,102 Equity in earnings of unconsolidated affiliates 46,416 Equity in earning of unconsolidated affiliates — — 151,000 — 3,081 $ 197,416 $ 1,043 extraordinary gain Depreciation and amortization Net income (loss) Company’s share of net income $ 3,312 $ 232 Amortization of excess investment Company’s share of net income before extraordinary gain Company’s share of extraordinary gain — — $ 3,312 $ 30,200 $ $ 232 — $ 8,518 3,095 3,485 — — 475 $ 1,463 $ 717 (392) $ 325 $ — $ 6,665 1,793 2,333 — — 4,627 $ (2,088) $ 34,632 10,111 15,920 46,416 151,000 8,183 $ 197,834 $ 2,750 $ 7,011 — (392) $ 2,750 $ 6,619 $ — $ 30,200 Acadia Realty Trust 2009 Annual Report 81 Notes to Consolidated Financial Statements continued Note 5 Notes Receivable and Preferred Equity Investment At December 31, 2009, the Company’s preferred equity the borrower’s ownership interest in the entities that own the properties and/or by the borrower’s personal guarantee. Interest rates on the Company’s preferred equity invest- ment and notes receivable ranged from 10.0% to 22.4% with maturities that range from demand notes to January investment and notes receivable, net aggregated $125.2 2017. Notes receivable and preferred equity investments million, and were collateralized by the underlying properties, are as follows: (dollars in thousands) Description 72nd Street Georgetown A Georgetown B Individually less than 3% Other Loan First Mortgage Loan First Mortgage Loan Total Notes: Effective Final Interest Rate Maturity Date 7/18/2011 11/12/2010 6/27/2010 19.48% 10.19% 13.44% 10.00%– Demand note – 22.43% 14.50% 12.75% 12.29% 1/1/2017 12/30/2010 9/11/2010 12/31/2011 Periodic Payment Terms (1) (3) (2) (2) (3) (2) Prior Liens $ 185,000 8,375 115,454 272,559 Carrying Face Amount Amount of of Mortgages Mortgages $ 40,975 8,000 40,000 15,393 $ 47,000 8,000 40,000 24,390 — — — 8,585 10,000 7,134 8,585 10,000 2,268 $ 145,109 $ 125,221 (1) Principal and interest, including a $7.5 million exit fee, are due upon maturity. (2) Payable upon maturity. (3) Interest only payable monthly, principal due on maturity. During December 2009, the Company has made a loan of of 18 properties located primarily in Georgetown, Wash- $8.6 million which bears interest at 14.5% with a one year ington D.C. The portfolio consists of 306,000 square feet term and one six month extension. of principally retail space. The term of this investment is During December 2009, the Company received a payment of $4.7 million, representing a paydown on the first mort- for two years, with two one-year extensions, and provides a 13% preferred return. gage loan secured by three retail properties, following the During July 2008, the Company made a $34.0 million sale of one of the collateralized properties. mezzanine loan, which is collateralized by a mixed-use During August 2009, the Company received a payment of $2.8 million, representing the entire balance on the first mortgage loan secured by a property in Pennsylvania. retail and residential development at 72nd Street and Broadway on the Upper West Side of Manhattan. Upon completion, this project is expected to include approximately 50,000 square feet of retail on three levels and 196 luxury During August 2009, the Company received a payment of residential rental apartments. The term of the loan is for $5.1 million, representing a paydown on the first mortgage a period of three years, with a one year extension, and is loan secured by a single tenant property located in Long expected to yield in excess of 20%. Island, New York. During September 2008, the Company, through Fund III, During June 2009, the Company received a payment of made a $10.0 million first mortgage loan, which is collater- $0.7 million, representing a paydown on the mezzanine alized by land located on Long Island, New York. The term loan secured by a property in South Carolina. of the loan is for a period of two years, and provides an During March 2009, the Company received a payment of effective annual return of approximately 13%. $0.3 million, representing the entire balance on a mezza- The following table reconciles notes receivable and pre- nine loan secured by a property in South Carolina. ferred equity investments from January 1, 2007 to During June 2008, the Company made a $40.0 million pre- ferred equity investment in an entity that owns a portfolio December 31, 2009: 82 Acadia Realty Trust 2009 Annual Report Years Ended December 31, 2009 2008 2007 The scheduled amortization of acquired lease intangible assets as of December 31, 2009 is as follows: (dollars in thousands) Balance at beginning of period $ 125,587 $ 57,662 $ 36,038 Additions during period: New mortgage loans 9,362 88,480 32,548 Deductions during period: Collections of principal (13,614) (19,923) (11,071) Amortization of premium 5,352 2,368 147 (dollars in thousands) 2010 2011 2012 2013 2014 Thereafter $ 3,648 3,086 2,596 2,011 1,644 9,397 $ 22,382 (1,466) (3,000) — $ 125,221 $ 125,587 $ 57,662 liabilities as of December 31, 2009 is as follows: The scheduled amortization of acquired lease intangible Reserves Balance at close of period Note 6 (dollars in thousands) 2010 2011 2012 2013 2014 Thereafter Deferred Charges Deferred charges consist of the following as of December 31, 2009 and 2008: December 31, 2009 2008 (dollars in thousands) Deferred financing costs $ 22,852 $ 22,750 Deferred leasing and other costs 33,169 22,117 Note 8 $ 991 994 948 730 451 2,639 $ 6,753 56,021 44,867 Accumulated amortization (27,710) (22,968) $ 28,311 $ 21,899 Note 7 Acquired Lease Intangibles Upon acquisitions of real estate, the Company assesses Mortgage Loans At December 31, 2009 and 2008, mortgage notes payable, excluding the net valuation premium on the assumption of debt, aggregated $732.2 million and $653.4 million, respectively, and were collateralized by 28 and 57 proper- ties and related tenant leases, respectively. Interest rates on the Company’s outstanding mortgage indebtedness ranged from 0.72% to 7.18% with maturities that ranged the fair value of acquired assets (including land, buildings from March 2010 to November 2032. Certain loans are and improvements, and identified intangibles such as cross-collateralized and cross-defaulted. The loan agree- above and below market leases, acquired in-place leases ments contain customary representations, covenants and and customer relationships) and acquired liabilities in events of default. Certain loan agreements require the accordance with ASC Topic 805. The intangibles are Company to comply with affirmative and negative covenants, amortized over the remaining non-cancelable terms of including the maintenance of debt service coverage and the respective leases. leverage ratios. Acadia Realty Trust 2009 Annual Report 83 Notes to Consolidated Financial Statements continued The following reflects mortgage loan activity for the year vi) closed on a $4.8 million loan that bears interest at ended December 31, 2009: a fixed rate of 6.35% and matures on July 1, 2014, i) borrowed $20.3 million on three existing construc- vii) paid off $1.1 million of principal on an outstanding loan, tion loans, viii) closed on a $45.0 million note that bears interest ii) paid off $4.8 million of self-amortizing debt, at a floating rate of LIBOR plus 400 basis points iii) closed on a $19.0 million loan that bears interest at a floating rate of LIBOR plus 150 basis points and matures on January 15, 2010. The proceeds of the loan were used to repay a maturing loan of $19.0 million, iv) extended a credit facility, with a balance of $53.7 million, to March 1, 2010 and adjusted the interest and matures on July 29, 2012 with two one-year extension options. The loan provides for a future advance of up to $2.0 million to finance tenant improvements and leasing commissions incurred in leasing the property, ix) paid off the outstanding balance of $33.7 million on a loan that had matured, rate spread over LIBOR from 100 basis points to x) paid off the outstanding balance of $4.8 million 250 basis points, on a loan that had matured, and v) extended a $11.4 million note that was to mature xi) paid off the balance of $19.0 million on an on May 18, 2009 to July 18, 2009. On July 18, 2009 outstanding loan. this note was paid down by $0.9 million and