Acadia Realty Trust
Annual Report 2011

Plain-text annual report

Focused. Disciplined. Value-Driven. 2011 ANNUAL REPORT 68749_ACD251 AR11_FrontCvr_M.indd 1 3/26/12 3:12 PM Financial Highlights In thousands 2011 2010 2009 2008 2007 Total Revenues $ 150,161 $ 141,045 $ 134,445 $ 121,462 $ 75,917 Funds from Operations1 40,297 50,440 49,613 37,964 42,094 Real Estate Owned, at Cost Common Shares Outstanding Operating Partnership Units Outstanding 1,471,745 1,305,561 1,119,758 1,004,347 729,979 42,586 40,255 39,787 32,358 32,184 498 360 658 648 642 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. 68749_ACD251 AR11_FrontCvr_M.indd 2 3/26/12 3:12 PM 82701 Dear Fellow Shareholders: In 2011, the commercial real estate industry continued its multi-year recovery process and adjusted to the reality of a lower interest rate/lower growth environment. While this “new normal” has created its own set of challenges, the “silver lining” is that it has been beneficial to owners of well-located and well- tenanted retail properties who have seen values continue to recover and, in some instances, return towards pre-crash levels. It has also been a beneficial time for well-capitalized real estate companies which acquire this kind of real estate. In 2011, Acadia’s shareholders achieved a 14.5% total return for the year (compared to a negative 6.4% for the shopping center sector). These strong results are consistent with our long-term performance. Over the past 10 years, we have achieved an annual, compounded return of 17.4% compared to 2.0% for the shopping center sector. And over the mid-term (three years), we have achieved an annual, compounded return of 26.8% compared to 10.1% for the shopping center sector. Kenneth F. Bernstein President and CEO While we are constantly reminded that past performance is no guarantee of future results, we do believe that our business model, capital structure, and management team’s capabilities position us to succeed in these uncertain times. In 2011, we continued to focus on creating value through our two key operating platforms: ownership of high quality retail properties in our “infinite life” core portfolio and opportunistically investing in value add/turnaround projects through our discretionary investment fund platform. CORE PORTFOLIO Our goal for our core portfolio is to create a best-in-class collection of retail properties that have the potential to significantly outperform average shopping centers over an extended period. We want to own properties that provide defensive protection during softer economic periods and superior rental growth during good times. We want to own locations with outstanding demographics that are compatible with the changing technological landscape of how and where we shop, consistent with how retailers are positioning themselves for these shifts. In 2011, we continued to greatly enhance the value of our core portfolio through three accretive re- anchoring projects, the sale of a large “non-core” asset and several important property acquisitions. In doing so, we reduced our exposure to certain weaker tenants and added strong tenants in high-traffic locations ranging from a Trader Joe’s market in Lincoln Park, Chicago, to Lacoste and Coach in Washington D.C., and including a Whole Foods Market in Cambridge, Massachusetts. As a result of these activities, our core portfolio is moderately larger, of a better quality, and, more importantly, better positioned to respond and profit from the continual evolution of retailing in the 21st century. ENHANCING THE VALUE OF OUR CORE PORTFOLIO ANCHOR RECYCLING: We will not shy away from opportunities to re-capture and profitably re-tenant underutilized anchor space despite the fact that these long-term accretive events produce short-term volatility in our reported operating metrics. During 2011, we executed three of these re-anchoring projects. The first, in Bloomfield Hills, Michigan, is fully and profitably leased. The other two were in connection with A&P supermarket’s bankruptcy, which enabled us to regain possession of an underutilized A&P store in Westchester County, New York and another one on Long Island. We have already re-leased approximately 75% of the anchor space at these three properties at replacement rents that, on a blended basis, represent an increase of more than 50% over those of the former tenants. We expect to have the Acadia Realty Trust 2011 Annual Report 1 23027 balance of the space leased this year. Once these tenants open and begin operations, core portfolio physical occupancy is anticipated to increase by 370 basis points to almost 94%. Correspondingly, this leasing will add approximately 8% to our net operating income on a run-rate basis. ASSET RECYCLING PLUS GROWTH: Along with enhancing the value of our existing core portfolio, in 2011 we also found opportunities to add properties that will help ensure our portfolio remains one of the best in our sector. Retailers are embracing multi-channel retailing: the sale of merchandise and services to consumers through more than one “touch point.” These multi-channels include stores, websites, social media, mobile phones and catalogs. As e-commerce continues to become a larger percentage of retailers’ total company sales, we believe that the best performing, next-generation brick-and-mortar stores will likely be smaller and more strategically located in higher-traffic retail corridors. These locations will complement (rather than compete with) retailers’ e-commerce initiatives by providing significant branding and showroom opportunities as well serving as important order-fulfillment (pick-up/return/exchange) destinations. In light of the foregoing, over the past year we added, or are in the process of adding, approximately $180 million of urban/street retail to our core portfolio. These acquisitions will have a meaningful impact on our portfolio as they will represent approximately 20% of our core net operating income. First-rate street retail in the Second City. The most significant of our 2011 core portfolio