2010 Annual Report Focused. Disciplined. Value-Driven. ACD250 AR10_FrontCvr_M.indd 1 3/21/11 3:02 PM Financial Highlights In thousands 2010 2009 2008 2007 2006 Total Revenues $ 151,958 $ 145,703 $ 133,566 $ 88,259 $ 85,577 Funds from Operations1 50,440 49,613 37,964 42,094 39,860 Real Estate Owned, at Cost Common Shares Outstanding Operating Partnership Units Outstanding 1,386,299 1,200,483 1,085,072 810,697 606,905 40,255 39,787 32,358 32,184 31,773 360 658 648 642 642 1 The Company considers funds from operations (“FFO”) as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) to be an appropriate supplemental disclosure of operating performance for an equity REIT due to its widespread acceptance and use within the REIT and analyst communities. FFO is 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. 64396 AR10_Cover.indd 2 3/23/11 8:29 PM 59958 Dear Fellow Shareholders: After two very challenging years for the commercial real estate industry, 2010 was a year of significant healing. For the shopping center sector, this was true with respect to operating fundamentals, but even more so with respect to the capital markets. While consumers Kenneth F. Bernstein President and CEO cautiously returned to more normalized shopping patterns, the capital markets approached the year with an intensity surprisingly untempered by the still-fresh memories of the subprime crisis and high- profile failures of Bear Stearns and Lehman Brothers. In addition, by maintaining a low interest rate environment, the Federal Reserve effectively cushioned the deterioration in property values by driving cap rates well-below their historic average. REITs rebound in 2010. As a result of these positive trends, REITs rebounded from high levels of distress in 2009 to post strong 2010 returns. Given the fact that Acadia’s stock had fallen less during the financial crisis, it also rebounded less during 2010, providing a 12% total return for the year. Compared to the sector’s rebound, and our own past performance, the return was somewhat disappointing. After all, over the past 10 years that I’ve been running the company, we’ve achieved a total return of 349% compared to the REIT sector’s 169% and the shopping center sector’s 57%. That equates to a compounded, annual return of 16%, compared to 10% and 5%, respectively. We earned that return by aggressively working our assets and pursuing profitable investment opportunities. Over the years, and as a result of this hard work, we grew accustomed to out-performing. We intend to do it again. We will be growth-focused in 2011. Looking back, I had expected acquisition activity to fuel our 2010 performance and neutralize the rebound effect. We were well-capitalized, and with more than a trillion dollars worth of commercial debt outstanding, I had anticipated that we would be able to infuse capital into a surplus of distressed opportunities. Unfortunately, the distress that we knew existed failed to present itself in actionable investment opportunities throughout most of 2010. Looking ahead, there is still a possibility that we’ll see these types of transactions come to market. If they do, we’ll be ready. But we don’t need to wait for the “floodgates” to open. We expect that there will be a number of compelling investment opportunities for companies with the willingness and ability to work through the complicated restructurings and redevelopment opportunities that are beginning to present themselves. In fact, during the fourth quarter of 2010, we began to deploy capital into exciting investments that are consistent with our investment focus. More importantly, the pipeline looks strong. We know how to grow and when not to! At the end of 2000, our stock traded at $5.62 per share. Ten years later, our stock closed at $18.24 per share. We know how to grow smart. Between 2004 and 2007, when significant cap rate compression made the acquisition of cash- flowing real estate at opportunistic pricing difficult, we invested under dual strategies: our retailer controlled property venture, through which we participated in the acquisitions of Mervyns and Albertsons, and our New York urban/infill redevelopment program. Then, in 2008, when an overheated and volatile market made the projected risk-adjusted returns from even these types of transactions seem sub-par, we shifted our focus and made highly- profitable mezzanine investments. Acadia Realty Trust 2010 Annual Report 1 14510 And, in 2009, when it seemed as though the world might end, we acquired the Walmart- anchored Cortlandt Town Center in northern Westchester County, New York at a significant discount to replacement cost and a 9% unlevered yield. However, for most of 2010, it seemed as though smart growth meant limited growth. The same cannot be said about 2011, and what follows is our plan to continue smart growth in the coming year and beyond. OUR PLAN We’ll stick with what we know. Following a period of successive unprecedented economic events, you can expect our growth to look familiar or to be a variation on a familiar theme. More specifically, we plan to pursue growth via four avenues. With respect to our core portfolio, these include anchor recycling, asset recycling, and mezzanine investing, and with respect to our external fund platform, these include opportunistic/value-add investing. 1. CORE PORTFOLIO ANCHOR RECYCLING We can create long-term value by upgrading our tenancy. Over our company’s history, we’ve been able to create long-term value by proactively recapturing underutilized anchor spaces at our existing shopping centers and re- leasing these spaces to higher-quality tenants. In light of the continued improvements in the leasing environment, we anticipate that we’ll be able to continue executing these “anchor recycling” activities. New Loudon Center: long-term value creation, short-term earnings disruption. Most recently, we undertook a 65,000 square foot anchor recycling project at New Loudon Center, which included an expansion of the center’s existing Price Chopper supermarket. Prior to recapture, we had fully pre-leased the anchor space — at a 50% increase in rents — and, we anticipate that the new tenants will open during the first half of 2011. Although these types of activities create a short-term drag on occupancy and same-store NOI — even when fully pre-leased — the long-term accretion can be a compelling source of incremental growth. As such, heading into 2011, we’ve targeted a similar re-anchoring opportunity at Bloomfield Town Square, which we’ve pre- leased to Dick’s Sporting Goods. We can grow organically. Adjusting our core portfolio occupancy for the New Loudon Center anchor space, which was leased but not occupied as of December 2010, we would have ended the year at 93.2% occupancy, up 170 basis points from our 91.5% physical occupancy. In addition, as the economy continues to improve, we believe that we can further increase this occupancy nearer to our portfolio’s historic mid-90’s highs. 2. CORE PORTFOLIO ASSET RECYCLING PLUS GROWTH We are disciplined sellers. The aforementioned occupancy gains become increasingly achievable as we continue to upgrade the quality of our portfolio’s assets. Over the past 10 years, we aggressively pruned our asset base, disposing of low-growth/non- core properties and rotating into those of a higher quality. Having done so, today, we are left with a portfolio that is primarily high-quality, but also of a smaller size, with far fewer candidates for disposition than in prior years. We can more than double our size and still be able to move the needle. Therefore, while we will continue to periodically and opportunistically dispose of certain assets, looking ahead, we anticipate that we will become a net acquirer of high-quality core properties with stable, long-term growth profiles. Given our relatively small size, and the impact that even $100 million of net annual additions can have, we believe that we will be able to execute this “asset recycling plus growth” plan, over the next few years, in a way that won’t be a material departure from our current opportunistic/value-add focus. 2 Acadia Realty Trust 2010 Annual Report 44276 Furthermore, we believe that these additions will not only enhance our overall growth potential, but also increase our earnings stability. 3. MEZZANINE INVESTMENTS We can think outside the big-box. At times, it makes more economic sense to invest in a different part of the capital structure. 2008 was one of those times when, prior to the onset of the financial crisis, it became clear to us that the market was overheating. Accordingly, we sought out investment opportunities that would provide more attractive risk-adjusted returns, including two mezzanine investments secured by well-located properties in Manhattan and Georgetown, Washington D.C. We were happy to lend against these high-quality assets, knowing that they would complement our portfolio if we were presented with an opportunity to own them. These densely-populated and supply-constrained markets weathered the recession better than anticipated and, as a result, less than three years later, we have already begun to see these dollars repatriated at mid- to high-teens returns. In hindsight, these were great investments, particularly relative to others of their vintage. We recognize that this profit- taking creates earnings volatility; however, we are confident that we will be able to profitably redeploy this capital. Going forward, we will continue to pursue mezzanine opportunities, although we plan to limit the total portfolio to 5-10% of our equity market cap in order to minimize volatility. 4. OPPORTUNISTIC/VALUE-ADD EXTERNAL GROWTH We will drive opportunistic/value-add growth via our fund platform. Notwithstanding the above, our fund platform continues to be our primary means of external growth. Although most of 2010 remained frustratingly quiet, during the fourth quarter, we finally began to see deal flow that excited us. As in the past, and more importantly, in light of e-commerce and other trends reshaping the retail landscape, we will continue to focus our acquisition activities in high-barrier-to-entry, supply-constrained markets. Within these markets, key investment themes will include distressed supermarkets, street retail, and urban/infill mixed-use developments. DISTRESSED SUPERMARKETS The supermarket industry is evolving. Cyclical and secular shifts in the supermarket industry have put certain supermarket chains under increased financial pressure. As a result of this tenant distress, we are currently being afforded the opportunity to acquire well-located grocery-anchored properties at attractive pricing relative to location quality. Such was the case with our fourth quarter acquisition of White City Shopping Center in Shrewsbury, Massachusetts. White City: anchor distress creates cap rate arbitrage opportunities. Located adjacent to the Worcester city line, White City benefits from both a dense residential population (200,000 people within five miles) and a population of 30,000 college students. Over the past few decades, Worcester has evolved from its industrial roots and, today, boasts a much more diversified economy. The top-ranked and expanding UMass Medical School, located a half-mile from the property, and an emerging life-sciences and biotechnology industry have made key contributions to this revival. Due to its strong location, the property has a nearly 50-year history of occupancy rates in excess of 90%, despite the underperformance of its supermarket anchor. However, when properties are saddled with troubled anchors, the capital markets have a hard time differentiating between strong and weak locations. This lack of discrimination enabled us to acquire White City at an 8.5% cap rate, which we viewed as opportunistic given the high quality of the real estate and strong Acadia Realty Trust 2010 Annual Report 3 99991 interest in the site from potential replacement anchors. These types of transactions require a great deal of perseverance and skill. I credit our talented partner, Charter Realty & Development Corp., for seeing past the center’s outdated facades and discovering the high quality of this Worcester Metro location and the property’s embedded potential. STREET RETAIL “Multi-channel retailing” is the future. Given the changing retail landscape, high-quality locations have become increasingly important to both retailers and landlords. The more-selective, post-recession consumer’s increasing internet accessibility has significantly altered traditional shopping patterns and led to increased comparison shopping and online purchasing. At the same time, many retailers are beginning to realize that their internet presence and “brick and mortar” retail stores can actually be complementary vehicles, jointly harnessed to drive a brand’s sales. Looking ahead, the national retailers’ ability to reach consumers via this multi-channel retailing concept will be a key driver of their future success. Unique shopping/dining corridors will trump generic locations. In light of the above, retailers will likely need fewer and smaller “brick and mortar” retail stores to achieve their growth goals going forward. Furthermore, in order to get their customers through the door, retailers will have to redefine the in-store experience. Unlike many other property types, we anticipate that these trends will be a net positive to high-quality street retail in high- barrier-to-entry, high-density, high-demand locations, where retailers are more likely to concentrate their stores in order to maximize the return on their rent dollars. Conversely, we believe that these trends will make it harder for more generic shopping centers to thrive, particularly in secondary locations where tenants will have too many relocation opportunities. 4 Acadia Realty Trust 2010 Annual Report Westport, CT: retailers remain committed to high-end Main Street. In 2010, Gap reaffirmed its commitment to downtown Westport’s high- end shopping district by executing a lease at Fund III’s Main Street property. In a sign of the times, Gap will consolidate three of its existing Gap-branded Main Street stores at our property on three levels. However, this is good news for Westport’s Main Street. Gap’s consolidation will allow for increased retailer diversity on this high-barrier-to-entry corridor, which is already home to numerous top national retailers, including Williams-Sonoma, Tiffany & Co., and Coach. Our property is currently 77% pre- leased, and with construction completion anticipated during the second half of 2011, we are excited by the tenant prospects for the remaining availability. Lincoln Road: after 50+ years of retailing, it’s only getting better. During the first quarter of 2011 — as part of our continued flight to quality, density and established retail corridors — we acquired a three-property portfolio on Lincoln Road in Miami Beach, Florida. A thriving shopping and dining district with tenants ranging from J.Crew to Apple, Lincoln Road continues to attract on-trend retailers, including Forever 21 and H&M, who both recently announced plans to open stores by 2012. The recent opening of the newly-constructed, Frank Gehry-designed New World Symphony campus and adjacent park has further energized the corridor’s easternmost blocks. Furthermore, new retailers, such as CB2 (Crate & Barrel), are beginning to activate the street one block north of Lincoln Road — Lincoln Lane — on which two of our portfolio’s buildings also have frontage. The portfolio provides growth opportunities in the form of re-leasing below-market spaces as tenants’ leases expire as well as possibly redeveloping the Lincoln Lane building. We closed this transaction in partnership with Terranova Corporation, whose multi-decade, South Florida real estate experience and local, 65318 hands-on development capability will be important assets to this project. NEW YORK URBAN/INFILL DEVELOPMENTS Retailer interest remains as high on “Dense Street” as on “Main Street.” Our current street retail portfolio is heavily concentrated in the densely-populated New York City boroughs. Although the tenant mix between these “Dense Street” locations and traditional “Main Street” locations may be different, the high demand for retail space is the same. Here’s one example why. Downtown Brooklyn: a case study. If it were a stand-alone city, Brooklyn would be America’s fourth-largest. Within the borough, Downtown Brooklyn has become a central, thriving live- work-play-shop community. And the revival continues. Since 2007, Downtown Brooklyn has added 4,500 new residential units, attracting young professionals from Manhattan to this more-affordable, trendy market. Downtown Brooklyn’s strong demographics (125,000 people within one mile) and proximity to public transportation fuel a robust Fulton Street shopping population, numbering 100,000 people per day and generating retail sales of $1,200 per square foot. With its unique fusion of extreme density and growing affluence, Downtown Brooklyn continues to draw more upscale retailers to Fulton Street, most recently, H&M, Ae´ ropostale, and Shake Shack. City Point: welcoming Brooklyn’s “urbanistas.” In light of these strong demographic trends, we, too, were drawn to Downtown Brooklyn and Fulton Street, where we are currently constructing the first phase of our 1.5 million square foot mixed-use retail/residential development, City Point. Given the high level of uncertainty associated with the Great Recession, as well as the scale of the contemplated development, we made the prudent decision to put the project on hold through the end of 2009. However, even as the economy began to recover, our residential partner made it clear that they lacked the desire to proceed. In mid-2010, this enabled us to acquire their development rights at a significant discount to cost and regain control of the development timeline. Heading into 2011, the significant rebound in New York City’s residential market and the continued evolution of Downtown Brooklyn have us extremely excited to break ground on the project’s second phase. This very complicated development process is being led by Washington Square Partners who, along with our internal team, is incredibly focused and energized to see this project through to completion. We’ve created an irreplaceable New York urban portfolio. City Point is one of ten projects in our New York urban/infill development portfolio, which we first began to assemble in 2004. The fact that we were able to navigate this irreplaceable, and hopefully profitable, portfolio through one of the most difficult periods for development in recent memory is a testament to the strength of the New York City market as well as to the talent and perseverance of our team. And, during 2010, we continued to make important progress toward stabilizing the portfolio, such as completing the development of Canarsie Plaza. Canarsie Plaza: high population density, high tenant demand. In January 2010, we closed on a $48 million construction loan — which at the time was still a rare accomplishment — and began construction of this 275,000 square foot, BJ’s Wholesale Club- anchored shopping center in Canarsie, Brooklyn. In November 2010, BJ’s opened at the site, and by year-end, the center was 85% leased, with tangible tenant prospects for several of the available spaces. We look forward to completing the balance of the leasing throughout the coming year. THE BALANCE SHEET: OUR FOUNDATION FOR GROWTH We maintain healthy balance sheet metrics. Companies seeking long-term, responsible Acadia Realty Trust 2010 Annual Report 5 58647 urban retail, particularly in the New York City boroughs. Density never goes out of style. IN CONCLUSION Finding inspiration. It’s impossible to reflect on 2010 without sharing two losses that my family experienced during the year. Not only did we lose my grandmother, after a long and active life, but also, and more painfully, we lost my mother, at a much younger age and after a year-long battle with cancer. Both of these women were incredibly strong, spirited, and, in their own way, real trailblazers for their respective generations. Now, without their presence, my family’s world is smaller. But as much as I miss them, their passion for life has been, and will continue to be, a constant inspiration for me both personally and professionally. Our team will continue to be a key factor in Acadia’s success. This fall, I’ll turn 50. Since 2001, when I became Acadia’s CEO, my energy and enthusiasm for the company has only increased. And while I plan to be at Acadia’s helm for many more years, I am also very excited by how our team continues to grow, mature and transform. Over the past few years, we’ve added talent at all levels of the organization, and it’s exciting to watch their contributions take hold. Acadia is only in its early innings. We look forward to growing the company together with you, our shareholders, and greatly appreciate your continued support. Kenneth F. Bernstein President and CEO growth should also be focused on maintaining a healthy balance sheet. We are, on both counts. At year-end 2010, our net debt to EBITDA ratio was 4.4x, one of the lowest in the industry, and our fixed-charge coverage ratio was 3.5x. Furthermore, we have adequate liquidity at our disposal — $86 million of cash-on-hand and $59 million available under existing lines of credit — to retire near-term debt maturities and fuel growth. Not only are we currently in a strong financial position, but also, and more importantly, that’s how we entered the financial crisis. LOOKING BACK, LOOKING FORWARD Between 2008 and 2010, the financial crisis necessitated that we play defense. In some cases, we figured out how to play opportunistic defense. We raised equity and used a portion of the proceeds to de-lever, buying back our convertible debt at a discount. We bought out our residential partner’s interest in City Point, at a discount, clearing the way to begin the project’s development. We reduced our headcount. These were not fun times, but through it all, we maintained our focus and discipline. Today, we are a stronger company. Heading into 2011, we are excited by the opportunities on our horizon. We are well-capitalized. We are back in growth-mode. For our core portfolio, this means continuing to execute on anchor and asset recycling opportunities and periodically making net additions of stable assets to enhance growth and stabilize earnings. We will also maintain our mezzanine investment platform, albeit on a smaller scale. For our opportunistic/value-add funds, we will continue to pursue investments with outsized value-creation opportunities. Given present retailing trends, our focus will likely be on well- located, distressed supermarkets and street retail. Additionally, we will continue to focus on 6 Acadia Realty Trust 2010 Annual Report 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 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 kroger/safeway Portfolio, various locations FuNd ii PRoPeRties oakbrook, Oakbrook, IL Crossroads shopping Center, White Plains, NY 98th street and liberty avenue, Queens, NY 216th street, New York, NY 260 east 161st street, Bronx, NY Fordham Place, Bronx, NY Pelham 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 Cortlandt towne Center, Mohegan Lake, NY sheepshead Bay Plaza, Brooklyn, NY white City shopping Center, Shrewsbury, MA 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 Bloomfield town square, Bloomfield Hills, MI Mad River station, Dayton, OH Mid-atlaNtiC ReGioN Marketplace of absecon, Absecon, NJ ledgewood Mall, Ledgewood, NJ Brandywine town Center, Wilmington, DE Market square shopping Center, Wilmington, DE 64396_pg7_Acadia.indd 1 3/25/11 11:49 AM Acadia Realty Trust 2010 Annual Report 7 19928 [THIS PAGE INTENTIONALLY LEFT BLANK] Form 10-K Report 2010 Focused. Disciplined. Value-Driven. ACD250 AR10_FinCvr_M.indd 1 3/21/11 3:03 PM 31268 United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2010 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. YES NO 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. YES NO 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 NO 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 NO 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 Form 10-K or any amendment to this Form 10-K. 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 Accelerated Filer Non-accelerated Filer Smaller Reporting Company Indicate by checkmark 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 $685.6 million, based on a price of $17.08 per share, the average sales price for the registrant’s common 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 February 28, 2011 was 40,320,306. YES NO Part III—Portions of the registrant’s definitive proxy statement relating to its 2011 Annual Meeting of Shareholders presently scheduled to be held May 10, 2011 to be filed pursuant to Regulation 14A. DOCUMENTS INCORPORATED BY REFERENCE Acadia Realty Trust 2010 Annual Report 68097 Acadia Realty Trust Form 10-K Report 2010 Table of Contents Item No. PART I 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. (Removed and Reserved). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART II 5. Market for Registrant’s Common Equity, Related Stockholder Matters, Issuer Purchases of Equity Securities and Performance Graph . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9B. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART III 10. Directors and Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 13. Certain Relationships and Related Transactions and Director Independence . . . . . . . . . . . . . . . . . . . . . 14. Principal Accountant Fees and Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART IV Page 1 10 18 19 28 28 29 32 34 48 50 50 50 53 53 53 53 53 53 15. Exhibits and Financial Statements Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Acadia Realty Trust 2010 Annual Report 77962 Special Note Regarding Forward-Looking Statements Certain statements contained in this Annual Report on investments for which we provide operational support to the operating ventures in which we have a minority equity interest. Form 10-K may contain forward-looking statements All of our investments are held by, and all of our within the meaning of Section 27A of the Securities Act operations are conducted through, Acadia Realty Limited of 1933 and Section 21E of the Securities and Exchange Partnership (the “Operating Partnership”) and entities in Act of 1934 and as such may involve known and which the Operating Partnership owns a controlling unknown risks, uncertainties and other factors which interest. As of December 31, 2010, the Trust controlled may cause our actual results, performance or 99% of the Operating Partnership as the sole general achievements to be materially different from future partner. As the general partner, the Trust is entitled to results, performance or achievements expressed or share, in proportion to its percentage interest, in the implied by such forward-looking statements. Forward- cash distributions and profits and losses of the Operating looking statements, which are based on certain Partnership. The limited partners generally represent assumptions and describe our future plans, strategies entities or individuals which contributed their interests in and expectations are generally identifiable by use of the certain assets or entities to the Operating Partnership in words “may,” “will,” “should,” “expect,” “anticipate,” exchange for common or preferred units of limited “estimate,” “believe,” “intend” or “project” or the partnership interest (“Common OP Units” or “Preferred negative thereof or other variations thereon or OP Units”, respectively, and collectively, “OP Units”). comparable terminology. Factors which could have a Limited partners holding Common OP Units are generally material adverse effect on our operations and future entitled to exchange their units on a one-for-one basis for prospects include, but are not limited to those set forth our common shares of beneficial interest (“Common under the headings “Item 1A. Risk Factors” and “Item 7. Shares”). This structure is referred to as an umbrella Management’s Discussion and Analysis of Financial partnership REIT or “UPREIT”. 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 Business Objectives and Strategies Our primary business objective is to acquire and manage commercial retail properties that will provide cash for distributions to shareholders while also creating the potential for capital appreciation to enhance investor returns. We focus on the following fundamentals to achieve this objective: General Acadia Realty Trust (the “Trust”) was formed on March 4, 1993 as a Maryland real estate investment trust (cid:1) 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 (“REIT”). All references to “Acadia,” “we,” “us,” “our,” markets with strong demographics and generate internal and “Company” refer to the 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 of retail properties, including neighborhood and community 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 growth within the Core Portfolio through aggressive redevelopment, re-anchoring and/or leasing activities. (cid:1) Maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth. (cid:1) Generate external growth through an opportunistic yet disciplined acquisition program. We target transactions with high inherent opportunity for the creation of additional 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 currently invest in through our Core Acadia Realty Trust 2010 Annual Report 1 81020 Portfolio. These may also include joint ventures with private equity investors for the purpose of making investments in operating retailers with significant embedded value in their real estate assets. 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 blended cost of equity and debt and adjust the amount of acquisition activity to align the level of investment activity with capital flows. We may also engage in discussions with public and private entities Promote and 80% to the partners (including the Operating Partnership). The Operating Partnership also earns fees and/or priority distributions for asset management services equal to 1.5% of the allocated 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 60 of this Form 10-K. As of December 31, 2010, there were 20 assets comprising approximately 0.9 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. regarding business combinations. In addition to our direct Fund II investments in real estate assets, we have also capitalized on our expertise in the acquisition, redevelopment, leasing and management of retail real estate by establishing discretionary opportunity funds in which we earn, in addition to a pro-rata return based 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 Strategic Opportunity Fund, LP (“Fund I”), Acadia Strategic Opportunity Fund II, LLC (“Fund II”) and Acadia Strategic Opportunity Fund III, LLC (“Fund III”). Due to the level of our control, we consolidate these Opportunity Funds for 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 Investors I, LLC (“Mervyns I”), in which the investors, including the Operating Partnership, committed a total of $90.0 million for the purpose of acquiring real estate assets. The Operating Partnership is 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 Following our success with Fund I, during June of 2004 we formed a second, larger Opportunity Fund, Fund II, and during August of 2004, formed Acadia Mervyn Investors II, 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, 2010, $265.2 million of Fund II’s and Mervyns II’s capital was invested and the balance of $34.8 million is expected to be utilized to complete development activities for existing Fund II investments. Given the market conditions for commercial real estate at 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 Redevelopment Initiative and the Retailer Controlled entitled to a Promote based upon certain investment return Property Venture, which are more fully described below. thresholds. Cash flow was distributed pro-rata to the partners (including the Operating Partnership) until they earned a 9% cumulative return (“Preferred Return”) and of all capital contributions were returned. Fund I investors have received a return of all of their capital invested in Fund I and Mervyns I and their Preferred Return. Accordingly, all cash flow is now distributed 20% to the Operating Partnership as a New York Urban/Infill Redevelopment Initiative During September of 2004, through Fund II, we launched our New York Urban/Infill Redevelopment Initiative. We believe that retailers continue to recognize that many of the nation’s urban markets are underserved from a retail standpoint, and we have capitalized on this situation by investing in redevelopment projects in dense urban areas where retail tenant demand has effectively surpassed the 2 Acadia Realty Trust 2010 Annual Report 54399 supply of available sites. During 2004, Fund II, together distributed to the participants until they have received a with an unaffiliated partner, P/A Associates, LLC (“P/A”), 10% cumulative return on and a full return of all capital formed Acadia-P/A Holding Company, LLC (“Acadia-P/A”) contributions. Thereafter, remaining cash flow is for the purpose of acquiring, constructing, developing, distributed 20% to Klaff (“Klaff’s Promote”) and 80% to owning, operating, leasing and managing certain retail or the partners (including Klaff). As the participants have mixed-use real estate properties in the New York City received a return of all of their capital invested and their metropolitan area. P/A agreed to invest 10% of required unpaid cumulative return, all cash flow is now distributed capital up to a maximum of $2.2 million and Fund II, the 20% to Klaff as Klaff’s Promote and then 80% to the managing member, agreed to invest the balance to partners. The Operating Partnership may also earn acquire assets in which Acadia-P/A agreed to invest. See market-rate fees for property management, leasing and Item 7 of this Form 10-K for further information on the construction services on behalf of the RCP Venture. Acadia-P/A Joint Venture as detailed in “Liquidity and While we are primarily a passive partner in the Capital Resources — New York Urban/Infill investments made through the RCP Venture, historically Redevelopment Initiative.” To date, Fund II has invested we have provided our services in reviewing potential in nine projects, eight of which are in conjunction with acquisitions and operating and redevelopment assistance P/A, as discussed further in “— PROPERTY in areas where we have both a presence and expertise. ACQUISITIONS — New York Urban/Infill Redevelopment We continue to seek to invest opportunistically with the Initiative” below in this Item 1. RCP Venture primarily in any of the following four ways: Retailer Controlled Property Venture (the “RCP Venture”) (cid:1) Invest in operating retailers to control their real estate through private equity joint ventures During 2004, through Funds I and II or affiliates thereof, (cid:1) Work with financially healthy retailers to create value we entered into an association, known as the RCP from their surplus real estate Venture, with Klaff 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 RCP Venture is neither a single entity nor a specific investment. Any member of this (cid:1) Acquire properties, designation rights or other control of real estate or leases associated with retailers in bankruptcy (cid:1) Complete sale-leasebacks with retailers in need of capital group has the option of participating, or not, in any Our RCP Venture investments are further discussed in individual investment and each individual investment has “— PROPERTY ACQUISITIONS — RCP Venture” below been made on a stand-alone basis through a separate in this Item 1. limited liability company. These investments have been made through different investment vehicles with different affiliated and unaffiliated investors and different economics to us. The initial size of the RCP Venture was expected to be approximately $300.0 million in equity, of which our share would be $60.0 million. Based on the investment opportunities, the size of the RCP Venture could be and was expanded. Mervyns I and II and Fund II have invested a total of $62.2 million in the RCP Venture to date on a non-recourse basis. 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. 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 any RCP Venture investment is Fund III Following the success of Fund I and the full commitment of Fund II, Fund III was formed during 2007, with fourteen institutional investors, including a majority of the investors from Fund I and Fund II, whereby the investors, including the Operating Partnership, committed capital totaling $502.5 million. 