extended to July 19, 2010 at an interest rate of LIBOR plus 325 basis points with a one year extension option, The following table sets forth certain information pertain- ing to the Company’s secured credit facilities: (dollars in thousands) Borrower Total amount of credit facility Amount borrowed as of 12/31/08 2009 net borrowings (repayments) during the year ended 12/31/09 Amount borrowed as of 12/31/09 Letters of credit outstanding as of 12/31/09 Amount available under credit facilities as of 12/31/09 Acadia Realty, LP $ 64,498 $ 48,900 $ (18,900) $ 30,000 Acadia Realty, LP 30,000 — 2,000 2,000 Fund II Fund III Total 53,455 34,681 13,564 48,245 221,000 62,250 77,200 139,450 $ 368,953 $ 145,831 $ 73,864 $ 219,695 $ 9,710 $ 4,000 — 5,210 500 $ 30,498 28,000 — 81,050 $ 139,548 In June 2009, the servicer of two of the Company’s loans requirements for the final draws. The Company does not alleged that non-monetary defaults had occurred on con- believe the loans are in default and will vigorously defend struction loans for $31.7 million and $11.5 million collater- its position and is currently in discussions with the servicer alized by the Pelham Manor Shopping Plaza and Atlantic to resolve these issues. The Company believes that the Avenue, respectively. The servicer contends that the Com- ultimate resolution of this matter will not have a material pany did not substantially complete the improvements in adverse effect on the Company’s financial condition or accordance with the required completion dates as defined results of operations. in the loan agreements and, accordingly, did not meet the 84 Acadia Realty Trust 2009 Annual Report The following table summarizes the Company’s mortgage indebtedness as of December 31, 2009 and December 31, 2008: December 31, 2009 2008 Interest Rate at December 31, 2009 Properties Payment Maturity Encumbered Terms (dollars in thousands) Mortgage notes payable — variable-rate Bank of America, N.A. RBS Greenwich Capital $ 9,467 $ 9,624 1.63% (LIBOR + 1.40%) 30,000 30,000 1.63% (LIBOR + 1.40%) PNC Bank, National Association 10,450 11,423 3.48% (LIBOR + 3.25%) Bank of America, N.A. 14,179 15,526 1.53% (LIBOR + 1.30%) 6/29/12 4/1/10 7/18/10 12/1/11 Anglo Irish Bank Corporation 9,800 9,800 1.88% (LIBOR + 1.65%) 10/30/10 Eurohypo AG 86,000 80,443 Greater of 1.5% + 3.5% or 10/4/11 5.00% (LIBOR + 3.50%) Bank of China Bank of America, N.A. — 19,000 2.29% (LIBOR + 1.85%) 44,878 — 4.23% (LIBOR + 4.00%) 1/15/09 8/1/12 Sub-total mortgage notes payable 204,774 175,816 Secured credit facilities Bank of America, N.A. 30,000 48,900 1.48% (LIBOR + 1.25%) JP Morgan Chase Bank, N.A. 2,000 — 1.48% (LIBOR + 1.25%) Bank of America, N.A./Bank of New York 48,245 34,681 2.73% (LIBOR + 2.50%) 12/1/10 3/29/10 3/1/10 Bank of America, N.A 139,450 62,250 0.72% (Base rate + 0.50%) 10/9/11 Sub-total secured credit facilities 219,695 145,831 Interest rate swaps (43) Total variable-rate debt (83,416) (73,415) 341,053 248,232 Mortgage notes payable – fixed-rate RBS Greenwich Capital RBS Greenwich Capital RBS Greenwich Capital Bear Stearns Commercial Bear Stearns Commercial American United Life Insurance Company J.P. Morgan Chase Column Financial, Inc. 14,343 14,554 17,600 17,600 12,313 12,485 34,600 34,600 20,500 20,500 4,751 8,182 9,481 — 8,322 9,663 Merrill Lynch Mortgage Lending, Inc. 23,500 23,500 Cortlandt Deposit Corp Cortlandt Deposit Corp Bank of America N.A. Bear Stearns Commercial Wachovia Bear Stearns Commercial GEMSA Loan Services, L.P. Wachovia GEMSA Loan Services, L.P. Bear Stearns Commercial Interest rate swaps (43) Total fixed-rate debt Total fixed and variable debt — — 1,150 2,318 25,500 25,500 26,250 26,250 26,000 26,000 31,652 25,284 — 4,944 — 34,322 41,500 41,500 11,543 3,265 83,416 73,415 391,131 405,172 732,184 653,404 Va luation premium, net of amortization (44) 103 139 Total $ 732,287 $ 653,543 See notes on following page. 5.64% 4.98% 5.12% 5.53% 5.44% 6.35% 6.40% 5.45% 6.06% 6.62% 6.51% 5.80% 5.88% 5.42% 7.18% 5.37% 5.86% 5.30% 7.14% 5.35% 9/6/14 9/6/15 11/6/15 1/1/16 3/1/16 7/1/14 11/1/32 6/11/13 10/1/16 2/1/09 1/15/09 10/1/17 8/1/17 2/11/17 1/1/20 12/1/09 6/11/09 3/16/11 1/1/20 (45) (1) (2) (4) (7) (11) (6) (23) (5) (8) (31) (9) (10) (14) (15) (16) (17) (18) (19) (20) (21) (22) (24) (25) (3) (12) (13) (29) (26) (27) (28) (30) (32) (33) (42) (32) (33) (33) (33) (32) (34) (33) (33) (33) (32) (35) (32) (36) (33) (32) (32) (32) (37) (41) (41) (33) (38) (33) (39) (32) (32) (33) (40) Acadia Realty Trust 2009 Annual Report 85 Notes to Consolidated Financial Statements continued Notes: (14) New Loudon Center (36) Interest only monthly until 1/10; monthly (1) Village Commons Shopping Center (15) Crescent Plaza (2) 161st Street (3) 216th Street (4) Liberty Avenue (16) Pacesetter Park Shopping Center (17) Elmwood Park Shopping Center (18) Gateway Shopping Center (5) Cortlandt Towne Center (19) Clark Diversey (6) Fordham Place (7) Branch Shopping Center (8) Line of credit secured by the following properties: Marketplace of Absecon Bloomfield Town Square Hobson West Plaza Town Line Plaza Methuen Shopping Center Abington Towne Center (9) Acadia Strategic Opportunity Fund II, LLC line of credit secured by unfunded investor capital commitments (10) Acadia Strategic Opportunity Fund III, LLC line of credit secured by unfunded investor capital commitments (11) Tarrytown Center (12) Merrillville Plaza (13) 239 Greenwich Avenue (20) Boonton Shopping Center (21) Chestnut Hill (22) Walnut Hill (23) Sherman Avenue (24) Kroger Portfolio (25) Safeway Portfolio (26) Acadia Suffern (27) Acadia Storage Company, LLC (28) Acadia Storage Post Portfolio Co., LLC (29) Pelham Manor (30) Atlantic Avenue (31) Line of credit secured by Ledgewood Mall (32) Monthly principal and interest. (33) Interest only monthly. (34) Annual principal and monthly interest. (35) Interest only monthly until 9/10; monthly principal and interest thereafter. principal and interest thereafter. (37) Interest only monthly until 10/11; monthly principal and interest thereafter. (38) Interest only monthly until 7/12; monthly principal and interest thereafter. (39) Interest only monthly until 1/13; monthly principal and interest thereafter. (40) Interest only monthly until 1/15; monthly principal and interest thereafter (41) Annual principal and semi-annual interest payments. (42) Interest only upon drawdown on construction loan. (43) Maturing between 1/1/10 and 11/30/12. (44) In connection with the assumption of debt in accordance with the requirements of ASC Topic 805, the Company has recorded valuation premium that is being amortized to interest expense over the remaining terms of the underlying mort- gage loans. (45) Represents the amount of the Company’s variable-rate debt that has been fixed through certain cash flow hedge trans- actions (Note 20). The scheduled principal repayments of all indebtedness be adjusted under certain circumstances, including the including Convertible Notes as of December 31, 2009 are payment of cash dividends in excess of the regular quar- as follows (does not include $103 net valuation premium terly cash dividend in place at the time the Convertible Notes on assumption of debt): (dollars in thousands) 2010 2011 2012 2013 2014 Thereafter Note 9 $ 132,620 331,047 55,379 11,692 20,117 229,239 $ 780,094 Convertible Notes Payable In December 2006 and January 2007, the Company issued a total of $115.0 million in principal of convertible notes with a fixed interest rate of 3.75% due 2026 (the “Convertible Notes”). The Convertible Notes were issued at par and require interest payments semi-annually in arrears on June 15th and December 15th of each year. The Convertible Notes are unsecured unsubordinated obligations and rank equally with all other unsecured and unsubordinated indebtedness. The Convertible Notes had an initial conver- sion price of $30.86 per share. The conversion rate may were issued. As of December 31, 2009, the adjusted con- version price is $29.26. Upon conversion of the Convertible Notes, the Company will deliver cash and, in some circum- stances, Common Shares, as specified in the indenture relating to the Convertible Notes. In general, the Convert- ible Notes may only be converted prior to maturity during any calendar quarter beginning after