additions was the acquisition of 21 street retail properties in Chicago for approximately $115 million. Located in Lincoln Park and the Gold Coast, these properties are situated primarily within the city’s prime Clark-Diversey, Halsted-Armitage, and Rush-Walton corridors and are tenanted by Trader Joe’s, Urban Outfitters, Express, Intermix, and Carhartt, among others. We made our first investment in Chicago’s high-traffic Clark & Diversey neighborhood in 2006. On a blended basis, these select neighborhoods are more than twice as dense as the City of Chicago and growing, realizing an 8% population increase between 2000 and 2010. Strong demographics, which include a healthy $74,000 median household income and a highly-educated population (71% with bachelor’s degrees or higher), point to smart brick-and-mortar retail locations. East Coast street retail. On the East Coast, during 2011, we added properties in high-barrier-to-entry shopping corridors ranging from M Street in Georgetown, Washington, D.C. to SoHo in New York. In Georgetown, we transitioned a finite-life mezzanine investment into a 50% equity interest in a six-property portfolio located on or adjacent to M Street. Tenants include Lacoste, Juicy Couture, and Coach. Additionally, in New York’s “hip” SoHo market, we acquired a property on Mercer Street. We expect these proven, high-traffic retail corridors to become increasingly more relevant to our tenants in the multi-channel era. Following the completion of these acquisitions — and including our pro rata share of our opportunity fund investments — we have nearly doubled our ownership of street and/or urban retail, which will represent approximately 40% of our combined portfolio. Suburban discount/value-anchored centers will represent approximately 35%, and the balance will be suburban supermarket-anchored properties. In 2011, we also disposed of our only enclosed mall in Ledgewood, New Jersey and recycled the proceeds into our recent core acquisitions. As we prune our portfolio of low-growth assets in non-core geographies, we will continue to maintain a well-balanced core portfolio, which, in addition to street retail, includes both necessity and discount-anchored assets. New acquisitions will be located in markets characterized by high barriers to entry, a constrained retail supply, and high population density. This was the case with our recent Cambridge, Massachusetts acquisition where we acquired a Whole Foods Market and an adjacent Rite Aid Pharmacy. Both leases have below-market rents, providing long-term growth potential in an excellent location. 2 Acadia Realty Trust 2011 Annual Report 40474 OPPORTUNISTIC & VALUE-ADD EXTERNAL GROWTH PLATFORM The second key component of our growth strategy is to opportunistically invest in turnaround projects through our discretionary investment fund vehicles. We are currently investing through our third opportunity fund (“Fund III”) and look forward to launching our fourth fund later this year. Fund III is capitalized with $500 million dollars of equity, enabling us to acquire up to $1.5 billion dollars in investments. Over the past year, we have executed the majority of our new Fund III investment activity in three strategic areas: urban/street retail repositioning, where we invest in the re-leasing or re-anchoring of properties in high-traffic retail corridors in gateway cities; distressed retailers, where we invest in strong real estate locations, anchored by weak retailers that provide us with the opportunity to recapture their space and re-anchor it with healthy retailers; and distressed debt/recapitalization, where we are beginning to see opportunities to purchase defaulted debt on well-located assets with the goal of gaining control of the property, either by restructuring the loan with the existing borrower or by relieving them of their burden of ownership. Urban/Street retail repositioning: While, in general, there is plenty of retail space in the United States, certain markets are significantly under-retailed, and national retailers continue to aggressively pursue opportunities to penetrate these markets. In 2011, we executed a contract to acquire a well-located property anchored by a former Borders Books at the corner of North Avenue and Halsted Street in Chicago’s Lincoln Park neighborhood. This highly-visible, flagship retail location is situated directly across the street from a recently-developed flagship Apple Store. Other retailers on this street include Restoration Hardware, Crate & Barrel and Forever 21. Our leasing team is very excited by the tenant interest we have already received for the re-anchoring of this project. Distressed retailers: Within our fund platform, we have intentionally targeted well-located real estate saddled with weak operators where we have the ability to create significant incremental value through recapture and re-tenanting activities. The former Borders space at our Lincoln Park Centre is an example of this opportunity, but we are also seeing a similar opportunity in connection with shopping centers anchored by weaker supermarkets. During 2011, while the shopping center industry — ourselves included — endeavored to address exposure to the bankrupt A&P, we swam upstream and acquired two more A&P supermarket-anchored properties through Fund III. As a testament to the strength of the underlying real estate at both locations, we have already successfully re-leased both of the supermarket stores to ShopRite supermarkets. Distressed debt/recapitalization: The commercial real estate industry is still over-leveraged. We expect the re-equitization of commercial real estate to be a growing part of our investment activity as the era of lenders “kicking the can down the road” ends and existing borrowers need to restructure, recapitalize or walk away from their properties. An example of this trend is our recent acquisition of 654 Broadway in New York City’s NoHo neighborhood. We purchased the debt secured by this asset at a discount from a financial institution while simultaneously