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 and can invest the committed equity on a discretionary basis within the parameters defined in the Fund III operating agreement. The terms and structure of Fund III are substantially the same as Fund I and Fund II with the exception that the Preferred Return is 6%. As of December 31, 2010, $96.5 million of Fund III’s capital was invested. To date, Fund III has invested in 15 projects as discussed further in “— PROPERTY ACQUISITIONS” below in this Item 1. Acadia Realty Trust 2010 Annual Report 3 77399 Notes Receivable, Preferred Equity and Other Real Estate Related Investments We may also invest in notes receivable, preferred equity investments, other real estate interests and other investments. As of December 31, 2010, our notes receivable investments aggregated $89.2 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 receivable are personally guaranteed by principals of the borrowers. Interest rates on our notes receivable, mezzanine loan investments and preferred equity investment, ranged from 10% to 24% with maturities that range from demand notes to January 2017. Capital Strategy — Balance Sheet Focus and Access to Capital Our primary capital objective is to maintain a strong and flexible balance sheet through conservative financial practices, including moderate 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 appropriate 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 instruments, including London Interbank Offered Rate (“LIBOR”) swap agreements and interest rate caps as 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 as discussed below and pay down existing lines of credit. we purchased $65.2 million in principal amount of the Notes, all at an average discount of approximately 19%. 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 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 joint ventures we have launched several successful acquisition platforms including our New York Urban/Infill Redevelopment Initiative and RCP Venture. 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. We typically hold our Core Portfolio properties for long-term investment. As such, we continuously review the existing portfolio and implement programs to renovate and modernize 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 with greater potential for capital appreciation. During December of 2006 and January of 2007, we issued Our Core Portfolio consists primarily of neighborhood and $115.0 million of 3.75% unsecured Convertible Notes (the community shopping centers, which are generally “Notes”). See Note 9 to our Consolidated Financial dominant centers in high barrier-to-entry supply Statements, which begin on page 60 of this Form 10-K for constrained markets and are principally anchored by a discussion of the terms and conditions of the Notes. supermarkets and necessity-based retailers. We believe The $112.1 million in proceeds, net of related costs, were these attributes enable our properties to better withstand used to retire variable rate debt, provide for future the current post recessionary period. Opportunity Fund capital commitments and for general working capital purposes. Through December 31, 2010, 4 Acadia Realty Trust 2010 Annual Report 93665 During 2010, 2009 and 2008 we sold two non-core Albertson’s properties and redeployed capital to acquire one retail During June of 2006, the RCP Venture made its second property as further discussed in “— ASSET SALES AND investment as part of an investment consortium, CAPITAL/ASSET RECYCLING” below in this Item 1. acquiring Albertson’s and Cub Foods, of which our share Property Acquisitions RCP Venture Mervyns Department Stores In September 2004, we made our first RCP Venture investment. Through Mervyns I and Mervyns II, we invested in a consortium to acquire Mervyns consisting of was $20.7 million. Through December 31, 2010, we have received distributions from this investment totaling $77.1 million, including $11.4 million received in 2010. Through December 31, 2010, we, through Mervyns II, made Add-On Investments in Albertson’s totaling $2.4 million and received distributions totaling $1.2 million. 262 stores (“REALCO”) and its retail operation (“OPCO”) Other RCP Investments from Target Corporation. Our share of this investment Through December 31, 2010, we, through Fund II, made was $23.2 million. Subsequent to the initial acquisition of investments of $1.1 million in Shopko, $0.7 million in Mervyns, we made additional investments of $2.9 million. Marsh, and $2.0 million in Add-On Investments in Marsh. To date, REALCO has disposed of a significant portion of As of December 31, 2010, we have received the portfolio. In addition, during November 2007, we sold distributions totaling $1.7 million from our Shopko our interest in, and as a result, have no further investment investment and $2.6 million from our Marsh and Marsh in OPCO. Through December 31, 2010, we have received Add-On Investments. distributions from this investment totaling $46.0 million. During July of 2007, the RCP Venture acquired a Through December 31, 2010, we, through Mervyns I and portfolio of 87 retail properties from Rex Stores Mervyns II, made additional investments in locations that Corporation (“Rex”), in which we invested through are separate from these original investments (“Add-On Mervyns II. Our share of this investment was $2.7 Investments”) in Mervyns totaling $6.5 million and have million. As of December 31, 2010, we have received received distributions totaling $1.7 million. distributions from Rex totaling $0.8 million. The following table summarizes the RCP Venture investments from inception through December 31, 2010, and the Operating Partnership’s share of this activity: (dollars in millions) Investor Investment Year acquired Invested capital Distributions Invested capital Distributions 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 Shopko Marsh Rex 2004 2005/2008 2006 2006/2007 2006 2006 2007 Total $26.1 6.5 20.7 2.4 1.1 2.7 2.7 $62.2 $ 46.0 1.7 77.1 1.2 1.7 2.6 0.8 $131.1 $ 4.9 1.1 4.2 0.4 0.2 0.5 0.5 $11.8 $11.3 0.3 15.4 0.2 0.3 0.5 0.2 $28.2 Operating Partnership Share New York Urban/Infill Redevelopment Initiative and 157,000 square foot office tower are complete. As of December 31, 2010, we had ten New York The retail component is 100% occupied and the office Urban/Infill Redevelopment Initiative projects. component is 30% occupied. Acadia-P/A’s total cost of Construction is substantially complete at seven of the the project was approximately $134.0 million. projects, one is under construction and two 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 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 completed construction of a 229,000 square foot community retail center and a 90,000 square Acadia Realty Trust 2010 Annual Report 5 46274 foot self-storage facility at a total cost of approximately development included the construction of a 279,000 $64.0 million. Home Depot was originally slated to square foot mixed-use project consisting of retail and anchor the project, but announced its decision to curtail office. The total cost of the redevelopment, including plans for expansion. As part of our lease termination acquisition costs, was approximately $90.0 million. We agreement with Home Depot, we purchased the building had executed a lease with Home Depot to anchor the that Home Depot had constructed on the site for $10.0 project. However, during 2008, Home Depot terminated million, representing approximately half of their cost of their lease and paid us a fee of $24.5 million. construction. The retail center is currently 91% leased Construction was substantially complete in November and anchored by a BJ’s Wholesale Club. 2010 and the property is 85% leased. The project is 216th Street — During December of 2005, Acadia-P/A acquired a parking garage located at 10th Avenue and 216th Street in the Inwood section of Manhattan. During 2007, we completed the construction of a 60,000 square foot office building and we relocated an agency of the City of New York (“NYC”), which was a tenant at another of our New York Urban/Infill Redevelopment Initiative projects, to this location. Acadia-P/A’s total cost for the project, which also includes a 100-space rooftop parking deck, was approximately $28.0 million. anchored by BJ’s Wholesale Club and the New York City Police Department. Under Construction CityPoint — During June of 2007, Acadia-P/A and an unaffiliated joint venture partner, California Urban Investment Partners, LLC (“CUIP”) purchased the leasehold interests in The Gallery at Fulton Street in downtown Brooklyn for approximately $115.0 million, with an option to purchase the fee position, which is owned by the City of New York, at a later date. On June 30, 2010, Liberty Avenue — During December of 2005, Acadia-P/A Acadia-P/A acquired all of CUIP’s interest in CityPoint for a acquired the remaining 40-year term of a leasehold total consideration of $9.2 million and the assumption of interest in land located at Liberty Avenue and 98th Street CUIP’s share of debt of $19.6 million. The development in Ozone Park (Queens), New York. Construction of will proceed in three phases. Construction has approximately 30,000 square feet of retail anchored by commenced on Phase 1, a four-story retail building of a CVS drug store and a 98,500 square foot self-storage approximately 50,000 square feet. Phase 2 will consist of facility is complete and Acadia-P/A’s total cost of the redevelopment was approximately $15.0 million. 161st Street — During August of 2005, Acadia-P/A purchased 244-268 161st Street located in the Bronx, New York for $49.3 million. The redevelopment plan for this currently 83% 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 $17.4 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/Infill Redevelopment Initiative 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 $22.0 million. 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 approximately 500,000 square feet of additional retail. Phase 2 is also expected to contain an affordable and market-rate residential component. Phase 3 is anticipated to be a stand-alone mixed use, but primarily residential building, of approximately 700,000 square feet. 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 NYC and a commercial parking garage, was acquired for a purchase price of $25.0 million. During 2007 we relocated NYC to Acadia-P/A’s 216th Street redevelopment as discussed above and closed the parking garage. We are currently reviewing various alternatives to redevelop the site to include retail and office components. 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-level community shopping center. 6 Acadia Realty Trust 2010 Annual Report 66014 Self-Storage Portfolio Redevelopment efforts have commenced, at an On February 29, 2008, Fund III, in conjunction with estimated cost of $8.4 million, with the execution of a Storage Post, acquired a portfolio of eleven self-storage lease with Gap Inc. to anchor the property. Gap is properties from Storage Post’s existing institutional anticipated to open in the second half of 2011. investors for approximately $174.0 million. In addition, we, through Fund II, developed three self-storage properties as discussed above. The fourteen self-storage property portfolio, located throughout New York and New Core Portfolio See Item 2. PROPERTIES for the definition of our Core Portfolio. Jersey, totals approximately 1,127,000 net rentable During April of 2008, the Operating Partnership acquired square feet, and is operating at various stages of a 20,000 square foot single tenant retail property located stabilization. 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: During February 2011, Fund III, in a joint venture with an unaffiliated partner, acquired a 64,600 square foot single tenant retail property located in Silver Springs, Maryland, for approximately $9.8 million. During February 2011, Fund III, in a joint venture with an unaffiliated partner, acquired a three property portfolio (the “Portfolio”) for an aggregate purchase price of $51.9 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 Manhattan, New York for $36.4 million. Notes Receivable, Preferred Equity 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% and matures on June 30, 2011. million with $20.6 million of in-place mortgage financing During June 2008, the Operating Partnership made a assumed at closing. The Portfolio consists of three $40.0 million preferred equity investment in a portfolio of street-retail properties, aggregating 61,000 square feet, 18 properties located primarily in Georgetown, and is located in South Miami Beach, Florida. Washington D.C. The portfolio consists of 306,000 During December 2010, Fund III, in a joint venture with an unaffiliated partner, purchased the White City Shopping Center for $56.0 million. The operating property is a 255,000 square foot shopping center located in Shrewsbury, MA. square feet of principally retail space. During September 2010, this investment was fully liquidated. The Operating Partnership received $40.0 million of invested capital along with $9.4 million of accrued preferred return. The Operating Partnership has an additional Georgetown loan receivable of $8.0 million, collateralized by a 5 property During June 2010, Fund III, in a joint venture with an portfolio. unaffiliated partner, invested in an entity formed for the purpose of providing management services to owners of self-storage properties, including the 14 locations currently owned through Fund II and Fund III. To date, Fund III has invested $2.1 million in this entity. During January 2009, we purchased Cortlandt Towne Center for $78.0 million. The operating property is a 641,000 square foot shopping center located in Westchester County, New York. During November 2007, we acquired 125 Main Street, Westport, Connecticut for approximately $17.0 million. During July 2008, the Operating Partnership made a $34.0 million mezzanine loan, which is collateralized by an interest in a mixed-use retail and residential development at 72nd Street and Broadway on the Upper West Side of Manhattan. During September 2008, Fund III made a $10.0 million first mortgage loan, which is collateralized by land located on Long Island, New York. Acadia Realty Trust 2010 Annual Report 7 42585 The following table sets forth our notes receivable investments as of December 31, 2010: Weighted Averages Georgetown – 5 property portfolio 72nd Street First mortgage and other notes Mezzanine notes Notes Receivable (dollars in thousands) Investment Principal Accrued Interest Total Stated Interest Rate Effective Interest Rate1 Maturity Date Extension Options (Years) $ 8,000 46,715 $ 675 6,137 $ 8,675 52,852 9.75% 10.23% 11/2011 13.00% 20.85% 7/2011 1 year 1 year Underlying Third-Party First Mortgage Loan Amount Maturity Dates $ 9,596 2012 through 2020 170,727 2011 w/ 1 year extension 18,854 15,633 463 330 19,317 15,963 11.93% 12.48% 2011 14.14% 15.43% 2012 — — N/A N/A 272,289 2011 through 2019 Total notes receivable $89,202 $7,605 $96,807 12.68% 17.18% Note: 1 The effective rate includes points and exit fees Asset Sales and Capital/Asset Recycling Core Portfolio 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 2008, we have sold the following Core Portfolio assets: Property Blackman Plaza Village Apartments Total Location Date Sold Gross Leasable Area Sales Price (dollars in thousands) Wilkes-Barre, Pennsylvania Winston-Salem, North Carolina November 2009 April 2008 125,264 599,106 724,370 $ 2,500 23,300 $25,800 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, 2010 there were 20 assets comprising 0.9 million square feet remaining in Fund I as summarized by region below: Location Year Acquired GLA Tarrytown 2004 35,291 2002 2003 134,997 709,400 879,688 Shopping Center New York Region New York Tarrytown Centre Midwest Region Ohio Granville Centre Various Regions Columbus Kroger/Safeway Portfolio Various (18 properties) Total 8 Acadia Realty Trust 2010 Annual Report 57727 During March 2010, Fund I sold the Sterling Heights in our Consolidated Financial Statements. See Note 3 to Shopping Center for $2.3 million. The proceeds from the our Consolidated Financial Statements, which begin on sale along with Fund I’s recourse obligation of $0.6 million page 60 of this Form 10-K for information regarding, were used to fully liquidate the outstanding loan obligation. among other things, revenues from external customers, a During February 2009, The Kroger Co. purchased the fee at six locations in Fund I’s Kroger/Safeway Portfolio for $14.6 million, resulting in a $5.6 million gain. The Operating Partnership’s share of the gain was $1.6 million. measure of profit and loss and total assets with respect to each of our segments. Corporate Headquarters and Employees Our executive offices are located at 1311 Mamaroneck During April 2008, Fund I sold Haygood Shopping Center Avenue, Suite 260, White Plains, New York 10605, and our located in Virginia Beach, Virginia, for $24.9 million, resulting in a $6.8 million gain. The Operating Partnership’s share of the gain was $1.3 million. 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 environmental 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, Opportunity Funds, Self-Storage Portfolio, Notes Receivable and Other. Notes Receivable consists of the Company’s notes receivable 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 Consolidated Financial Statements, which begin on page 60 of this Form 10-K. We evaluate property performance primarily based on net operating income before depreciation, amortization and certain nonrecurring items. Investments in our Core Portfolio are typically held long- term. Given the contemplated finite life of our Opportunity Funds, these investments are typically held for shorter terms. Fees earned by us as general partner/member of the Opportunity Funds are eliminated telephone number is (914) 288-8100. As of December 31, 2010, we had 116 employees, of which 92 were located at our executive office and 24 were located at regional property management offices. None of our employees are covered by collective bargaining agreements. Management believes that its relationship with employees is good. Company Website All of our filings with the Securities and Exchange Commission, including our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant 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 practicable 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 Financial Officers that applies to our Chief Executive Officer, Senior Vice President-Chief Financial Officer, Senior Vice President-Chief Accounting Officer, Vice President-Controller, Vice President- Financial Reporting, Vice President of Taxation and Assistant Controllers. The Board also adopted a Code of Business Conduct and Ethics applicable to all employees, as well Acadia Realty Trust 2010 Annual Report 9 55845 as a “Whistleblower Policy.” Copies of these documents are available in the Investor Information section of our website. We intend to disclose future amendments to, or waivers from, our Code of Ethics for Senior Financial Officers in the Investor Information section of our website within four business days following the date of such 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 suffer. This section includes or refers to certain forward- looking statements. Refer to the explanation of the qualifications 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 insolvency 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 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. Upon the expiration of current leases for space located in our properties, we may not be able to re-let all or a portion of that space, or the terms of re-letting (including the cost of concessions to tenants) may be less favorable to us than current lease terms. If we are unable to re-let promptly all or a substantial portion of the space located in our properties or if the rental rates we receive upon re-letting are significantly lower than current rates, our net income and ability to make expected distributions to our shareholders will be adversely affected due to the resulting reduction in 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 expirations in our portfolio. 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 redevelopment projects. adversely affect the entire shopping center because of Our operations and performance depend on general the loss of the departed anchor tenant’s customer economic conditions, including the health of the drawing power. Loss of customer drawing power also consumer. The U.S. economy recently experienced a can occur through the exercise of the right that most financial downturn, with a decline in consumer spending, anchors have to vacate and prevent re-tenanting by credit tightening and high unemployment. This economic paying rent for the balance of the lease term (“going downturn has had, and may continue to have, an adverse dark”) as would the departure of a “shadow” anchor affect on the businesses of many of our tenants. We and tenant that owns its own property. In addition, in the the Opportunity Funds may experience higher vacancy event that certain major tenants cease to occupy a rates as well as delays in re-leasing vacant space. property, such an action may result in a significant number of other tenants having the right to terminate their leases, or pay a reduced rent based on a percentage of the tenant’s sales, at the affected property, which could adversely affect the future income from such property (“co-tenancy”). See “Item 2. Properties — Major Tenants” for quantified information with respect to the percentage of our minimum rents received from major tenants. The current downturn has had, and may continue to have, an unprecedented impact on the global credit markets. While we currently believe we have adequate sources of liquidity, there can be no assurance that we will be able to obtain mortgage loans to purchase additional properties, obtain financing to complete current redevelopment projects, or successfully refinance our properties as loans become due. To the extent that the availability of credit is limited, it would also adversely impact our notes receivable as counterparties may not be able to obtain the financing required to repay the loans upon maturity. 10 Acadia Realty Trust 2010 Annual Report 80623 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 property values. Furthermore, the impact of vacated anchor space and the potential reduction in customer traffic may adversely impact the balance of tenants at a shopping center. There are risks relating to investments in real estate. Real property investments are subject to multiple risks. 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 adequate maintenance and insurance and to control variable operating costs. Shopping centers, in particular, may be affected by changing perceptions of retailers or shoppers regarding the safety, convenience and Certain of our tenants have experienced financial attractiveness of the shopping center and by the overall difficulties and have filed for bankruptcy under Chapter climate for the retail industry. Real estate values are also 11 of the United States Bankruptcy Code (“Chapter 11 affected by such factors as government regulations, Bankruptcy”). Pursuant to bankruptcy law, tenants have interest rate levels, the availability of financing and the right to reject their leases. In the event the tenant potential liability under, and changes in, environmental, exercises this right, the landlord generally has the right zoning, tax and other laws. A significant portion of our to file a claim for lost rent equal to the greater of either income is derived from rental income from real property. one year’s rent (including tenant expense Our income and cash flow would be adversely affected if reimbursements) for remaining terms greater than one a significant number of our tenants were unable to rent year, or 15% of the rent remaining under the balance of our vacant space to viable tenants on economically the lease term, but not to exceed three years rent. favorable terms. In the event of default by a tenant, we Actual amounts to be received in satisfaction of those may experience delays in enforcing, and incur substantial claims will be subject to the tenant’s final plan of costs to enforce, our rights as a landlord. In addition, reorganization and the availability of funds to pay its certain significant expenditures associated with each creditors. Since January 1, 2010, there has been one significant tenant bankruptcy within our portfolio: On December 12, 2010, the Great Atlantic & Pacific Tea Company, Inc. (“A&P”) filed for protection under Chapter 11 Bankruptcy. A&P operates in four locations in our equity investment (such as mortgage payments, real estate taxes and maintenance costs) are generally not reduced even though there may be a reduction in income from the investment. Our ability to change our portfolio is limited because real estate investments are illiquid. Core Portfolio, totaling approximately 198,000 square Equity investments in real estate are relatively illiquid feet. Rental revenues from A&P at these locations and, therefore, our ability to change our portfolio totaled $3.5 million, $3.4 million, and $3.3 million for the promptly in response to changed conditions is limited. years ended December 31, 2010, 2009 and 2008, Our Board of Trustees may establish investment criteria respectively. In addition, A&P operates in one Fund III or limitations as it deems appropriate, but currently does location, totaling approximately 65,000 square feet. not limit the number of properties in which we may seek Rental revenues from A&P at this location totaled $1.0 to invest or on the concentration of investments in any million for each of the years ended December 31, 2010 one geographic region. We could change our investment, and 2009. A&P has availed itself of the statutory disposition and financing policies without a vote of our maximum time to assume or reject these leases which shareholders. is July 10, 2011. With respect to two of these leases, A&P has received a bankruptcy court order to close the two locations on or around April 15, 2011 and to exit the locations on or around April 30, 2011. 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 2010 Annual Report 11 26245 We have incurred, and expect to continue to incur, indebtedness to support our activities. Neither our Declaration 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 obligations 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. Interest expense on our variable rate debt as of December 31, 2010 would increase by $4.4 million annually for a 100 basis point increase in interest rates. We may seek additional variable-rate financing if and when pricing and other commercial and financial terms warrant. As such, we would consider hedging against the interest rate risk related to such additional variable rate debt, primarily through interest rate swaps but can use other means. We enter into interest rate hedging transactions, including interest rate swaps and cap agreements, with counterparties. There can be no guarantee that the future financial condition of these counterparties will enable them to fulfill their obligations under these agreements. Competition may adversely affect our ability to purchase 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 companies, pension funds, private companies and individuals. This competition may result in a higher cost for properties that we wish to pay. 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 leading to increased vacancy rates at our properties. 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 38% of the annual base rents within our Core Portfolio. Our operating results could be adversely affected if market conditions, such as an oversupply of space or a reduction in demand for real estate, in this area occurs. We have pursued, and may in the future continue to pursue extensive growth opportunities, which may result in significant demands on our operational, administrative and financial resources. We are pursuing extensive growth opportunities. This expansion places significant demands on our operational, administrative and financial resources. The continued growth of our real estate portfolio can be expected to continue to place a significant strain on our resources. Our future performance will depend in part on our ability to successfully attract and retain qualified management personnel to manage the growth and operations of our business. In addition, the acquired properties 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 the properties. 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 acquisitions through co-investment programs such as our Opportunity Funds. In the context of our business plan, “redevelopment” generally means an expansion or renovation of an existing property. The consummation of any future acquisitions will be subject to satisfactory completion 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 properties, negotiating with new or existing tenants or securing acceptable financing. Acquisitions of additional properties entail the risk that investments will fail to perform in accordance with expectations, including operating and leasing expectations. Redevelopment is subject to numerous 12 Acadia Realty Trust 2010 Annual Report 85510 risks, including risks of construction delays, cost overruns to acquire retail shopping centers with limited or uncontrollable events that may increase project costs, exceptions. We may only pursue opportunities to acquire new project commencement risks such as the receipt of retail shopping centers directly if (i) the ownership of the zoning, occupancy and other required governmental acquisition opportunity by Fund III would create a approvals and permits, and incurring development costs material conflict of interest for us; (ii) we require the in connection with projects that are not pursued to acquisition opportunity for a “like-kind” exchange; or completion. A component of our growth strategy is through private- equity type investments made through our RCP Venture. These include investments in operating retailers. The inability of the retailers to operate profitably would have an adverse impact on income realized from these investments. Through our investments in joint ventures we have also invested in operating businesses that have operational risk in addition to the risks associated with real estate investments, including among other risks, human capital issues, adequate supply of product and material, and merchandising issues. We operate through a partnership structure, which could have an adverse effect on our ability to manage our assets. (iii) the consideration payable for the acquisition opportunity is our Common Shares, OP Units or other securities. As a result, we may not be able to make attractive acquisitions directly and may only receive a minority interest in such acquisitions through Fund III. Risks of joint ventures. Partnership or joint venture investments may involve risks not otherwise present for investments made solely by us, including the possibility that our partner or co-venturer might become bankrupt, and that our partner or co-venturer may take action contrary to our instructions, requests, policies or objectives, including our policy with respect to maintaining our qualification as a REIT. Other risks of joint venture investments include impasse on decisions, such as a sale, because neither Our primary property-owning vehicle is the Operating we nor a joint venture partner would have full control Partnership, of which we are the general partner. Our over the joint venture. Also, there is no limitation under acquisition of properties through the Operating our organizational documents as to the amount of funds Partnership in exchange for interests in the Operating that may be invested in joint ventures. Partnership may permit certain tax deferral advantages to limited partners who contribute properties to the Operating Partnership. Since properties contributed to the Operating Partnership may have unrealized gain attributable to the difference between the fair market value and adjusted tax basis in such properties prior to contribution, the sale of such properties could cause adverse tax consequences to the limited partners who contributed such properties. Although we, as the general partner of the Operating 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 consequences to the limited Any disputes that may arise between joint venture partners and us may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business. Consequently, actions by or disputes with joint venture partners might result in subjecting properties owned by the joint venture to additional risk. In addition, we may in certain circumstances be liable for the actions of our third-party joint venture partners. During 2010, 2009 and 2008, 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. partners who contribute such properties. Such These factors could limit the return that we receive from restrictions could result in significantly reduced flexibility such investments or cause our cash flows to be lower to manage our assets. Exclusivity obligation to our Opportunity Funds. 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 than our estimates. In addition, a partner or co-venturer may not have access to sufficient capital to satisfy its funding obligations to the joint venture. Acadia Realty Trust 2010 Annual Report 13 36911 Market factors could have an adverse effect on our share price. shareholders at least 90% of our taxable income for each calendar year. Pursuant to IRS pronouncements, up to One of the factors that may influence the trading price of 90% of such distribution may be made in Common our Common Shares is the annual dividend rate on our Shares rather than cash. Our taxable income is Common Shares as a percentage of its market price. An determined without regard to any deduction for dividends increase in market interest rates may lead purchasers of paid and by excluding net capital gains. To the extent our Common Shares to seek a higher annual dividend that we satisfy the distribution requirement, but rate, which could adversely affect the market price of our distribute less than 100% of our taxable income, we will Common Shares. A decline in our share price, as a result be subject to federal corporate income tax on our of this or other market factors, could unfavorably impact undistributed income. In addition, we will incur a 4% our ability to raise additional equity in the public markets. nondeductible excise tax on the amount, if any, by which The loss of a key executive officer could have an adverse effect on us. Our success depends on the contribution of key management members. The loss of the services of Kenneth F. Bernstein, President and Chief Executive Officer, or other key executive-level employees could have a material adverse effect on our results of operations. We have obtained key-man life insurance for Mr. Bernstein. In addition, we have entered into an employment agreement with Mr. Bernstein; however, it could be terminated by Mr. Bernstein. We have not entered into employment agreements with other key executive level employees. our distributions in any year are less than the sum of (i) 85% of our ordinary income for that year; (ii) 95% of our capital gain net income for that year and; (iii) 100% of our undistributed taxable income from prior years. We intend to continue to make distributions to our shareholders to comply with the distribution requirements of the Internal Revenue Code and to minimize exposure to 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 necessary to achieve Our Board of Trustees may change our investment policy without shareholder approval. the tax benefits associated with qualifying as a REIT. The distribution requirements also severely limit our ability to Our Board of Trustees may determine to change our retain earnings to acquire and improve properties or investment and financing policies, our growth strategy retire outstanding debt. 