December 31, 2006 if the Company’s Common Shares trade at 130% of the conversion price for at least 20 days within a consecutive 30 day trading period. Prior to December 20, 2011, the Company will not have the right to redeem Convertible Notes, except to preserve its status as a REIT. After December 20, 2011, the Company will have the right to redeem the notes, in whole or in part, at any time and from time to time, for cash equal to 100% of the principal amount of the notes plus any accrued and unpaid interest to, but not including, the redemption date. The Holders of notes may require the Company to repurchase their notes, in whole or in part, on December 20, 2011, December 15, 2016, and December 15, 2021 for cash equal to 100% of the principal amount of the notes to be repurchased plus any accrued and unpaid interest to, but not including, the repurchase date. 86 Acadia Realty Trust 2009 Annual Report In general, upon a conversion of notes, the Company will Derivative Instruments — The Company’s derivative finan- deliver cash and, at the Company’s election, its Common cial liabilities primarily represent interest rate swaps and a Shares, with an aggregate value, which the Company cap and are valued using Level 2 inputs. The fair value of refers to as the “conversion value,” equal to the conver- these instruments is based upon the estimated amounts sion rate multiplied by the average price of the Company’s the Company would receive to sell an asset or pay to Common Shares. The net amount may be paid, at the transfer a liability in an orderly transaction between market Company’s option, in cash, its Common Shares or a com- participants at the reporting date and is determined using bination of cash and its Common Shares. interest rate market pricing models. With the adoption During 2009 and 2008, the Company purchased $57.0 million and $8.0 million in face amount, respectively, of its convertible debt at an average discount of approximately 19%. The transactions resulted in a gain on debt extinguish- ment of $7.1 million and $1.5 million for the years ended December 31, 2009 and 2008, respectively. The outstanding Convertible Note face amount as of December 31, 2009 ASC Topic 820, the Company has amended the techniques used in measuring the fair value of its derivative positions. This amendment includes the impact of credit valuation adjustments on derivatives measured at fair value. The implementation of this amendment did not have a material impact on the Company’s consolidated financial position or results of operations. and 2008 was $50.0 million and $107.0 million, respectively. The following table presents the Company’s liabilities mea- sured at fair value based on level of inputs at December Note 10 31, 2009: Fair Value Measurements ASC Topic 820 “Fair Value Measurements and Disclosures” defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. ASC Topic 820’s valuation techniques are based on observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair value hierarchy: (cid:174) Level 1: Quoted prices for identical instruments in active markets (dollars in thousands) Level 1 Level 2 Level 3 Liabilities Derivatives $ — $ 3,256 $ — Total liabilities measured at fair value $ — $ 3,256 $ — Note 11 Shareholders’ Equity and Noncontrolling Interests Common Shares During the first quarter of 2009, 107,331 employee Restricted Shares were cancelled to pay the employees’ income taxes due on the value of the portion of the Restricted Shares that vested. During the year ended December 31, 2009, the (cid:174) Level 2: Quoted prices for similar instruments in active Company recognized accrued Common Share and Common markets; quoted prices for identical or similar instruments OP Unit-based compensation totaling $3.7 million in connec- in markets that are not active; and model-derived valua- tion with the vesting of Restricted Shares and Units (Note 15). tions in which significant value drivers are observable During April 2009, the Company issued 5.75 million Com- (cid:174) Level 3: Valuations derived from valuation techniques in mon Shares and generated net proceeds of approximately which significant value drivers are unobservable $65.2 million. The following describes the valuation methodologies the On October 29, 2009, Kenneth Bernstein, President and Company uses to measure financial assets and liabilities CEO, exercised 250,000 Options and received 81,897 at fair value: Common Shares after using shares to pay income tax and exercise price. Acadia Realty Trust 2009 Annual Report 87 Notes to Consolidated Financial Statements continued Noncontrolling Interests The following table summarizes the change in the noncontrolling interests since December 31, 2008: Noncontrolling Interests in Operating Partnership Noncontrolling Interests in Partially-Owned Affiliates (dollars in thousands) Balance at December 31, 2008 Distributions declared of $0.75 per Common OP Unit Net income for the period January 1 through December 31, 2009 Conversion of 15,666 Preferred OP Units Other comprehensive income — unrealized loss on valuation of swap agreements Reclassification of realized interest expense on swap agreements Noncontrolling Interest contributions Noncontrolling Interest distributions Employee Long-term Incentive Plan Unit Awards Balance at December 31, 2009 $ 5,667 (795) 465 (90) 40 (1) — — 890 $6,176 $ 208,839 — (18,892) — 279 (139) 25,653 (1,624) — $ 214,116 Noncontrolling interest in the Operating Partnership repre- December 31, 2008, 696 Series A Preferred OP Units were sents (i) the limited partners’ 626,606 and 642,272 Common converted into 92,800 Common OP Units and then into OP Units at December 31, 2009 and 2008, (ii) 188 Series Common Shares. The 188 remaining Series A Preferred A Preferred OP Units at both December 31, 2009 and 2008, OP Units are currently convertible into Common OP Units with a stated value of $1,000 per unit, which are entitled based on the stated value divided by $7.50. Either the to a preferred quarterly distribution of the greater of (a) Company or the holders can currently call for the conver- $22.50 (9% annually) per Series A Preferred OP Unit or sion of the Series A Preferred OP Units at the lesser of (b) the quarterly distribution attributable to a Series A $7.50 or the market price of the Common Shares as of Preferred OP Unit if such unit were converted into a the conversion date. Common OP Unit, and (iii) 393,909 and 186,951 LTIP units as of December 31, 2009 and December 31, 2008 respec- Note 12 tively, as discussed in Share Incentive Plan (Note 15). Noncontrolling interests in partially-owned affiliates include Related Party Transactions During 2007, Klaff converted 4,000 Series B Preferred OP third-party interests in Fund I, II and III, and Mervyns I and II units into 312,013 Common Shares (Note 11). and three other entities. The Company earns asset management, leasing, disposi- In 2004 and 2005, the Company issued 4,000 Series B tion, development and construction fees for providing Preferred OP Units and 250,000 Restricted Common OP services to an existing portfolio of retail properties and/or Units, respectively, to Klaff in consideration for interest in leasehold interests in which Klaff has an interest. Fees certain management contract rights. The Preferred OP earned by the Company in connection with this portfolio Units were convertible into Common OP Units based on were $0.4 million, $0.8 million and $2.1 million for the years the stated value of $1,000 divided by $12.82 at any time. ended December 31, 2009, 2008 and 2007, respectively. The Restricted Common OP Units are convertible into the Company’s Common Shares on a one-for-one basis after a five-year lock-up period. During 2007, Klaff converted all 4,000 Series B Preferred Units into 312,013 Common OP Units and ultimately into Common Shares. The Company earns fees from two of its investments in unconsolidated partnerships (Note 4). The Company earned property management, construction, legal and leasing fees from the Brandywine Portfolio totaling $0.7 million, $1.1 million and $1.7 million for the years ended December 31, The Series A Preferred OP Units were issued in 1999 in 2009, 2008 and 2007, respectively. In addition, the Com- connection with the acquisition