concluding a consensual transfer by deed from the former borrower, thus giving us control of the asset which we will reposition. EXECUTING ON OUR EXISTING FUND PORTFOLIO: Over the last year, we also made significant progress stabilizing our existing fund investments. With respect to our New York urban/infill redevelopment portfolio, we have brought the retail leased rate at our operating properties to 95%, primarily driven by leasing progress at our Canarsie, Brooklyn and Pelham Manor, New York redevelopments. Additionally, our office leased rate is now at 93%, driven by notable leasing activity at our Fordham Road project, which is one lease away from full occupancy. Finally, last year, our team made significant progress with respect to our City Point development in downtown Brooklyn. Once completed, this project will include 500,000 Acadia Realty Trust 2011 Annual Report 3 37709 square feet of world-class retail. The project will also include over a million square feet of residential apartments, which will be developed in stages by New York’s premier residential developers. As is the case with all of these investments, our goal is to redevelop the properties, stabilize them and profitably monetize our investments. With pricing and demand for these types of properties increasing, we are a significant step closer to our goal. THE BALANCE SHEET: OUR FOUNDATION FOR GROWTH Responsible balance sheet management is in our DNA. While in 2011, we aggressively executed our growth strategies, with respect to both our core portfolio and our investment fund platform, at the same time, we did not waiver from our commitment to a safe and liquid balance sheet. We raised $45 million of net proceeds in a secondary equity offering to ensure that we maintained the liquidity and strength needed to execute our business plan. Without the burden of legacy leverage issues, we were able to maintain our focus on growth. Since August 1998, when we recapitalized a highly-leveraged REIT and renamed the company Acadia Realty Trust, we have been committed to maintaining a healthy balance sheet. We know that sustainable growth depends on it. At year-end 2011, our net debt to EBITDA ratio was 4.9x, our fixed- charge coverage ratio was 3.0x, and our debt to total market capitalization was 31%. You can expect more of the same in 2012. OUR TEAM’S COMMITMENT TO SUCCESS While having the right talent is always important, it is even more so in our current economic environment. Over the past several years, we have assembled and cultivated a talented team in order to accomplish our growth objectives for the company. At the end of 2011, we celebrated several colleagues’ individual contributions to Acadia’s success and promoted: Christopher Conlon to Executive Vice President and Chief Operating Officer, Jon Grisham to Senior Vice President and Chief Financial Officer, and Richard Hartmann to Senior Vice President and Chief Accounting Officer. We also promoted Amy Racanello to Vice President, Capital Markets and Investments and George Acosta to Vice President and Controller. These individuals have been critical drivers of our success over the years. Along with our other highly- talented senior management team members, they are already current leaders of the company, but they will become even more critical to our success in the future. Chris Conlon, who has been leading our leasing/redevelopment department for several years, now joins Joel Braun as one of Acadia’s two Executive Vice Presidents. Joel has been a key leader and driver of Acadia’s success for almost 20 years. I am confident that, like Joel, Chris will bring his talent, passion and leadership to everything that he does for Acadia. Mike Nelsen, who turned over the responsibilities of Chief Financial Officer to Jon Grisham, deserves special recognition for planning a smooth and successful succession process. As many of you already know, Jon has been a critical team member and is an excellent CFO. Furthermore, Mike is not leaving Acadia any time soon. He is focusing on key parts of our growth strategy while continuing to help train the future leaders of Acadia. Succession is too often an ugly or poorly planned process. Mike and Jon proved that this does not need to be the case. Over the years, it has become clear to us that in order to have the kind of talent that can drive strong future results, we need to identify and cultivate talented and committed team members from the earliest stages of their careers. Thereafter, we need to help them grow into the type of professionals that are consistent with Acadia’s goals, values and philosophy. No one has done more to execute this mission than our Chief Administrative Officer, Joe Napolitano. Under Joe’s leadership, we have been developing a 4 Acadia Realty Trust 2011 Annual Report 79094 management team that appropriately complements our goals for Acadia. I cannot imagine what Acadia would have looked like without Joe’s contributions over the years. More importantly, our team is incredibly energized by his commitment to our future growth. IN CONCLUSION With an already strong core portfolio that we are committed to making even stronger, we will continue to position our core portfolio to be best in class for the 21st century. With a well-capitalized investment fund platform that has a great existing pipeline of high-quality projects and plenty of capital to add more, we will be well situated to capitalize on the type of opportunities that can create significant value for our stakeholders. With a strong balance sheet, we have access to the capital necessary to enable us to execute our business plan both when the economy is strong and during times of economic crisis. And with a management team that is fully committed to driving Acadia’s success well into the future, I am very excited about how we are positioned today to capitalize on the opportunities going forward 2011 was a year of solid progress and performance, but it was only one more step in the right direction. With the continued support of our shareholders and