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, the results of decisions made by our Board of Trustees and implemented by management may or 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. To maintain our status as a REIT for federal income tax purposes, we are generally required to distribute to our 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 continue to qualify as a REIT. In addition, no assurance can be given that future legislation, regulations, 14 Acadia Realty Trust 2010 Annual Report 32275 administrative interpretations or court decisions will not of Trust). As a result, if a violative transfer were made, significantly change the requirements for qualification as the recipient of the shares would not acquire any a REIT or adversely affect the federal income tax economic or voting rights attributable to the transferred consequences of such qualification. Under current law, if shares. Additionally, the constructive ownership rules for we fail to qualify as a REIT, we would not be allowed a these limits are complex and groups of related individuals deduction for dividends paid to shareholders in or entities may be deemed a single owner and computing our net taxable income. In addition, our consequently in violation of the share ownership limits. income would be subject to tax at the regular corporate rates. We also could be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. Cash available for distribution to our shareholders would be significantly reduced for each year in which we do not qualify as a REIT. In that event, we would not be required to continue to make distributions. Although we currently Concentration of ownership by certain investors. Six institutional shareholders own 5% or more individually, and 53.8% 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 influence over our management and affairs and may have the effect of delaying, deferring or preventing intend to continue to qualify as a REIT, it is possible that a change in control of us. future economic, market, legal, tax or other considerations may cause us, without the consent of our shareholders, to revoke the REIT election or to otherwise take action that would result in disqualification. 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, 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 preferred 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. directly or indirectly, by five or fewer individuals (as In addition, we have entered into an employment defined in the Internal Revenue Code to include certain agreement with our Chief Executive Officer and entities) during the last half of each taxable year after severance agreements are in place with our executives 1993, and such capital shares must be beneficially which provide that, upon the occurrence of a change in owned by 100 or more persons during at least 335 days control of us and either the termination of their of a taxable year of 12 months or during a proportionate employment without cause (as defined) or their part of a shorter taxable year (in each case, other than resignation for good reason (as defined), those executive the first such year). Our Declaration of Trust includes officers would be entitled to certain termination or certain restrictions regarding transfers of our capital severance payments made by us (which may include a shares and ownership limits that are intended to assist lump sum payment equal to defined percentages of us in satisfying these limitations. These restrictions and annual salary and prior years’ average bonuses, paid in limits may not be adequate in all cases, however, to accordance with the terms and conditions of the prevent the transfer of our capital shares in violation of respective agreement), which could deter a change of the ownership limitations. The ownership limit discussed control of us that could be in our best interest. above may have the effect of delaying, deferring or preventing someone from taking control of us. 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 subject to purchase by us at a price equal to the lesser of (i) the price stipulated in the challenged transaction; and (ii) the fair market value of such shares (determined in accordance with the rules set forth in our Declaration Legislative or regulatory tax changes could have an adverse effect on us. There are a number of issues associated with an investment in a REIT that are related to the federal income tax laws, including, but not limited to, the consequences of a company’s failing to continue to qualify as a REIT. At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended or modified. Any new laws or interpretations may take effect retroactively and Acadia Realty Trust 2010 Annual Report 15 46928 could adversely affect us or our shareholders. Reduced tax rates applicable to certain corporate dividends paid to Redevelopments and acquisitions may fail to perform as expected. most domestic noncorporate shareholders are not Our investment strategy includes the redevelopment and generally available to REIT shareholders since a REITs acquisition of shopping centers in supply contained income generally is not subject to corporate level tax. markets in densely populated areas with high average As a result, investment in non-REIT corporations may be household incomes and significant barriers to entry. The viewed as relatively more attractive than investment in redevelopment and acquisition of properties entails risks REITs by domestic noncorporate investors. This could that include the following, any of which could adversely adversely affect the market price of the Company’s affect our results of operations and our ability to meet shares. our obligations: Our development and construction activities could affect our operating results. (cid:1) the property may fail to achieve the returns we have projected, either temporarily or for extended periods; We intend to continue the selective development and construction of retail properties. As opportunities arise, (cid:1) we may not be able to identify suitable properties to acquire or may be unable to complete the acquisition we expect to delay construction until sufficient pre- of the properties we identify; leasing is reached and financing is in place. Our development and construction activities include risks that: (cid:1) We may abandon development opportunities after expending resources to determine feasibility; (cid:1) we may not be able to integrate an acquisition into our existing operations successfully; (cid:1) properties we redevelop or acquire may fail to achieve the occupancy or rental rates we project, within the (cid:1) Construction costs of a project may exceed our original time frames we project, at the time we make the estimates; (cid:1) Occupancy rates and rents at a newly completed decision to invest, which may result in the properties’ failure to achieve the returns we projected; property may not be sufficient to make the property (cid:1) our pre-acquisition evaluation of the physical condition profitable; (cid:1) Financing for development of a property may not be available to us on favorable terms; (cid:1) We may not complete construction and lease-up on schedule, resulting in increased debt service expense and construction costs; and (cid:1) We may not be able to obtain, or may experience delays in obtaining necessary zoning, land use, building, occupancy and other required governmental permits and authorizations. Additionally, the time frame required for development, construction and lease-up of these properties means that we may not realize a significant cash return for several years. If any of the above events occur, the development of properties may hinder our growth and have an adverse effect on our results of operations and cash flows. In addition, new development activities, regardless of whether or not they are ultimately successful, typically require substantial time and attention from management. of each new investment may not detect certain defects or identify necessary repairs until after the property is acquired, which could significantly increase our total acquisition costs or decrease cash flow from the property; and (cid:1) our investigation of a property or building prior to our acquisition, and any representations we may receive from the seller of such building or property, may fail to reveal various liabilities, which could reduce the cash flow from the property or increase our acquisition cost. Climate change and catastrophic risk from natural perils. Some of our current properties could be subject to potential natural or other disasters. We may acquire properties that are located in areas which are subject to natural disasters. Any properties located in coastal regions would therefore be affected by any future increases in sea levels or in the frequency or severity of hurricanes and tropical storms, whether such increases are caused by global climate changes or other factors. Climate change is a long-term change in the statistical distribution of weather patterns over periods of time that range from decades to millions of years. It may be a 16 Acadia Realty Trust 2010 Annual Report 13066 change in the average weather conditions or a change in owner of real property, we may be liable for the costs of the distribution of weather events with respect to an removal or remediation of certain hazardous or toxic average, for example, greater or fewer extreme weather substances at, on, in or under our property, as well as events. Climate change may be limited to a specific certain other potential costs relating to hazardous or toxic region, or may occur across the whole Earth. substances (including government fines and penalties and There may be significant physical effects of climate change that have the potential to have a material effect on our business and operations. These effects can impact our personnel, physical assets, tenants and overall operations. Physical impacts of climate change may include: damages for injuries to persons and adjacent property). These laws may impose liability without regard to whether we knew of, or were responsible for, the presence or disposal of those substances. This liability may be imposed on us in connection with the activities of an operator of, or tenant at, the property. The cost of any required remediation, removal, fines or personal or (cid:1) Increased storm intensity and severity of weather property damages and our liability therefore could exceed (e.g., floods or hurricanes); (cid:1) Sea level rise; and (cid:1) Extreme temperatures. the value of the property and/or our aggregate assets. In addition, the presence of 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 As a result of these physical impacts from climate-related to borrow using that property as collateral, which, in turn, events, we may be vulnerable to the following: could reduce our revenues and affect our ability to make (cid:1) Risks of property damage to our shopping centers; (cid:1) Indirect financial and operational impacts from disruptions to the operations of major tenants located in our shopping centers from severe weather, such as hurricanes or floods; (cid:1) Increased insurance premiums and deductibles, or a decrease in the availability of coverage, for properties in areas subject to severe weather; (cid:1) Increased insurance claims and liabilities; (cid:1) Increase in energy cost impacting operational returns; distributions. A property can also be adversely affected either through physical contamination or by virtue of an adverse effect upon value attributable to the migration of hazardous or toxic substances, or other contaminants that have or may have emanated from other properties. Although our tenants are primarily responsible for any environmental damages and claims related to the leased premises, in the event of the bankruptcy or inability of any of our tenants to satisfy any obligations with respect to the property leased to that tenant, we may be required to satisfy such obligations. In addition, we may be held (cid:1) Changes in the availability or quality of water, or other directly liable for any such damages or claims natural resources on which the tenant’s business irrespective of the provisions of any lease. depends; From time to time, in connection with the conduct of our (cid:1) Decreased consumer demand for consumer products or services resulting from physical changes associated business, and prior to the acquisition of any property from a third party or as required by our financing with climate change (e.g., warmer temperatures or sources, we authorize the preparation of Phase I decreasing shoreline could reduce demand for environmental reports and, when necessary, Phase II residential and commercial properties previously environmental reports, with respect to our properties. viewed as desirable); (cid:1) Incorrect long term valuation of an equity investment due to changing conditions not previously anticipated at the time of the investment; and (cid:1) Economic disruptions arising from the above. Possible liability relating to environmental matters. Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, as an Based upon these environmental reports and our ongoing review of our properties, we are currently not aware of any environmental condition with respect to any of our properties that we believe would be reasonably likely to have a material adverse effect on us. There can be no assurance, however, that the environmental reports will reveal all environmental conditions at our properties or that the following will not expose us to material liability in the future: Acadia Realty Trust 2010 Annual Report 17 24250 extent that our tenants are impacted by future attacks, their ability to continue to honor obligations under their existing leases could be adversely affected. A decrease in retail demand could make it difficult for us to renew or re-lease our properties at lease rates equal to or above historical rates. These acts might erode business and consumer confidence and spending, and might result in increased volatility in national and international financial markets and economies. Any one of these events might decrease demand for real estate, decrease or delay the occupancy of our properties, and limit our access to capital or increase our cost of raising capital. Outages, computer viruses and similar events could disrupt our operations. We rely on information technology networks and systems, some of which are owned and operated by third parties, to process, transmit and store electronic information. Any of these systems may be susceptible to outages due to fire, floods, power loss, telecommunications failures, terrorist attacks and similar events. Despite the implementation of network security measures, our systems and those of third parties on which we rely may also be vulnerable to computer viruses and similar disruptions. If we and the third parties on whom we rely are unable to prevent such outages and breaches, our operations could be disrupted. ITEM 1B. UNRESOLVED STAFF COMMENTS None. (cid:1) The discovery of previously unknown environmental conditions; (cid:1) Changes in law; (cid:1) Activities of tenants; and (cid:1) Activities relating to properties in the vicinity of our properties. Changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of our tenants, which could adversely affect our financial condition or results of operations. Uninsured losses or a loss in excess of insured limits 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 insured limits customarily carried for similar properties. However, with respect to those properties where the leases do not provide for abatement of rent under any circumstances, we generally do not maintain loss of rent insurance. In addition, there are certain types of losses, such as losses resulting from wars, terrorism or acts of God that generally are not insured because they are either uninsurable or not economically insurable. Should an uninsured loss or a loss in excess of insured limits occur, we could lose capital invested in a property, as well as the anticipated future revenues from a property, while remaining obligated for any mortgage indebtedness or other financial obligations related to the property. Any loss of these types would adversely affect our financial condition. Future terrorist attacks or civil unrest could harm the demand for, and the value of, our properties. Future terrorist attacks or civil unrest, such as the attacks that occurred in New York, Pennsylvania and Washington, D.C. on September 11, 2001, and other acts of terrorism or war, could harm the demand for, and the value of, our properties. Terrorist attacks could directly impact the value of our properties through damage, destruction, loss or increased security costs, and the availability of insurance for such acts may be limited or may be subject to substantial cost increases. To the 18 Acadia Realty Trust 2010 Annual Report 23688 ITEM 2. PROPERTIES Shopping Center Properties The discussion and tables in this Item 2 include majority of our rental revenues were from national tenants. A majority of the income from the properties consists of rent received under long-term leases. These leases generally provide for the payment of fixed properties held through our Core Portfolio and our minimum rent monthly in advance and for the payment Opportunity Funds. We define our Core Portfolio as by tenants of a pro-rata share of the real estate taxes, those properties either 100% owned by, or partially insurance, utilities and common area maintenance of the owned through joint venture interests by, the Operating shopping centers. Minimum rents and expense Partnership, or subsidiaries thereof, not including those reimbursements accounted for approximately 85% of our properties owned through our Opportunity Funds. The total revenues for the year ended December 31, 2010. discussion of the Opportunity Funds does not include our investment in a portfolio of self-storage properties, which are detailed separately within this Item 2. Certain of our leases also provided for the payment of percentage rents either in addition to, or in place of, minimum rents. These arrangements generally provide As of December 31, 2010, excluding two properties for payment to us of a certain percentage of a tenant’s under redevelopment, there are 32 operating properties gross sales in excess of a stipulated annual amount. in our Core Portfolio totaling approximately 4.8 million Percentage rents accounted for less than 1% of the total square feet of gross leasable area (“GLA”). The Core 2010 revenues of the Company. Portfolio properties are located in 12 states and are generally well-established 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 and as of December 31, 2010, were, in total, 92% occupied. Four of our Core Portfolio properties and 21 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 As of December 31, 2010, we owned and operated 27 at all 25 locations. properties totaling 2.5 million square feet of GLA in our Opportunity Funds, excluding five properties under redevelopment. 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 13 states and as of December 31, 2010, were, in total, 87% occupied. Within our Core Portfolio and Opportunity Funds, we had approximately 550 leases as of December 31, 2010. A No individual property contributed in excess of 10% of our total revenues for the years ended December 31, 2010, 2009 or 2008. Reference is made to Note 8 to our Consolidated Financial Statements, which begin on page 60 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, 2010: Acadia Realty Trust 2010 Annual Report 19 96302 Year Constructed (C) Acquired (A) Ownership Interest GLA Occupancy %(1) 12/31/10 Annual Base Rent Annual Base Rent PSF Anchor Tenants Current Lease Expiration/ Lease Option Expiration Shopping Center Location Core Portfolio NEW YORK Connecticut 239 Greenwich Avenue Greenwich 1998 (A) Fee/JV 16,834(2) 100% $ 1,554,663 $ 92.35 Restoration Hardware 2014/2024 Coach 2016/2021 New Jersey Elmwood Park Shopping Center Elmwood Park 1998 (A) Fee 149,491 92% 3,397,955 24.75 A&P 2017/2052 Walgreen’s 2022/2062 A&P Shopping Plaza Boonton 2006 (A) Fee/JV 62,908 90% 1,166,305 20.58 A&P 2024/2054 New York Village Commons Shopping Smithtown 1998 (A) Fee 87,330 Center Branch Shopping Plaza Smithtown 1998 (A) LI (3) 125,712 75% 99% 2,065,110 31.60 2,681,144 21.46 A&P 2013/2028 CVS 2020/— Amboy Road Bartow Avenue Pacesetter Park Shopping Center West Shore Expressway Staten Island Bronx Pomona Staten Island West 54th Street East 17th Street Crossroads Shopping Center Manhattan Manhattan White Plains 2005 (A) LI (3) 60,090 100% 1,605,791 26.72 King Kullen 2028/2043 2005 (C) 1999 (A) 2007 (A) 2007 (A) 2008 (A) 1998 (A) Fee Fee Fee Fee Fee Fee/JV (4) 14,676 96,380 89% 91% 439,249 33.43 1,108,621 12.67 Stop & Shop 2020/2040 Duane Reade 2013/2018 55,000 100% 1,265,000 23.00 LA Fitness 2021/2036 9,693 19,622 309,487 100% 100% 94% 2,564,844 264.61 Stage Deli 2013/— 625,000 6,093,005 31.85 Barnes & Noble 2013/2018 21.00 A&P 2012/2032 Kmart 2012/2032 B. Dalton 2012/2022 Modell’s 2014/2019 Pier 1 2012/— Home Goods 2018/2033 Total New York Region 1,007,223 93% $24,566,687 $ 26.24 NEW ENGLAND Connecticut Town Line Plaza Massachusetts Rocky Hill 1998 (A) Fee 206,346(5) 98% $ 1,632,831 $ 15.55 Stop & Shop 2024/2064 Wal-Mart(5) Methuen Shopping Center Methuen 1998 (A) Fee 130,021 100% 958,689 7.37 Demoulas Market 2015/— Crescent Plaza Brockton 1984 (A) Fee 218,141 91% 1,585,619 Wal-Mart 2012/2052 8.02 Supervalu 2012/2042 Home Depot 2021/2056 New York New Loudon Center Latham 1982 (A) Fee 255,673 74% 1,535,346 8.06 Price Chopper 2015/2035 Rhode Island Walnut Hill Plaza Woonsocket 1998 (A) Fee 284,717 94% 2,354,928 Marshall’s 2014/2029 Raymour and Flanigan 2019/2034 AC Moore 2014/2024 8.84 Supervalu 2013/2028 Sears 2013/2033 CVS 2011/2014 Vermont The Gateway Shopping Center South Burlington Total New England Region 1999 (A) Fee 101,784 92% 1,798,042 19.16 Supervalu 2024/2053 1,196,682 90% $ 9,865,455 $ 10.03 20 Acadia Realty Trust 2010 Annual Report 13937 Year Constructed (C) Acquired (A) Ownership Interest GLA Occupancy %(1) 12/31/10 Annual Base Rent Annual Base Rent PSF Anchor Tenants Current Lease Expiration/ Lease Option Expiration Shopping Center Location MIDWEST REGION Illinois Hobson West Plaza Naperville 1998 (A) Chicago 2006 (A) Fee Fee 99,126 92% $ 1,087,179 11.92 Garden Fresh Markets 2012/2032 19,265 92% 799,766 45.34 Clark Diversey Indiana Merrillville Plaza Merrillville 1998 (A) Fee 235,904 93% 2,859,030 13.08 TJ Maxx 2019/2029 JC Penney 2013/2018 OfficeMax 2013/2028 Pier 1 2014/— K&G Fashion 2017/2027 David’s Bridal 2011/2021 Michigan Bloomfield Town Square Bloomfield Hills 1998 (A) Fee 234,095 98% 2,841,021 12.37 TJ Maxx 2019/2029 Marshalls 2011/2026 Home Goods 2011/2021 OfficeMax 2011/2026 Best Buy 2021/2041 Ohio Mad River Station Dayton 1999 (A) Fee 125,984 88% 1,397,908 12.66 Babies ‘R’ Us 2015/2020 Total Midwest Region MID-ATLANTIC New Jersey 714,374 93% $ 8,984,904 $ 13.46 Office Depot 2015/— Pier 1 2015/— Marketplace of Absecon Absecon 1998 (A) Fee 104,718 72% 1,128,904 15.05 Rite Aid 2020/2040 Dollar Tree 2015/2030 Delaware Brandywine Town Center Wilmington 2003 (A) Fee/JV (7) 874,989 94% 12,901,436 15.68 Bed, Bath & Beyond 2014/2029 Dick’s Sporting Goods 2013/2028 Lowe’s Home Centers 2018/2048 Target 2018/2058 Market Square Shopping Wilmington 2003 (A) Fee/JV (7) 102,047 100% 2,450,846 24.02 TJ Maxx 2011/2021 Center Trader Joe’s 2019/2034 Route 202 Shopping Center Wilmington 2006 (C) LI/JV (3) (7) 19,970 55% 558,340 50.89 Pennsylvania Mark Plaza Edwardsville 1968 (C) LI/Fee (3) 216,401 86% 829,922 4.46 Redner’s Markets 2018/2028 Kmart 2014/2049 Plaza 422 Lebanon 1972 (C) Fee 156,279 100% 795,852 5.09 Home Depot 2028/2058 Dunham’s 2016/2031 Route 6 Mall Honesdale 1994 (C) Fee 175,519 100% 1,171,690 6.68 Kmart 2020/2070 Chestnut Hill Abington Towne Center Philadelphia Abington 2006 (A) 1998 (A) Fee (8) Fee 40,570 216,369(6) Total Mid-Atlantic Region Total Core Operating Properties 1,906,862 4,825,141 Rite Aid 2011/2026 325,483 1,093,775 35.57 19.16 TJ Maxx 2016/2026 Target (6) $21,256,248 $ 13.33 $64,673,294 $ 15.46 23% 99% 92% 92% Acadia Realty Trust 2010 Annual Report 21 87483 Shopping Center Location Year Constructed (C) Acquired (A) Ownership Interest GLA Occupancy %(1) 12/31/10 Annual Base Rent Annual Base Rent PSF Anchor Tenants Current Lease Expiration/ Lease Option Expiration Properties under Redevelopment 2914 Third Avenue Ledgewood Mall Bronx Ledgewood 2006 (A) 1983 (A) Fee Fee 42,400 517,151 24% 79% 180,000 17.45 3,466,745 8.44 Wal-Mart 2019/2049 Macy’s 2015/2025 The Sports Authority 2012/2037 Marshalls 2014/2035 Ashley Furniture 2015/2020 Barnes and Noble 2015/2035 Total Core Properties 5,384,692 90% $68,320,039 $14.84 Opportunity Fund Portfolio Fund I Properties Ohio Granville Centre Columbus 2002 (A) Fee 134,997 36% 593,022 12.37 Lifestyle Family Fitness 2017/2027 New York Tarrytown Shopping Center Tarrytown 2004 (A) Fee 34,979 85% 891,483 29.97 Walgreen’s 2080/— VARIOUS REGIONS Kroger/Safeway Portfolio Total Fund I Properties Fund II Properties New York Pelham Plaza Fordham Place Liberty Avenue Canarsie Plaza 216th Street Total Fund II Properties Fund III Properties New York Cortlandt Towne Center Massachusetts Various 2003 (A) LI/JV (3) 709,400 100% 3,560,326 5.02 18 Kroger/Safeway Supermarkets Various 879,376 90% $ 5,044,831 $ 6.41 Pelham Manor Bronx 2004 (A) LI/JV (3) 228,521 78% 4,751,941 26.67 BJ’s Wholesale Club 2033/2053 2004(A) Fee/JV 119,446 100% 5,519,760 46.21 Best Buy 2019/2039 Michaels 2013/2033 New York Brooklyn 2005 (A) 2007 (A) LI/JV (3) Fee/JV New York 2005 (A) Fee/JV Sears 2023/2033 26,125 278,737 60,000 712,829 83% 64% 100% 78% 730,377 33.72 CVS 2032/2052 5,100,000 28.79 BJ’s Wholesale Club 2030/2055 2,460,000 $18,562,078 41.00 NYC 2027/2032 $33.36 Mohegan Lake 2009 (A) Fee 641,254 91% 9,139,440 15.72 Walmart 2018/2048 A&P 2022/2047 Best Buy 2017/2032 White City Shopping Center Shrewsbury 2010 (A) Fee/JV 255,199 93% 4,880,720 20.51 Shaw’s 2018/2033 Michaels 2012/2022 Core Fitness 2016/2021 Total Fund III Properties Total Opportunity Fund Operating Properties 896,453 2,488,658 91% 87% $14,020,160 $17.11 $37,627,069 $17.40 22 Acadia Realty Trust 2010 Annual Report 70324 Shopping Center Location Year Constructed (C) Acquired (A) Ownership Interest GLA Occupancy %(1) 12/31/10 Annual Base Rent Annual Base Rent PSF Anchor Tenants Current Lease Expiration/ Lease Option Expiration Properties under Redevelopment Sherman Plaza CityPoint Westport Sheepshead Bay New York Brooklyn Westport Brooklyn 161st Street Total Redevelopment Properties Bronx 2005 (A) 2007 (A) 2007 (A) 2007 (A) 2005 (A) Fee/JV LI/JV Fee/JV Fee/JV Fee/JV — — — — 230,218 230,218 — — — — 83% 83% — — — — — — — — 4,384,824 $4,384,824 23.07 $23.07 City of New York 2011/— Notes: (1) Does not include space for which lease term had not yet (5) Includes a 97,300 square foot Wal-Mart which is not owned by us. commenced as of December 31, 2010. (6) Includes a 157,616 square foot Target Store that is not (2) In addition to the 16,834 square feet of retail GLA, this owned by us. property also has 21 apartments comprising 14,434 square feet. (7) We have a 22% investment in this property. (8) Property consists of two buildings. (3) We are a ground lessee under a long-term ground lease. (4) We have a 49% investment in this property. Acadia Realty Trust 2010 Annual Report 23 13458 Major Tenants No individual retail tenant accounted for more than 5.7% of minimum rents for the year ended December 31, 2010 or occupied more than 6.8% of total leased GLA as of December 31, 2010. The following table sets forth certain information for the 20 largest retail tenants based upon minimum rents in place as of December 31, 2010. 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: Retail Tenant A&P (A&P, Pathmark) Supervalu (Shaw’s) TJX Companies (T.J. Maxx, Marshalls, Homegoods) Wal-Mart Sears (Kmart, Sears) BJ’s Wholesale Club Ahold (Stop & Shop) LA Fitness Restoration Hardware Barnes & Noble Home Depot Stage Deli Walgreens Sleepy’s Price Chopper King Kullen Pier 1 Imports Safeway CVS Payless Shoesource Total Notes: Number of Stores in Portfolio Total GLA Annualized Base Rent (1) Total Portfolio GLA (2) Annualized Base Rent (2) Percentage of Total Represented by Retail Tenant 5 4 10 3 5 2 2 1 1 4 2 1 3 5 1 1 4 12 3 9 78 191,899 186,500 $ 3,468,080 2,563,590 249,771 235,991 341,708 54,223 117,911 55,000 12,293 43,259 211,003 4,211 22,692 34,543 87,709 37,266 25,454 123,626 36,476 28,466 2,161,722 1,713,365 1,654,280 1,476,000 1,363,237 1,265,000 1,166,090 1,146,079 1,099,996 999,996 854,313 848,761 836,660 745,320 646,154 630,177 619,808 561,220 3.8% 3.7% 5.0% 4.7% 6.8% 1.1% 2.3% 1.1% 0.2% 0.9% 4.2% 0.1% 0.5% 0.7% 1.7% 0.7% 0.5% 2.5% 0.7% 0.6% 5.7% 4.2% 3.6% 2.8% 2.7% 2.4% 2.3% 2.1% 1.9% 1.9% 1.8% 1.7% 1.4% 1.4% 1.4% 1.2% 1.1% 1.0% 1.0% 0.9% 2,100,001 $25,819,848 41.8% 42.5% (1) Base rents do not include percentage rents, additional rents for property expense reimbursements and contractual rent escalations due after December 31, 2010. (2) Represents percentage of 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. 24 Acadia Realty Trust 2010 Annual Report 11155 Lease Expirations The following table shows scheduled lease expirations for retail tenants in place as of December 31, 2010, assuming that none of the tenants exercise renewal options. (GLA and Annualized Base Rent in thousands): Core Portfolio: Leases maturing in Month to Month 2011 2012 2013 2014 2015 2016 2017 2018 2019 Thereafter Total Opportunity Funds: Leases maturing in Month to Month 2011 2012 2013 2014 2015 2016 2017 2018 2019 Thereafter Total Note: Annualized Base Rent (1) Number of Leases Current Annual Rent Percentage of Total Square Feet GLA Percentage of Total 13 61 57 63 61 44 12 18 24 20 39 $ 466 7,798 6,706 10,109 8,192 7,685 1,852 4,633 5,639 2,746 12,494 1% 11% 10% 15% 12% 11% 3% 7% 8% 4% 18% 34 446 561 553 497 572 133 202 401 286 921 1% 10% 12% 12% 11% 12% 3% 4% 9% 6% 20% 412 $68,320 100% 4,606 100% Annualized Base Rent (1) Number of Leases Current Annual Rent Percentage of Total Square Feet GLA Percentage of Total 3 29(2) 21 10 14 11 9 5 9 9 23 $ 156 7,699 2,421 2,321 2,310 980 1,107 1,586 3,185 2,588 17,659 0% 18% 6% 6% 5% 2% 3% 4% 8% 6% 42% 17 882 107 105 115 49 48 97 258 62 613 1% 37% 5% 4% 5% 2% 2% 4% 11% 3% 26% 143 $42,012 100% 2,353 100% (1) Base rents do not include percentage rents, additional rents for property expense reimbursements, nor contractual rent escalations. (2) Includes the master lease term for all 18 Kroger/Safeway leases representing annualized base rent of $3,560 and GLA of 709 square feet. The underlying operating leases at fourteen of these locations representing 547 square feet and rents aggregating $2,743 expire during 2014. The operating leases at two locations, representing 92 square feet and rents aggregating $426, expire during 2019. Reference is made to page 28 below for a discussion of the Kroger/Safeway portfolio. Acadia Realty Trust 2010 Annual Report 25 62574 Geographic Concentrations The following table summarizes our retail properties by region as of December 31, 2010. The amounts below also reflect properties that we invest in through joint ventures and that are held in our Opportunity Funds (GLA and Annualized Base Rent in thousands): Region Core Properties: Operating Properties: New York Region New England Midwest Mid-Atlantic Total Core Operating Properties Redevelopment Properties: Mid-Atlantic New York Region Total Core Redevelopment Properties Opportunity Funds: Operating Properties: Midwest New York Region Various (Kroger/Safeway Portfolio) New England Total Opportunity Fund Operating Properties Redevelopment Properties: New York Region Note: GLA (1) Occupied % (2) Annualized Base Rent (2) Annualized Base Rent per Occupied Square Foot Percentage of Total Represented by Region GLA Annualized Base Rent 1,007 1,197 714 1,907 4,825 517 42 559 135 1,389 709 255 93% 90% 93% 92% 92% 79% 24% $24,567 9,865 8,985 21,256 $64,673 $ 3,467 180 $26.24 10.03 13.46 13.33 $15.46 $ 8.44 17.45 20% 25% 15% 40% 38% 15% 14% 33% 100% 100% 92% 8% 95% 5% 75% $ 3,647 $ 8.66 100% 100% 36% 84% 100% 93% $ 593 28,593 3,560 4,881 $12.37 24.49 5.02 20.51 5% 56% 29% 10% 2% 76% 9% 13% 2,488 87% $37,627 $17.40 100% 100% 230 83% $ 4,385 $23.07 100% 100% (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, 2010. 26 Acadia Realty Trust 2010 Annual Report 26359 Self-Storage Portfolio During February 2008, we, through Fund III, acquired a 95% controlling interest in a portfolio of eleven self- storage properties from Storage Post’s existing portfolio, located throughout New York and New Jersey, totals 1,127,490 net rentable square feet, and is operating at various stages of stabilization as detailed in the table below. The portfolio is operated by Self Storage institutional investors for approximately $174.0 million. In Management, a joint venture entity formed by Fund III addition, we, through Fund II, developed three self- and an unaffiliated partner. storage properties. The fourteen self-storage property Owner Operating Properties Location Net Rentable Square Feet Occupancy as of December 31, 2010 Fund III Fund III Fund III Fund III Fund III Fund III Fund III Fund III Fund III Fund III Fund III Fund II Fund II Fund II Stabilized Suffern Yonkers Jersey City Webster Ave Linden Bruckner Blvd New Rochelle Lawrence Subtotal Stabilized Redeveloped — in Lease-up Long Island City Subtotal in Lease-up Total Operating Properties In Initial Lease-up Fordham Road Ridgewood Liberty Avenue Pelham Plaza Atlantic Avenue Subtotal in Initial Lease-up Total Self-Storage Portfolio Suffern, New York Westchester, New York Jersey City, New Jersey Bronx, New York Linden, New Jersey Bronx, New York Westchester, New York Lawrence, New York Queens, New York Bronx, New York Queens, New York Queens, New York Pelham Manor, New York Brooklyn, New York 78,950 100,643 76,920 36,175 84,035 89,473 42,158 97,743 606,097 135,558 135,558 741,655 85,155 88,789 72,925 62,020 76,946 87.5% 75.3% 85.3% 385,835 1,127,490 66.1% Acadia Realty Trust 2010 Annual Report 27 51417 Kroger/Safeway Portfolio At December 31, 2010, Fund I, together with an unaffiliated joint venture partner (“Kroger/Safeway JV”), owns interests, 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 twelve Safeway locations in eleven states averaging approximately 39,000 square feet at rents ranging from approximately $3.70 to $7.00 per square foot. The master leases expire in January 2011 with the Master Lessee having the option of extending the term of either or both of the master leases. The Master Lessee exercised the option to 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. We believe this aspect of the case is without merit. There are four other claims relating to transfers of assets of 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, cancel the master lease in the first quarter of 2011. As a consolidated financial condition, or liquidity. result, the Kroger/Safeway JV became the operating landlord of the locations. The Kroger/Safeway JV holds its interest through 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 average 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 During August 2009, we terminated the employment of a former Senior Vice President (the “Former Employee”) for engaging in conduct that fell within the definition of “cause” in his severance agreement with us. Had the Former Employee not been terminated for “cause,” he would have been eligible to receive approximately $0.9 million under the severance agreement. Because we terminated him for “cause,” we did not pay the Former Employee any severance benefits under the agreement. The Former Employee has brought a lawsuit against us in New York State Supreme Court, alleging breach of the severance agreement. The suit is in the pre-trial discovery stage. We believe we have meritorious approximately $5.6 million. defenses to the suit. ITEM 4. REMOVED AND RESERVED 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 the commencement of the initial option period during 2009. Of the remaining 18 locations, 15 are currently occupied and paying rent, one is unoccupied and paying rent, and two remain vacant. ITEM 3. LEGAL PROCEEDINGS We are involved in other various matters of litigation arising in the normal course of business. While we are unable to predict with any certainty the amounts involved, management is of the opinion that, when such litigation is resolved, our resulting exposure to loss contingencies, if any, will not have a significant effect on our consolidated financial position, results of operations, or liquidity. During September 2008, we, and certain of our subsidiaries, and other unrelated entities were named as 28 Acadia Realty Trust 2010 Annual Report 16495 PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER 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, 2010 and 2009: Quarter Ended High Low 2010 March 31, 2010 June 30, 2010 September 30, 2010 December 31, 2010 2009 March 31, 2009 June 30, 2009 September 30, 2009 December 31, 2009 $18.40 19.80 19.77 20.17 $14.69 15.44 16.51 17.69 $14.88 16.22 15.87 17.72 $ 8.50 10.37 11.55 13.31 Dividend Per Share $0.1800 0.1800 0.1800 0.1800 $0.2100 0.1800 0.1800 0.1800 2010 represented ordinary income. The dividend for the quarter ended December 31, 2010 was paid on February 1, 2011 and will be taxable in 2011. Our cash flow is affected by a number of factors, including the revenues received from rental properties, our operating expenses, the interest expense on our borrowings, the ability of lessees to meet their obligations to us and unanticipated capital expenditures. Future dividends paid by us will be at the discretion of the Trustees and will depend on our actual cash flows, our financial condition, capital requirements, the annual distribution requirements under 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%). (b) Issuer purchases of equity securities We have an existing share repurchase program that authorizes management, at its discretion, to repurchase up to $20.0 million of our outstanding Common Shares. The program may be discontinued or extended at any time and there is no assurance that we will purchase the At February 28, 2011, there were 309 holders of record full amount authorized. There were no Common Shares of our Common Shares. repurchased by us during the year ended December 31, We have determined for income tax purposes that 100% of the total dividends distributed to shareholders during 2010. Acadia Realty Trust 2010 Annual Report 29 32741 (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, 2010: 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)) 152,283 — 152,283 $18.20 — $18.20 763,444(1) — 763,444(1) Equity compensation plans approved by security holders Equity compensation plans not approved by security holders Total Notes: (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 exercise 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. We have also issued LTIP Units, which are generally exchangeable on a one-for-one basis for our Operating Partnership Units which in turn are convertible into Common Shares. Reference is made to Note 15 to our Consolidated Financial Statements, which begin on Page 60 of this Form 10-K, for a summary of our Share Incentive Plans. Remaining Common Shares available under our share incentive plans is as follows: Outstanding Common Shares as of December 31, 2010 Outstanding OP Units as of December 31, 2010 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 40,254,525 360,114 40,614,639 4,873,757 500,000 5,373,757 (1,834,794) (2,775,519) 763,444 (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, 2005 through December 31, 2010 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, 2005, and assuming reinvestment of dividends. The shareholder return as set forth in the table below is not necessarily indicative of future performance. Note: (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. 