of a property. Through pany earned property management and development fees 88 Acadia Realty Trust 2009 Annual Report from CityPoint totaling $1.0 million and $0.2 million for the (dollars in thousands) years ended December 31, 2008 and 2007, respectively. Lee Wielansky, the Lead Trustee of the Company, was paid a consulting fee of $0.1 million for each of the years ended December 31, 2009, 2008, and 2007. Note 13 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-cancel- able leases for shopping centers and other retail properties as of December 31, 2009 are summarized as follows: (dollars in thousands) 2010 2011 2012 2013 2014 Thereafter $ 95,778 84,952 78,014 70,807 61,606 471,436 $ 862,593 During the years ended December 31, 2009, 2008 and 2007, no single tenant collectively accounted for more than 10% of the Company’s total revenues. Note 14 Lease Obligations The Company leases land at six of its shopping centers, 2010 2011 2012 2013 2014 Thereafter Note 15 $ 4,827 4,864 4,932 5,009 5,012 86,958 $ 111,602 Share Incentive Plan During 2003, the Company adopted the 2003 Share Incen- tive Plan (the “2003 Plan”). The 2003 Plan authorizes the issuance of options, share appreciation rights, restricted shares (“Restricted Shares”), restricted OP Units (“LTIP Units”) and performance units (collectively, “Awards”) to officers, employees and trustees of the Company and consultants to the Company equal to up to four percent of the total Common Shares of the Company outstanding from time to time on a fully diluted basis. However, no participant may receive more than the equivalent of 1,000,000 Common Shares during the term of the 2003 Plan with respect to Awards. Options are granted by the Compensation Committee (the “Committee”), which currently consists of three non-employee Trustees, and will not have an exercise price less than 100% of the fair market value of the Common Shares and a term of greater than ten years at the grant date. Vesting of options is at the discretion of the Committee. Share appreciation rights provide for the participant to receive, upon exercise, cash and/or Common Shares, at the discretion of the Committee, equal to the excess of the market value of the Common Shares at the exercise date over the market value of the which are accounted for as operating leases and generally Common Shares at the grant date. The Committee deter- provide the Company with renewal options. Ground rent mines the restrictions placed on Awards, including the expense was $2.7 million, $2.4 million, and $3.8 million dividends or distributions thereon and the term of such (including capitalized ground rent at properties under restrictions. The Committee also determines the award development of $0.6 million, $1.1 million and $2.7 million) and vesting of performance units and performance shares for the years ended December 31, 2009, 2008 and 2007, based on the attainment of specified performance objectives respectively. The leases terminate at various dates between of the Company within a specified performance period. 2017 and 2066. These leases provide the Company with Through December 31, 2009, no share appreciation rights options to renew for additional terms aggregating from 20 or performance units/shares had been awarded. to 60 years. The Company leases space for its White Plains corporate office for a term expiring in 2015. Office rent expense under this lease was $1.5 million, $1.2 million and $0.8 million for the years ended December 31, 2009, 2008 and 2007, respectively. Future minimum rental payments required for leases having remaining non-cancelable lease terms are as follows: During 2006, the Company adopted the 2006 Share Incen- tive Plan (the “2006 Plan”). The 2006 Plan is substantially similar to the 2003 Plan, except that the maximum number of Common Share equivalents that the Company may issue pursuant to the 2006 Plan is 500,000. Acadia Realty Trust 2009 Annual Report 89 Notes to Consolidated Financial Statements continued On March 5, 2009, the Company issued 8,612 Restricted with Trustee fees. In addition, on May 28, 2009, the Com- Shares and 200,574 LTIP Units to officers of the Company. pany issued an additional 1,299 unrestricted Common Shares Vesting with respect to these awards is recognized ratably to the Lead Trustee of the Company in connection with over the next five annual anniversaries of the issuance date. the Lead Trustee fee. The Company also issued 10,000 The vesting on 39% of these awards is also generally Restricted Shares to Trustees, which vest over three years subject to achieving certain total shareholder returns on with 33% vesting on each of the next three anniversaries the Company’s Common Shares or certain Company per- of the issuance date. The Restricted Shares do not carry formance measures. LTIP Units are similar to Restricted voting rights or other rights of Common Shares until vest- Shares but provide for a quarterly partnership distribution ing and may not be transferred, assigned or pledged until in a like amount as paid to Common OP Units. This distri- the recipients have a vested non-forfeitable right to such bution is paid on both unvested and vested LTIP Units. shares. Dividends are not paid currently on unvested The LTIP Units are convertible into Common OP Units and Restricted Shares, but are paid cumulatively, from the Common Shares upon vesting and a revaluation of the issuance date through the applicable vesting date of such book capital accounts. Also on March 5, 2009 and March 10, 2009, the Company issued a total of 36,347 Restricted Shares and 8,221 LTIP Units to employees of the Company, other than Restricted Shares vesting. Trustee fee expense of $0.2 million for the year ended December 31, 2009 has been recognized in the accompanying consolidated financial statements related to this issuance. the Company’s officers. Vesting with respect to these During 2009, the Company adopted the Long Term awards is recognized ratably over the next five annual Investment Alignment Program (the “Program”) pursuant anniversaries of the issuance date. In addition, the vest- to which the Company may award units for up to 25% of ing on 1,196 Restricted Shares and 6,258 LTIP Units its Fund III Promote to senior executives when and if such vest 25% subject to achieving certain total shareholder Promote is ultimately realized. As of December 31, 2009, returns on the Company’s Common Shares or certain the Company has awarded units representing 60% of the Company performance measures. Program, which were determined to have no value at The total value of the above Restricted Shares and LTIP Units issued was $2.6 million. The weighted average fair value for Restricted Shares and LTIP Units granted for the years ended December 31, 2009, 2008 and 2007 were $10.31, $24.51 and $24.91, respectively. For the years ended December 31, 2009, 2008 and 2007, $3.7 million, $3.5 million and $3.3 million, respectively, were recognized in compensation expense related to Restricted Share and LTIP Unit grants. issuance. In accordance with ASC Topic 718 “Compen- sation — Stock Compensation” (formerly SFAS No. 123R, “Share-Based Payments”) compensation relating to these awards will be recorded based on the change in the esti- mated fair value at each reporting period. As of December 31, 2009, the Company had 101,283 options outstanding to officers and employees of which all have vested. These options are for ten-year terms from the grant date and vested in three equal annual installments, which began on the grant date. In addition, 58,000 options On May 13, 2009, the Company issued 5,435 unrestricted have been issued, of which all have vested, to non-employee Common Shares to Trustees of the Company in connection Trustees as of December 31, 2009. A summary of option activity under all option arrangements as of December 31, 2009, and changes during the year then ended is presented below: Options Outstanding at January 1, 2009 Granted Exercised Forfeited or Expired Outstanding and exercisable at December 31, 2009 90 Acadia Realty Trust 2009 Annual Report Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (dollars in thousands) Shares 421,244 — (258,900) (3,061) $ 10.65 — 5.99 19.67 159,283 $ 18.04 — — — — 5.5 — — — — $ — The total intrinsic value of options exercised during the A summary of the status of the Company’s unvested years ended December 31, 2009, 2008 and 2007 was Restricted Shares and LTIP Units as of December 31, $2.8 million, $0.8 million and $0.3 million, respectively. 