with the guidance of our extraordinary Board of Trustees, our team is ready to continue on the path that we started over ten years ago. Kenneth F. Bernstein President and CEO Acadia Realty Trust 2011 Annual Report 5 Acadia Core and Opportunity Fund Properties SELF-STORAGE PROPERTIES Suffern, Suffern, New York Yonkers, Westchester, New York Jersey City, Jersey City, New Jersey Webster Avenue, Bronx, New York Linden, Linden, New Jersey Bruckner Boulevard, Bronx, New York New Rochelle, Westchester, New York Long Island City, Queens, New York Fordham Road, Bronx, New York Ridgewood, Queens, New York Lawrence, Lawrence, New York Liberty Avenue, Queens, New York Pelham Plaza, Pelham Manor, New York Atlantic Avenue, Brooklyn, New York RETAIL PROPERTIES Core Portfolio NEW YORK REGION 239 Greenwich Avenue, Greenwich, CT Elmwood Park Shopping Center, Elmwood Park, NJ A&P Shopping Plaza, Boonton, NJ Village Commons Shopping Center, Smithtown, NY The Branch Plaza, Smithtown, NY Amboy Shopping Center, Staten Island, NY Bartow Avenue, Bronx, NY Pacesetter Park Shopping Center, Pomona, NY Third Avenue, Bronx, NY West Shore Expressway, Staten Island, NY West 54th Street, New York, NY East 17th Street, New York, NY Crossroads Shopping Center, White Plains, NY Mercer Street, New York, NY 4401 White Plains Road, Bronx, NY NEW ENGLAND REGION Town Line Plaza, Rocky Hill, CT Methuen Shopping Center, Methuen, MA Crescent Plaza, Brockton, MA New Loudon Center, Latham, NY Walnut Hill Plaza, Woonsocket, RI The Gateway, South Burlington, VT MIDWEST REGION Hobson West Plaza, Naperville, IL Clark and Diversey, Chicago, IL West Diversey, Chicago, IL Chicago Street Retail Portfolio, 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 Brandywine Town Center, Wilmington, DE Market Square Shopping Center, Wilmington, DE 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 Georgetown Portfolio, Washington, DC Opportunity Fund Portfolio FUND I PROPERTIES Tarrytown Centre, Tarrytown, NY Kroger/Safeway Portfolio, three locations FUND II PROPERTIES Liberty Avenue, Queens, NY 216th Street, New York, NY 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 654 Broadway, New York, NY New Hyde Park Shopping Center, New Hyde Park, NY Sheepshead Bay Plaza, Brooklyn, NY White City Shopping Center, Shrewsbury, MA White Oak, Silver Spring, MD Parkway Crossing, Baltimore, MD Lincoln Road, Miami, FL Heritage Shops, Chicago, IL 68749Insert_Acadia.indd 1 3/28/12 1:33 PM Acadia Realty Trust 2011 Annual Report 6 Focused. Disciplined. Value-Driven. 2011 FORM 10-K REPORT 68749_ACD251 AR11_FinCvr_M.indd 1 3/26/12 3:09 PM 19928 21183 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, 2011 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 $818.7 million, based on a price of $20.30 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, 2012 was 42,763,289. YES NO Part III—Portions of the registrant’s definitive proxy statement relating to its 2012 Annual Meeting of Shareholders presently scheduled to be held May 16, 2012 to be filed pursuant to Regulation 14A. DOCUMENTS INCORPORATED BY REFERENCE Acadia Realty Trust 2011 Annual Report 52622 Acadia Realty Trust Form 10-K Report 2011 Table of Contents Item No. PART I 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 20 21 30 30 31 34 36 50 51 51 51 54 54 54 54 54 54 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Acadia Realty Trust 2011 Annual Report 87234 Special Note Regarding Forward-Looking Statements Certain statements contained in this Annual Report on estate related opportunities in which we have a minority equity interest. All of our investments are held by, and all of our Form 10-K may contain forward-looking statements operations are conducted through, Acadia Realty Limited within the meaning of Section 27A of the Securities Act Partnership (the “Operating Partnership”) and entities in of 1933 and Section 21E of the Securities and Exchange which the Operating Partnership owns a controlling Act of 1934 and as such may involve known and interest. As of December 31, 2011, the Trust controlled unknown risks, uncertainties and other factors which 99% of the Operating Partnership as the sole general may cause our actual results, performance or partner. As the general partner, the Trust is entitled to achievements to be materially different from future share, in proportion to its percentage interest, in the results, performance or achievements expressed or cash distributions and profits and losses of the Operating implied by such forward-looking statements. Forward- Partnership. The limited partners generally represent looking statements, which are based on certain entities or individuals which contributed their interests in assumptions and describe our future plans, strategies certain assets or entities to the Operating Partnership in and expectations are generally identifiable by use of the exchange for common or preferred units of limited words “may,” “will,” “should,” “expect,” “anticipate,” partnership interest (“Common OP Units” or “Preferred “estimate,” “believe,” “intend” or “project” or the OP Units”, respectively, and collectively, “OP Units”) and negative thereof or other variations thereon or employees who have been awarded restricted Common comparable terminology. Factors which could have a OP Units (“LTIP Units”) as long-term incentive material adverse effect on our operations and future compensation. Limited partners holding Common OP prospects include, but are not limited to those set forth Units are generally entitled to exchange their units on a under the headings “Item 1A. Risk Factors” and “Item 7. one-for-one basis for our common shares of beneficial Management’s Discussion and Analysis of Financial interest (“Common Shares”). This structure is referred to Condition and Results of Operation” in this Form 10-K. as an umbrella partnership REIT, or “UPREIT”. These risks and uncertainties should be considered in evaluating any forward-looking statements contained or incorporated by reference herein. PART I ITEM 1. BUSINESS. General