30 Acadia Realty Trust 2010 Annual Report 39594 Comparison of 5 Year Cumulative Total Return among Acadia Realty Trust, the Russell 2000, the NAREIT and the SNL: Total Return Performance l e u a V x e d n I 150 125 100 75 50 25 Acadia Realty Trust Russell 2000 NAREIT All Equity REIT Index SNL REIT Retail Shopping Center Index 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 12/31/10 Index Acadia Realty Trust Russell 2000 NAREIT All Equity REIT Index SNL REIT Retail Shopping Ctr Index Period Ended 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 12/31/10 100.00 100.00 100.00 100.00 128.74 118.37 135.06 134.61 137.06 116.51 113.87 110.82 83.20 77.15 70.91 66.72 103.95 98.11 90.76 65.86 116.96 124.46 116.12 85.53 Acadia Realty Trust 2010 Annual Report 31 38781 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth, on a historical basis, our selected financial data. This information should be read in conjunction with our audited Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing elsewhere in this Form 10-K. Funds from operations (“FFO”) amounts for the year ended December 31, 2010 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) 2010 Years ended December 31, 2009 2008 2007 2006 OPERATING DATA: Revenues Operating expenses, excluding depreciation and reserves Interest expense Depreciation and amortization Gain on sale of land Equity in earnings (losses) of unconsolidated partnerships Impairment of investment in unconsolidated affiliate Reserve for notes receivable Other interest income Gain from bargain purchase Gain on debt extinguishment Income tax expense (benefit) Income from continuing operations Income from discontinued operations Income from extraordinary item (1) Net income (Income) loss attributable to noncontrolling interests in subsidiaries: Continuing operations Discontinued operations Extraordinary item Net (income) loss attributable to noncontrolling interests in subsidiaries $ 151,958 $ 145,703 $ 133,566 $ 88,259 $ 85,577 40,227 19,929 22,431 — 70,963 32,154 36,634 — 46,090 24,564 24,529 — 61,215 28,893 32,749 763 69,379 34,471 40,115 — 10,971 — — 408 33,805 — 2,890 50,287 380 — 50,667 (1,529) (3,768) (1,734) 642 — 7,057 1,541 5,079 7,627 — 12,706 19,906 — (4,392) 3,370 — 1,523 3,362 28,517 8,920 — 37,437 6,619 — — 5,833 — — 297 2,559 — — 2,318 — — (508) 5,231 7,486 27,844 8,375 25,780 — 40,561 34,155 (20,307) (303) — 23,472 (5,045) — (11,438) (931) 9,750 (798) — (24,167) 6,039 (1,274) — (20,610) 18,427 (12,369) (15,215) 4,765 Net income attributable to Common Shareholders $ 30,057 $ 31,133 $ 25,068 $ 25,346 $ 38,920 Supplemental Information: Income from continuing operations attributable to Common Shareholders Income from discontinued operations attributable to Common Shareholders Income from extraordinary item attributable to Common Shareholders Net income attributable to Common Shareholders 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 32 Acadia Realty Trust 2010 Annual Report $ 29,980 $ 28,551 $ 17,079 $ 14,981 $ 14,414 77 — 2,582 7,989 6,688 24,506 — — 3,677 — 30,057 $ 31,133 $ 25,068 $ 25,346 $ 38,920 0.75 $ — — 0.75 $ 0.74 $ — — 0.74 $ 0.75 $ 0.07 — 0.82 $ 0.75 $ 0.07 — 0.82 $ 0.51 $ 0.23 — 0.45 $ 0.20 0.11 0.74 $ 0.76 $ 0.50 $ 0.23 — 0.44 $ 0.19 0.11 0.73 $ 0.74 $ 0.43 0.72 — 1.15 0.42 0.71 — 1.13 $ $ $ $ $ 27479 (dollars in thousands, except per share amounts) 2010 2009 2008 2007 2006 Years ended December 31, Weighted average number of Common Shares outstanding – basic – diluted Cash dividends declared per Common Share (3) BALANCE SHEET DATA: Real estate before accumulated depreciation 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 40,136 40,406 0.7200 $ 38,005 38,242 0.7500 $ 33,813 33,600 33,789 34,440 34,282 34,267 0.8951 $ 1.0325 $ 0.7550 $ $1,386,299 $1,200,483 $1,085,072 $ 810,697 $606,905 851,396 315,147 90,256 250,567 113,737 364,304 1,382,464 732,287 47,910 312,185 220,292 532,477 1,291,383 653,543 100,403 227,722 214,506 442,228 1,524,806 806,212 48,712 318,212 269,310 587,522 998,783 399,997 105,790 249,717 171,111 420,828 50,440 49,613 37,964 42,094 39,860 44,377 (60,745) 43,152 47,462 (123,380) 83,035 66,517 (302,265) 199,096 105,294 (208,998) 87,476 39,627 (58,890) 68,359 Notes: (1) The extraordinary item relates to 2007 and represents our share of an extraordinary gain from our investment in Albertson’s. We consider this to be a private-equity style investment in an operating businesses as opposed to real estate. Accordingly, all gains and losses from this investment is included in FFO, which we believe provides a more accurate reflection of our operating performance. (2) We consider funds from operations (“FFO”) as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) to be an appropriate supplemental disclosure of operating performance for an equity REIT due to its widespread acceptance and use within the REIT and analyst communities. FFO is presented to assist investors in analyzing our performance. It is helpful as it excludes various items included in net income that are not indicative of the operating performance, such as gains (losses) from sales of depreciated property and depreciation and amortization. However, our method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. FFO does not represent cash generated from operations as defined by generally accepted accounting principles (“GAAP”) and is not indicative of cash available to fund all cash needs, including distributions. It should not be considered as an alternative to net income for the purpose of evaluating our performance or to cash flows as a measure of liquidity. Consistent with the NAREIT definition, we define FFO as net income (computed in accordance with GAAP), excluding gains (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, we declared a Common Share dividend of $0.4949. Acadia Realty Trust 2010 Annual Report 33 38722 Management’s Discussion And Analysis ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview As of December 31, 2010, we operated 79 properties, which we own or have an ownership interest in, within returns. We focus on the following fundamentals to achieve this objective: (cid:1) 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 our Core Portfolio or within our three Opportunity Funds. leasing activities Our Core Portfolio consists of those properties either 100% owned by, or partially owned through joint venture interests by the Operating Partnership, or subsidiaries thereof, not including those properties owned through our Opportunity Funds. These 79 properties consist of commercial properties, primarily neighborhood and (cid:1) Maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth (cid:1) Generate external growth through an opportunistic yet disciplined acquisition program. We target transactions community shopping centers, self-storage and mixed-use with high inherent opportunity for the creation of properties with a retail component. The properties we additional value through redevelopment and leasing operate are located primarily in the Northeast, Mid- and/or transactions requiring creative capital structuring Atlantic and Midwestern regions of the United States. to facilitate the transactions. These transactions may Excluding two properties under redevelopment, there are include other types of commercial real estate besides 32 properties in our Core Portfolio totaling approximately 4.8 million square feet. Fund I has 20 properties comprising approximately 0.9 million square feet. Fund II has 10 properties, eight of which (representing 1.2 those which we currently invest in through our Core Portfolio. These may also include joint ventures with private equity investors for the purpose of making investments in operating retailers with significant million square feet) are currently operating, one is under embedded value in their real estate assets construction, and one is in the design phase. Three of the properties also include self-storage facilities. We expect the Fund II portfolio will have approximately 2.0 million square feet upon completion of all current construction and anticipated redevelopment activities. Fund III has 15 properties totaling approximately 1.8 million square feet, of which 11 locations representing 0.9 million net rentable square feet are self-storage facilities and one is in the design phase. 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 subsidiary (“TRS”). Our primary business objective is to acquire and manage commercial retail properties that will provide cash for distributions to shareholders while also creating the potential for capital appreciation to enhance investor 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. Although the occupancy and net operating income within our portfolio has not been materially adversely affected through December 31, 2010, 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 these conditions 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, refinance existing debt or finance 34 Acadia Realty Trust 2010 Annual Report 15961 our current redevelopment projects” and “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.” Results of Operations Reference is made to Note 3 to the Notes to Consolidated Financial Statements beginning on page 60 of this Form 10-K for an overview of our five reportable segments. Comparison of the year ended December 31, 2010 (“2010”) to the year ended December 31, 2009 (“2009”) (dollars in millions) 2010 2009 Revenues Rental income Mortgage interest income Expense reimbursements Lease termination income Management fee income (1) Other Total revenues Note: Core Portfolio Opportunity Funds Self- Storage Portfolio Notes Receivable and Other Core Portfolio Opportunity Funds Self- Storage Portfolio Notes Receivable and Other $48.3 — 13.3 0.3 — 0.3 $62.2 $39.0 — 8.7 — — 0.2 $47.9 $19.6 — — — — 1.7 $21.3 $ — 19.2 — — 1.4 — $20.6 $51.2 — 13.7 2.8 — 1.9 $69.6 $34.7 — 7.2 — — 1.4 $43.3 $ 9.8 — — — — 1.3 $11.1 $ — 19.7 — — 2.0 — $21.7 (1) Fees earned by us as general partner/managing member of the Opportunity Funds are eliminated in consolidation and adjust the loss (income) attributable to noncontrolling interests and are not reflected above. The balance reflected in the table represents third party fees that are not eliminated in consolidation. The decrease in rental income in the Core Portfolio was reflects thirteen months of storage activity while the year primarily attributable to tenant vacancies at Chestnut Hill ended December 31, 2009 reflects twelve months of and Third Avenue. The increase in rental income in the storage activity (“Storage Portfolio Activity”). Opportunity Funds primarily related to additional rents following the acquisition of Cortlandt Towne Center (“2009 Fund Acquisition”) of $1.0 million and additional rents at Fordham Place, Pelham Manor and Canarsie for leases that commenced in 2009 and 2010 (“Fund Redevelopment Properties”). The increase in rental income in the Storage Portfolio related to the full amortization of acquired lease intangible costs during Expense reimbursements in the Opportunity Funds increased for both real estate taxes and common area maintenance primarily as a result of the 2009 Fund Acquisition and Fund Redevelopment Properties. Lease termination income in the Core Portfolio for 2009 related to termination fee income received from a former tenant at Absecon Marketplace. 2009, increased occupancy in the Storage Portfolio as Other in the Core Portfolio in 2009 included $1.7 million well as our discontinued practice of reporting the Storage resulting from a forfeited sales contract deposit. Portfolio one month in arrears which was based on the historical unavailability of timely financial information. Based on improvements in the Storage Portfolio accounting systems, we report this activity on a current basis. Accordingly, the year ended December 31, 2010 Other in the Opportunity Funds during 2009 included $0.9 million received by Fund II in settlement of litigation in connection with a property acquisition. Acadia Realty Trust 2010 Annual Report 35 20802 Management’s Discussion And Analysis continued (dollars in millions) 2010 2009 Operating Expenses Property operating Real estate taxes General and administrative Depreciation and amortization Abandonment of project costs Reserve for notes receivable Core Portfolio Opportunity Funds Self- Storage Portfolio Notes Receivable and Other Core Portfolio Opportunity Funds Self- Storage Portfolio Notes Receivable and Other $10.5 9.0 22.4 16.2 — — $11.8 6.3 13.5 19.4 — — $10.2 2.9 0.1 5.1 — — $ (1.5) — (15.8) (0.6) — — $12.1 9.3 24.0 17.2 — — $10.1 5.3 13.5 16.5 2.5 — $ 8.7 2.2 0.1 4.4 — — $ (1.2) — (15.6) (1.5) — 1.7 Total operating expenses $58.1 $51.0 $18.3 $(17.9) $62.6 $47.9 $15.4 $(16.6) The decrease in property operating expenses in the Core intangible costs in connection with a terminated lease in Portfolio was primarily attributable to a decrease in bad 2009. Depreciation expense in the Opportunity Funds debt expense in 2010. The increase in property operating increased $0.3 million as result of the 2009 Acquisition. expenses in the Opportunity Funds was primarily Amortization expense in the Opportunity Funds increased attributable to the 2009 Fund Acquisition and Fund $2.6 million primarily due to the write-off of deferred Redevelopment Properties. The increase in property financing costs related to refinanced debt in 2010. operating expenses in the Storage Portfolio primarily Depreciation and amortization expense in the Storage related to higher operating costs in 2010 following Portfolio increased $0.7 million primarily as a result of increased occupancy as well as the Storage Portfolio two self storage properties placed in service during the Activity. second quarter 2009. The increase in real estate taxes in the Opportunity The $2.5 million abandonment of project costs in the Funds was primarily attributable to the 2009 Fund Opportunity Funds in 2009 was attributable to our Acquisition as well as Fund Redevelopment Properties. determination that we most likely would not participate The decrease in general and administrative expense in in a specific future development project. the Core Portfolio was primarily attributable to reduced The reserve for notes receivable of $1.7 million in 2009 compensation expense following staff reductions in 2009. related to the loss of an anchor tenant at the underlying Depreciation and amortization expense in the Core Portfolio decreased as a result of the write-off of lease collateral property. 36 Acadia Realty Trust 2010 Annual Report 96930 (dollars in millions) 2010 2009 Core Portfolio Opportunity Funds Self- Storage Portfolio Notes Receivable and Other Core Portfolio Opportunity Funds Self- Storage Portfolio Notes Receivable and Other $ 0.6 $ 11.8 (1.4) $ — $ 0.7 $ (2.2) $ — $ — — — — — (17.1) (3.2) — — 33.8 — (13.4) (0.1) — — — — (4.1) 0.4 — — — — 0.4 — — 0.1 — 0.4 — — — 7.1 (18.7) (1.4) — (3.8) — — — (8.4) (0.1) — — — — — (5.0) — — — 0.6 — — — — 7.6 Other Equity in earnings (losses) of unconsolidated affiliates Impairment of investment in unconsolidated affiliate Other interest income Gain from bargain purchase Gain on debt extinguishment Interest and other finance expense Income tax expense Income from discontinued operations (Income) loss attributable to noncontrolling interests in subsidiaries: – Continuing operations – Discontinued operations (0.3) — (22.6) — 0.1 — 2.5 (0.3) (0.4) — 22.5 — (0.5) — 1.9 (5.0) Equity in earnings (losses) of unconsolidated affiliates in borrowings in 2010 offset by a $0.9 million increase the Opportunity Funds increased primarily as a result of attributable to higher average interest rates in 2010. an increase in distributions in excess of basis from our Interest expense in the Opportunity Funds increased $5.0 Albertson’s investment of $9.5 million in 2010 and an million in 2010. This was the result of an increase of increase in our pro-rata share of income from Mervyns in $2.9 million due to higher average interest rates in 2010, 2010. Equity in earnings (losses) in the Self Storage an increase of $1.8 million due to higher average Portfolio represents the pro-rata share of losses from our outstanding borrowings in 2010 and $0.3 million of lower unconsolidated investment in the newly-formed self capitalized interest in 2010. Interest expense in the storage management company. Storage Portfolio decreased $0.9 million in 2010. This The $3.8 million impairment of investment in unconsolidated affiliate during 2009 was the result of the reduction in value of the underlying property due to the recession and the related reduction in Fund I’s carrying value of this investment including a partial guarantee of the mortgage debt. The $33.8 million gain from bargain purchase was attributable to Fund II’s purchase of an unaffiliated membership interest in CityPoint in 2010. Reference is was primarily attributable to a $1.4 million decrease due to lower average interest rates in 2010. This decrease was offset by $0.3 million of lower capitalized interest in 2010 and an increase of $0.2 million due to higher average outstanding borrowings in 2010. The variance in the income tax expense in the Core Portfolio primarily related to income taxes at the TRS level for our pro-rata share of income from our Albertson’s investment in 2010. made to Note 2 of the Notes to Consolidated Financial Income from discontinued operations represents activity Statements which begin on page 60 of this Form 10-K related to property held for sale in 2010 and property for a discussion of this transaction. sales in 2009. The gain on debt extinguishment of $7.1 million was (Income) loss attributable to noncontrolling interests in attributable to the purchase of our convertible debt at a subsidiaries—Continuing operations and Discontinued discount in 2009. Total interest expense in the Core Portfolio decreased $1.6 million in 2010. This was the result of a $2.5 million decrease attributable to lower average outstanding operations primarily represents the noncontrolling interests’ share of all the Opportunity Funds variances discussed above. Acadia Realty Trust 2010 Annual Report 37 07085 Management’s Discussion And Analysis continued Comparison of the year ended December 31, 2009 (“2009”) to the year ended December 31, 2008 (“2008”) (dollars in millions) 2009 2008 Revenues Rental income Mortgage interest income Expense reimbursements Lease termination income Management fee income (1) Other Total revenues Note: Core Portfolio Opportunity Funds Self- Storage Portfolio Notes Receivable and Other Core Portfolio Opportunity Funds Self- Storage Portfolio Notes Receivable and Other $51.2 — 13.7 2.8 — 1.9 $69.6 $34.7 — 7.2 — — 1.4 $43.3 $ 9.8 — — — — 1.3 $11.1 $ — 19.7 — — 2.0 — $21.7 $51.0 — 14.1 — — 0.3 $65.4 $21.4 — 2.7 24.0 — — $48.1 $4.7 — — — — 0.8 $5.5 $ — 11.2 — — 3.4 — $14.6 (1) Fees earned by us as general partner/managing member of the Opportunity Funds are eliminated in consolidation and adjust the loss (income) attributable to noncontrolling interests and are not reflected above. The balance reflected in the table represents third party fees that are not eliminated in consolidation. The increase in rental income in the Opportunity Funds maintenance as a result of the 2009 Fund Acquisition as primarily related to additional rents from the 2009 Fund well as certain Fund Redevelopment Properties. Acquisition of $7.5 million and certain Fund Redevelopment Properties. The increase in rental income in the Storage Portfolio related to the February 2008 acquisition of the Storage Post Portfolio (“Storage Acquisition”) versus a full year of activity for 2009. In addition, the increase in minimum rents in the Storage Portfolio was also attributable to the full amortization of acquired lease intangible costs during 2009. The increase in mortgage interest income was the result of higher interest earning assets in 2009, primarily from new notes/mezzanine financing investments originated during the second half of 2008. Expense reimbursements in the Opportunity Funds increased for both real estate taxes and common area Lease termination income in the Core Portfolio for 2009 related to a termination fee earned from a tenant at Absecon Marketplace. Lease termination income in the Opportunity Funds for 2008 related to a termination fee earned, net of costs, from a tenant at Canarsie Plaza. 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 management contracts. Other in the Core Portfolio in 2009 included $1.7 million resulting from a forfeited sales contract deposit. Other in the Opportunity Funds during 2009 included $0.9 million received by Fund II in settlement of litigation in connection with a property acquisition. 38 Acadia Realty Trust 2010 Annual Report 97068 (dollars in millions) 2009 2008 Operating Expenses Property operating Real estate taxes General and administrative Depreciation and amortization Abandonment of project costs Reserve for notes receivable Core Portfolio Opportunity Funds Self- Storage Portfolio Notes Receivable and Other Core Portfolio Opportunity Funds Self- Storage Portfolio Notes Receivable and Other $12.1 9.3 24.0 17.2 — — $10.1 5.3 13.5 16.5 2.5 — $ 8.7 2.2 0.1 4.4 — — $ (1.2) — (15.6) (1.5) — 1.7 $12.2 8.8 26.0 20.3 — — $ 6.8 2.0 16.1 9.5 0.6 — $5.3 1.4 0.1 3.0 — — $ (0.4) — (17.7) — — 4.4 Total operating expenses $62.6 $47.9 $15.4 $(16.6) $67.3 $35.0 $9.8 $(13.7) The increase in property operating expenses in the the write-down of tenant improvements at two Opportunity Funds was primarily the result of the 2009 properties attributable to the bankruptcy of Circuit City. Fund Acquisition and certain Fund Redevelopment Amortization expense in the Core Portfolio decreased Properties. The increase in property operating expenses $0.7 million primarily as a result of lower amortization in the Storage Portfolio related to the Storage expense in 2009 associated with the Klaff management Acquisition. The increase in real estate taxes in the Opportunity Funds was primarily attributable to the 2009 Fund Acquisition. The decrease in general and administrative expense in the Core Portfolio was primarily attributable to reduced compensation expense following staff reductions in the second half of 2008 and in the first half of 2009. The decrease in general and administrative expense in the Opportunity Funds related to the reduction in Promote expense attributable to Fund I and Mervyns I. The increase in general and administrative expense in Other primarily related to the reduction in Fund I and Mervyns I Promote expense eliminated for consolidated financial contracts. Depreciation expense increased $5.0 million and amortization expense increased $2.0 million in the Opportunity Funds primarily due to the 2009 Fund Acquisition and certain Fund Redevelopment Properties. Depreciation expense and amortization expense increased $1.4 million in the Storage Portfolio primarily as a result of the Storage Acquisition. Depreciation and amortization expense decreased $1.5 million in Other as a result of depreciation associated with the elimination of capitalizable costs within the consolidated group. The $2.5 million abandonment of project costs in 2009 was attributable to our determination that we most likely would not participate in a specific future development project. 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 related to the loss of an anchor tenant at the underlying collateral property. The 2008 reserve for notes receivable of $4.4 million related to a mezzanine loan. Acadia Realty Trust 2010 Annual Report 39 69614 Management’s Discussion And Analysis continued (dollars in millions) 2009 2008 Core Portfolio Opportunity Funds Self- Storage Portfolio Notes Receivable and Other Core Portfolio Opportunity Funds Self- Storage Portfolio Notes Receivable and Other $ 0.7 $ (2.2) $ — $ — $ — $ 19.9 $ — $ — — — 7.1 (18.7) — (1.4) — (3.8) — — (8.4) — (0.1) — — — — (5.0) — — — 0.6 — — — — — — 1.5 (19.8) 0.8 (3.4) — 7.6 — — — — (5.7) — — — — — — (3.4) — — — 3.4 — — — — — 8.9 Other Equity in earnings (losses) of unconsolidated affiliates Impairment of investment in unconsolidated affiliate Other interest income Gain on debt extinguishment Interest and other finance expense Gain on sale of land Income tax expense Income from discontinued operations (Income) loss attributable to noncontrolling interests in subsidiaries: – Continuing operations – Discontinued operations (0.4) — 22.5 — (0.5) — 1.9 (5.0) 0.2 — (15.8) — 0.4 — 3.6 (0.9) Equity in earnings (losses) of unconsolidated affiliates in Interest expense in the Opportunity Funds increased $2.7 the Opportunity Funds decreased primarily as a result of million in 2009. This was primarily attributable to an our pro-rata share of gains from the sale of Mervyns increase of $4.2 million due to higher average locations in 2008 of $10.4 million, a decrease in outstanding borrowings in 2009 and $0.6 million of lower distributions in excess of basis from our Albertson’s capitalized interest in 2009. These increases were offset investment of $7.9 million in 2009 and our pro-rata share by a $2.2 million decrease related to lower average of gain from the sale of the Haygood Shopping Center of interest rates in 2009. Interest expense in the Storage $3.4 million in 2008. The $3.8 million impairment of investment in unconsolidated affiliate during 2009 was the result of the reduction in value of the underlying property due to the recession and the related reduction in Fund I’s carrying Portfolio increased $1.6 million in 2009. This was primarily due to an increase of $0.9 million due to higher average outstanding borrowings in 2009 as well as an increase of $0.8 million due to higher average interest rates in 2009. value of this investment including a partial guarantee of The gain on sale of land of $0.8 million in the Core the mortgage debt. Portfolio related to the sale of a land parcel at Bloomfield Other interest income decreased in 2009 as a result of Town Square in 2008. lower cash balances during the year and lower average The variance in the income tax expense in the Core interest rates on cash and cash equivalents. Portfolio primarily related to income taxes at the TRS The gain on debt extinguishment of $7.1 million in 2009 and $1.5 million in 2008 was attributable to the purchase level for our share of income/gains from our Mervyns and Albertson’s investments in 2008. of our convertible debt at a discount. Income from discontinued operations represents activity Interest expense in the Core Portfolio decreased $1.1 related to properties sold in 2009 and 2008. million in 2009. This was primarily the result of lower (Income) loss attributable to noncontrolling interests in interest expense related to the purchase of the subsidiaries — Continuing operations and Discontinued Company’s convertible notes payable offset by a $0.7 operations primarily represents the noncontrolling million write-off of the unamortized premium related to interests’ share of all the Opportunity Funds variances the repayment of a mortgage note payable during 2008. discussed above. 40 Acadia Realty Trust 2010 Annual Report Reconciliation of Net Income to Funds from Operations and Adjusted Funds from Operations 2010 For the Years Ended December 31, 2008 2007 2009 46568 2006 (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 in operating partnership (1) 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) $30,057 $31,133 $25,068 $25,346 $ 38,920 18,445 1,561 18,847 1,604 18,519 1,687 19,669 1,736 20,206 1,806 377 464 437 614 803 — — — 50,440 — (2,435) — (7,182) (565) (5,271) — (20,974) (901) — 49,613 — — (3,677) 37,964 — 38,417 3,677 — 39,860 — Funds from operations, adjusted for extraordinary item $50,440 $49,613 $37,964 $42,094 $ 39,860 Adjusted Funds From Operations per Share – Diluted Weighted average number of Common Shares and OP Units 40,876 38,913 34,940 34,924 35,087 Diluted funds from operations, per share $ 1.23 $ 1.28 $ 1.09 $ 1.21 $ 1.14 Notes: (1) Represents income attributable to Common OP Units and does not include distributions paid to Series A and B Preferred OP Unitholders. (2) We consider funds from operations (“FFO”) as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) to be an appropriate supplemental disclosure of operating performance for an equity REIT due to its widespread acceptance and use within the REIT and analyst communities. FFO is presented to assist investors in analyzing our performance. It is helpful as it excludes various items included in net income that are not indicative of the operating performance, such as gains (losses) from sales of depreciated property and depreciation and amortization. However, our method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. FFO does not represent cash generated from operations as defined by generally accepted accounting principles (“GAAP”) and is not indicative of cash available to fund all cash needs, including distributions. It should not be considered as an alternative to net income for the purpose of evaluating our performance or to cash flows as a measure of liquidity. Consistent with the NAREIT definition, we define FFO as net income (computed in accordance with GAAP), excluding gains (losses) from sales of depreciated property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. (3) This item represents our share of an extraordinary gain from our investment in Albertson’s, which recorded an extraordinary gain in connection with the allocation of purchase price to assets acquired. We consider this to be a private-equity style investment in an operating businesses as opposed to real estate. Accordingly, all gains and losses from this investment are included in FFO, which we believe provides a more accurate reflection of our operating performance. Liquidity and Capital Resources Uses of Liquidity Our principal uses of liquidity are (i) distributions to our shareholders and OP unit holders, (ii) investments which include the funding of our capital committed to the Opportunity Funds and property acquisitions and redevelopment/re-tenanting activities within our Core Portfolio, and (iii) debt service and loan repayments, including the repurchase of our Convertible Notes. 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 31, 2010, we paid dividends and distributions on our Common Shares and Common OP Units totaling $29.7 million. In addition, in December of 2008, our Board of Trustees approved a special dividend of approximately $0.55 per share, or $18.0 million in the aggregate, which was associated with taxable gains arising from property dispositions in 2008, which was Acadia Realty Trust 2010 Annual Report 41 12567 Management’s Discussion And Analysis continued paid on January 30, 2009, to shareholders of record on 31, 2010, $265.2 million has been invested in Fund II, of December 31, 2008. Ninety percent of the special which the Operating Partnership contributed $53.0 dividend was paid with the issuance of 1.3 million million. The remaining capital balance of $34.8 million is Common Shares and 10%, or $1.8 million, was paid in expected to be utilized to complete development cash. activities for existing Fund II investments. Investments Fund I and Mervyns I Fund I and Mervyns I have returned all invested capital and accumulated preferred return thus triggering our Promote in all future Fund I and Mervyns I earnings and distributions. As of December 31, 2010, $86.6 million has been invested in Fund I and Mervyns I, of which the Operating Partnership contributed $19.2 million. As of December 31, 2010, Fund I currently owned, or had ownership interests in 20 assets comprising approximately 0.9 million square feet as further Fund II has invested in the New York Urban/Infill Redevelopment and the RCP Venture initiatives and other investments as further discussed in “PROPERTY ACQUISITIONS” in Item 1, of this Form 10-K. New York Urban/Infill Redevelopment Initiative In September 2004, we, through Fund II, launched our New York Urban/Infill Redevelopment Initiative. During 2004, Fund II, together with an unaffiliated partner, P/A Associates, LLC (“P/A”), formed Acadia P/A Holding Company, LLC (“Acadia-P/A”) for the purpose of acquiring, constructing, developing, owning, operating, discussed in “PROPERTY ACQUISITIONS” in Item 1 of leasing and managing certain mixed-use real estate this Form 10-K. In addition, we, along with our Fund I investors have invested in Mervyns as discussed in Item 1. of this Form 10-K. Fund II and Mervyns II properties in the New York City metropolitan area which include a retail component. To date P/A has invested $2.2 million and Fund II, the managing member, has agreed to invest the balance. To date, Fund II has invested in nine New York Urban/Infill Redevelopment Initiative construction To date, Fund II’s primary investment focus has been in projects, eight of which were made through Acadia-P/A, the New York Urban/Infill Redevelopment Initiative and as follows: the Retailer Controlled Property Venture. As of December Property Liberty Avenue (1) 216th Street Fordham Place Pelham Manor Shopping Plaza (1) 161st Street (2) Atlantic Avenue (3) Canarsie Plaza CityPoint (4) Sherman Plaza Total Notes: TBD—To be determined Location Queens Manhattan Bronx Westchester Bronx Brooklyn Brooklyn Brooklyn Manhattan Year acquired Costs to date Redevelopment (dollars in millions) Square Estimated feet upon construction completion completion Anticipated additional costs 2005 2005 2004 2004 2005 2007 2007 2007 2005 $ 15.5 27.7 124.5 61.4 61.6 22.0 80.3 81.8 33.4 $508.2 $ — — 9.8 2.6 5.1 0.1 9.8 118.2 TBD $145.6 Completed Completed Completed Completed TBD Completed Completed TBD TBD 125,000 60,000 276,000 320,000 230,000 110,000 279,000 550,000 TBD 1,950,000 (2) Currently operating but redevelopment activities have commenced. (1) Acadia-P/A acquired a ground lease interest at this property. (3) P/A is not a partner in this project. (4) Fund II acquired a ground lease interest at this property. On June 30, 2010, Fund II acquired all of CUIP’s 75.25% first mortgage debt representing $19.6 million. Reference interests in CityPoint for $9.2 million, consisting of a is made to Note 2 in our Consolidated Financial current cash payment of $2.0 million and deferred Statements, which begin on Page 60 of this Form 10-K payments, potentially through 2020, aggregating $7.2 for a further discussion of this transaction. million, as well as the assumption of CUIP’s share of the 42 Acadia Realty Trust 2010 Annual Report 48289 RCP Venture of committed discretionary capital. As of December 31, See “Property Acquisitions” in Item 1. of this Form 10-K 2010, $96.5 million has been invested in Fund III, of for a table summarizing the RCP Venture investments which the Operating Partnership contributed $19.2 from inception through December 31, 2010. million. Fund III During 2007, we formed Fund III with 14 institutional investors, including all of the investors from Fund I and a majority of the investors from Fund II with $502.5 million Fund III has invested in the New York Urban/Infill Redevelopment 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 Total Notes: TBD—To be determined Location Year acquired Costs to date Anticipated additional costs Estimated construction completion Square feet upon completion Brooklyn, NY Westport, CT 2007 2007 $22.8 18.7 $41.5 $TBD 6.7 $ 6.7 TBD 2nd half 2011 TBD 26,000 26,000 Other Fund III Investments During February 2008, Acadia, through Fund III, and in Notes Receivable At December 31, 2010, our notes receivable, net conjunction with an unaffiliated partner, Storage Post, aggregated $89.2 million, with accrued interest thereon acquired a portfolio of eleven self-storage properties from of $7.6 million, and were collateralized by the underlying Storage Post’s institutional investors for approximately properties, the borrower’s ownership interest in the $174.0 million. The properties are located throughout entities that own the properties and/or by the borrower’s New York and New Jersey. During January 2009, Fund III purchased Cortlandt Towne Center for $78.0 million. The property is a 642,000 personal guarantee. Effective interest rates on our notes receivable ranged from 10.0% to 24.0% with maturities through January 2017. square foot shopping center located in Westchester During December 2009, we made a loan for $8.6 million County, NY, a trade area with high barriers to entry for which bears interest at 14.5% and matures on June 30, regional and national retailers. 