2009 and changes during the year ended December 31, Unvested Shares and LTIP Units Restricted Shares Unvested at January 1, 2009 Granted Vested Forfeited 487,434 54,960 (249,825) (20,057) Unvested at December 31, 2009 272,512 2009, is presented below: Weighted Grant-Date Fair Value $ 21.37 10.95 20.07 17.35 $ 20.76 LTIP Units 181,350 208,796 (25,472) (1,841) 362,833 Weighted Grant-Date Fair Value $ 24.55 10.30 24.60 24.61 $ 16.35 As of December 31, 2009, there was $6.6 million of total Common Shares (“Share Units”) that otherwise would unrecognized compensation cost related to unvested share- have been issued upon the exercise of certain options. In based compensation arrangements granted under share January 2009, these Share Units were converted to 190,487 incentive plans. That cost is expected to be recognized Common Shares and issued to the recipients and 83,433 over a weighted-average period of 1.7 years. The total fair of these Common Shares were cancelled to pay for the value of Restricted Shares that vested during the years participants income taxes. ended December 31, 2009, 2008 and 2007 was $5.0 million, $2.7 million and $1.6 million, respectively. Note 16 Employee Share Purchase and Deferred Share Plan The Acadia Realty Trust Employee Share Purchase Plan (the “Purchase Plan”), allows eligible employees of the Company to purchase Common Shares through payroll deductions. The Purchase Plan provides for employees to purchase 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. A participant may not purchase more than $25,000 in Common Shares per year. Compensation expense will be recognized by the Company to the extent of the above discount to the closing price of the Common Shares with respect to the applicable quarter. During 2009, 2008 and 2007, 8,744, 7,499, and 7,123 Common Shares, respectively, were purchased by employees under the Purchase Plan. Associated compensation expense of $0.02 million was recorded in 2009 and $0.03 million was recorded in 2008 and 2007. During August of 2004, the Company adopted a Deferral and Distribution Election pursuant to the 1999 Share Incentive Plan and 2003 Share Incentive Plan, whereby the participants elected to defer receipt of 190,487 During May of 2006, the Company adopted a Trustee Deferral and Distribution Election (“Trustee Deferral Plan”) whereby the participating Trustees have deferred compen- sation of $0.05 million, $0.4 million and $0.2 million for 2009, 2008 and 2007, respectively. During 2009, certain trustees elected to receive 14,722 Common Shares, which were previously deferred, from the Trustee Deferral Plan. Note 17 Employee 401(k) Plan 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 employee’s annual salary. A plan participant may contribute up to a maximum of 15% of their compensation but not in excess of $16,500 for the year ended December 31, 2009. The Company contributed $0.2 million, $0.3 million and $0.2 million for the years ended December 31, 2009, 2008 and 2007, respectively. Note 18 Dividends and Distributions Payable On December 15, 2009, the Board of Trustees declared a cash dividend for the quarter ended December 31, 2009, of $0.18 per Common Share, which was paid on February 1, 2010 to holders of record as of December 31, 2009. Acadia Realty Trust 2009 Annual Report 91 Notes to Consolidated Financial Statements continued Note 19 Federal Income Taxes The Company has elected to qualify as a REIT in accordance with Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), and intends at all times to qualify as a REIT under the Code. To qualify as a REIT, the Company must meet a number of organiza- tional and operational requirements, including a require- ment that it currently distribute at least 90% of its annual REIT taxable income to its shareholders. As a REIT, the Company generally will not be subject to corporate Federal income tax, provided that distributions to its shareholders equal at least the amount of its REIT taxable income as defined under the Code. As the Company distributed suffi- cient taxable income for the years ended December 31, 2009, 2008 and 2007, no U.S. Federal income or excise taxes were incurred. If the Company fails to qualify as a REIT in any taxable year, it will be subject to Federal income taxes at the regular corporate rates (including any applica- ble alternative minimum tax) and may not be able to qualify as a REIT for the four subsequent taxable years. Even though the Company qualifies for taxation as a REIT, the Company is subject to certain state and local taxes on its income and property and Federal income and excise taxes on any undistributed taxable income. In addition, taxable income from non-REIT activities managed through the Company’s Taxable REIT Subsidiary (“TRS”) is subject to Federal, state and local income taxes. The difference between the GAAP and tax reported amounts of the Company’s assets and liabilities is due largely to the higher GAAP basis in the Company’s real estate properties. This variance is primarily the result of assets acquired as a result of property contributions in exchange for OP Units and the utilization of Code Section 1031 tax-deferred exchanges. Reconciliation between GAAP net income and Federal taxable income The following unaudited table reconciles GAAP net income to taxable income for the years ended December 31, 2009, 2008 and 2007: (dollars in thousands) Net income (1) Net income attributable to TRS Net income attributable to REIT GAAP to tax difference related to: Depreciation and amortization (2) Exercise of stock options and vesting of Restricted Shares Property dispositions (3) Reserves and impairment loss (4) Gain on repurchase of Convertible Notes (5) Differences pursuant to ASC Topic 805 “Business Combinations” (6) Convertible Notes (1) Other GAAP/tax differences, net 2009 (Estimated) 2008 (Actual) 2007 (Actual) $ 31,133 $ 25,068 946 1,155 30,187 23,913 2,383 (2,373) (2,577) 1,700 (7,057) 1,300 1,280 (1,214) 81 11,960 6,779 — 1,221 2,536 537 (1,602) $ 25,346 2,514 22,832 4,155 (689) 8,300 (138) — 1,610 — 919 REIT taxable income before dividends paid deduction $ 25,380 $ 43,674 $ 36,989 Notes: (1) Net income for 2007 and 2008 has been restated pursuant to ASC Topic 470-20, which reclassified a portion of the interest expense on the Company’s convertible debt as equity distributions. This restatement has no impact on the Company’s taxable income. (2) Includes one-time deduction of $4,907 in 2008, resulting from reclassification of certain fixed assets for income tax purposes. (3) 2009 difference due to higher tax basis on sold properties (net of noncontrolling interests). In 2007 and 2008, principally the result of the deferral of the gain from the sale of properties for income tax purposes. Also affected by special tax allocations pursuant to Code Section 704(c). (4) 2009 impairment loss of $1,700 (net of noncontrolling interest and deduction of 2008 impairment of $4,286) not recognized for tax. 2008 impairment loss includes 100% of mezzanine loans (principal and accrued interest) for redevelopment of the retail complexes associated with seven public rest stops along the toll roads in and around Chicago, Illinois. Deducted for income tax purposes in 2009. Includes difference between bad debt allowance and bad debts deducted for income tax purposes. (5) Recognition of the taxable gain has been deferred for five years pursuant to Code Section 108(i). (6) Formerly SFAS No. 141R “Business Combinations.” 