Acadia Realty Trust (the “Trust”) was formed on March 4, 1993 as a Maryland real estate investment trust 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: (cid:2) Own and operate a Core Portfolio (as defined in Item 2. of this Form 10-K) of high-quality retail properties located (“REIT”). All references to “Acadia,” “we,” “us,” “our,” primarily in high-barrier-to-entry, densely-populated 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 82 properties, which we own or have an ownership interest in. These assets are located primarily in high-barrier-to- entry, densely-populated metropolitan areas in the United States along the East Coast and in Chicago and, in total, comprise approximately eight million square feet. We also have private equity investments in other retail real metropolitan areas and create value through accretive redevelopment and re-anchoring activities coupled with the acquisition of high-quality assets that have the long- term potential to outperform the asset class as part of our Core asset recycling and acquisition initiative. (cid:2) Generate additional external growth through an opportunistic yet disciplined acquisition program through our Opportunity Funds (as defined in Item 1. of this Form 10-K). We target transactions with high inherent opportunity for the creation of additional value through: Acadia Realty Trust 2011 Annual Report 1 55661 (cid:2) value-add investments in high-quality urban and/or addition to a pro-rata return based on our equity interest, street retail properties with re-tenanting or repositioning opportunities, (cid:2) opportunistic acquisitions of well-located real-estate anchored by distressed retailers or by motivated sellers and a carried interest (“Promote”) and 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 (cid:2) opportunistic purchases of debt which may include the level of our control, we consolidate these restructuring. Opportunity Funds for financial reporting purposes. 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. 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 (cid:2) Maintain a strong and flexible balance sheet through Investors I, LLC (“Mervyns I”), in which the investors, conservative financial practices while ensuring access to including the Operating Partnership, committed a total of sufficient capital to fund future growth. $90.0 million for the purpose of acquiring real estate Investment Strategy — External Growth through Core Asset Recycling/Acquisition initiative and Opportunity Fund Platform The requirements that acquisitions be accretive on a long-term basis based on our cost of capital, as well as increase the overall Core Portfolio quality and value, are key strategic considerations to our Core Portfolio asset recycling/acquisition program. As such, we constantly evaluate the blended cost of equity and debt and adjust 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 entitled to a Promote based upon certain investment return thresholds. Cash flow was distributed pro-rata to the investors (including the Operating Partnership) until they earned a 9% cumulative return (“Preferred Return”) and the return of all of their capital contributions. the amount of acquisition activity to align the level of Fund I investors have received a return of all of their capital investment activity with capital flows. Given the growing invested in Fund I and Mervyns I and their Preferred importance of technology and e-commerce, many of our Return. Accordingly, all cash flow is now distributed 20% retail tenants are appropriately focused on multi-channel to the Operating Partnership as a Promote and 80% to the sales and how to best utilize e-commerce initiatives to partners (including the Operating Partnership). The drive sales at their stores. In light of these initiatives, we Operating Partnership also earns fees and/or priority have found retailers are becoming more selective as to distributions for asset management services equal to 1.5% the location, size and format of their next-generation of the allocated invested equity, as well as for property stores and are focused on dense, high-traffic retail management, leasing, legal and construction services. All corridors, where they can utilize smaller and more such fees and priority distributions are eliminated in productive formats closer to their shopping population. consolidation and reflected as a reduction in the Accordingly, our focus for Core Portfolio acquisitions is noncontrolling interest share in income from Opportunity on those properties which we believe will not only Funds in the Consolidated Financial Statements beginning remain relevant to our tenants, but become even more on page F-1 of this Form 10-K. so in the future. In connection with our Core Portfolio acquisition activity, we may also engage in discussions with public and private entities regarding business combinations. We are currently in the latter stages of our multi-year process of monetizing Fund I as discussed further in “— ASSET SALES AND CAPITAL/ASSET RECYCLING” below in this Item 1. As of December 31, 2011, there were In addition to our Core Portfolio investments in real four assets comprising approximately 0.1 million square estate assets, we have also capitalized on our expertise feet remaining in Fund I in which the Operating in the acquisition, redevelopment, leasing and Partnership’s interest in cash flow and income is 37.8% as management of retail real estate by establishing a result of the Promote. discretionary opportunity funds in which we earn, in 2 Acadia Realty Trust 2011 Annual Report 43859 Fund II Following our success with Fund I, during June of 2004 Redevelopment Initiative.” Through December 31, 2011, eight of Fund II’s nine projects are owned through Acadia we formed a second, larger Opportunity Fund, Fund II, Urban Development, as discussed further in and during August of 2004, formed Acadia Mervyn “— PROPERTY ACQUISITIONS — New York Urban/Infill Investors II, LLC (“Mervyns II”), with the investors from Redevelopment Initiative” below in this Item 1. 