2011. During December 2010, Fund III, in a joint venture with an unaffiliated partner, acquired the 255,200 square foot White City Shopping Center in Shrewsbury, Massachusetts for $56.0 million. During February 2011, Fund III, in a joint venture with an unaffiliated partner, acquired a three property portfolio (the “Portfolio”) for an aggregate purchase price of $51.9 million with $20.6 million of in-place mortgage financing assumed at closing. The Portfolio consists of three street-retail properties, aggregating 61,000 square feet, and is located in South Miami Beach, Florida. During February 2011, Fund III, in a joint venture with an unaffiliated partner, acquired a 64,600 square foot single tenant retail property located in Silver Springs, Maryland, for approximately $9.8 million. Other Investments Acquisitions made during 2010, 2009 and 2008 are discussed in “PROPERTY ACQUISITIONS” in Item 1 of this Form 10-K: Core Portfolio Property Redevelopment and Expansion Our Core Portfolio redevelopment program focuses on selecting well-located neighborhood and community shopping centers and creating significant value through re-tenanting and property redevelopment. We currently have two properties in the early stages of redevelopment, Ledgewood Mall and Third Avenue. Purchase of Convertible Notes Purchases of the Notes has been 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. Acadia Realty Trust 2010 Annual Report 43 67759 Management’s Discussion And Analysis continued Share Repurchase We have an existing share repurchase program that Asset Sales Asset sales are an additional source of liquidity for us. In authorizes management, at its discretion, to repurchase March 2010, we sold the Sterling Heights Shopping up to $20.0 million of our outstanding Common Shares. Center, which was owned through Fund I, for $2.3 The program may be discontinued or extended at any million. During November 2009, we sold Blackman Plaza time and there is no assurance that we will purchase the for $2.5 million, which resulted in a gain on sale of $1.5 full amount authorized. Under this program we have million. During February 2009, we sold six locations in repurchased 2.1 million Common Shares, none of which our Fund I’s Kroger/Safeway Portfolio for $14.6 million of were repurchased after December 2001. As of which Fund I’s share of the sales proceeds amounted to December 31, 2010, management may repurchase up to $8.1 million after the repayment of the mortgage debt on approximately $7.5 million of our outstanding Common these properties. During April 2008, we sold a residential Shares under this program. complex located in Winston-Salem, North Carolina. These 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 potential investments in the RCP Venture and New York Urban/Infill Redevelopment Initiative. Additional sources of capital for funding property acquisitions, 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 sales are discussed in “ASSET SALES AND CAPITAL/ASSET RECYCLING” in Item 1 of this Form 10-K. Notes Receivable and Preferred Equity Repayment Reference is made to Note 5 in our Consolidated Financial Statements, which begin on Page 60 of this Form 10-K, for an overview of our notes receivable and preferred equity investment. During 2010, the following payments were received on these investements: cash flow from operating activities, (iii) additional debt During April 2010, we received a $2.1 million first financings, (iv) noncontrolling interests’ unfunded capital mortgage loan payment. commitments of $325.2 million for Fund III and (v) future sales of existing properties. During September 2010, we received the full repayment of our $40.0 million preferred equity investment, which During 2010, Fund II received capital contributions of was secured by a portfolio of 18 properties located in $41.9 million to fund redevelopment projects and partially Georgetown, Washington D.C., along with $9.4 million of pay down a line of credit facility. preferred return. As of December 31, 2010, we had cash and cash equivalents on hand of $120.6 million and $103.9 million of additional capacity under existing debt facilities. 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. During April 2009, we issued 5.75 million Common Shares and generated net proceeds of Financing and Debt At December 31, 2010, mortgage and convertible notes payable aggregated $854.9 million, net of unamortized premium of $0.1 million, and unamortized discount of $1.1 million, and were collateralized by 29 properties and related tenant leases. Interest rates on our outstanding indebtedness ranged from 0.86% to 7.34% with maturities that ranged from March 2011 to November 2032. Taking into consideration $71.5 million of notional principal under variable to fixed-rate swap agreements approximately $65.0 million. The proceeds were primarily currently in effect, $415.0 million of the portfolio, or used to purchase a portion of our outstanding convertible 49%, was fixed at a 5.7% weighted average interest rate notes payable and pay down existing lines of credit. Following this issuance, we have remaining capacity under this registration statement to issue up to approximately $430.0 million of these securities. and $439.9 million, or 51% was floating at a 3.4% weighted average interest rate. There is $385.7 million of debt maturing in 2011 at weighted average interest rates of 2.8%. Of this amount, $4.8 million represents scheduled annual amortization. The loans relating to $159.7 million of the 2011 maturities provide for 44 Acadia Realty Trust 2010 Annual Report 65703 extension options, which we believe we will be able to as such, we may have to refinance this indebtedness or exercise. As it relates to maturities, we may not have select other alternatives based on market conditions at sufficient cash on hand to repay such indebtedness and, that time. 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 December 31, 2009 Acadia Realty, LP Acadia Realty, LP Fund II Fund III Total $ 64.5 — 40.0 221.0 $325.5 $ 30.0 2.0 48.2 139.5 $219.7 2010 net borrowings (repayments) during the year ended December 31, 2010 $(29.0) (2.0) (8.2) 32.0 $ (7.2) Amount borrowed as of December 31, 2010 Letters of credit outstanding as of December 31, 2010 Amount available under credit facilities as of December 31, 2010 $ 1.0 — 40.0 171.5 $212.5 $8.6 — — 0.5 $9.1 $ 54.9 — — 49.0 $103.9 Reference is made to Note 8 and Note 9 to our Consolidated Financial Statements, which begin on Page 60 of this Form 10-K, for a summary of the financing and refinancing transactions since December 31, 2009. Contractual Obligations and Other Commitments At December 31, 2010, maturities on our mortgage notes ranged from March 2011 to November 2032. In addition, we have non-cancelable ground leases at 24 of our shopping centers. We lease space for our White Plains corporate office for a term expiring in 2015. The following table summarizes our debt maturities, obligations under non-cancelable operating leases and construction commitments as of December 31, 2010: (dollars in millions) Contractual obligations: Future debt maturities (1) Interest obligations on debt Operating lease obligations Construction commitments (2) Total Notes: Total $ 855.9 120.7 171.6 31.1 $1,179.3 Payments due by period 1 to 3 years Less than 1 year 3 to 5 years $385.7 33.2 5.4 31.1 $455.4 $156.8 42.1 12.0 — $143.7 28.4 11.0 — $210.9 $183.1 More than 5 years $169.7 17.0 143.2 — $329.9 (1) Includes $1.0 million of unamortized discount related to our convertible notes payable. (2) 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. Off Balance Sheet Arrangements We have investments in the following joint ventures for the purpose of investing in operating properties. We Reference is made to Note 4 to our Consolidated Financial Statements, which begin on page 60 of this Form 10-K, for a discussion of our unconsolidated account for these investments using the equity method investments. Our pro-rata share of unconsolidated debt of accounting as we have noncontrolling interests. As related to those investments is as follows: such, our financial 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 White City Total Pro-rata share of mortgage debt Operating Partnership Interest rate at December 31, 2010 $30.1 36.9 6.7 $73.7 5.37% 5.99% 2.86% Maturity date December 2014 July 2016 December 2017 Acadia Realty Trust 2010 Annual Report 45 81916 Management’s Discussion And Analysis continued In addition, we have arranged for the provision of three The decrease of $62.7 million of net cash used in separate letters of credit in connection with certain investing activities primarily resulted from the following: leases and investments. As of December 31, 2010 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 $9.1 million. In addition to our derivative financial instruments, one of our unconsolidated affiliates, White City, was a party to Items which contributed to a decrease in cash from investing activities: (cid:1) An additional $13.5 million in investments and advances to unconsolidated affiliates during 2010 (cid:1) An additional $12.0 million in proceeds from the sale of properties during 2009 an interest rate LIBOR swap with a notional value of $20 Items which contributed to an increase in cash from million, which effectively fixes the interest rate at 5.5% investing activities: and expires in December 2017. Our pro-rata share of the fair value of the derivative liability totaled $0.1 million at December 31, 2010. Historical Cash Flow The following table compares the historical cash flow for the year ended December 31, 2010 (“2010”) with the cash flow for the year ended December 31, 2009 (“2009”). (cid:1) A decrease of $54.3 million in expenditures for real estate, development and tenant installations during 2010 (cid:1) An increase of $28.4 million in repayments of notes receivable during 2010 (cid:1) A decrease of $9.4 million in advances of notes receivable during 2010 Years Ended December 31, 2009 2010 Variance The $39.9 million decrease in net cash provided by financing activities resulted primarily from the following: (dollars in millions) Net cash provided by operating activities $ 44.4 $ 47.5 $ (3.1) Net cash used in investing activities (60.7) (123.4) 62.7 Net cash provided by financing activities 43.1 83.0 (39.9) Items which contributed to a decrease in cash from financing activities: (cid:1) A decrease of $84.2 million in borrowings during 2010 (cid:1) $65.2 million of additional cash from the issuance of Common Shares, net of costs, during 2009 Totals $ 26.8 $ 7.1 $ 19.7 Items which contributed to an increase in cash from A discussion of the significant changes in cash flow for 2010 versus 2009 is as follows: The decrease of $3.1 million in net cash provided by operating activities was primarily attributable to the following: Items which contributed to a decrease in cash from operating activities: (cid:1) Additional cash used during 2010 to fund an escrow account with the proceeds from the CityPoint bond financing Items which contributed to an increase in cash from operating activities: (cid:1) An increase in distribution (primarily Albertson’s) financing activities: (cid:1) A decrease of $54.8 million in repayments of mortgage debt during 2010 (cid:1) A decrease of $46.5 million in repayments of convertible notes during 2010 (cid:1) $7.9 million of additional contributions from noncontrolling interests during 2010 Critical Accounting Policies Management’s discussion and analysis of financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these Consolidated Financial Statements requires management to make estimates and judgments that of operating income from unconsolidated affiliates affect the reported amounts of assets, liabilities, during 2010 revenues and expenses. We base our estimates on 46 Acadia Realty Trust 2010 Annual Report 76789 historical experience and assumptions that are believed to be reasonable under the circumstances, the results of Bad Debts We maintain an allowance for doubtful accounts for which form the basis for making judgments about estimated losses resulting from the inability of tenants to carrying value of assets and liabilities that are not readily make payments on arrearages in billed rents, as well as apparent from other sources. Actual results may differ the likelihood that tenants will not have the ability to from these estimates under different assumptions or make payments on unbilled rents including estimated conditions. We believe the following critical accounting expense recoveries. We also maintain a reserve for policies affect the significant judgments and estimates straight-line rent receivables. For the years ended used by us in the preparation of our Consolidated December 31, 2010 and 2009, the allowance for doubtful Financial Statements. Valuation of Property Held for Use and Sale On a quarterly basis, we review the carrying value of both properties held for use and for sale. We perform the impairment analysis by calculating and reviewing net accounts totaled $7.5 million and $7.0 million, respectively. If the financial condition of our tenants were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. operating income on a property-by-property basis. We evaluate leasing projections and perform other analyses Real Estate Real estate assets are stated at cost less accumulated to conclude whether an asset is impaired. We record depreciation. Expenditures for acquisition, development, impairment losses and reduce the carrying value of construction and improvement of properties, as well as properties when indicators of impairment are present and significant renovations are capitalized. Interest costs are the expected undiscounted cash flows related to those capitalized until construction is substantially complete. properties are less than their carrying amounts. In cases Construction in progress includes costs for significant where we do not expect to recover our carrying costs on property expansion and redevelopment. Depreciation is properties held for use, we reduce our carrying cost to computed on the straight-line basis over estimated useful fair value. For properties held for sale, we reduce our lives of 30 to 40 years for buildings, the shorter of the carrying value to the fair value less costs to sell. For the useful life or lease term for tenant improvements and years ended December 31, 2010, 2009 and 2008, no five years for furniture, fixtures and equipment. impairment losses on our properties were recognized. Expenditures for maintenance and repairs are charged to Management does not believe that the value of any operations as incurred. properties in its portfolio was impaired as of December 31, 2010. Investments in and Advances to Unconsolidated Joint Ventures The Company periodically reviews its investment in unconsolidated joint ventures for other than temporary declines in market value. Any decline that is not expected to be recovered in the next twelve months is considered other than temporary and an impairment charge is recorded as a reduction in the carrying value of the investment. During the year ended December 31, 2009, the Company recorded a $3.8 million impairment reserve related to a Fund I unconsolidated joint venture. No impairment charges related to the Company’s investment in unconsolidated joint ventures were recognized for the years ended December 31, 2010 and Upon acquisitions of real estate, we assess 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 leases and customer relationships) and acquired liabilities in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805 “Business Combinations” and ASC Topic 350 “Intangibles — Goodwill and Other,” and allocate purchase price based on these assessments. We assess 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 2008. the property. Acadia Realty Trust 2010 Annual Report 47 89871 Management’s Discussion And Analysis continued 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. 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 breakpoint 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. Notes Receivable and Preferred Equity Investment Real estate notes receivable and preferred equity investments are intended to be held to maturity and are carried at cost. Interest income from notes receivable and preferred equity investments are recognized on the effective 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 is recognized over the term of the loan as an adjustment to yield. Allowances for real estate notes receivable and preferred equity investments are established based upon contractually current and performance is demonstrated 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 underlying collateral property. 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 mitigate 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 are for terms of less than ten years, which permits us to seek to increase rents upon re-rental at market rates if current rents are below the then existing market rates. Most of our leases require the tenants to pay their share of operating expenses, including common area maintenance, 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 management’s quarterly review of the investments. In Financial Statements, which begin on page 60 of this performing this review, management considers the Form 10-K. 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 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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 recognition is generally suspended for loans when, in the opinion of management, a full recovery of income and Information as of December 31, 2010 Our primary market risk exposure is to changes in interest rates related to our mortgage debt. See Note 8 to our Consolidated Financial Statements, which begin on page 60 of this Form 10-K, for certain quantitative details related to our mortgage debt. principal becomes doubtful. Income recognition is Currently, we manage our exposure to fluctuations in resumed when the suspended loan becomes interest rates primarily through the use of fixed-rate debt and interest rate swap agreements. As of December 31, 48 Acadia Realty Trust 2010 Annual Report 50311 2010, we had total mortgage and convertible notes transactions and one interest rate cap transaction to payable of $854.9 million of which $415.0 million, or hedge our exposure to changes in interest rates with 49% was fixed-rate, inclusive of debt with rates fixed respect to $71.5 million and $28.9 million of LIBOR- through the use of derivative financial instruments, and based variable-rate debt, respectively. In addition, one of $439.9 million, or 51%, was variable-rate based upon our unconsolidated partnerships was a party to an LIBOR rates plus certain spreads. As of December 31, interest rate swap transaction with respect to $20.0 2010, we were a party to seven interest rate swap million of LIBOR-based variable-rate debt. The following table sets forth information as of December 31, 2010 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 2011 2012 2013 2014 2015 Thereafter Scheduled Amortization $ 4.8 4.1 4.3 2.2 1.9 7.6 $24.9 Maturities $379.8 49.3 99.2 62.3 77.4 162.0 $830.0 Mortgage debt in unconsolidated partnerships (at our pro-rata share): Year 2011 2012 2013 2014 2015 Thereafter Scheduled Amortization Maturities $0.1 0.5 0.5 0.5 0.5 — $2.1 $ — — — — 28.0 43.6 $71.6 Total $384.6 53.4 103.5 64.5 79.3 169.6 $854.9 Total $ 0.1 0.5 0.5 0.5 28.5 43.6 $73.7 Weighted Average Interest Rate 2.8% 5.6% 3.6% 5.2% 3.2% 5.8% Weighted Average Interest Rate n/a% n/a% n/a% n/a% 5.4% 5.5% $384.6 million of our total consolidated debt and $0.1 commercial and financial terms warrant. As such, we million of our pro-rata share of unconsolidated would consider hedging against the interest rate risk outstanding debt will become due in 2011. $53.4 million related to such additional variable-rate debt through of our total consolidated debt and $0.5 million of our pro- interest rate swaps and protection agreements, or other rata share of unconsolidated debt will become due in means. 2012. As we intend on refinancing some or all of such debt at the then-existing market interest rates, which may be greater than the current interest rate, our interest expense would increase by approximately $4.4 million annually if the interest rate on the refinanced debt increased by 100 basis points. After giving effect to noncontrolling interests, the Company’s share of this increase would be $1.5 million. Interest expense on our variable debt of $439.9 million, net of variable to fixed- rate swap agreements currently in effect, as of December 31, 2010 would increase $4.4 million if LIBOR increased by 100 basis points. After giving effect to noncontrolling interests, the Company’s share of this increase would be $0.6 million. We may seek additional variable-rate financing if and when pricing and other Based on our outstanding debt balances as of December 31, 2010, the fair value of our total consolidated outstanding debt would decrease by approximately $12.6 million if interest rates increase by 1%. Conversely, if interest rates decrease by 1%, the fair value of our total outstanding debt would increase by approximately $13.8 million. As of December 31, 2010 and 2009, we had notes receivable and preferred equity investments of $89.2 million and $125.2 million, respectively. We determined the estimated fair value of our notes receivable and preferred equity investments as of December 31, 2010 and 2009 were $90.6 million and $126.4 million, respectively, by discounting future cash receipts utilizing Acadia Realty Trust 2010 Annual Report 49 97326 Management’s Discussion And Analysis continued a discount rate equivalent to the rate at which similar notes receivable would be originated under conditions then existing. Based on our outstanding notes receivable and preferred equity investments balances as of December 31, 2010, the fair value of our total outstanding notes receivable and preferred equity investments would decrease by approximately $0.5 million if interest rates increase by ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements beginning on page 60 are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 1%. Conversely, if interest rates decrease by 1%, the None. fair value of our total outstanding notes receivable and preferred equity investments would increase by approximately $0.5 million. Summarized Information as of December 31, 2009 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 interest rate swaps, and $341.1 million, or 44%, was variable-rate based upon LIBOR plus certain spreads. As of December 31, 2009, we were a party to eight interest rate swap transactions 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-rate debt, respectively. Interest expense on our variable debt of $341.1 million as of December 31, 2009 would have increased $3.4 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 effectiveness 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, 2010 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, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial million if LIBOR increased by 100 basis points. Based on Officer, as appropriate to allow timely decisions regarding our outstanding debt balances as of December 31, 2009, required disclosure. the fair value of our total outstanding debt would have decreased by approximately $18.3 million if interest rates (ii) Internal Control Over Financial Reporting increased by 1%. Conversely, if interest rates decreased by 1%, the fair value of our total outstanding debt would have increased by approximately $20.5 million. Changes in Market Risk Exposures from 2009 to 2010 Our interest rate risk exposure from December 31, 2009 to December 31, 2010 has increased, as we had $341.1 million in variable-rate debt (or 44% of our total debt) at December 31, 2009, as compared to $439.9 million (or 51% of our total debt) in variable-rate debt at December 31, 2010. In addition, the amount of our total debt increased from $780.1 million at December 31, 2009 to $854.9 million at December 31, 2010. This increased amount of debt could expose us to greater fluctuations in the fair value of our debt. (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 management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2010 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 framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). Based on our evaluation under the COSO criteria, our management concluded that our internal control over 50 Acadia Realty Trust 2010 Annual Report 01846 financial reporting was effective as of December 31, BDO USA, LLP, an independent registered public 2010 to provide reasonable assurance regarding the accounting firm that audited our Financial Statements reliability of financial reporting and the preparation of included in this Annual Report, has issued an attestation financial statements for external reporting purposes in report on our internal control over financial reporting as accordance with U.S. generally accepted accounting of December 31, 2010, which appears in paragraph (b) of principles. this Item 9A. Acadia Realty Trust White Plains, New York February 28, 2011 Acadia Realty Trust 2010 Annual Report 51 00605 (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, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations 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 control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. 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 understanding 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 generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures 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, 2010, 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, 2010 and 2009 and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2010 and our report dated February 28, 2011 expressed an unqualified opinion thereon. /s/ BDO USA, LLP New York, New York February 28, 2011 52 Acadia Realty Trust 2010 Annual Report 58211 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, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART III In accordance with the rules of the SEC, certain information required by Part III is omitted and is incorporated by reference into this Form 10-K from our definitive proxy statement relating to our 2011 annual meeting of stockholders (our “2011 Proxy Statement”) that we intend to file with the SEC no later than April 29, 2011. ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information under the following headings in the 2011 Proxy Statement is incorporated herein by reference: (cid:1) “PROPOSAL 1 — ELECTION OF TRUSTEES” (cid:1) “MANAGEMENT” (cid:1) “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” ITEM 11. EXECUTIVE COMPENSATION The information under the following headings in the 2011 Proxy Statement is incorporated herein by reference: (cid:1) “ACADIA REALTY TRUST COMPENSATION COMMITTEE REPORT” (cid:1) “COMPENSATION DISCUSSION AND ANALYSIS” (cid:1) “EXECUTIVE AND TRUSTEE COMPENSATION” (cid:1) “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 2011 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 2011 Proxy Statement is incorporated herein by reference: (cid:1) “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” (cid:1) “PROPOSAL 1—ELECTION OF TRUSTEES—Trustee Independence” ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information under the heading “AUDIT COMMITTEE INFORMATION” in the 2011 Proxy Statement is incorporated herein by reference. Acadia Realty Trust 2010 Annual Report 53 25548 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 1. Financial Statements: See “Index to Financial Statements” at page 60 below. 2. Financial Statement Schedule: See “Schedule III — Real Estate and Accumulated Depreciation” at page 99 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: February 28, 2011 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/ 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 Date February 28, 2011 February 28, 2011 February 28, 2011 February 28, 2011 February 28, 2011 February 28, 2011 February 28, 2011 February 28, 2011 54 Acadia Realty Trust 2010 Annual Report 95499 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 10.19 10.20 10.21 10.22 10.23 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 Amalgamated 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. (35) Fifth Amendment to Employment Agreement between the Company and Kenneth F. Bernstein dated August 5, 2008 (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) Promissory Note between Merrillville Realty, L.P. and Sun America Life Insurance Company dated July 7, 1999 (7) Acadia Realty Trust 2010 Annual Report 55 70927 Exhibit No. Description 10.24 10.25 10.26 10.27 10.28 10.29 10.30 10.31 10.32 10.33 10.34 10.35 10.36 10.37 10.38 10.39 10.40 10.44 10.45 10.46 10.47 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 President, General Counsel, Chief Compliance Officer and Secretary and Joseph Hogan, Senior Vice President and Director of Construction dated January 19, 2007 (21) (26) Mortgage Agreement, $25.0 million Mortgage Note, $23.0 million Mortgage Note, Building Loan Agreement and General Assignment of Rents between Manufacturers and Traders Trust Company and Capital One, N.A. (the “Lending Group”) and Canarsie Plaza, LLC, all dated January 12, 2010 (34) Third Amended and Restated Credit Agreement and Note among Acadia Strategic Opportunity Fund II, LLC and Bank of America, N.A., dated March 3, 2010 (34) Loan Agreement between New York City Capital Resource Corporation (the “Issuer”) and Albee Retail Development LLC (the “Company”), Copy of the Promissory Note from the Company to the Issuer and The Bank of New York Mellon, as trustee (the “Trustee”), Indenture of Trust (the “Indenture”) between the Issuer and the Trustee, Mortgage and Security Agreement and Assignment of Leases and Rents (Acquisition Loan) from the Company to the Trustee, Mortgage and Security Agreement and Assignment of Leases and Rents (Building Loan) from the Company to the Trustee, Mortgage and Security Agreement and Assignment of Leases and Rents (Indirect Loan) from the Company to the Trustee, Building Loan Agreement among the Issuer, the Trustee and the Company, Pledge and Security Agreement from the Company to the Trustee, Bond Guarantee Agreement from the Company and Acadia Strategic Opportunity Fund II LLC (the “Parent”) to the Trustee, Project Completion Guarantee Agreement from the Company and the Parent to the Trustee, all dated as of July 1, 2010 (35) Amended and Restated Note Agreement made by Albee Development LLC in favor of Bank of America, N.A., dated August 19, 2010 (35) Third Loan Extension and Modification Agreement by and among Acadia-P/A 161st Street, LLC (Borrower), Acadia-P/A Holdings Company, LLC (Guarantor) and Bank of America, N.A., dated July 9, 2010 (35) Fourth Amendment to Project Loan Agreement and Amendment of Certain Other Loan Documents by and between P/A-Acadia Pelham Manor, LLC and U.S. Bank National Association, Not Individually but Solely as Trustee for the Maiden Lane Commercial Mortgage-Backed Securities Trust 2008-1 dated August 26, 2010 (35) 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) Second Mortgage Modification Agreement by and between Acadia-P/A Liberty LLC and PNC Bank, National Association dated September 17, 2010 (35) Amended and Restated Loan Agreement among Acadia Cortlandt LLC and Bank of America, N.A., Note between Acadia Cortlandt LLC and Bank of America, N.A., Note Consolidation and Modification Agreement between Acadia Cortlandt LLC and Bank of America, N.A., Note between Acadia Cortlandt LLC and Bank of America, N.A., Mortgage Consolidation and Modification Agreement between Acadia Cortlandt LLC and Bank of America, N.A., Mortgage Security Agreement between Acadia Cortlandt LLC and Bank of America, N.A. and Amended and Restated Guaranty Agreement between Acadia Cortlandt LLC and Bank of America, N.A., all dated October 26, 2010 (36) Agreement of Modification of Note Consolidation and Modification Agreement between Acadia Tarrytown LLC and Anglo Irish Bank Corporation Limited dated November 5, 2010 but deemed effective as of October 30, 2010 (36) Second Amendment to Building Loan Agreement and the Second Amendment to Project Loan Agreement and Amendment of Certain Other Loan Documents by and between Acadia Atlantic Avenue, LLC and U.S. Bank National Association, Not Individually But Solely as Trustee for the Maiden Lane Commercial Mortgage-Backed Securities Trust 2008-1, both dated October 20, 2010 (36) Fourth Amended and Restated Credit Agreement among Acadia Strategic Opportunity Fund II, LLC and Bank of America, N.A. dated December 22, 2010 (36) Loan Agreement among P/A-Acadia Pelham Manor, LLC and Bank of America, N.A., Note between P/A-Acadia Pelham Manor, LLC and Bank of America, N.A., Note between P/A-Acadia Pelham Manor, LLC and Bank of America, N.A., Note Consolidation and Modification Agreement between P/A-Acadia Pelham Manor, LLC and Bank of America, N.A., Fee and Leasehold Mortgage, Assignment of Leases and Rents and Security Agreement between P/A-Acadia Pelham Manor, LLC and Bank of America, N.A., Fee and Leasehold Mortgage Consolidation and Modification Agreement between P/A-Acadia Pelham Manor, LLC and Bank of America, N.A. and Guaranty Agreement between P/A-Acadia Pelham Manor, LLC and Bank of America, N.A., all dated December 1, 2010 (36) 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) 56 Acadia Realty Trust 2010 Annual Report 24969 Exhibit No. Description 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 10.66 10.67 10.68 10.69 10.70 10.71 10.72 10.73 10.74 10.75 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 Greenwich 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 (35) 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 Apartments, 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. (35) 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. (35) 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) 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 (35) 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 (35) Mortgage Consolidation and Modification Agreement between Acadia Tarrytown LLC and Anglo Irish Bank Corporation, PLC dated October 30, 2007 (35) Project Loan Agreement between P/A – Acadia Pelham Manor, LLC and Bear Stearns Commercial Mortgage, Inc. dated December 10, 2007 (35) Building Loan Agreement P/A – Acadia Pelham Manor, LLC and Bear Stearns Commercial Mortgage, Inc. dated December 10, 2007 (35) Project Loan Agreement between Acadia Atlantic Avenue, LLC and Bear Stearns Commercial Mortgage, Inc. dated December 26, 2007 (35) Building Loan Agreement between Acadia Atlantic Avenue, LLC and Bear Stearns Commercial Mortgage, Inc. dated December 26, 2007 (35) 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) Acadia Realty Trust 2010 Annual Report 57 52288 Exhibit No. Description 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 (36) Consent of Registered Public Accounting Firm to incorporation by reference its reports into Forms S-3 and Forms S-8 (36) 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 (36) 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 (36) 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 (36) 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 (36) 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) 10.76 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) 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 (2) 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 (3) 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 (4) 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 (5) 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) (6) Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form10-K filed for the fiscal year ended December 31, 1998 (7) Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form10-K filed for the fiscal year ended December 31, 1999 (8) 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) 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 (11) 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 (12) 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 (13) 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 58 Acadia Realty Trust 2010 Annual Report 22018 (14) Incorporated by reference to the copy thereof filed as an Exhibit to Yale University’s Schedule 13D filed on September 25, 2002 (15) 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 (16) 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) 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 (19) 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. (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, 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) 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 (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 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) 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. (28) 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. (29) 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. (30) 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. (31) 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. (32) 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. (33) 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) 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, 2010. (35) 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, 2010. (36) Filed herewith. Acadia Realty Trust 2010 Annual Report 59 89722 ACADIA REALTY TRUST AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Balance Sheets as of December 31, 2010 and 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Income for the years ended December 31, 2010, 2009 and 2008 . . . . . . . . . Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the years ended December 31, 2010, 2009 and 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008 . . . . . Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule III—Real Estate and Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 62 63 65 67 69 99 60 Acadia Realty Trust 2010 Annual Report 00873 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, 2010 and 2009 and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2010. In connection with our audits of the financial statements we have also audited the accompanying financial statement schedule listed on page 60. These financial statements 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 supporting 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, 2010, and 2009 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, 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. 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, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 28, 2011 expressed an unqualified opinion thereon. BDO USA, LLP New York, New York February 28, 2011 Acadia Realty Trust 2010 Annual Report 61 01344 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 Notes receivable and preferred equity investment, net Investments in and advances to unconsolidated affiliates Cash and cash equivalents Cash in escrow Rents receivable, net Deferred charges, net of amortization Acquired lease intangibles, net of amortization Prepaid expenses and other assets Assets of discontinued operations December 31, 2010 2009 $ 222,786 915,221 4,400 1,142,407 219,920 $ 221,740 838,828 2,575 1,063,143 191,307 922,487 243,892 89,202 31,036 120,592 28,610 18,044 25,730 18,622 22,463 4,128 871,836 137,340 125,221 51,712 93,808 8,582 16,713 28,311 22,382 22,003 4,556 Total assets $1,524,806 $1,382,464 Liabilities and Shareholders’ Equity Mortgages payable Convertible notes payable, net of unamortized discount of $1,063 and $2,105, respectively Distributions in excess of income from, and investments in, unconsolidated affiliates Accounts payable and accrued expenses Dividends and distributions payable Acquired lease intangibles, net of amortization Other liabilities Total liabilities Shareholders’ Equity Common shares, $.001 par value, authorized 100,000,000 shares, issued and outstanding 40,254,525 and 39,787,018 shares, respectively Additional paid-in capital Accumulated other comprehensive loss Retained earnings Total Shareholders’ equity Noncontrolling interests Total equity Total liabilities and equity The accompanying notes are an integral part of these consolidated financial statements $ 806,212 $ 732,287 48,712 47,910 20,884 27,691 7,427 5,737 20,621 20,589 17,548 7,377 6,753 17,523 937,284 849,987 40 303,823 (2,857) 17,206 318,212 269,310 587,522 40 299,014 (2,994) 16,125 312,185 220,292 532,477 $1,524,806 $1,382,464 62 Acadia Realty Trust 2010 Annual Report Consolidated Statements of Income 83198 (dollars in thousands except per share amounts) Revenues Rental income Mortgage interest income Expense reimbursements Lease termination income Management fee income Other 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 earnings (losses) of unconsolidated affiliates Impairment of investment in unconsolidated affiliate Other interest income Gain from bargain purchase Gain on debt extinguishment Interest and other finance expense 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 Years ended December 31, 2010 2009 2008 $106,913 19,161 22,030 290 1,424 2,140 $ 95,716 19,698 20,982 2,751 1,961 4,595 $ 77,120 11,163 16,789 23,961 3,434 1,099 151,958 145,703 133,566 30,914 18,245 20,220 40,115 — — 29,651 16,812 22,013 36,634 2,487 1,734 109,494 109,331 42,464 10,971 — 408 33,805 — (34,471) — 53,177 (2,890) 50,287 380 — 380 36,372 (1,529) (3,768) 642 — 7,057 (32,154) — 6,620 (1,541) 5,079 484 7,143 7,627 23,917 12,123 24,545 32,749 630 4,392 98,356 35,210 19,906 — 3,370 — 1,523 (28,893) 763 31,879 (3,362) 28,517 1,738 7,182 8,920 Net income 50,667 12,706 37,437 (Income) loss attributable to noncontrolling interests in subsidiaries: Continuing operations Discontinued operations Net (income) loss attributable to noncontrolling interests in subsidiaries (20,307) (303) 23,472 (5,045) (11,438) (931) (20,610) 18,427 (12,369) Net income attributable to Common Shareholders $ 30,057 $ 31,133 $ 25,068 Acadia Realty Trust 2010 Annual Report 63 24031 Consolidated Statements of Income continued (dollars in thousands except per share amounts) Basic earnings per share Income from continuing operations Income from discontinued operations Basic earnings per share Diluted earnings per share Income from continuing operations Income from discontinued operations Diluted earnings per share The accompanying notes are an integral part of these consolidated financial statements Years ended December 31, 2010 2009 2008 $0.75 — $0.75 $0.74 — $0.74 $0.75 0.07 $0.82 $0.75 0.07 $0.82 $0.51 0.23 $0.74 $0.50 0.23 $0.73 64 Acadia Realty Trust 2010 Annual Report Consolidated Statements of Shareholders’ Equity and Comprehensive Income 62826 Common Shares Shares Amount Additional Paid-in Capital Accumulated Other Comprehensive Loss Retained Earnings Total Common Shareholders’ Equity Noncontrolling Interests Total Shareholders’ Equity 32,184 $ 32 137 — $236,967 2,917 $ (953) — $ 13,671 — $249,717 2,917 $171,111 1,863 $420,828 4,780 — — (20,385) (25,068) (45,453) (1,192) (46,645) (amounts in thousands, except per share amounts) Balance at January 1, 2008 Employee Restricted Share awards Dividends declared ($1.39 per Common Share) Employee exercise of 110,245 options to purchase Common Shares 110 — 841 180 7 — 2 — (83) — 81 (1,997) — — — — — — (77) — — — — — — — — — — — — — — — — — 841 180 81 (1,997) (77) — — — — — — — (15,347) 46,014 202,449 841 180 81 (1,997) (77) (15,347) 46,014 408,658 32,357 32 218,527 (953) (11,397) 206,209 — — — — — — — — — — — — — 25,068 25,068 12,369 37,437 (4,179) (421) (4,600) (4,179) 624 — — (3,555) 25,068 21,513 624 109 12,057 733 33,570 32,357 $ 32 $218,527 $(4,508) $ 13,671 $227,722 $214,506 $442,228 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 9) Noncontrolling interest distributions Noncontrolling interest contributions Comprehensive income: Net income Unrealized loss on valuation of swap agreements Reclassification of realized interest on swap agreements Total comprehensive income Balance at December 31, 2008 Conversion of 15,666 OP Units to Common Shares by limited partners of the Operating Partnership Issuance of Common Shares, net of 16 — 90 issuance costs 5,750 6 65,216 Issuance of Common Shares through special dividend Employee Restricted Share awards Dividends declared ($0.75 per Common Share) Employee exercise of 258,900 options 1,287 2 253 — 16,190 2,957 — — — to purchase Common Shares 259 — 1,556 Common Shares issued under Employee Share Purchase Plan Issuance of Common Shares to Trustees Employee Restricted Shares cancelled Deferred shares converted to Common Shares Conversion options on Convertible Notes purchased (Note 9) Noncontrolling interest distributions Noncontrolling interest contributions 9 — 106 25 — (359) — 635 (5,423) 190 — — — — — — — — (840) — — — — — — — — — — — — — — — — — — — 90 65,222 16,192 2,957 (90) — — 890 — 65,222 16,192 3,847 (28,679) (28,679) (795) (29,474) — — — — — — — — 1,556 106 635 (5,423) — (840) — — — — — — — — (1,624) 25,653 1,556 106 635 (5,423) — (840) (1,624) 25,653 39,787 40 299,014 (4,508) (15,008) 279,538 238,540 518,078 Acadia Realty Trust 2010 Annual Report 65 Consolidated Statements of Shareholders’ Equity and Comprehensive Income continued 24170 Common Shares Shares Amount Additional Paid-in Capital Accumulated Other Comprehensive Loss Retained Earnings Total Common Shareholders’ Equity Noncontrolling Interests Total Shareholders’ Equity — — — — — — — — — — — — — 31,133 31,133 (18,427) 12,706 (912) 2,426 1,514 — — 31,133 (912) 2,426 32,647 (140) 319 (18,248) (1,052) 2,745 14,399 39,787 $ 40 $299,014 $(2,994) $ 16,125 $312,185 $220,292 $532,477 (amounts in thousands, except per share amounts) Comprehensive income (loss): Net income (loss) Unrealized loss on valuation of swap agreements Reclassification of realized interest on swap agreements Total comprehensive income (loss) Balance at December 31, 2009 Conversion of 364,615 OP Units to Common Shares by limited partners of the Operating Partnership Employee Restricted Share awards Dividends declared ($0.72 per Common Share) Exercise of Trustees options Common Shares issued under 365 — 133 — 3,240 2,060 — — 7 — — 109 100 266 (966) — — — — — — — — — — — — — 3,240 2,060 (28,976) — (28,976) 109 — — — — — 100 266 (966) — — (3,240) 1,778 (723) — — — — (2,892) 33,556 — 3,838 (29,699) 109 100 266 (966) (2,892) 33,556 Employee Share Purchase Plan 6 — Issuance of Common Shares to Trustees Employee Restricted Shares cancelled Noncontrolling interest distributions Noncontrolling interest contributions 13 — (57) — — — — — 40,254 40 303,823 (2,994) (12,851) 288,018 248,771 536,789 Comprehensive income: Net income Unrealized loss on valuation of swap agreements Reclassification of realized interest on swap agreements Total comprehensive income — — — — — — — — — — — — — 30,057 30,057 20,610 50,667 (2,329) 2,466 137 — — 30,057 (2,329) (354) (2,683) 2,466 30,194 283 20,539 2,749 50,733 Balance at December 31, 2010 40,254 $ 40 $303,823 $(2,857) $ 17,206 $318,212 $269,310 $587,522 The accompanying notes are an integral part of these consolidated financial statements. 66 Acadia Realty Trust 2010 Annual Report 61425 Consolidated Statements of Cash Flows (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 from bargain purchase Gain on sale of property Gain on debt extinguishment Amortization of discount on convertible debt Non-cash accretion of notes receivable Share compensation expense Equity in (earnings) losses of unconsolidated affiliates Impairment of investment in unconsolidated affiliate Distributions of operating income from unconsolidated affiliates Reserve for notes receivable Provision for bad debt Other, net Changes in assets and liabilities: Cash in escrows Rents receivable Prepaid expenses and other assets, net Accounts payable and accrued expenses Other liabilities Net cash provided by operating activities Cash Flows from Investing Activities: Investments in real estate Deferred acquisition and leasing costs Investments in and advances to unconsolidated affiliates Return of capital from unconsolidated affiliates Repayments of notes receivable Increase in notes receivable Proceeds from sale of property Years ended December 31, 2010 2009 2008 $ 50,667 $ 12,706 $ 37,437 40,553 (33,805) — — 1,042 (6,164) 4,104 (10,971) — 12,124 — 3,331 906 (20,028) (4,662) 1,889 1,874 3,517 44,377 (80,520) (3,904) (19,116) 785 42,010 — — 37,242 — (7,143) (7,057) 1,280 (5,352) 3,969 1,529 3,768 880 1,734 4,132 7,457 (1,788) (8,370) 8,156 (5,902) 221 47,462 34,908 — (7,945) (1,523) 2,101 (2,367) 3,434 (19,906) — 14,420 4,392 3,593 6,704 (157) (2,305) (15,865) 8,368 1,228 66,517 (127,322) (11,368) (5,603) 4,705 13,614 (9,362) 11,956 (245,033) (6,068) (7,918) 4,052 19,922 (90,847) 23,627 Net cash used in investing activities (60,745) (123,380) (302,265) Acadia Realty Trust 2010 Annual Report 67 27748 Consolidated Statements of Cash Flows continued (dollars in thousands) Cash Flows from Financing Activities: Principal payments on mortgage notes Proceeds received on mortgage notes Redemption of convertible notes payable Increase in deferred financing and other costs Capital contributions from noncontrolling interests Distributions to noncontrolling interests Dividends paid to Common Shareholders Proceeds from issuance of Common Shares, net of issuance costs Repurchase and 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 Years ended December 31, 2010 2009 2008 (127,823) 175,793 (240) (6,830) 33,556 (1,638) (28,909) — (966) 100 109 43,152 26,784 93,808 (182,610) 260,065 (46,736) (1,755) 25,653 (2,879) (30,163) 65,222 (5,424) 106 1,556 83,035 7,117 86,691 (68,412) 281,192 (6,042) (1,763) 46,014 (16,183) (34,710) — (2,102) 261 841 199,096 (36,652) 123,343 Cash and cash equivalents, end of period $ 120,592 $ 93,808 $ 86,691 Supplemental disclosure of cash flow information: Cash paid during the period for interest, including capitalized interest of $2,903, $3,516, and $6,779, respectively Cash paid for income taxes Supplemental disclosure of non-cash investing and financing activities: Acquisition of real estate through assumption of debt Dividends paid through the issuance of Common Shares Acquisition of interest in unconsolidated affiliates: Real Estate, net Assumption of mortgage debt Gain from bargain purchase Other assets and liabilities Investment in unconsolidated affiliates $ 34,823 $ 33,699 $ 33,778 $ 1,263 $ $ — — $(108,000) 25,990 33,805 7,532 37,824 $ $ 777 $ 6,633 — $ 39,967 $ 16,192 $ — — — — — — $ $ $ — — — — — — — Cash included in investment in real estate $ (2,849) $ The accompanying notes are an integral part of these consolidated financial statements. 68 Acadia Realty Trust 2010 Annual Report 89038 Notes to Consolidated Financial Statements Note 1 Organization, Basis of Presentation and Summary of Significant Accounting Policies Acadia Realty Trust (the “Trust”) and subsidiaries (collectively, the “Company”) is a fully integrated, self- managed and self-administered equity real estate investment trust (“REIT”) focused primarily on the ownership, acquisition, redevelopment and management of retail properties, including neighborhood and community shopping centers and mixed-use properties with retail components. As of December 31, 2010, 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. The Operating Partnership is the general partner of Fund I and sole managing member of Mervyns I, with a 22.2% 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 the return of all capital contributions. Thereafter, remaining cash flow (which is net of distributions and fees to the Operating Partnership for management, asset management, leasing, construction and legal services) is distributed 20% to the Operating Partnership as a Promote and 80% to the partners (including the Operating Partnership). As all contributed capital and accumulated preferred return has been distributed to investors, the Operating Partnership is currently entitled to a Promote on all earnings and All of the Company’s assets are held by, and all of its distributions. 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, 2010, the Trust controlled 99% 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 Operating Partnership in exchange for common or preferred units of limited partnership interest (“Common or Preferred OP Units”). Limited partners holding Common OP Units are generally entitled to exchange their units on a one-for-one basis for common shares of beneficial interest of the Trust (“Common Shares”). This structure is referred to as an umbrella partnership REIT or “UPREIT.” The Company formed Acadia Strategic Opportunity Fund I, LP (“Fund I”), and formed 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, 2010, 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 Company formed Acadia Strategic Opportunity Fund II, LLC (“Fund II”), and 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 committed 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, 2010, the Operating Partnership had contributed $45.4 million to Fund II and $7.6 million to Mervyns II. The Company formed Acadia Strategic Opportunity Fund III LLC (“Fund III”) with fourteen institutional investors, including a majority of the investors from Fund I and Fund II with a total of $502.5 million of committed 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, 2010, the Operating Partnership had contributed $19.2 million to Fund III. Acadia Realty Trust 2010 Annual Report 69 59567 Notes to Consolidated Financial Statements continued Principles of Consolidation The consolidated financial statements include the Company recognizes income for distributions in excess of its investment where there is no recourse to the consolidated accounts of the Company and its controlling Company. For investments in which there is recourse to investments in partnerships and limited liability the Company, distributions in excess of the investment companies in which the Company has control in are recorded as a liability. Although the Company accordance Financial Accounting Standards Board accounts for its investment in Albertson’s (Note 4) under (“FASB”) Accounting Standards Codification (“ASC”) the equity method of accounting, the Company adopted Topic 810 “Consolidation” (“ASC Topic 810”). The the policy of not recording its equity in earnings or ownership interests of other investors in these entities losses of this unconsolidated affiliate until it receives the are recorded as noncontrolling interests. All significant audited financial statements of Albertson’s to support the intercompany balances and transactions have been equity earnings or losses in accordance with ASC Topic eliminated in consolidation. Investments in entities for 323 “Investments—Equity Method and Joint Ventures”. 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 losses) of these entities are included in consolidated net income. The Company periodically reviews its investment in unconsolidated 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 carrying value of the investment. During Variable interest entities are accounted for within the the years ended December 31, 2010, 2009 and 2008, scope of ASC Topic 810 and are required to be impairment charges related to the Company’s investment consolidated by their primary beneficiary. The primary in unconsolidated joint ventures were $0.0 million, $3.8 beneficiary of a variable interest entity is the enterprise million and $0.0 million, respectively. that has the power to direct the activities that most significantly impact the variable interest entity’s economic performance and the obligation to absorb losses or the right to receive benefits of the variable interest entity that could be significant to the variable interest entity. Management has evaluated the applicability of ASC Topic 810 to its investments 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 unconsolidated 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 beneficiary under ASC Topic 810, as discussed above. The Company does have significant influence over the investments which requires equity method accounting. Under the equity method, the Company increases its investment for its proportionate share of net income and contributions to the joint venture and decreases its investment balance by recording its proportionate share of net loss and distributions. The Use of Estimates Accounting principles generally accepted in the United States of America (“GAAP”) require the Company’s management 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, depreciable lives, revenue recognition and the collectability of trade accounts receivable. Application of these assumptions 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, construction and improvement of properties, as well as significant renovations are capitalized. Interest costs are capitalized until construction is substantially complete and the real estate is ready for its intended use. Construction in progress includes costs for significant property expansion and redevelopment. Depreciation is computed on the straight-line basis over estimated useful lives of 30 to 40 years for buildings, the shorter of the useful life or lease term for tenant improvements and five years for furniture, fixtures and equipment. Expenditures for 70 Acadia Realty Trust 2010 Annual Report 72094 maintenance and repairs are charged to operations as the earnings process is deemed to be complete. Sales incurred. 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 leases and customer relationships) and acquired liabilities in accordance with ASC Topic 805 “Business Combinations” and ASC Topic 350 “Intangibles— Goodwill and Other”, and allocates acquisition price based on these assessments. Fixed-rate renewal options have been included in the calculation of the fair value of acquired leases. To the extent there were fixed-rate options at below-market rental rates, the Company included these along with the current term below-market rent in arriving at the fair value of the acquired leases. The discounted difference between contract and market rents is being amortized over the remaining applicable lease term, inclusive of any option periods. 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. 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 these real estate properties are reflected as discontinued operations in all periods reported. 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 amortized on a straight-line basis over the terms of the respective leases. Fees and costs incurred in connection with obtaining financing are The Company reviews its long-lived assets used in deferred and amortized over the term of the related debt operations for impairment when there is an event, or obligation. 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 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 where the Company does not expect to recover its acquired. carrying costs on properties held for use, the Company reduces its carrying cost to fair value, and for properties held for sale, the Company reduces its carrying value to the fair value less costs to sell. During the years ended December 31, 2010, 2009 and 2008, no impairment losses were recognized. Management does not believe that the values of its properties within the portfolio are impaired as of December 31, 2010. Sale of Real Estate The Company recognizes property sales in accordance with ASC Topic 970 “Real Estate”. The Company generally records the sales of operating properties and outparcels using the full accrual method at closing when 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 is entitled to take possession of the space. As of December 31, 2010 and 2009, included in rents receivable, net on the accompanying consolidated balance sheets, unbilled rents receivable relating to straight-lining of rents were $17.1 million and $12.7 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 breakpoint is met. In Acadia Realty Trust 2010 Annual Report 71 81999 Notes to Consolidated Financial Statements continued addition, leases typically provide for the reimbursement owning retail complexes associated with seven public to the Company of real estate taxes, insurance and other rest stops along the toll roads in and around Chicago, property operating expenses. These reimbursements are Illinois. The note and all accrued interest was recognized as revenue in the period the expenses are subsequently cancelled during 2009. Management 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 estimated to be uncollectible. Once the amount is ultimately deemed to be uncollectible, it is written off. Rents receivable at December 31, 2010 and 2009 are shown net of an allowance for doubtful accounts of $7.5 million and $7.0 million, respectively. Notes Receivable and Preferred Equity Investments Notes receivable and preferred equity investments are intended to be held to maturity and are carried at amortized cost. Interest income from notes receivable and preferred equity investments are recognized on the effective 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 believes that the balance of notes receivable are collectible as of December 31, 2010. 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. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed the federally insured limit by the Federal Deposit Insurance Corporation. The Company has never experienced any losses related to these balances. Restricted Cash and Cash in Escrow Restricted cash and cash in escrow consist principally of cash held for real estate taxes, construction costs, 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 established based upon management’s quarterly review amended (the “Code”). To maintain REIT status for of the investments. In performing this review, management considers the estimated net recoverable value of the loan as well as other factors, including the Federal income tax purposes, the Company is generally required to distribute at least 90% of its REIT taxable income to its stockholders as well as comply with certain fair value of any collateral, the amount and status of any other income, asset and organizational requirements as senior debt, and the prospects for the borrower. Because defined in the Code. Accordingly, the Company is this determination is based upon projections of future economic events, which are inherently subjective, the generally not subject to Federal corporate income tax to the extent that it distributes 100% of its REIT taxable amounts ultimately realized from the loans may differ income each year. materially from the carrying value at the balance sheet date. Interest income recognition 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 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 properties 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. The Company accounts for TRS income taxes under the liability method as required by ASC Topic 740 “Income Taxes.” Under the liability method, deferred income taxes are recognized for the temporary differences 72 Acadia Realty Trust 2010 Annual Report 18903 between GAAP basis and the tax basis of the TRS During February 2010, the FASB issued ASU No. 2010- income, assets and liabilities. 09 “Subsequent Events (ASC Topic 855) Amendments to 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. Certain Recognition and Disclosure Requirements,” which requires an entity that is an SEC filer to evaluate subsequent events through the date that the financial statements are issued and removes the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated. The adoption did not have an impact on the Company’s financial position and results of operations. The prior three years’ income tax returns are subject to During July 2010, the FASB issued ASU No. 2010-20 review by the Internal Revenue Service. The Company “Receivables (ASC Topic 310) Disclosures about the will recognize potential interest and penalties related to Credit Quality of Financing Receivables and the uncertain tax positions, if any, as a component of the Allowance for Credit Losses,” which requires companies provision for income taxes. Stock-based Compensation The Company accounts for stock-based compensation pursuant to ASC Topic 718 “Compensation—Stock Compensation”. As such, all equity based awards are reflected as compensation expense in the Company’s consolidated financial statements over their vesting period based on the fair value at the date of grant. Recent Accounting Pronouncements During June 2009, the FASB issued a new accounting standard, which provided certain changes to the evaluation of a variable interest entity (“VIE”) including requiring a qualitative rather than a quantitative analysis to determine the primary beneficiary of a VIE, continuous assessments of whether an enterprise is the primary beneficiary of a VIE and enhanced disclosures about an enterprise’s involvement with a VIE. Under the new standard, the primary beneficiary has both the power to direct the activities that most significantly impact economic performance of the VIE and the obligation to absorb losses or the right to receive benefits that could to provide more information about the credit quality of their financing receivables in the disclosures to financial statements including, but not limited to, significant purchases and sales of financing receivables, aging information and credit quality indicators. The adoption of this accounting guidance did not have a significant impact on the Company’s consolidated financial statements. Comprehensive income The following table sets forth comprehensive income for the years ended December 31, 2010, 2009 and 2008: Years Ended December 31, 2010 2009 2008 (dollars in thousands) Net income attributable to Common Shareholders Other comprehensive income (loss) Comprehensive income attributable to Common Shareholders $30,057 $31,133 $25,068 137 1,514 (3,555) $30,194 $32,647 $21,513 potentially be significant to the VIE. The adoption of the Other comprehensive income relates to the changes in standard on January 1, 2010 did not have a material the fair value of derivative instruments accounted for as impact on the Company’s consolidated financial cash flow hedges and the amortization, which is included statements. in interest expense, of derivative instruments. During January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements,” which provides for new disclosures, as well as clarification of existing disclosures on fair value measurements. The adoption of the standard on January 1, 2010 did not have a material impact on the Company’s financial position and results of operations. Acadia Realty Trust 2010 Annual Report 73 15766 Notes to Consolidated Financial Statements continued The following table sets forth the change in accumulated On June 30, 2010, Fund II acquired all of CUIP’s interest other comprehensive loss for the years ended December in CityPoint for $9.2 million (the “Transaction”), 31, 2010 and 2009: Accumulated other comprehensive loss Years Ended December 31, 2010 2009 $(2,994) $(4,508) (2,329) (912) 2,466 2,426 $(2,857) $(2,994) (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 Ending balance Note 2 Acquisition and Disposition of Properties and Discontinued Operations A. Acquisition and Disposition of Properties Acquisitions On December 23, 2010, the Company, through Fund III consisting of a current payment of $2.0 million and deferred payments, potentially through 2020, aggregating $7.2 million. Fund II also assumed CUIP’s share of the first mortgage debt, $19.6 million. The Transaction was a business combination achieved in stages, and as a result, Fund II was required to report its entire investment in CityPoint at fair market value. Based on a June 30, 2010 third-party appraisal, CityPoint was valued at $108.0 million which resulted in Fund II recording a non-cash gain from bargain purchase of approximately $33.8 million. A majority of the gain was attributable to the components of CityPoint that was acquired as the book value of the Company’s original investment approximated fair value. The Operating Partnership’s share of this gain, net of the noncontrolling interests’ share, totaled $6.3 million. As a result of the Transaction, the Company changed its method of accounting for CityPoint from the equity method and now consolidates CityPoint in its consolidated financial statements. As CityPoint is currently in the redevelopment stage, there are no revenues or earnings from CityPoint included in the Company’s Consolidated Statements of Income for the in a joint venture with an unaffiliated partner, acquired years ended December 31, 2010, 2009 and 2008. White City Shopping Center, a 255,000 square foot center located in Shrewsbury, Massachusetts for $56.0 On January 29, 2009, the Company acquired the 641,000 square foot Cortlandt Towne Center in Cortlandt, NY for million. $78.0 million. Prior to June 30, 2010, the Company, through Fund II in a joint venture with an unaffiliated partner, California Urban Investment Partners, LLC (“CUIP”), owned a leasehold interest in CityPoint, a mixed-use, redevelopment project located in downtown Brooklyn, New York. Fund II owned a 75% interest in the retail component, a 50% interest in the office component and no interest in the residential component of CityPoint. CUIP owned the remaining interests in the retail and office components and 100% of the residential component of the project. Accordingly, Fund II’s investment represented 24.75% of the overall original acquisition cost and subsequent carry and pre- development costs and was accounted for using the equity method. On February 29, 2008, the Company acquired a portfolio of 11 self-storage properties located throughout New York and New Jersey for approximately $174.0 million. The portfolio totals approximately 920,000 net rentable square feet. On April 22, 2008, the Company acquired a 20,000 square foot single tenant retail property located in Manhattan, New York for $9.7 million. Dispositions During 2010, 2009 and 2008, the Company disposed of the following properties: 74 Acadia Realty Trust 2010 Annual Report 41212 GLA 125,264 277,700 599,106 (dollars in thousands) Property Blackman Plaza Six Kroger locations Village Apartments Total Year Sold Sales Price Gain 2009 2009 2008 $ 2,500 9,481 23,300 $35,281 $ 1,506 5,637 7,182 Subsequent to December 31, 2010, the Company sold a property in Oakbrook, Illinois for $8.2 million which resulted in a gain of $3.9 million. Reference is made to Note 23 for an overview of the sale. B. Discontinued Operations The Company reports properties held-for-sale and properties sold during the periods as discontinued operations. The combined assets and liabilities and results of operations of discontinued operations are reflected as a separate component within the accompanying Consolidated Financial Statements for all periods presented. The combined assets and liabilities as of December 31, 2010 and December 31, 2009 and results of operations of the properties classified as discontinued operations for the years ended December 31, 2010, 2009 and 2008 are summarized as follows: December 31, 2010 December 31, 2009 Balance Sheets (dollars in thousands) Assets Net real estate $4,046 $4,485 Rents receivable, net Prepaid expenses and other assets, net 69 13 69 2 Total assets of discontinued operations Liabilities Mortgage Notes Payable Accounts payable and accrued expenses Other liabilities Total liabilities of discontinued operations $4,128 $4,556 — — — — — — $ — $ — $14,325 1,002,070 Years ended December 31, Statements of Operations 2010 2009 2008 (dollars in thousands) Total revenues Total expenses Operating Income Gain on sale of property Income from discontinued operations Income from discontinued operations attributable to noncontrolling interests in subsidiaries Income from discontinued operations attributable to Common Shareholders Note 3 $1,000 $ 1,644 $5,136 3,398 1,160 620 380 484 — 7,143 1,738 7,182 380 7,627 8,920 (303) (5,045) (931) $ 77 $ 2,582 $7,989 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 management 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 Portfolio are typically held long- term. Given the contemplated finite life of the Opportunity Funds, these investments are typically held for shorter terms. Fees earned by the Company as the general partner/member of the Opportunity Funds are eliminated in the Company’s consolidated financial statements. The following table sets forth certain segment information for the Company, reclassified for discontinued operations, as of and for the years ended December 31, 2010, 2009, and 2008 (does not include unconsolidated affiliates): Acadia Realty Trust 2010 Annual Report 75 Notes to Consolidated Financial Statements continued 98901 (dollars in thousands) Revenues Property operating expenses and real estate taxes Other expenses 2010 Core Portfolio Opportunity Funds Storage Portfolio Notes Receivable Other Elimination Total $ 62,121 $ 47,938 $ 21,314 $19,161 $22,479 $ (21,055) $ 151,958 19,470 22,439 18,118 13,588 13,107 — — — — — (1,536) (15,807) 8,207 $19,161 $22,479 $ (3,712) 49,159 20,220 82,579 40,115 34,471 $ $ $ — $ (642) — $ (240) — $ (13,349) $1,386,299 — $(105,611) $1,524,806 — $ (2,302) $ 80,520 $ 82,579 408 (40,115) 10,971 (34,471) (2,890) 33,805 380 50,667 (20,610) $ 30,057 $ $ $ — — — $ $ $ $ $ Income before depreciation and amortization $ 20,212 $ 16,232 Depreciation and amortization $ 16,251 $ 19,423 Interest and other finance expense $ 17,137 $ 13,445 $ $ $ 5,083 4,129 Real estate at cost $481,130 $708,501 $210,017 Total assets $574,497 $772,715 $194,003 $89,202 Expenditures for real estate and improvements $ 4,137 $ 77,309 $ 1,376 $ — Reconciliation to net income and net income attributable to Common Shareholders Net property income before depreciation and amortization Other interest income Depreciation and amortization Equity in earnings of unconsolidated affiliates Interest and other finance expense Income tax expense Gain from bargain purchase Income from discontinued operations Net income Net (income) attributable to noncontrolling interests Net income attributable to Common Shareholders 76 Acadia Realty Trust 2010 Annual Report 48948 2009 Core Portfolio Opportunity Funds Storage Portfolio Notes Receivable Other Elimination Total (dollars in thousands) Revenues $ 69,556 $ 43,326 $ 11,166 $ 19,698 $23,265 $ (21,308) $ 145,703 Property operating expenses and real estate taxes 21,266 15,362 10,985 — 12 23,983 — 2,475 13,600 — — — — 1,734 — — — — — — (1,150) 46,463 — — 1,734 2,487 (15,570) 22,013 Reserve for notes receivable Abandonment of project costs Other expenses Income before depreciation and amortization Depreciation and amortization $ 17,201 $ 16,466 Interest and other finance expense $ 18,744 $ 8,404 $ 24,295 $ 11,889 181 $ 17,964 $23,265 $ (4,588) $ $ $ 4,437 5,006 $ $ $ — $ — $ — $ $ $ $ 73,006 36,634 32,154 $ (1,470) $ — $ (11,047) $1,200,483 $(105,361) $1,382,464 — — — — Real estate at cost $475,486 $527,342 $208,702 Total assets $558,240 $607,706 $196,658 $125,221 $ Expenditures for real estate and improvements $ 3,161 $116,734 $ 10,996 $ — $ — $ (3,569) $ 127,322 Reconciliation to net income and net income attributable to Common Shareholders Net property income before depreciation and amortization Other interest income Depreciation and amortization Equity in losses of unconsolidated affiliates Impairment of investment in unconsolidated affiliates Interest and other finance expense Gain on debt extinguishment Income tax expense Gain on sale of property Income from discontinued operations Net income Net loss attributable to noncontrolling interests Net income attributable to Common Shareholders $ 73,006 642 (36,634) (1,529) (3,768) (32,154) 7,057 (1,541) 7,143 484 12,706 18,427 $ 31,133 Acadia Realty Trust 2010 Annual Report 77 58882 Notes to Consolidated Financial Statements continued 2008 Core Portfolio Opportunity Funds Storage Portfolio Notes Receivable Other Elimination Total Revenues $ 65,349 $ 47,400 $ 5,589 $ 11,163 $27,296 $(23,231) $ 133,566 Property operating expenses and real estate taxes 20,974 8,829 6,618 Reserve for notes receivable Abandonment of project costs — — — 630 Other expenses 26,007 16,131 — — 58 — 4,392 — — — — — — (381) — — (17,651) 36,040 4,392 630 24,545 67,959 32,749 28,893 $ $ $ 6,771 $27,296 $ (5,199) $ $ — (4) — $ — $ — $ — — — — $ (7,478) $1,086,924 $(84,260) $1,291,383 Income (loss) before depreciation and amortization $ 18,368 $ 21,810 $ (1,087) Depreciation and amortization $ 20,295 Interest and other finance expense $ 19,698 $ $ 9,452 5,797 $ $ 3,002 3,402 Real estate at cost $474,684 $433,189 $186,529 $ $ $ $ Total assets $567,882 $487,182 $194,992 $125,587 $ Expenditures for real estate and improvements $ 18,424 $ 94,191 $135,391 $ — $ — $ (2,973) $ 245,033 Reconciliation to net income and net income attributable to Common Shareholders Net property income before depreciation and amortization Other interest income Depreciation and amortization Equity in earnings of unconsolidated affiliates Interest and other finance expense Gain on debt extinguishment Income tax expense Gain on sale of land Gain on sale of property Income from discontinued operations Net income Net income attributable to noncontrolling interests Net income attributable to Common Shareholders Note 4 Investments In and Advances to Unconsolidated Affiliates Core Portfolio Brandywine Portfolio The Company owns a 22.2% interest in an approximately one million square foot retail portfolio (the “Brandywine Portfolio”) located in Wilmington, Delaware that is accounted for under the equity method. 