92 Acadia Realty Trust 2009 Annual Report Characterization of Distributions The Company has determined that the cash distributed to the shareholders is characterized as follows for Federal Note 20 Financial Instruments income tax purposes: Ordinary income Capital gain Years Ended December 31, 2009 2008 2007 95% 5% 54% 46% 51% 49% 100% 100% 100% Taxable REIT Subsidiaries (“TRS”) Income taxes have been provided for using the liability method as required by ASC Topic 740 “Income Taxes” Fair Value of Financial Instruments: ASC Topic 825 “Financial Instruments” requires disclosure on the fair value of financial instruments. Certain of the Company’s assets and liabilities are considered financial instruments. Fair value estimates, methods and assump- tions are set forth below. Cash and Cash Equivalents, Restricted Cash, Cash in Escrow, Rents Receivable, Prepaid Expenses, Other Assets, Accounts Payable and Accrued Expenses, Dividends and Distributions Payable, and Other Liabilities — The carry- (formerly SFAS No. 109). The Company’s TRS income and ing amount of these assets and liabilities approximates fair provision for income taxes for the years ended December value due to the short-term nature of such accounts. 31, 2009, 2008 and 2007 are summarized as follows: 2009 2008 (Estimated) (Actual) 2007 (Actual) (dollars in thousands) TRS income before income taxes $ 2,263 $ 4,359 $ 5,077 Provision for income taxes: Federal State and local 1,025 292 2,441 763 2,097 466 Notes Receivable and Preferred Equity Investments — As of December 31, 2009 and 2008, the Company has determined the estimated fair values of its preferred equity investments and notes receivable were $126.4 million and $122.3 million, respectively, by discounting future cash receipts utilizing a discount rate equivalent to the rate at which similar notes receivable would be originated at the reporting date. TRS net income $ 946 $ 1,155 $ 2,514 Derivative Instruments — The fair value of these instru- $ 908 $ 1,996 $ 1,726 141 277 255 were $751.0 million and $731.8 million, respectively, by The income tax provision differs from the amount com- puted by applying the statutory federal income tax rate to income before income taxes as follows (not adjusted for temporary book/tax differences): 2009 2008 2007 (dollars in thousands) Federal provision at statutory tax rate State and local taxes, net of federal benefit Tax effect of: Change in estimate 268 931 582 REIT state and local income and franchise taxes 224 158 90 Total provision for income taxes $ 1,541 $ 3,362 $ 2,653 ments is based upon the estimated amounts the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the reporting date and is determined using interest rate market pricing models. Mortgage Notes Payable and Notes Payable — As of December 31, 2009 and 2008, the Company has deter- mined the estimated fair values of its mortgage notes payable, including those relating to discontinued operations, discounting future cash payments utilizing a discount rate equivalent to the rate at which similar mortgage notes payable would be originated at the reporting date. ASC Topic 815 “Derivative and Hedging,” as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain Acadia Realty Trust 2009 Annual Report 93 Notes to Consolidated Financial Statements continued derivative instruments embedded in other contracts, and directly in earnings. The Company assesses the effective- for hedging activities. As required by ASC Topic 815, the ness of each hedging relationship by comparing the changes Company records all derivatives on the balance sheet at in fair value or cash flows of the derivative hedging instru- fair value. The accounting for changes in the fair value of ment with the changes in fair value or cash flows of the derivatives depends on the intended use of the derivative designated hedged item or transaction. For derivatives not and the resulting designation. Derivatives used to hedge designated as hedges, changes in fair value are recognized the exposure to changes in the fair value of an asset, lia- in earnings. bility, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. As of December 31, 2009 and 2008, no derivatives were designated as fair value hedges or hedges of net invest- ments in foreign operations. Additionally, the Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not For derivatives designated as fair value hedges, changes in designated as hedges. As of December 31, 2009, none the fair value of the derivative and the hedged item related of the Company’s hedges were ineffective. to the hedged risk are recognized in earnings. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized Derivative Financial Instruments: The following table summarizes the notional values and fair values of the Company’s derivative financial instruments as of December 31, 2009. The notional value does not repre- sent exposure to credit, interest rate or market risks: Hedge Type Notional Value Rate Maturity Fair Value (dollars in thousands) Interest Rate Swaps LIBOR Swap LIBOR Swap LIBOR Swap LIBOR Swap LIBOR Swap LIBOR Swap LIBOR Swap LIBOR Swap Interest rate swaps Interest Rate LIBOR Cap $ 4,390 10,741 8,035 9,800 15,000 15,000 10,000 10,450 $ 83,416 $ 30,000 4.71% 4.90% 5.14% 4.47% 3.79% 3.41% 2.65% 0.90% 1/1/10 10/1/11 3/1/12 10/29/10 11/30/12 11/30/12 11/30/12 7/19/10 6.00% 4/1/10 Net Derivative instrument liability The above derivative instruments have been designated as Note 21 $ (2) (674) (607) (319) (783) (628) (211) (32) (3,256) — $ (3,256) cash flow hedges and hedge the future cash outflows on mortgage debt. Such instruments are reported at the fair values reflected above. As of December 31, 2009 and 2008, unrealized losses totaling $3.3 million and $4.9 million, respectively were reflected in accumulated other compre- hensive loss. It is estimated that approximately $2.3 million included in accumulated other comprehensive income related to derivatives will be reclassified to interest expense in the 2010 results of operations. 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 Common Shares outstanding during each year consistent with ASC Topic 260, “Earnings Per Share.” 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 94 Acadia Realty Trust 2009 Annual Report issuance of Common Shares that then shared in the earn- resulted in the issuance of approximately 1.3 million addi- ings of the Company. In accordance with GAAP, all Com- tional Common Shares. The following table sets forth the mon Shares used to calculate EPS have been adjusted to computation of basic and diluted earnings per share from reflect a special dividend paid on January 30, 2009, which continuing operations for the periods indicated: (dollars in thousands, except per share amounts) Numerator: Income from continuing operations attributable to Common Shareholders Effect of dilutive securities: Preferred OP Unit distributions Years Ended December 31, 2009 2008 2007 $ 28,599 $ 17,127 $ 15,029 19 — 23 Numerator for diluted earnings per Common Share 28,618 17,127 15,052 Denominator: Weighted average shares for basic earnings per share 38,005 33,813 33,600 Effect of dilutive securities: Employee share options Convertible Preferred OP Units Di lutive potential Common Shares 212 25 237 454 — 454 616 66 682 De nominator for diluted earnings per share 38,242 34,267 34,282 Basic earnings per Common Share from continuing operations attributable to Common Shareholders $ 0.75 $ 0.51 $ 0.45 Diluted earnings per Common Share from continuing operations attributable to Common Shareholders $ 0.75 $ 0.50 $ 0.44 The weighted average shares used in the computation diluted earnings per share. The conversion of the convertible of basic earnings per share include unvested Restricted notes payable (Note 9) is not reflected in the table above Shares and LTIP Units (Note 15) that are entitled to receive as such conversion based on the market price of the Com- dividend equivalent payments. The effect of the conver- mon Shares would be effected with only cash. The effect sion of Common OP Units is not reflected in the above of the assumed conversion of 25,067 Series A Preferred table, as they are exchangeable for Common Shares on OP Units for the year ended December 31, 2009 would a one-for-one basis. The income allocable to such units is be dilutive and they are included in the table. The effect of allocated on this same basis and reflected as noncontrol- the assumed conversion of 25,067 Series A Preferred OP ling interest in the accompanying consolidated financial Units and 41,696 Series B Preferred OP Units for the year statements. As such, the assumed conversion of these ended December 31, 2007 would be dilutive and they are units would have no net impact on the determination of included in the table. Acadia Realty