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, 2011, $282.2 million of Fund II’s and Mervyns II’s capital was invested and the balance of $17.8 million is expected to be utilized to complete development activities for existing Fund II investments. Retailer Controlled Property Venture (the “RCP Venture”) During 2004, through Funds I and II or affiliates thereof, we entered into an association, known as the RCP 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 association 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. These investments have been made through different investment vehicles with different Given the market conditions for commercial real estate at affiliated and unaffiliated investors and different the time Fund II was formed, we channeled our acquisition efforts through Fund II in two opportunistic strategies — the New York Urban/Infill Redevelopment Initiative and the Retailer Controlled Property Venture, which are more fully described below. New York Urban/Infill Redevelopment Initiative During September of 2004, through Fund II, we launched our New York Urban/Infill Redevelopment Initiative. In addition to retailer multi-channeling initiatives as discussed above, we also believe that retailers continue to recognize that many of the nation’s urban markets are under-served 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 supply of available sites. During 2004, Fund II, together with an unaffiliated partner, formed Acadia Urban Development LLC (“Acadia Urban Development”) for the purpose of acquiring, constructing, developing, owning, operating, leasing and managing certain retail or mixed-use real estate properties in the New York City metropolitan area. The unaffiliated partner agreed to invest 10% of required capital up to a maximum of $2.2 million and Fund II, the managing member, agreed to invest the balance to acquire assets in which Acadia Urban Development agreed to invest. See Item 7. of this Form 10-K for further information on the Acadia Urban Development joint venture as detailed in “Liquidity and Capital Resources — New York Urban/Infill 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 would be reduced. Cash flow from any RCP Venture investment is distributed to the participants until they have received a 10% cumulative return on and a full return of all capital contributions. Thereafter, remaining cash flow is distributed 20% to Klaff (“Klaff’s Promote”) and 80% to the partners (including Klaff). As the participants have received a return of all of their capital invested and their unpaid cumulative return, all cash flow is now distributed 20% to Klaff as Klaff’s Promote and then 80% to the partners. The Operating Partnership may also earn market-rate fees for property management, leasing and construction services on behalf of the RCP Venture. While we are primarily a passive partner in the investments made through the RCP Venture, historically Acadia Realty Trust 2011 Annual Report 3 06614 we have provided our services in reviewing potential practices, including a moderate use of leverage, while acquisitions and operating and redevelopment assistance ensuring access to sufficient capital to fund future in areas where we have both a presence and expertise. growth. We intend to continue financing acquisitions and We continue to seek to invest opportunistically with the property redevelopment with sources of capital RCP Venture primarily in any of the following four ways: determined by management to be the most appropriate (cid:2) Invest in operating retailers to control their real estate through private equity joint ventures (cid:2) Work with financially healthy retailers to create value from their surplus real estate (cid:2) Acquire properties, designation rights or other control of real estate or leases associated with retailers in bankruptcy 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 (cid:2) Complete sale-leasebacks with retailers in need of derivative instruments, including London Interbank capital Our RCP Venture investments are further discussed in “— PROPERTY ACQUISITIONS — RCP Venture” below in this Item 1. Fund III Fund III was formed during 2007 with fourteen institutional investors, including a majority of the investors from Funds I and 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, 2011, $226.8 million of Fund III’s capital was invested. To date, Fund III has invested in 21 projects as discussed further in “— PROPERTY ACQUISITIONS” below in this Item 1. Through Fund III, our acquisition efforts are focused on the investment themes as discussed above in “BUSINESS OBJECTIVES AND STRATEGIES” in this Item 1. In connection with the focus on urban locations, Fund III has invested in a portfolio of 11 self-storage facilities located in and around the New York City metropolitan Offered Rate (“LIBOR”) swap agreements and interest rate caps as discussed further in Item 7A. of this Form 10-K. During January 2012, we established an at-the-market (“ATM”) equity program with an aggregate offering of up to $75.0 million in Common Shares. We intend to use the future net proceeds of this offering for general corporate purposes, which may include, among other things, repayment of our debt, future acquisitions, directly in the Core Portfolio and through our Opportunity Funds, and redevelopments of and capital improvements to our properties. During November 2011, we issued 2.25 million Common Shares, which generated net proceeds of approximately $45.0 million. The proceeds were primarily used for general corporate purposes, which included (i) the repurchase of $24.0 million of our convertible notes (“Convertible Notes”) payable as discussed further in Note 9 to our Consolidated Financial Statements, which begin on page F-1 of this Form 10-K, (ii) additional property acquisitions and investments, including the funding of our capital commitments to our Opportunity Funds and (iii) redevelopment and re-tenanting activities within our Core Portfolio. 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 area. of credit. 