78 Acadia Realty Trust 2010 Annual Report $ 67,959 3,370 (32,749) 19,906 (28,893) 1,523 (3,362) 763 7,182 1,738 37,437 (12,369) $ 25,068 Crossroads The Company owns a 49% interest in the Crossroads Joint Venture and Crossroads II (collectively, “Crossroads”), which own a 311,000 square foot shopping center located in White Plains, New York that is accounted for under the equity method. Opportunity Funds RCP Venture The Company along with Klaff Realty, LP (“Klaff”) and Lubert-Adler Management, Inc., formed an investment group, the RCP Venture, for the purpose of making 10082 investments in surplus or underutilized properties owned 2010, the Company has received distributions from this by retailers. The RCP Venture is neither a single entity investment totaling $46.0 million. nor a specific investment. Any member of this group has the option of participating, or not, in any individual investment and each individual investment has been made on a stand-alone basis through a separate limited liability company (“LLC”). These investments have been Through December 31, 2010, the Company, through Mervyns I and Mervyns II, made Add-On Investments in Mervyns totaling $6.5 million and have received distributions totaling $1.7 million. made through different investment vehicles with different Albertson’s affiliated and unaffiliated investors and different economics to the Company. 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 Acadia. The Company has made these investments through its subsidiaries, Mervyns I, Mervyns II and Fund II, (together the “Acadia Investors”), all on a non-recourse basis. Through December 31, 2010, the Acadia Investors have made investments in Mervyns Department Stores (“Mervyns”) and Albertson’s including additional investments in locations that are separate from these original investments (“Add-On Investments”). Additionally, they have invested in Shopko, Marsh and Rex Stores Corporation (collectively “Other RCP Investments”). Mervyns Department Stores Through Mervyns I and Mervyns II, the Company invested in a consortium to acquire Mervyns consisting The RCP Venture made its second investment as part of an investment consortium, acquiring Albertson’s and Cub Foods, of which the Company’s share was $20.7 million. Through December 31, 2010, the Company has received distributions from this investment totaling $77.1 million, including $11.4 million received in 2010. Through December 31, 2010, the Company, through Mervyns II, made Add-On Investments in Albertson’s totaling $2.4 million and received distributions totaling $1.2 million. Other RCP Investments Through December 31, 2010, the Company, through Fund II, made investments of $1.1 million in Shopko, $0.7 million in Marsh, and $2.0 million in Add-On Investments in Marsh. As of December 31, 2010, the Company has received distributions totaling $1.7 million from its Shopko investment and $2.6 million from its Marsh and Marsh Add-On Investments. of 262 stores (“REALCO”) and its retail operation During July of 2007, the RCP Venture acquired a (“OPCO”) from Target Corporation. The Company’s share portfolio of 87 retail properties from Rex Stores of this investment was $23.2 million. Subsequent to the Corporation, which the Company invested through initial acquisition, the Company, through Mervyns I and Mervyns II. The Company’s share of this investment was Mervyns II, made additional investments of $2.9 million. $2.7 million. As of December 31, 2010, the Company To date, REALCO has disposed of a significant portion of has received distributions totaling $0.8 million. the portfolio. In addition, in November 2007, the Company sold its interest in OPCO and, as a result, has no further investment in OPCO. Through December 31, The following table summarizes activity related to the RCP Venture investments from inception through December 31, 2010: Investment Mervyns 2004 Mervyns Add-On Investments 2005/2008 Albertson’s 2006 Albertson’s Add-On Investments 2006/2007 Shopko 2006 Marsh and Add-On Investments 2006/2008 Rex Stores 2007 Year Acquired Invested Capital and Advances Distributions Invested Capital and Advances Distributions Operating Partnership Share $26,058 6,517 20,717 2,412 1,108 2,667 2,701 $ 45,966 $ 4,901 1,703 77,053 1,215 1,655 2,639 840 1,046 4,239 387 222 533 535 $11,251 283 15,410 243 331 528 168 $62,180 $131,071 $11,863 $28,214 Acadia Realty Trust 2010 Annual Report 79 63359 Notes to Consolidated Financial Statements continued The Company accounts for the original investments in over such entities’ operating and financial policies. Other Mervyns and Albertson’s under the equity method of than the minority investor rights to which the Company accounting as the Company has the ability to exercise is entitled pursuant to statute, it has no rights other than significant influence, but does not have financial or to receive its pro-rata share of cash distributions as operating control. The Company accounts for the Add-On Investments and Other RCP Investments under the cost method. Due to its minor ownership interest based on the size of the investments as well as the terms of the underlying operating agreements, the Company has no influence declared by the managers. The Company has no rights with respect to the control and operation of the investment vehicles, and the formulation and execution of business and investment policies. The Acadia Investors have interests in the individual investee LLC’s as follows: Investee LLC Acadia Investors Entity Investee LLC Underlying Entity(s) Acadia Investors Ownership % in: Investment Mervyns KLA/Mervyn’s, L.L.C. Mervyns I and Mervyns II Mervyns Add-On Investments KLA/Mervyn’s, L.L.C. Mervyns I and Mervyns II Albertson’s KLA A Markets, LLC Albertson’s Add-On Investments KLA A Markets, LLC Shopko Marsh and Add-On Investments KLA-Shopko, LLC KLA Marsh, LLC Mervyns II Mervyns II Fund II Fund II Rex stores KLAC Rex Venture, LLC Mervyns II 10.5% 10.5% 18.9% 20.0% 20.0% 20.0% 13.3% 5.8% 5.8% 5.7% 6.0% 2.0% 3.3% 13.3% Other Opportunity Fund Investments White City Shopping Center in Shrewsbury, Fund I Investments Fund I owned a 50% interest in the Sterling Heights Shopping Center, which was accounted for under the equity method of accounting. During the year ended December 31, 2009, Fund I recorded an impairment reserve of $3.7 million related to this investment. On March 25, 2010, the Sterling Heights Shopping Center was sold for $2.3 million. The proceeds from this sale together with the balance of Fund I’s recourse obligation of $0.6 million were used to fully liquidate the outstanding mortgage loan obligation. Fund II Investments Massachusetts for $56.0 million. Fund III has an 84% interest in the property. The unaffiliated joint venture partner will maintain control over this entity, and as such, the Company accounts for this investment under the equity method. During June 2010, Fund III, in a joint venture with an unaffiliated partner, invested in an entity for the purpose of providing management services to owners of self- storage properties, including the 14 locations currently owned through Fund II and Fund III. Fund III has a 50% interest in the entity. This entity was determined to be a variable interest entity for which the Company was determined not to be the primary beneficiary. As such, Fund II had a 24.75% interest in CityPoint, a the Company accounts for this investment under the redevelopment project located in downtown Brooklyn, equity method. NY, which was accounted for under the equity method. On June 30, 2010, Fund II acquired the remaining interests in the project from its unaffiliated partner, as discussed in Note 2 and, as a result, now consolidates the CityPoint investment. Fund III Investments On December 23, 2010, Fund III, in a joint venture with an unaffiliated partner, acquired the 255,200 square foot Summary of Investments in Unconsolidated Affiliates The following combined/condensed Balance Sheets and Statements of Operations, in each period, summarize the financial information of the Company’s investments in unconsolidated affiliates. 80 Acadia Realty Trust 2010 Annual Report (dollars in thousands) Combined/Condensed Balance Sheets Assets: Rental property, net Real estate under development Investment in unconsolidated affiliates Other assets Total assets Liabilities and partners’ equity: Mortgage note payable Other liabilities Partners’ equity Total liabilities and partners’ equity 40882 December 31, 2010 December 31, 2009 $186,802 — 192,002 27,841 $406,645 $267,565 13,815 125,265 $406,645 $142,690 100,346 209,407 20,951 $473,394 $258,685 12,085 202,624 $473,394 Company’s investment in and advances to unconsolidated affiliates $ 31,036 $ 51,712 Share of distributions in excess of share of income and investments in unconsolidated affiliates (dollars in thousands) Combined/Condensed Statements of Operations Total revenues Operating and other expenses Interest expense Equity in earnings (losses) of unconsolidated affiliates Depreciation and amortization (Loss) gain on sale of property, net Net income (loss) Company’s share of net income (loss) Impairment reserve Amortization of excess investment Company’s share of net income (loss) $ (20,884) $ (20,589) Years Ended December 31, 2010 2009 2008 $29,460 10,617 13,525 56,482 4,839 (2,957) $ 30,835 9,851 13,786 (30,568) 5,152 (390) $ 30,457 11,560 14,133 177,775 5,333 6,838 $54,004 $(28,912) $184,044 $11,363 — (392) $ (1,141) (3,768) (388) $ 20,297 — (391) $10,971 $ (5,297) $ 19,906 Acadia Realty Trust 2010 Annual Report 81 26063 Notes to Consolidated Financial Statements continued Note 5 Notes Receivable and Preferred Equity Investment At December 31, 2010, the Company’s notes receivable, net aggregated $89.2 million, and were collateralized by the underlying properties, the borrower’s ownership interest in the entities that own the properties and/or by the borrower’s personal guarantee. Notes receivable are as follows: (dollars in thousands) Description 72nd Street Georgetown Mezzanine Loan Zero Coupon Loan Mezzanine Loan First Mortgage Loan Individually less than 3% Total Notes: Effective interest rate Final maturity date Periodic payment terms Prior liens Face amount of mortgages 20.85% 10.23% 14.50% 24.00% 13.00% 10.77% 10.00% – 17.50% 7/18/2011 11/12/2011 6/30/2011 1/3/2016 9/11/2011 9/11/2011 Demand note – 1/1/2017 (1) (3) (2) (3) (3) (3) $170,727 9,596 — 166,200 — — 106,089 $47,000 8,000 8,585 5,644 2,980 10,000 15,722 Carrying amount of mortgages $46,715 8,000 8,585 3,225 2,980 10,000 9,697 $97,931 $89,202 (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 April 2010, the Company received a payment of portfolio of 18 properties located primarily in $2.1 million and during December 2009 received a Georgetown, Washington D.C. The portfolio consists of payment of $4.7 million, both representing paydowns on 306,000 square feet of principally retail space. The its first mortgage loan secured by three retail properties, original term of this investment was for two years, with following the sale of two of the collateralized properties. two one year extensions, and provided a 13% preferred During December 2009, the Company made a loan of $8.6 million which bears interest at 14.5% and matures on June 30, 2011. During August 2009, the Company received a payment of $2.8 million, representing the entire balance on its first mortgage loan secured by an interest in a property in Pennsylvania. During August 2009, the Company received a payment of $5.1 million, representing a paydown on its first mortgage loan secured by an interest in a single tenant property located in Long Island, New York. During June 2009, the Company received a payment of $0.7 million, representing a paydown on its loan secured by an interest in a property in South Carolina. return. During September 2010, the Company received its entire $40.0 million of invested equity and $9.4 million of accrued preferred return. During July 2008, the Company made a $34.0 million loan, which is collateralized by an interest in a mixed-use retail and residential development at 72nd Street and Broadway on the Upper West Side of Manhattan. The term of the loan is for a period of three years, with a one year extension with an effective yield, inclusive of all fees, of 20%. During September 2008, the Company, through Fund III, made a $10.0 million first mortgage loan, which is collateralized by land located on Long Island, New York. The term of the loan was for a period of two years, and provides an effective yield of 13%. During September During March 2009, the Company received a payment of 2010, the loan was extended for one year at an effective $0.3 million, representing the entire balance on a loan yield of 11%. secured by an interest in a property in South Carolina. During June 2008, the Company made a $40.0 million preferred equity investment in an entity that owns a 82 Acadia Realty Trust 2010 Annual Report 91115 The following table reconciles notes receivable and The scheduled amortization of acquired lease intangible preferred equity investments from January 1, 2008 to assets and liabilities as of December 31, 2010 is as December 31, 2010: follows: (dollars in thousands) 2010 2009 2008 (dollars in thousands) Assets Liabilities For the years ended December 31, Acquired lease intangible Balance at beginning of period $125,221 $125,587 $ 57,662 Additions during period: New mortgage loans — 9,362 88,480 Deductions during period: 2011 2012 2013 2014 2015 Collections of principal (42,010) (13,614) (19,922) Thereafter $ 3,029 $ 994 2,578 1,999 1,631 1,520 7,865 $18,622 923 730 451 313 2,326 $5,737 Amortization of premium Reserves Other Balance at close of period Note 6 6,164 5,352 2,367 (93) (80) (1,466) (3,000) — — Note 8 $ 89,202 $125,221 $125,587 Deferred Charges Deferred charges consist of the following as of December 31, 2010 and 2009: (dollars in thousands) December 31, 2010 2009 Deferred financing costs $ 29,692 $ 22,852 Deferred leasing and other costs 32,501 33,169 Accumulated amortization 62,193 56,021 (36,463) (27,710) Mortgages Payable At December 31, 2010 and 2009, mortgage notes payable, excluding the net valuation premium on the assumption of debt, aggregated $806.1 million and $732.2 million, respectively, and were collateralized by 29 and 28 properties and related tenant leases, respectively. Interest rates on the Company’s outstanding mortgage indebtedness ranged from 0.86% to 7.34% with maturities that ranged from March 2011 to November 2032. Certain loans are cross-collateralized and contain cross-default provisions. The loan agreements contain customary representations, covenants and events of default. Certain loan agreements require the Company to comply with affirmative and negative covenants, including the maintenance of debt service coverage and leverage $ 25,730 $ 28,311 ratios. Note 7 Acquired Lease Intangibles 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, acquired in-place leases and customer relationships) and acquired liabilities in The following reflects mortgage loan activity for the year ended December 31, 2010: i) During January 2010, the Company closed on a $48.0 million construction loan that bears interest at LIBOR plus 400 basis points, subject to an interest rate floor of 6.50% which matures on January 12, 2012. As of December 31, 2010, $40.2 million was drawn on this facility. accordance with ASC Topic 805. The intangibles are ii) During March 2010, the Company extended the amortized over the remaining non-cancelable terms of Fund II subscription line of credit, which was the respective leases. collateralized by a pledge of investors’ unfunded capital commitments, from March 1, 2010 to March 1, 2011 and adjusted the interest rate from LIBOR plus 250 basis points to LIBOR plus 325 basis points. In connection with the extension, the Company made an $8.2 million payment on the Acadia Realty Trust 2010 Annual Report 83 11402 Notes to Consolidated Financial Statements continued outstanding $48.2 million line of credit and the line ix) During August of 2010, the Company amended of credit’s maximum capacity was reduced to and extended the maturity date of a $25.9 million $40.0 million. During December 2010, the line of loan that was scheduled to mature in August of credit was extended further to December 22, 2014 2010. In connection with the release of a portion and the interest rate reduced to LIBOR plus 290 of the collateral for this loan, the Company was basis points. This modification also requires required to pay down the principal by $5.3 million. principal reductions to (a) $15.0 million on October The amendment provided for a three year 31, 2013, (b) $11.3 million on February 1, 2014, (c) extension of the loan maturity date to August 12, $7.5 million on May 1, 2014, and (d) $3.8 million 2013 with two one-year extension options. on August 1, 2014. Additionally, a Company guarantee has replaced the unfunded capital commitments of the investors as collateral for this loan and the Company has agreed to maintain various restrictive covenants. x) Also during August of 2010, the Company completed an amendment of a $31.7 million construction loan. Previously, the servicer, on behalf of the lender of this loan, had previously alleged that non-monetary defaults had occurred, iii) During February of 2010, the Company paid off an however it has subsequently agreed to dismiss all outstanding line of credit balance of $2.0 million, allegations of default. The loan continued to bear which was collateralized by a property and interest at 7.38% and had a maturity date of scheduled to mature on March 29, 2010 and January 1, 2020. During December 2010, the terminated the line of credit. iv) During 2010, the Company made payments of $29.0 million on an outstanding $30.0 million credit facility collateralized by six properties. v) During 2010, the Company made draws of $32.0 million on the Fund III subscription line of credit. As of December 31, 2010, the total outstanding amount on this line of credit was $171.5 million. vi) During May of 2010, the Company borrowed an additional $2.0 million on an existing mortgage loan collateralized by a property. Company closed on a new $34.0 million loan and used the proceeds to pay off this construction loan. The loan bears interest at LIBOR plus 275 basis points and matures on December 1, 2013. $31.6 million of the loan was funded at the closing and an additional $2.4 million was available for tenant improvements and leasing commissions. xi) During September of 2010, the Company amended and extended the maturity date of a $10.5 million loan that was scheduled to mature during September 2010. The amendment required a $0.5 million principal pay down and provided for a one vii) During July 2010, the Company amended and year extension of the loan maturity date to extended a $30.0 million loan, collateralized by a September 1, 2011 with a one year extension Fund II property located on 161st Street in the option and bears interest at LIBOR plus 325 basis Bronx, NY. The agreement required a $1.1 million points. payment on the outstanding principal balance and extended the maturity date to April 1, 2013. The interest rate has been adjusted retroactively to LIBOR plus 400 basis points for the period April 1, 2010 through March 31, 2011, LIBOR plus 550 basis points for the period April 1, 2011 through March 31, 2012, and LIBOR plus 600 basis points for the period April 1, 2012 through March 31, 2013. viii) During July of 2010, the Company closed on a xii) During June 2009, the servicer, on behalf of the lender of one of the Company’s loans alleged that a non-monetary default had occurred on an $11.5 million construction loan collateralized by Atlantic Avenue. The servicer alleged that the Company did not substantially complete the improvements in accordance with the required completion date as defined in the loan agreement and, accordingly, did not meet the requirements for the final draw. During October 2010, the Company and the $20.0 million bond financing that bears interest at servicer reached an agreement to amend the loan a fixed rate of 7.25% that is due November 1, whereby all alleged events of default were waived. 2042 and has a mandatory put date of November 1, 2014. 84 Acadia Realty Trust 2010 Annual Report 40512 xiii) During October 2010, the Company modified and loan bears interest at LIBOR plus 190 basis points extended the maturity date of a $9.8 million loan and matures on October 26, 2015. The proceeds that was scheduled to mature during October of this loan were used to repay the existing $46.6 2010. The amendment required a $1.4 million million mortgage note payable. There is an principal pay down and provided for a one year additional $25.0 million available, based on the extension of the loan maturity date to October 31, property attaining certain debt service coverage 2011. xiv) During October 2010, the Company closed on a $50.0 million loan collateralized by a property. The ratio levels and the lender being able to syndicate the loan. The second tranche will bear interest at LIBOR plus 230 basis points. The following table sets forth certain information pertaining to our secured credit facilities: (dollars in thousands) Borrower Acadia Realty, LP Acadia Realty, LP Fund II Fund III Total Total amount of credit facility Amount borrowed as of December 31, 2009 $ 64,498 — 40,000 221,000 $325,498 $ 30,000 2,000 48,245 139,450 $219,695 Net borrowings (repayments) during the year ended December 31, 2010 $(29,000) (2,000) (8,245) 32,000 $ (7,245) Amount borrowed as of December 31, 2010 Letters of credit outstanding as of December 31, 2010 Amount available under credit facilities as of December 31, 2010 $ 1,000 — 40,000 171,450 $212,450 $8,610 — — 500 $9,110 $ 54,888 — — 49,050 $103,938 Acadia Realty Trust 2010 Annual Report 85 86101 Notes to Consolidated Financial Statements continued The following table summarizes the Company’s mortgage and other secured indebtedness as of December 31, 2010 and December 31, 2009: (dollars in thousands) December 31, 2010 2009 Interest Rate at December 31, 2010 Maturity Payment Terms Description of Debt and Collateral Mortgage notes payable — variable-rate Liberty Avenue Fordham Place $ 10,000 85,910 $ 10,450 86,000 Tarrytown Shopping Center Branch Shopping Plaza Canarsie Plaza 8,427 13,932 40,243 9,800 14,179 — 3.51% (LIBOR +3.25%) Greater of 1.5%+3.5% or 5.00% (LIBOR +3.5%) 1.91% (LIBOR +1.65%) 1.56% (LIBOR +1.30%) Greater of 6.50% or 4.26% (LIBOR +4.00%) 9/1/2011 10/4/2011 Interest only monthly. Interest only monthly. 10/30/2011 Interest only monthly. 12/1/2011 Monthly principal and interest. 1/12/2012 Interest only monthly. Village Commons Shopping Center 161st Street CityPoint Pelham Manor Cortlandt Towne Center Sub-total mortgage notes payable 9,305 28,900 20,650 31,554 50,000 9,467 30,000 1.66% (LIBOR +1.40%) 4.26% (LIBOR +4.00%) — 2.76% (LIBOR +2.50%) — 3.01% (LIBOR +2.75%) 2.16% (LIBOR +1.90%) 44,878 6/29/2012 Monthly principal and interest. Interest only monthly. Interest only monthly. 4/1/2013 8/12/2013 12/1/2013 Monthly principal and interest. 10/26/2015 Monthly principal and interest. 298,921 204,774 Secured credit facilities — variable-rate: Fund III unfunded investor capital commitments Six Core Portfolio properties 171,450 1,000 139,450 30,000 0.86% (LIBOR +0.60%) 1.51% (LIBOR +1.25%) 10/9/2011 12/1/2011 Fund II Ledgewood Mall 40,000 - 48,245 2,000 3.16% (LIBOR +2.90%) 1.51% (LIBOR +1.25%) Sub-total secured credit facilities 212,450 219,695 Interest rate swaps (1) (71,535) (83,416) Total variable-rate debt 439,836 341,053 Mortgage notes payable — fixed-rate Five Self-Storage properties Chestnut Hill Clark Diversey New Loudon Center CityPoint Crescent Plaza Pacesetter Park Shopping 41,500 9,338 4,625 14,119 20,000 17,539 Center Elmwood Park Shopping Center The Gateway Shopping Center Walnut Hill Plaza 12,132 34,197 20,500 23,500 41,500 9,481 4,751 14,343 — 17,600 12,313 34,600 20,500 23,500 239 Greenwich Avenue Merrillville Plaza 26,000 26,250 26,000 26,250 216th Street Pelham Manor Shopping Plaza Atlantic Avenue 25,500 - 11,540 25,500 31,652 11,543 A&P Shopping Plaza Interest rate swaps (1) Total fixed-rate debt Unamortized premium Total 8,033 71,535 366,308 68 8,182 83,416 391,131 103 $806,212 $732,287 5.30% 5.45% 6.35% 5.64% 7.25% 4.98% 5.12% 5.53% 5.44% 6.06% 5.42% 5.88% 5.80% 7.18% 7.34% 6.40% 5.46% Interest only monthly. Annual principal and monthly interest. Interest only monthly. 12/22/2014 — — Interest only monthly. 3/16/2011 6/11/2013 Monthly principal and interest. 7/1/2014 Monthly principal and interest. 9/6/2014 Monthly principal and interest. 11/1/2014 Interest only quarterly. 9/6/2015 Monthly principal and interest. 2/11/2017 8/1/2017 11/6/2015 Monthly principal and interest. 1/1/2016 Monthly principal and interest. 3/1/2016 10/1/2016 Interest only monthly. Interest only monthly until 10/11; monthly principal and interest thereafter. Interest only monthly. Interest only monthly until 7/12 monthly principal and interest thereafter. Interest only monthly. — Interest only upon drawdown on construction loan until 1/15 monthly principal and interest thereafter. 11/1/2032 Monthly principal and interest. 10/1/2017 — 1/1/2020 (1) Represents the amount of the Company’s variable-rate debt that has been fixed through certain cash flow hedge transactions. (Note 10). 86 Acadia Realty Trust 2010 Annual Report 34898 The scheduled principal repayments of all indebtedness unpaid interest to, but not including, the redemption including Convertible Notes as of December 31, 2010 are date. The Holders of notes may require the Company to as follows (does not include $68,000 net valuation repurchase their notes, in whole or in part, on December premium on assumption of debt): 20, 2011, December 15, 2016, and December 15, 2021 (dollars in thousands) 2011 2012 2013 2014 2015 Thereafter Note 9 $384,668 53,374 103,443 64,452 79,268 169,651 $854,856 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 15 and December 15 of each year. The Convertible Notes are unsecured unsubordinated 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. In general, upon a conversion of notes, the Company will deliver cash and, at the Company’s election, its Common Shares, with an aggregate value, which the Company refers to as the “conversion value”, equal to the conversion rate multiplied by the average price of the Company’s Common Shares. The net amount may be paid, at the Company’s option, in cash, its Common Shares or a combination of cash and its Common Shares. The Convertible Notes if-converted value does not exceed its principal amount as of December 31, 2010 and there are no derivative transactions that were entered into in connection with the issuance of the Convertible Notes. obligations and rank equally with all other unsecured and During 2010, 2009 and 2008 the Company purchased unsubordinated indebtedness. The Convertible Notes $0.2 million, $57.0 million and $8.0 million in principal have an effective interest rate of 6.03% giving effect to amount, respectively, of its convertible debt at an the accounting treatment required by ASC Topic 470-20 average discount of approximately 19%. The transactions “Debt with Conversion and Other Options” (“ASC Topic resulted in a gain on debt extinguishment of $7.1 million 470-20”). The Convertible Notes had an initial conversion and $1.5 million for the years ended December 31, 2009 price of $30.86 per share. The conversion rate may be and 2008, respectively. The outstanding Convertible Note adjusted under certain circumstances, including the principal amount as of December 31, 2010 and 2009 was payment of cash dividends in excess of the regular $49.8 million and $50.0 million, respectively. The quarterly cash dividend in place at the time the outstanding Convertible Note net carrying amount as of Convertible Notes were issued. As of December 31, December 31, 2010 and 2009 was $48.7 million and 2010, the adjusted conversion price is $29.26. Upon $47.9 million, respectively. conversion of the Convertible Notes, the Company will deliver cash and, in some circumstances, Common Shares, as specified in the indenture relating to the Convertible Notes. In general, the Convertible 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 Effective January 1, 2009, the Company adopted ASC Topic 470-20 which required it to retrospectively restate and reclassify previously disclosed consolidated financial statements to allocate the proceeds from the issuance of convertible debt between a debt component and an equity component. The resulting discount on the debt component is amortized over the period the convertible debt is expected to be outstanding, which is December 11, 2006 to December 20, 2011, as additional non-cash interest expense. The equity component recorded as additional paid-in capital was $11.3 million, 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. Acadia Realty Trust 2010 Annual Report 87 53096 Notes to Consolidated Financial Statements continued The carrying amount of the equity component included in respectively. Accumulated amortization related to the additional paid-in capital totaled $1.1 million at December convertible notes payable was $1.0 million and $0.7 31, 2010 and $2.1 million at December 31, 2009. Interest million as of December 31, 2010 and December 31, expense relating to the contractual interest coupon 2009, respectively, after giving effect to repurchases. recognized in the Consolidated Statements of Income was $1.9 million, $2.5 million and $4.3 million for the years ended December 31, 2010, 2009, and 2008, respectively, The additional non-cash interest expense recognized in the Consolidated Statements of Income was $1.0 million, $1.3 million and $2.1 million for the years ended December 31, 2010, 2009, and 2008, (dollars in thousands, except per share amounts) 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 The following table shows the effect of the retrospective application and reclassification of the consolidated statement of income for the year ended December 31, 2008 and consolidated statement of cash flow accounts for the year ended December 31, 2008: Year ended December 31, 2008 Before Adjustment As Adjusted Effect of Change $32,805 $32,749 $ 56 $26,792 $ 1,958 $30,997 $39,917 $28,893 $(2,101) $ 1,523 $ (435) $28,517 $(2,480) $37,437 $(2,480) $27,548 $25,068 $(2,480) $ $ 0.81 0.80 $ $ 0.74 0.73 $ (0.07) $ (0.07) Year ended December 31, 2008 Before Adjustment As Adjusted Effect of Change Affected Consolidated Statement of Cash Flow Accounts Depreciation and amortization Gain on debt extinguishment Amortization of discount on convertible debt $34,964 $34,908 $ (56) $ (1,958) $ (1,523) $ 435 $ — $ 2,101 $2,101 Note 10 Financial Instruments and Fair Value Measurements Derivative Financial Instruments The FASB’s derivative and hedging guidance establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As required by the FASB guidance, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, 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. For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related 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 directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction. For derivatives not designated as hedges, changes in fair value are recognized in earnings. 