Trust 2009 Annual Report 95 Notes to Consolidated Financial Statements continued Note 22 Summary of Quarterly Financial Information (unaudited) The quarterly results of operations of the Company for the years ended December 31, 2009 and 2008 are as follows: 2009 (dollars in thousands, except per share amounts) Revenue March 31 $ 35,018 June 30 $ 35,226 September 30 December 31 $ 39,055 $ 38,046 Income from continuing operations attributable to Common Shareholders $ 9,352 $ 7,117 $ 7,276 $ 4,854 Income from discontinued operations attributable to Common Shareholders Net income attributable to Common Shareholders Net income attributable to Common Shareholders per Common Share — basic: Income from continuing operations Income from discontinued operations Net income Net income attributable to Common Shareholders 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: $ 947 $ 10,299 $ 18 $ 7,135 $ 31 $ 7,307 $ 1,538 $ 6,392 $ 0.27 0.03 $ 0.30 $ 0.27 0.03 $ 0.30 $ 0.21 $ 0.18 $ 0.18 $ 0.12 — — 0.04 $ 0.18 $ 0.18 $ 0.16 $ 0.18 $ 0.18 $ 0.12 — $ 0.18 $ 0.18 — $ 0.18 $ 0.18 0.04 $ 0.16 $ 0.18 Basic Diluted 33,902,958 34,050,446 38,592,289 38,804,108 39,685,623 39,967,714 39,756,060 40,037,555 (dollars in thousands, except per share amounts) Revenue March 31 $ 27,928 June 30 $ 51,549 September 30 December 31 $ 28,089 $ 30,370 Income (loss) from continuing operations attributable to Common Shareholders $ 7,652 $ 10,222 $ 4,417 $ (5,164) Income from discontinued operations attributable to Common Shareholders $ 586 Net income (loss) attritubale to Common Shareholders $ 8,238 $ 7,176 $ 17,398 $ 49 $ 4,466 $ 130 $ (5,034) 2008 Net income attributable to Common Shareholders per Common Share — basic: Income (loss) from continuing operations Income from discontinued operations Net income (loss) Net income attributable to Common Shareholders per Common Share — diluted: Income (loss) from continuing operations Income from discontinued operations Net income (loss) Cash dividends declared per Common Share Weighted average Common Shares outstanding: $ 0.23 0.01 $ 0.24 $ 0.23 0.01 $ 0.24 $ 0.21 $ 0.30 0.21 $ 0.51 $ 0.30 0.21 $ 0.51 $ 0.21 $ 0.13 $ (0.15) — — $ 0.13 $ (0.15) $ 0.13 $ (0.15) — $ 0.13 $ 0.21 — $ (0.15) $ 0.76 Basic Diluted 33,747,797 34,244,449 33,806,747 34,376,530 33,845,368 34,366,022 33,850,271 33,850,271 96 Acadia Realty Trust 2009 Annual Report Note 23 Commitments and Contingencies Under various Federal, state and local laws, ordinances and regulations relating to the protection of the environ- ment, 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 discharged from, on, at, under, or in a property. As such, the Company may be potentially liable for costs associated with any potential environmental remediation at any of its formerly or cur- rently 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 envi- ronmental 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 II assessment is so recommended, a Phase II assessment is conducted to further determine the extent of possible environmental 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 environmental insurance for most of its prop- erties, which covers only unknown environmental risks. The Company believes that it is in compliance in all mate- rial respects with all Federal, state and local ordinances and regulations regarding hazardous or toxic substances. Management is not aware of any environmental liability that it believes would have a material adverse impact on the Company’s financial position or results of operations. Management is unaware of any instances in which the Company would incur significant environmental costs if any or all properties were sold, disposed of or abandoned. However, there can be no assurance that any such non- Company 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 signifi- cant effect on the Company’s consolidated financial posi- tion or results of operations. In September 2008, the Company, certain of its subsidiaries, and other unrelated entities were named as defendants in an adversary proceeding brought by Mervyn’s LLC (“Mervyns”) in the United States Bankruptcy Court for the District of Delaware. This lawsuit involves five claims alleging fraudulent transfers. The first claim is that, at the time of the sale of Mervyns by Target Corporation to a consortium of investors including Acadia, a transfer of assets was made in an effort to defraud creditors. The Company believes this aspect of the case is without merit. There are four other claims relating to transfers of assets of Mervyns at various times. The Company believes there are substantial defenses to these claims. The matter is in the early stages of discovery and the Company believes the lawsuit will not have a material adverse effect on its results of operations or consolidated financial condition. The Company has arranged for the provision of four sepa- rate letters of credit in connection with certain leases and investments. As of December 31, 2009, there were no outstanding balances under any of the letters of credit. If the letters of credit were fully drawn, the combined maximum amount of exposure would be $9.7 million. Note 24 Subsequent Events The Company has evaluated subsequent events from December 31, 2009 through the time of filing this Form 10-K with the SEC on March 1, 2010. Material subsequent events that have occurred since December 31, 2009 are discussed below. On January 12, 2010, the Company closed on a $48.0 million construction loan on its Canarsie Plaza redevelop- ment project. The loan bears interest equal to the greater of (a) LIBOR plus 4% or (b) an interest rate floor of 6.5% compliance, liability, claim or expenditure will not arise and matures on January 12, 2012. in the future. The Company is involved in various matters of litigation On February 16, 2010, Klaff converted all 250,000 Restricted Common OP Units into 250,000 Common arising in the normal course of business. While the Shares (Note 11). Acadia Realty Trust 2009 Annual Report 97 Schedule III: Real Estate and Accumulated Depreciation December 31, 2009 Encum- brances Land Buildings and Improvements Costs Capitalized Subsequent to Acquisition Land Buildings and Improvements Accumulated Acquisition (a) Total Depreciation Construction (c) Date of $ 17,600 $ 1,147 $ 7,425 $ 1,219 $ 1,147 $ 8,644 $ 9,791 $ 5,581 1984(a) Description Shopping Centers Core Portfolio: Crescent Plaza Brockton, MA New Loudon Center 14,343 Latham, NY 505 4,161 10,879 505 15,040 15,545 10,321 1982(a) Ledgewood Mall Ledgewood, NJ Mark Plaza Edwardsville, PA Plaza 422 Lebanon, PA Route 6 Mall Honesdale, PA Bartow Avenue Bronx, NY Amboy Road Shopping Ctr. Staten Island, NY Abington Towne Center1 Abington, PA Bloomfield Town Square1 Bloomfield Hills, MI Walnut Hill Plaza Woonsocket, RI 2,000 619 5,434 33,199 619 38,633 39,252 32,784 1983(a) — — 4,268 4,690 — 8,958 8,958 6,496 1968(c) — 190 3,004 2,189 190 5,193 5,383 3,369 1972(c) — — — 12,696 1,664 11,032 12,696 5,667 1994(c) — 1,691 5,803 560 1,691 6,363 8,054 1,233 2005(c) — — 11,909 1,519 — 13,428 13,428 1,501 2005(a) — 799 3,197 2,007 799 5,204 6,003 2,105 1998(a) — 3,207 13,774 9,570 3,207 23,344 26,551 7,721 1998(a) 23,500 3,122 12,488 1,840 3,122 14,328 17,450 4,555 1998(a) Elmwood Park Plaza 34,600 Elmwood Park, NJ 3,248 12,992 14,764 3,798 27,206 31,004 9,813 1998(a) Merrillville Plaza Hobart, IN Marketplace of Absecon1 Absecon, NJ Clark Diversey Chicago, IL Boonton Boonton, NJ Chestnut Hill Philadelphia, PA Third Avenue Bronx, NY 26,250 4,288 17,152 1,645 4,288 18,797 23,085 5,996 1998(a) — 2,573 10,294 3,416 2,577 13,706 16,283 4,181 1998(a) 4,751 10,061 2,773 9 10,061 2,782 12,843 282 2006(a) 8,182 1,328 7,188 — 1,328 7,188 8,516 704 2006(a) 9,481 8,289 5,691 44 8,289 5,735 14,024 505 2006(a) — 11,108 8,038 1,015 11,855 8,306 20,161 685 2006(a) Hobson West Plaza1 Naperville, IL — 1,793 7,172 1,370 1,793 8,542 10,335 2,599 1998(a) Village Commons Shopping Center Smithtown, NY Town Line Plaza1 Rocky Hill, CT Branch Shopping Center Village of the Branch, NY 9,467 3,229 12,917 2,438 3,229 15,355 18,584 5,131 1998(a) — 878 3,510 7,303 907 10,784 11,691 7,399 1998(a) 14,179 3,156 12,545 777 3,156 13,322 16,478 4,043 1998(a) 98 Acadia Realty Trust 2009 Annual Report December 31, 2009 