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 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 4 Acadia Realty Trust 2011 Annual Report 72047 team has demonstrated the ability to create value Property Acquisitions through anchor recycling, property redevelopment and strategic non-core dispositions. We have capitalized on our expertise in the acquisition, redevelopment, leasing Core Portfolio See Item 2. PROPERTIES for the definition of our Core and management of retail real estate by establishing joint Portfolio. ventures, such as the Opportunity Funds, in which we During 2011, we continued to execute on our strategy of earn, in addition to a return on our equity interest, owning a superior Core Portfolio by acquiring, through Promotes, fees and priority distributions. In connection our Operating Partnership, high-quality, urban and street with these joint ventures we have launched several retail assets with the following acquisitions: successful acquisition platforms including our New York Urban/Infill Redevelopment Initiative and RCP Venture. Operating functions such as leasing, property (cid:2) During September 2011, acquired a 50% equity interest in an entity which owns a six property portfolio (the “Georgetown Portfolio”) located in management, construction, finance and legal (collectively, Washington, D.C. for a purchase price of $13.4 million, the “Operating Departments”) are generally provided by which included the assumption of 50% of in-place our personnel, providing for fully integrated property debt of $9.2 million, inclusive of our existing management and development. By incorporating the mezzanine loan to the entity. 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 (cid:2) During August 2011, acquired a six property portfolio located in Chicago, Illinois for $18.0 million and a newly constructed 13,000 square foot property located in the Bronx, New York for $9.1 million. (cid:2) During June 2011, acquired a 6,000 square foot single- tenant retail condominium located in New York, New York for $4.8 million. (cid:2) During May 2011, acquired a 44,000 square foot retail property located in Chicago, Illinois, for $28.4 million. and modernize targeted centers to enhance the In addition, as of December 31, 2011 we have 16 property’s market position. This in turn strengthens the properties under contract for an aggregate purchase price competitive position of the leasing program to attract and of $107.3 million. Two of these transactions, with retain quality tenants, increasing cash flow and purchase prices totaling $22.7 million, were completed consequently property value. We also periodically identify subsequent to December 31, 2011. The closings of the certain properties for disposition and redeploy the capital transactions still under contract, which are anticipated to to existing centers or acquisitions with greater potential be completed during 2012, are subject to customary for capital appreciation. Our Core Portfolio consists closing conditions and in certain instances, lender primarily of urban/street retail properties and approval. As such, no assurance can be given that we neighborhood and community shopping centers located in will successfully complete these transactions. high barrier-to-entry supply constrained markets. The See Item 2. PROPERTIES for a description of the other neighborhood and community shopping centers owned in properties in our Core Portfolio. both our Core Portfolio and through our Opportunity Funds are principally anchored by supermarkets and necessity-based retailers. We believe these attributes enable our properties to better withstand the current post recessionary period. During 2011 and 2009 we sold two non-core properties and redeployed capital in part to fund Core Portfolio acquisitions as further discussed in “— PROPERTY ACQUISITIONS” and “ASSET SALES AND CAPITAL/ASSET RECYCLING” below in this Item 1. Opportunity Funds Fund III Through Fund III, we have also acquired the following properties: (cid:2) During December 2011, acquired a 31,500 square foot shopping center located in New Hyde Park, New York for $11.3 million. Acadia Realty Trust 2011 Annual Report 5 74460 (cid:2) During December 2011, in joint ventures with square foot shopping center located in Westchester unaffiliated partners, acquired a 260,000 square foot County, New York. shopping center located in Baltimore, Maryland for $21.6 million and an 18,700 square foot property located at 654 Broadway, New York, New York for $13.3 million. (cid:2) During November 2007, acquired a property at 125 Main Street, Westport, Connecticut for approximately $17.0 million. Redevelopment of the property was completed in 2011 at a cost of approximately $8.5 (cid:2) During April 2011, acquired a 105,000 square foot million. The property is 89% leased and anchored by property located in the East Loop section of downtown Gap Inc. Chicago, Illinois, for $31.6 million. (cid:2) During November 2007, acquired a property in (cid:2) During February 2011, in a joint venture with an Sheepshead Bay, Brooklyn for approximately $20.0 unaffiliated partner, acquired a 64,600 square foot million. The property is currently in the design stage. single tenant retail property located in Silver Springs, Maryland, for approximately $9.8 million. (cid:2) During February 2011, 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. Self-Storage Portfolio During February 2008, Fund III, in conjunction with Storage Post, acquired a portfolio of eleven self-storage properties from Storage Post’s existing institutional investors for approximately $174.0 million. In addition, we, through Fund II, developed three self-storage properties. The fourteen self-storage property portfolio, located throughout New York and New Jersey, totals approximately 1,124,000 net rentable square feet, and is operating at various stages of stabilization. As of (cid:2) During December 2010, in a joint venture with an December 31, 2011, overall occupancy for this portfolio unaffiliated