88 Acadia Realty Trust 2010 Annual Report 10252 As of December 31, 2010, the Company’s derivative The FASB’s fair value measurements and disclosure financial instruments consisted of seven interest rate guidance requires the valuation of certain of the LIBOR swaps with an aggregate notional value of $71.5 Company’s financial assets and liabilities, based on a million, which fix interest at rates from 0.5% to 5.1% and three-level fair value hierarchy. Market participant mature between September 2011 and November 2012. assumptions obtained from sources independent of the The Company also has one derivative financial instrument Company are observable inputs that are classified within with a notional value of $28.9 million which caps interest Levels 1 and 2 of the hierarchy, and the Company’s own at 6% and matures in April 2013. The fair value of the assumptions about market participant assumptions are derivative liability of these instruments, which is included unobservable inputs classified within Level 3 of the in other liabilities in the Consolidated Balance Sheets, hierarchy. totals $2.8 million at December 31, 2010. The notional value does not represent exposure to credit, interest rate or market risks. These derivative instruments have been designated as cash flow hedges and hedge the future cash outflows on variable rate mortgage debt. Such instruments are reported at the fair value reflected above. As of December 31, 2010 and 2009, unrealized losses totaling $2.8 and $3.3 million, respectively were reflected in accumulated other comprehensive loss. It is estimated that approximately $2.5 million included in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense in the 2011 results of operations. As of December 31, 2010 and 2009, no derivatives were designated as fair value hedges or hedges of net investments 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 designated as hedges. As of December 31, 2010, none of the Company’s hedges were ineffective. (dollars in thousands) The following table presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 31, 2010: (dollars in thousands) Liabilities Derivative financial instruments Level 1 Level 2 Level 3 $ — $2,816 $ — Financial Instruments Certain of the Company’s assets and liabilities meet the definition of financial instruments. Except as disclosed below, the carrying amounts of these financial instruments approximates their fair value due to the short- term nature of such accounts. The Company has determined the estimated fair values of the following financial instruments by discounting future cash flows utilizing a discount rate equivalent to the rate at which similar financial instruments would be originated at the reporting date: December 31, 2010 December 31, 2009 Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value Notes Receivable and Preferred Equity Investments $ 89,202 $ 90,612 $125,221 $126,403 Mortgage Notes Payable and Convertible Notes Payable $854,924 $863,639 $780,197 $751,043 Note 11 Shareholders’ Equity and Noncontrolling Interests Common Shares During the first quarter of 2010, 57,476 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, 2010, the Company recognized accrued Common Share and Common OP Unit-based compensation totaling $3.8 million in connection with the vesting of Restricted Shares and Units (Note 15). Acadia Realty Trust 2010 Annual Report 89 50238 Notes to Consolidated Financial Statements continued Noncontrolling Interests The following table summarizes the change in the noncontrolling interests since December 31, 2009: Noncontrolling Interests in Operating Partnership Noncontrolling Interests in Partially-Owned Affiliates (dollars in thousands) Balance at December 31, 2009 Distributions declared of $0.72 per Common OP Unit Net income for the period January 1 through December 31, 2010 Conversion of 364,615 OP Units to Common Shares by limited partners of the Operating Partnership Other comprehensive income — unrealized loss on valuation of swap agreements Reclassification of realized interest expense on swap agreements Noncontrolling interest contributions Noncontrolling interest distributions and other reductions Employee Long-term Incentive Plan Unit Awards Balance at December 31, 2010 $ 6,176 (723) 394 (3,240) 22 2 — — 1,778 $ 4,409 $214,116 — 20,216 — 261 (356) 33,556 (2,892) — $264,901 Noncontrolling interest in the Operating Partnership Units at the lesser of $7.50 or the market price of the represents (i) the limited partners’ 281,294 and 626,606 Common Shares as of the conversion date. Common OP Units at December 31, 2010 and 2009, (ii) 188 Series A Preferred OP Units at December 31, 2010 Note 12 and 2009, with a stated value of $1,000 per unit, which are entitled to a preferred quarterly distribution of the greater of (a) $22.50 (9% annually) per Series A Preferred OP Unit or (b) the quarterly distribution Related Party Transactions During February 2010, Klaff converted all 250,000 of its Restricted Common OP Units into 250,000 Common attributable to a Series A Preferred OP Unit if such unit Shares. were converted into a Common OP Unit, and (iii) In 2008 and 2009 the Company earned asset 641,534 and 393,909 LTIP units as of December 31, management, leasing, disposition, development and 2010 and December 31, 2009 respectively, as discussed construction fees for providing services to an existing in Share Incentive Plan (Note 15). portfolio of retail properties and/or leasehold interests in Noncontrolling interests in partially-owned affiliates include third-party interests in Fund I, II and III, and Mervyns I and II and three other entities. In 2005, the Company issued 250,000 Restricted Common OP Units to Klaff in consideration for an interest in certain management contract rights. During 2010, Klaff converted the 250,000 Restricted Common OP Units into Common Shares. The Series A Preferred OP Units were issued in 1999 in connection with the acquisition of a property. Through December 31, 2010, 1,204 Series A Preferred OP Units were converted into 160,533 Common OP Units and then into Common Shares. The 188 remaining Series A Preferred OP Units are currently convertible into Common OP Units based on the stated value divided by $7.50. Either the Company or the holders can currently call for the conversion of the Series A Preferred OP 90 Acadia Realty Trust 2010 Annual Report which Klaff had an interest. Fees earned by the Company in connection with this portfolio were $0.0 million, $0.4 million and $0.8 million for the years ended December 31, 2010, 2009 and 2008 respectively. 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 $0.8 million, $0.7 million and $1.1 million for the years ended December 31, 2010, 2009 and 2008, respectively. In addition, the Company earned property management and development fees from CityPoint totaling $1.0 million for the year ended December 31, 2008. 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, 2010, 2009, and 2008. 97954 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. (dollars in thousands) 2011 2012 2013 2014 2015 Thereafter Minimum future rentals to be received under non- cancelable leases for shopping centers and other retail properties as of December 31, 2010 are summarized as Note 15 $ 5,372 6,008 6,033 5,574 5,375 143,216 $171,578 follows: (dollars in thousands) 2011 2012 2013 2014 2015 Thereafter $ 94,214 88,108 80,087 68,512 60,244 546,444 $937,609 During the years ended December 31, 2010, 2009 and 2008, no single tenant collectively accounted for more than 10% of the Company’s total revenues. Note 14 Lease Obligations The Company leases land at 24 of its shopping centers, which are accounted for as operating leases and generally provide the Company with renewal options. Ground rent expense was $3.7 million, $2.5 million, and $2.3 million (including capitalized ground rent at properties under development of $0.5 million, $0.6 million and $1.1 million) for the years ended December 31, 2010, 2009 and 2008, respectively. The leases terminate at various dates between 2020 and 2078. These leases provide the Company with options to renew for additional terms aggregating from 20 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, $1.5 million and $1.2 million for the years ended December 31, 2010, 2009 Share Incentive Plan During 2003, the Company adopted the 2003 Share Incentive 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 Common Shares at the grant date. The Committee determines the restrictions placed on Awards, including the dividends or distributions thereon and the term of such restrictions. The Committee also determines the award and vesting of performance units and performance shares based on the attainment of specified performance objectives of the Company within a specified performance period. Through and 2008, respectively. Future minimum rental payments required for leases having remaining non-cancelable lease December 31, 2010, no share appreciation rights or performance units/shares had been awarded. In terms are as follows: connection with the Awards, to the extent that a portion of senior management’s cash bonus is converted into elective Awards, the number of shares issued are at a 25% discount and vest over time. Acadia Realty Trust 2010 Annual Report 91 20546 Notes to Consolidated Financial Statements continued During 2006, the Company adopted the 2006 Share Company in connection with Trustee fees. The Company Incentive Plan (the “2006 Plan”). The 2006 Plan is also issued 8,000 Restricted Shares to Trustees, which substantially similar to the 2003 Plan, except that the vest over three years with 33% vesting on each of the maximum number of Common Share equivalents that the three anniversaries following the issuance date. The Company may issue pursuant to the 2006 Plan is Restricted Shares do not carry voting rights or other 500,000. On March 1, 2010 and March 10, 2010, the Company issued 265,517 LTIP Units and 1,462 Restricted Shares to officers of the Company and 15,011 Restricted Shares and 1,411 LTIP Units to employees of the Company. Vesting with respect to these awards is recognized ratably over the five annual anniversaries following the issuance date. Vesting on 23% of the awards issued to officers are also generally subject to achieving certain Company performance measures. LTIP Units are similar rights of Common Shares until vesting and may not be transferred, assigned or pledged until the recipients have a vested non-forfeitable right to such shares. Dividends are not paid currently on unvested Restricted Shares, but are paid cumulatively, from the issuance date through the applicable vesting date of such Restricted Shares vesting. Trustee fee expense of $0.1 million for the year ended December 31, 2010 has been recognized in the accompanying consolidated financial statements related to this issuance. to Restricted Shares but provide for a quarterly During 2009, the Company adopted the Long Term partnership distribution in a like amount as paid to Investment Alignment Program (the “Program”) pursuant Common OP Units. This distribution is paid on both to which the Company may award units primarily to unvested and vested LTIP Units. The LTIP Units are senior executives which would entitle them to receive up convertible into Common OP Units and Common Shares to 25% of any future Fund III Promote when and if such upon vesting and a revaluation of the book capital Promote is ultimately realized. As of December 31, 2010, accounts. These awards were measured at their fair value as if they were vested on the grant date. Fair value was established as the market price of the Company’s Common Shares as of the close of trading on the day preceding the grant date. The total value of the above Restricted Shares and LTIP Units as of the grant date was $4.7 million. The weighted average fair value for Restricted Shares and LTIP Units granted for the years ended December 31, 2010, 2009 and 2008 were $16.73, $10.31 and $24.51, respectively. Total long-term incentive compensation expense, including the expense related to the above mentioned plans, was $3.8 million, $3.7 million and $3.5 million for the years ended December 31, 2010, 2009 and 2008, respectively. On May 10, 2010, the Company issued 4,180 unrestricted Common Shares to Trustees of the the Company has awarded units representing 61% of the Program, which were determined to have no value at issuance or as of December 31, 2010. In accordance with ASC Topic 718 “Compensation - Stock Compensation,” compensation relating to these awards will be recorded based on the change in the estimated fair value at each reporting period. As of December 31, 2010, the Company had 101,283 options outstanding to officers and employees all of which have vested. In addition, 58,000 options have been issued, of which all have vested, to non-employee Trustees. During 2010, 7,000 options were exercised by the Trustees at various exercise prices. As of December 31, 2010, there are 51,000 options outstanding to Trustees of the Company. These options are for ten-year terms from the grant date and vested in three equal annual installments, which began on their respective grant dates. 92 Acadia Realty Trust 2010 Annual Report 19364 A summary of option activity under all option arrangements as of December 31, 2009 and 2010, and changes during the years then ended is presented below: Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value (dollars in thousands) Options Outstanding at January 1, 2009 Granted Exercised Forfeited or Expired Outstanding and exercisable at December 31, 2009 Granted Exercised Forfeited or Expired Shares 421,244 — (258,900) (3,061) 159,283 — (7,000) — $10.65 — 5.99 19.67 18.04 — 14.46 — Outstanding and exercisable at December 31, 2010 152,283 $18.20 3.7 — — — 5.5 — — — 4.5 $1,527 — 2,816 — — — 26 — $ 6 The total intrinsic value of options exercised during the A summary of the status of the Company’s unvested years ended December 31, 2010, 2009 and 2008 was Restricted Shares and LTIP Units as of December 31, $0.03 million, $2.8 million and $0.8 million, respectively. 2009 and 2010 and changes during the years ended December 31, 2009 and 2010, is presented below: Unvested Shares and LTIP Units Restricted Shares Unvested at January 1, 2009 Granted Vested Forfeited Unvested at December 31, 2009 Granted Vested Forfeited Unvested at December 31, 2010 Note 16 487,434 54,960 (249,825) (20,057) 272,512 24,473 (143,042) (513) 153,430 Employee Share Purchase and Deferred Share Plan As of December 31, 2010, there was $7.4 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under share incentive plans. That cost is expected to be recognized over a weighted-average period of 1.7 years. The total fair value of Restricted Shares that vested during the years ended December 31, 2010, 2009 and 2008 was $3.0 million, $5.0 million and $2.7 million, respectively. The Acadia Realty Trust Employee Share Purchase Plan (the “Purchase Plan”), allows eligible employees of the Company to purchase Common Shares through payroll Weighted Grant-Date Fair Value $21.37 10.95 20.07 17.35 20.76 17.32 21.26 13.74 $19.75 LTIP Units 181,350 208,796 (25,472) (1,841) 362,833 266,928 (67,022) — 562,739 Weighted Grant-Date Fair Value $24.55 10.30 24.60 24.61 16.35 16.73 15.69 — $16.61 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 the $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 2010, 2009 and 2008, 6,184, 8,744 and 7,499 Common Shares, respectively, were purchased by employees under the Purchase Plan. Associated compensation expense of $0.02 million was recorded in 2010 and 2009 and $0.03 million was recorded in 2008. Acadia Realty Trust 2010 Annual Report 93 45795 Notes to Consolidated Financial Statements continued During August of 2004, the Company adopted a Deferral requirement that it currently distribute at least 90% of its and Distribution Election pursuant to the 1999 Share annual REIT taxable income to its shareholders. As a Incentive Plan and 2003 Share Incentive Plan, whereby REIT, the Company generally will not be subject to the participants elected to defer receipt of 190,487 corporate Federal income tax, provided that distributions Common Shares (“Share Units”) that otherwise would to its shareholders equal at least the amount of its REIT have been issued upon the exercise of certain options. In taxable income as defined under the Code. As the January 2009, these Share Units were converted to Company distributed sufficient taxable income for the 190,487 Common Shares and issued to the recipients years ended December 31, 2010, 2009 and 2008, no and 83,433 of these Common Shares were cancelled to U.S. Federal income or excise taxes were incurred. If the pay for the participants income taxes. Company fails to qualify as a REIT in any taxable year, it During May of 2006, the Company adopted a Trustee Deferral and Distribution Election (“Trustee Deferral Plan”) whereby the participating Trustees have deferred compensation of $0.06 million, $0.05 million and $0.4 million for 2010, 2009 and 2008, respectively. During 2009, certain trustees elected to receive 14,722 will be subject to Federal income taxes at the regular corporate rates (including any applicable 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 Common Shares, which were previously deferred, from property and Federal income and excise taxes on any 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 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. Characterization of Distributions: The Company has determined that the cash distributed plan participant’s contribution up to 6% of the to the shareholders is characterized as follows for employee’s annual salary. A plan participant may Federal income tax purposes: contribute up to a maximum of 15% of their compensation but not in excess of $16,500 for the year ended December 31, 2010. The Company contributed $0.2 million, $0.2 million and $0.3 million for the years Ordinary income Capital gain ended December 31, 2010, 2009 and 2008, respectively. For the years ended December 31, 2010 100% — 100% 2009 95% 5% 100% 2008 54% 46% 100% Note 18 Dividends and Distributions Payable On November 9, 2010, the Board of Trustees declared a Taxable REIT Subsidiaries Income taxes have been provided for using the liability method as required by ASC Topic 740 “Income Taxes.” The Company’s TRS income and provision for income taxes for the years ended December 31, 2010, 2009 and cash dividend for the quarter ended December 31, 2010, 2008 are summarized as follows: of $0.18 per Common Share, which was paid on February 1, 2011 to holders of record as of December 31, 2010. 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 organizational and operational requirements, including a 2010 2009 2008 (dollars in thousands) TRS income before income taxes $5,716 $2,671 $5,870 Provision for income taxes: Federal State and local TRS net income before noncontrolling interest Noncontrolling interest 2,164 543 1,025 292 2,441 763 3,009 1,354 2,666 545 — — TRS net income $2,464 $1,354 $2,666 94 Acadia Realty Trust 2010 Annual Report 66165 The income tax provision differs from the amount computed by applying the statutory federal income tax rate to income before income taxes as follows (not adjusted for temporary book/tax differences): Note 20 Earnings Per Common Share Basic earnings per Common Share is computed using 2010 2009 2008 net income attributable to common shareholders and the (dollars in thousands) Federal provision at statutory tax rate State and local taxes, net of federal benefit Tax effect of: Permanent differences, net Other REIT state and local income and franchise taxes Total provision for income taxes $1,943 $ 908 $1,996 weighted average Common Shares outstanding. Diluted earnings per Common Share reflect the conversion of obligations and the assumed exercises of securities including the effects of awards issuable under the Company’s Share Incentive Plans. In accordance with 358 193 504 GAAP, all Common Shares used to calculate earnings per 406 — 138 78 514 190 Common Share have been adjusted to reflect a special dividend paid on January 30, 2009, which resulted in the issuance of approximately 1.3 million additional Common Shares. The following table sets forth the computation of basic and diluted earnings per share from continuing 183 224 158 operations for the periods indicated: $2,890 $1,541 $3,362 (dollars in thousands, except per share amounts) Numerator: Income from continuing operations attributable to Common Shareholders Effect of dilutive securities: Preferred OP Unit distributions Numerator for diluted earnings per Common Share Denominator: Weighted average shares for basic earnings per share Effect of dilutive securities: Employee share options Convertible Preferred OP Units Dilutive potential Common Shares Years ended December 31, 2009 2008 2010 $29,980 $28,551 $17,079 18 29,998 19 28,570 — 17,079 40,136 38,005 33,813 245 25 270 212 25 237 454 — 454 Denominator for diluted earnings per share 40,406 38,242 34,267 Basic earnings per Common Share from continuing operations attributable to Common Shareholders Diluted earnings per Common Share from continuing operations attributable to Common Shareholders $ 0.75 $ 0.75 $ 0.51 $ 0.74 $ 0.75 $ 0.50 The weighted average shares used in the computation of such units is allocated on this same basis and reflected dilutive earnings per share include unvested restricted as noncontrolling interest in subsidiaries in the Common Shares (“Restricted Shares”) and restricted OP accompanying consolidated financial statements. As Units (“LTIP Units”) (Note 15) that are entitled to receive such, the assumed conversion of these units would have dividend equivalent payments. The effect of the no net impact on the determination of diluted earnings conversion of Common OP Units is not reflected in the per share. The conversion of the convertible notes above table, as they are exchangeable for Common payable (Note 9) is not reflected in the table above as Shares on a one-for-one basis. The income allocable to Acadia Realty Trust 2010 Annual Report 95 87632 Notes to Consolidated Financial Statements continued such conversion, based on the market price of the would be dilutive and they are included in the table. The Common Shares, would be settled with cash. effect of the assumed conversion of 188 Series A The effect of the assumed conversion of 188 Series A Preferred OP Units into 25,067 Common Shares for the year ended December 31, 2010 and December 31, 2009 Preferred OP Units into 25,067 Common Shares for the year ended December 31, 2008 would be anti-dilutive and they are not included in the table. Note 21 Summary of Quarterly Financial Information (unaudited) The quarterly results of operations of the Company for the years ended December 31, 2010 and 2009 are as follows: 2010 (dollars in thousands, except per share amounts) March 31, June 30, September 30, December 31, Revenue Income from continuing operations attributable to Common Shareholders 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 per share Net income attributable to Common Shareholders per Common Share—diluted: Income from continuing operations Income from discontinued operations Net income per share Cash dividends declared per Common Share Weighted average Common Shares outstanding: Basic Diluted $ $ $ $ $ $ $ $ $ 37,461 5,118 12 5,130 0.13 — 0.13 0.13 — 0.13 0.18 $ $ $ $ $ $ $ $ $ 36,698 12,786 12 12,798 0.32 — 0.32 0.32 — 0.32 0.18 $ $ $ $ $ $ $ $ $ 39,011 5,105 12 5,117 0.13 — 0.13 0.13 — 0.13 0.18 $ $ $ $ $ $ $ $ $ 38,788 6,971 41 7,012 0.17 — 0.17 0.17 — 0.17 0.18 39,980,646 40,134,706 40,149,931 40,371,812 40,169,141 40,430,998 40,257,378 40,594,009 96 Acadia Realty Trust 2010 Annual Report 80201 (dollars in thousands, except per share amounts) March 31, June 30, September 30, December 31, 2009 Revenue Income from continuing operations attributable to Common Shareholders 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 per share Net income attributable to Common Shareholders per Common Share—diluted: Income from continuing operations Income from discontinued operations Net income per share Cash dividends declared per Common Share Weighted average Common Shares outstanding: Basic Diluted Note 22 $ $ $ $ $ $ $ $ $ $ $ 34,650 9,341 958 10,299 0.27 0.03 0.30 0.27 0.03 0.30 0.21 $ $ $ $ $ $ $ $ $ 34,881 7,104 31 7,135 0.18 — 0.18 0.18 — 0.18 0.18 $ $ $ $ $ $ $ $ $ 38,645 7,264 43 7,307 0.18 — 0.18 0.18 — 0.18 0.18 $ $ $ $ $ $ $ $ $ $ $ 37,527 4,842 1,550 6,392 0.12 0.04 0.16 0.12 0.04 0.16 0.18 33,902,958 38,592,289 34,050,446 38,804,108 39,685,623 39,967,714 39,756,060 40,037,555 Commitments and Contingencies Under various Federal, state and local laws, ordinances 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 and regulations relating to the protection of the assessment has resulted in specific recommendations for environment, a current or previous owner or operator of remedial actions, the Company has either taken or real estate may be liable for the cost of removal or scheduled the recommended remedial action. To mitigate remediation of certain hazardous or toxic substances unknown risks, the Company has obtained environmental disposed, stored, generated, released, manufactured or insurance for most of its properties, which covers only discharged from, on, at, under, or in a property. As such, unknown environmental risks. the Company may be potentially liable for costs associated with any potential environmental remediation at any of its formerly or currently owned properties. The Company believes that it is in compliance in all material respects with all Federal, state and local ordinances and regulations regarding hazardous or toxic The Company conducts Phase I environmental reviews substances. Management is not aware of any with respect to properties it acquires. These reviews environmental liability that it believes would have a include an investigation for the presence of asbestos, material adverse impact on the Company’s financial underground storage tanks and polychlorinated biphenyls position or results of operations. Management is (PCBs). Although such reviews are intended to evaluate unaware of any instances in which the Company would the environmental condition of the subject property as incur significant environmental costs if any or all well as surrounding properties, there can be no properties were sold, disposed of or abandoned. assurance that the review conducted by the Company However, there can be no assurance that any such non- will be adequate to identify environmental or other Acadia Realty Trust 2010 Annual Report 97 67041 Notes to Consolidated Financial Statements continued compliance, liability, claim or expenditure will not arise in severance benefits under the agreement. The Former the future. The Company is involved in various matters of litigation arising in the normal course of business. While the Company is unable to predict with certainty the amounts involved, the Company’s management and counsel are of Employee has brought a lawsuit against the Company in New York State Supreme Court, alleging breach of the severance agreement. The suit is in the pre-trial discovery stage. The Company believes it has meritorious defenses to the suit. the opinion that, when such litigation is resolved, the The Company has arranged for the provision of three Company’s resulting liability, if any, will not have a separate letters of credit in connection with certain significant effect on the Company’s consolidated financial leases and investments. As of December 31, 2010, there position, results of operations, or liquidity. were no outstanding balances under any of the letters of 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 credit. If the letters of credit were fully drawn, the combined maximum amount of exposure would be $9.1 million. Note 23 Subsequent Events During January 2011, the Company completed the sale of a Fund II leasehold interest in the Neiman Marcus location at Oakbrook Center, located in Oak Brook, Illinois, for $8.2 million. The sale resulted in a gain of $3.9 million. During January 2011, the Company paid off a $9.3 million loan secured by one of the Company’s properties for $7.5 million, resulting in a $1.8 million gain. the lawsuit will not have a material adverse effect on its During February 2011, the Company, through Fund III in results of operations, consolidated financial condition, or a joint venture with an unaffiliated partner, acquired a liquidity. During August 2009, the Company terminated the employment of a former Senior Vice President (the “Former Employee”) for engaging in conduct that fell within the definition of “cause” in his severance agreement with the Company. Had the Former Employee three property portfolio (the “Portfolio”) for an aggregate purchase price of $51.9 million with $20.6 million of in- place mortgage financing assumed at closing. The Portfolio consists of three street-retail properties, aggregating 61,000 square feet, and is located in South Miami Beach, Florida. not been terminated for “cause,” he would have been During February 2011, the Company, through Fund III in eligible to receive approximately $0.9 million under the a joint venture with an unaffiliated partner, acquired a severance agreement. Because the Company terminated 64,600 square foot single tenant retail property located in him for “cause,” it did not pay the Former Employee any Silver Springs, Maryland, for approximately $9.8 million. 98 Acadia Realty Trust 2010 Annual Report 93239 Schedule III: Real Estate and Accumulated Depreciation December 31, 2010 Depreciation Encumbrances Land Buildings & Improvements Initial Cost to Company Costs Capitalized Subsequent to Acquisition Amount at which Carried at December 31, 2010 Buildings & Land Improvements Total Accumulated Depreciation Date of Acquisition (a) Construction (c) Shopping Centers Core Portfolio: Crescent Plaza Brockton, MA New Loudon Center Latham, NY Ledgewood Mall Ledgewood, NJ Mark Plaza Edwardsville, PA Plaza 422 Lebanon, PA Route 6 Mall Honesdale, PA Bartow Avenue Bronx, NY Amboy Rd. Shopping Ctr. Staten Island, NY Abington Towne Center1 Abington, PA Bloomfield Town Square1 Bloomfield Hills, MI Walnut Hill Plaza Woonsocket, RI Elmwood Park Plaza Elmwood Park, NJ Merrillville Plaza Hobart, IN Marketplace of Absecon1 Absecon, NJ Clark Diversey Chicago, IL Boonton Boonton, NJ Chestnut Hill Philadelphia, PA Third Avenue Bronx, NY Hobson West Plaza1 Naperville, IL Village Commons Shopping Center Smithtown, NY Town Line Plaza1 Rocky Hill, CT Branch Shopping Center Village of the Branch, NY $17,539 $ 1,147 $ 7,425 $ 1,219 $ 1,147 $ 8,644 $ 9,791 $ 5,849 1984(a) 14,119 505 4,161 11,375 505 15,536 16,041 11,266 1982(a) — — — — — — — — 619 5,434 33,199 619 38,633 39,252 34,042 1983(a) — 4,268 4,690 — 8,958 8,958 6,655 1968(c) 190 3,004 2,192 190 5,196 5,386 3,690 1972(c) 1,664 — 11,166 1,664 11,166 12,830 6,020 1994(c) 1,691 5,803 560 1,691 6,363 8,054 1,459 2005(c) — 11,909 1,519 — 13,428 13,428 1,843 2005(a) 799 3,197 2,007 799 5,204 6,003 2,304 1998(a) 3,207 13,774 12,189 3,207 25,963 29,170 8,805 1998(a) 23,500 3,122 12,488 1,840 3,122 14,328 17,450 4,963 1998(a) 34,197 3,248 12,992 14,715 3,798 27,157 30,955 10,946 1998(a) 26,250 4,288 17,152 1,653 4,288 18,805 23,093 6,579 1998(a) — 2,573 10,294 3,529 2,577 13,819 16,396 4,628 1998(a) 4,625 10,061 2,773 8,033 1,328 7,188 9,338 8,289 5,691 83 — 44 10,061 2,856 12,917 1,328 7,188 8,516 8,289 5,735 14,024 360 883 650 2006(a) 2006(a) 2006(a) — — 11,108 8,038 440 11,855 7,731 19,586 — 2006(a) 1,793 7,172 1,567 1,793 8,739 10,532 2,943 1998(a) 9,305 3,229 12,917 2,462 3,229 15,379 18,608 5,632 1998(a) — 878 3,510 7,303 907 10,784 11,691 7,668 1998(a) 13,932 3,156 12,545 865 3,156 13,410 16,566 4,454 1998(a) Acadia Realty Trust 2010 Annual Report 99 97448 Schedule III: Real Estate and Accumulated Depreciation continued December 31, 2010 Depreciation Encumbrances Land Buildings & Improvements Shopping Centers, continued Initial Cost to Company Costs Capitalized Subsequent to Acquisition Amount at which Carried at December 31, 2010 Buildings & Land Improvements Total Accumulated Depreciation Date of Acquisition (a) Construction (c) 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 E. Fordham Road Bronx, NY 4650 Broadway/ Sherman Ave New York, NY 216th Street New York, NY 161st Street Bronx, NY Atlantic Avenue Brooklyn, NY Canarsie Plaza Brooklyn, NY CityPoint Brooklyn, NY ASOF II, LLC — 956 3,826 594 961 4,415 5,376 1,510 1998(a) 20,500 1,273 5,091 11,536 1,273 16,627 17,900 4,947 1999(a) — 2,350 9,404 1,046 2,350 10,450 12,800 3,215 1999(a) 12,132 1,475 5,899 1,121 1,475 7,020 8,495 2,544 1999(a) 26,000 1,817 15,846 549 1,817 16,395 18,212 4,852 1998(a) — — — 3,380 13,554 10 3,380 13,564 16,944 1,429 2007(a) 16,699 18,704 28 16,699 18,732 35,431 1,751 2007(a) 3,048 7,281 — 3,048 7,281 10,329 540 2008(a) 8,427 2,323 7,396 359 2,323 7,755 10,078 1,379 2004(a) — — 2,186 8,744 — 34,586 71 — 2,186 8,815 11,001 1,864 2002(a) — 34,586 34,586 31,926 2003(a) 10,000 31,554 — — 12,627 540 — 61,648 — — 13,167 13,167 1,372 2005(a) 61,648 61,648 3,639 2004(a) 85,910 11,144 18,010 93,356 16,254 106,256 122,510 6,327 2004(a) — 25,267 25,500 7,261 — — 7,744 25,267 7,744 33,011 — 2005(a) 19,146 7,261 19,146 26,407 1,882 2005(a) 28,900 16,679 28,410 10,574 16,679 38,984 55,663 3,914 2005(a) 11,540 5,322 40,243 32,543 — — 15,176 5,322 15,176 20,498 553 2007(a) 80,036 32,543 80,036 112,579 287 2007(a) 40,650 40,000 — — 2,564 112,047 — 114,611 114,611 — — — — — — — 100 Acadia Realty Trust 2010 Annual Report 51142 December 31, 2010 Depreciation Encumbrances Land Buildings & Improvements Initial Cost to Company Costs Capitalized Subsequent to Acquisition Amount at which Carried at December 31, 2010 Buildings & Improvements Land Total Accumulated Depreciation Date of Acquisition (a) Construction (c) Fund III: 125 Main Street Assoc. 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 Blvd. Self Storage Bronx, NY Ridgewood Self Storage Queens, NY Document Storage New York City, NY Cortlandt Towne Center Cortlandt, NY Undeveloped land Properties under development Total Notes: — — — — — — — — — — — — — — — — 12,993 4,316 2,598 12,993 6,914 19,907 20,391 — 4,257 20,391 4,257 24,648 91 — 597 528 2007(a) 2007(a) 2008(a) 2008(a) 4,561 7,495 12,056 3,515 6,154 9,669 4,561 7,484 3,515 6,139 959 5,506 2,377 9,654 10,835 5,936 11 15 27 12 22 959 5,533 6,492 431 2008(a) 2,377 9,666 12,043 10,835 5,958 16,793 779 502 2008(a) 2008(a) 6,977 12,688 6 6,977 12,694 19,671 938 2008(a) 7,597 22,391 189 7,597 22,580 30,177 1,768 2008(a) 1,977 4,769 339 1,977 5,108 7,085 391 2008(a) 3,121 17,457 93 3,121 17,550 20,671 1,295 2008(a) 6,244 10,551 38 6,244 10,589 16,833 806 2008(a) 8,000 — — 251 — — — — — — — 13,859 8,000 13,859 21,859 1,080 — 1,080 1,080 589 134 2008(c) 2008(a) 64,878 7,293 64,878 72,171 5,501 2009(a) — — — — 251 — — — — 251 4,400 4,400 — — — $806,144 $293,709 $470,568 $617,622 $300,154 $1,086,145 $1,386,299 $219,920 50,000 7,293 ASOF III, LLC 171,450 (1) These properties serve as collateral for the financing with Bank of America, N.A. in the amount of $1,000 (2) These properties serve as collateral for the financing with GEMSA, in the amount of $41,500 Acadia Realty Trust 2010 Annual Report 101 47792 Schedule III: Real Estate and Accumulated Depreciation continued December 31, 2010 1. Depreciation on buildings and improvements reflected in the statements of income is 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 $1,292.0 million as of December 31, 2010 3. (a) Reconciliation of Real Estate Properties: The following table reconciles the real estate properties from January 1, 2008 to December 31, 2010: (dollars in thousands) Balance at beginning of year Other improvements Property Acquired Balance at end of year For the years ended December 31, 2010 2009 2008 $1,200,483 185,816 — $1,085,072 $ 811,893 46,723 68,688 103,476 169,703 $1,386,299 $1,200,483 $1,085,072 3. (b) Reconciliation of Accumulated Depreciation: The following table reconciles accumulated depreciation from January 1, 2008 to December 31, 2010: (dollars in thousands) Balance at beginning of year Depreciation related to real estate Balance at end of year For the years ended December 31, 2010 2009 2008 $191,307 28,613 $219,920 $163,214 28,093 $191,307 $141,044 22,170 $163,214 102 Acadia Realty Trust 2010 Annual Report 20070 [THIS PAGE INTENTIONALLY LEFT BLANK] 19928 [THIS PAGE INTENTIONALLY LEFT BLANK] 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 Lorrence T. Kellar Former Vice President, Retail Development Continental Properties Wendy Luscombe Principal WKL Consulting William T. Spitz Director, Diversified Trust Joel Braun Executive Vice President, Chief Investment Officer Christopher Conlon Sr. Vice President, Leasing and Development 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⌘ Heather Moore, Esq. Sr. Vice President, Associate General Counsel 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 2010 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 Tuesday, May 10, 2011, at 1:00 p.m., local time, to be held at the offices of Paul, Hastings, Janofsky & Walker, LLP, Park Avenue Tower, 75 East 55th Street, New York, NY 10022. The record date for determination of shareholders entitled to vote is March 31, 2011. Independent Auditors BDO USA, 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. 64396 AR10_Cover.indd 3 3/29/11 12:45 PM 1311 Mamaroneck Avenue Suite 260 White Plains, NY 10605 Tel: 914.288.8100 64396 AR10_Cover.indd 4 3/23/11 8:29 PM e Printed on recycled paper.