Description Encum- brances Land Buildings and Improvements Shopping Centers, cont’d Costs Capitalized Subsequent to Acquisition Land Buildings and Improvements Accumulated Acquisition (a) Total Depreciation Construction (c) Date of The Methuen Shopping Center1 Methuen, MA Gateway Shopping Center Burlington, VT Mad River Station Dayton, OH Pacesetter Park Shopping Center Ramapo, NY 239 Greenwich Greenwich, CT West Shore Expressway Staten Island, NY West 54th Street Manhattan, NY Acadia 5-7 East 17th Street Manhattan, NY Fund I: Tarrytown Centre Westchester, NY Granville Center Columbus, OH Kroger/Safeway Various Fund II: Liberty Avenue New York, NY Pelham Manor Westchester, NY 400 East Fordham Road Bronx, NY 4650 Broadway/ Sherman Avenue New York, NY 216th Street New York, NY 161st Street Bronx, NY Oakbrook Oakbrook, IL Atlantic Avenue Brooklyn, NY Canarsie Plaza Brooklyn, NY Pelham Manor Westchester, NY — 956 3,826 594 961 4,415 5,376 1,331 1998(a) 20,500 1,273 5,091 11,536 1,273 16,627 17,900 4,343 1999(a) — 2,350 9,404 693 2,350 10,097 12,447 2,903 1999(a) 12,313 1,475 5,899 1,121 1,475 7,020 8,495 2,348 1999(a) 26,000 1,817 15,846 549 1,817 16,395 18,212 4,428 1998(a) — 3,380 13,554 10 3,380 13,564 16,944 1,041 2007(a) — 16,699 18,704 28 16,699 18,732 35,431 1,281 2007(a) — 3,048 7,281 — 3,048 7,281 10,329 337 2008(a) 9,800 2,323 7,396 359 2,323 7,755 10,078 1,136 2004(a) — 2,186 8,744 59 2,186 8,803 10,989 1,643 2002(a) — — 34,586 — — 34,586 34,586 27,899 2003(a) 10,450 — 12,627 471 — 13,098 13,098 982 2005(a) 31,652 905 — 49,006 9,020 40,891 49,911 1,783 2004(a) 86,000 11,144 18,010 93,559 16,254 106,459 122,713 4,347 2004(a) — — — 32,020 25,267 6,753 32,020 — 2005(a) 25,500 7,261 — 19,224 7,261 19,224 26,485 1,298 2005(a) 30,000 16,679 28,410 4,409 16,679 32,819 49,498 3,111 2005(a) — — 6,906 17 — 6,923 6,923 2,438 2005(a) 11,543 5,322 — 15,007 5,322 15,007 20,329 146 2007(a) — 32,543 — 26,025 32,543 26,025 58,568 — 2007(a) — — 10,161 638 511 10,288 10,799 442 2004(a) ASOF II, LLC 48,245 — — — — — — — Acadia Realty Trust 2009 Annual Report 99 Schedule III: Real Estate and Accumulated Depreciation continued December 31, 2009 Encum- brances Land Buildings and Improvements Costs Capitalized Subsequent to Acquisition Land Buildings and Improvements Accumulated Acquisition (a) Total Depreciation Construction (c Date of — 12,993 4,316 1,687 12,993 6,003 18,996 62 2007(a) — 20,391 — 3,313 20,391 3,313 23,704 — 2007(a) — 4,561 7,484 3 4,561 7,487 12,048 368 2008(a) — 3,515 6,139 10 3,515 6,149 9,664 324 2008(a) — 959 5,506 7 959 5,513 6,472 264 2008(a) — 2,377 9,654 2 2,377 9,656 12,033 480 2008(a) — 10,835 5,936 17 10,835 5,953 16,788 308 2008(a) — 6,977 12,688 — 6,977 12,688 19,665 579 2008(a) — 7,597 22,391 366 7,597 22,757 30,354 1,092 2008(a) — 1,977 4,769 139 1,977 4,908 6,885 233 2008(a) — 3,121 17,457 60 3,121 17,517 20,638 795 2008(a) — 6,244 10,551 25 6,244 10,576 16,820 487 2008(a) — 8,000 — 13,260 8,000 13,260 21,260 187 2008(c) — — — 1,080 — 1,080 1,080 55 2008(a) 44,878 7,293 61,395 — 7,293 61,395 68,688 2,603 2009(a) Description Fund III: 125 Main Street Association Westport, CT Sheepshead Bay Brooklyn, NY Suffern Self Storage Suffern, NY Linden Self Storage2 Linden, NJ Webster Self Storage2 Bronx, NY Jersey City Self Storage2 Jersey City, NJ Bronx Self Storage2 Bronx, NY Lawrence Self Storage2 Lawrence, NY Starr Avenue Self Storage Queens, NY New Rochelle Self Storage Westchester, NY Yonkers Self Storage Westchester, NY Bruckner Boulevard Self Storage Bronx, NY Ridgewood Self Storage Queens, NY Document Storage New York City, NY Cortlandt Towne Center Cortlandt, NY ASOF III, LLC 139,450 — Underdeveloped land — 251 — — — — — 251 — — — 251 — — Construction in progress and other investments Notes: — — — — — 4,814 4,814 — $ 732,184 $ 267,683 $ 546,466 $ 388,443 $ 309,685 $ 897,721 $ 1,207,406 $ 193,745 (1) These properties serve as collateral for the financing with Bank of America, N.A. in the amount of $30,000. (2) These properties serve as collateral for the financing with GEMSA, in the amount of $41,500. 100 Acadia Realty Trust 2009 Annual Report Notes: 1. Depreciation and investments in buildings and improvements reflected in the statements of income are calculated over the estimated useful life of the assets as follows: Buildings: 30 to 40 years Improvements: shorter of lease term or useful life. 2. The aggregate gross cost of property included above for Federal income tax purposes was $1,123.5 million as of December 31, 2009. 3. (a) Reconciliation of Real Estate Properties: The following table reconciles the real estate properties from January 1, 2007 to December 31, 2009: Years Ended December 31, 2009 2008 2007 (dollars in thousands) Balance at beginning of year $ 1,091,995 Other improvements Property acquired Balance at end of year 46,723 68,688 $ 1,207,406 3. (b) Reconciliation of Accumulated Depreciation: $ 818,816 103,476 169,703 $ 1,091,995 $ 615,024 75,776 128,016 $ 818,816 The following table reconciles accumulated depreciation from January 1, 2007 to December 31, 2009: (dollars in thousands) Balance at beginning of year Depreciation related to real estate Balance at end of year Years Ended December 31, 2009 2008 2007 $ 165,067 28,678 $ 193,745 $ 142,312 22,755 $ 165,067 $ 124,088 18,224 $ 142,312 Acadia Realty Trust 2009 Annual Report 101 Trustees and Officers Shareholder Information Trustees Senior Officers Kenneth F. Bernstein President and Chief Executive Officer Kenneth F. Bernstein President and Chief Executive Officer Lee S. Wielansky (Lead Trustee) Chairman of the Board and Chief Executive Officer Midland Development Group Inc. Douglas Crocker II Former Chief Executive Officer Equity Residential Suzanne M. Hopgood President and Chief Executive Officer The Hopgood Group, LLC Lorrence T. Kellar Former Vice President, Retail Development Continental Properties Wendy Luscombe President and CEO WKL Associates, Inc. William T. Spitz Director, Diversified Trust Joel Braun Executive Vice President, Chief Investment Officer Christopher Conlon Sr. Vice President, Acquisitions and Leasing Jon Grisham Sr. Vice President, Chief Accounting Officer Joseph Hogan Sr. Vice President, Director of Construction Robert Masters, Esq. Sr. Vice President, General Counsel and Chief Compliance Officer Joseph M. Napolitano Sr. Vice President, Chief Administrative Officer Michael Nelsen Sr. Vice President, Chief Financial Officer David Robinov Sr. Vice President, Investments Investor Relations Jon Grisham Sr. Vice President, Chief Accounting Officer Tel: 914.288.8100 email: jgrisham@acadiarealty.com A copy of the Company’s annual report and Form 10-K filed with the Securities and Exchange Commission may be obtained without charge by contacting Investor Relations. Dividend Reinvestment Acadia Realty Trust offers a dividend reinvestment 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 reinvest- ment 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. Internet Address Visit us online at www.acadiarealty.com for more information. The 2009 Annual Report, current news and quarterly financial and operational supplementary information can be found on the Company’s website. Corporate Headquarters Acadia Realty Trust 1311 Mamaroneck Avenue, Suite 260 White Plains, NY 10605 Tel: 914.288.8100 Legal Counsel Paul, Hastings, Janofsky & Walker, LLP Park Avenue Tower 75 East 55th Street New York, NY 10022 Annual Meeting Acadia’s Board of Trustees has sched- uled the Annual Shareholder Meeting for Monday, May 10, 2010, at 10 a.m., local time, to be held at the Company’s corporate headquarters at 1311 Mamaroneck Avenue, Suite 260, White Plains, NY 10605. The record date for determination of shareholders entitled to vote is March 31, 2010. Independent Auditors BDO Seidman, LLP 330 Madison Avenue New York, NY 10017 Stock Exchange NYSE: AKR The Company has filed the Section 302 certifications as an exhibit to its Form 10-K, and the Chief Executive Officer has provided the annual certification to the NYSE. Transfer Agent and Registrar 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 email: info@amstock. 1311 Mamaroneck Avenue Suite 260 White Plains, NY 10605 Tel: 914.288.8100 

Continue reading text version or see original annual report in PDF format above