partner, purchased the White City Shopping was 87.0% compared with 76.5% at December 31, Center for $56.0 million. The property is a 255,000 2010. square foot shopping center located in Shrewsbury, Massachusetts. (cid:2) During June 2010, in a joint venture with an 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 $4.2 million in this entity. (cid:2) During January 2009, purchased Cortlandt Towne Center for $78.0 million. The property is a 641,000 Fund II New York Urban/Infill Redevelopment Initiative As of December 31, 2011, Fund II had nine New York Urban/Infill Redevelopment Initiative projects, eight of which were made through Acadia Urban Development. Construction is substantially complete at seven of the projects, one is under construction and one is in the design phase as follows: 6 Acadia Realty Trust 2011 Annual Report Year Acquired Costs to Date Anticipated Additional Costs(4) (dollars in millions) Property Liberty Avenue(1) 216th Street Fordham Place Location Queens Manhattan Bronx 2005 2005 2004 Pelham Manor Shopping Plaza(1) Westchester 2004 161st Street Atlantic Avenue(3) Canarsie Plaza CityPoint(1) Sherman Plaza Total Bronx Brooklyn Brooklyn Brooklyn Manhattan 2005 2007 2007 2007 2005 $— — 6.2 1.1 1.0 — 0.5 145.1 - 235.1 TBD $ 15.6 27.7 128.4 63.2 65.7 22.6 90.5 104.9 34.2 $552.8 83485 Status Construction complete Construction complete Construction complete Construction complete Construction complete(2) Construction complete Construction complete Under construction In design Square Feet Upon Completion 125,000 60,000 262,000 320,000 237,000 110,000 274,000 685,000 - 710,000 TBD Notes: TBD — To be determined (1) Acadia Urban Development acquired a ground lease interest at these properties. (2) Currently operating but re-tenanting activities have commenced. (3) Fund II owns 100% of this project. (4) Anticipated additional costs for completed properties represent costs for tenant improvements. Under Construction was $23.2 million. Subsequent to the initial acquisition of CityPoint — During June of 2007, Acadia Urban Mervyns, we made additional investments of $2.9 million. Development and an unaffiliated joint venture partner, To date, REALCO has disposed of a significant portion of California Urban Investment Partners, LLC (“CUIP”) the portfolio. In addition, during November 2007, we sold purchased the leasehold interests in The Gallery at Fulton our interest in, and as a result, have no further investment Street in downtown Brooklyn for approximately $115.0 in OPCO. Through December 31, 2011, we have received million, with an option to purchase the fee position, which distributions from this investment totaling $46.0 million. is owned by the City of New York, at a later date. On June 30, 2010, Acadia Urban Development acquired all of CUIP’s interest in CityPoint for a total consideration of $9.2 million and the assumption of CUIP’s share of debt of $19.6 million. Reference is made to Note 2 in our Consolidated Financial Statements, which begin on Page F-1 of this Form 10-K for a further discussion of this transaction. The development will proceed in three phases. Construction has commenced on Phase 1, a five- story retail building of approximately 50,000 square feet. Phase 2 will consist of approximately 625,000 square feet of additional retail. Phase 2 will also 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 650,000 square feet. 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 262 stores (“REALCO”) and its retail operation (“OPCO”) from Target Corporation. Our share of this investment Through December 31, 2011, we, through Mervyns I and Mervyns II, made additional investments in locations that are separate from these original investments (“Add-On Investments”) in Mervyns totaling $6.5 million and have received distributions totaling $3.6 million. Albertson’s During June of 2006, the RCP Venture made its second investment as part of an investment consortium, acquiring Albertson’s and Cub Foods, of which our share was $20.7 million. Through December 31, 2011, we have received distributions from this investment totaling $81.6 million, including $4.5 million and $11.4 million received in 2011 and 2010, respectively. Through December 31, 2011, we, through Mervyns II, made Add-On Investments in Albertson’s totaling $2.4 million and received distributions totaling $1.7 million, including $0.5 million received in 2011. Other RCP Investments Through December 31, 2011, we, through Fund II, made investments of $1.1 million in Shopko, $0.7 million in Acadia Realty Trust 2011 Annual Report 7 79046 Marsh, and $2.0 million in Add-On Investments in Marsh. During July of 2007, the RCP Venture acquired a As of December 31, 2011, we have received portfolio of 87 retail properties from Rex Stores distributions totaling $1.7 million from our Shopko Corporation (“Rex”), in which we invested through investment and $2.6 million from our Marsh and Marsh Mervyns II. Our share of this investment was $2.7 Add-On Investments. million. As of December 31, 2011, we have received distributions from Rex totaling $0.8 million. The following table summarizes the RCP Venture investments from inception through December 31, 2011, 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/Add-On Investments 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 3.6 81.6 1.7 1.7 2.6 0.8 $138.0 $ 4.9 1.1 4.2 0.4 0.2 0.5 0.5 $11.8 $11.3 0.8 16.3 0.3 0.3 0.5 0.2 $29.7 Operating Partnership Share Notes Receivable, Preferred Equity and Other Real Estate Related Investments We also make investments in preferred equity positions into and subsequently exercised an option to purchase the shopping center at a future date, pending the servicer’s approval of the assignment of a first mortgage and notes receivable collateralized by real estate, either loan of $17.0 million. The loan will be offset against the directly or through entities having an ownership interest purchase price when the Operating Partnership acquires therein. the property. During December 2011, the Operating Partnership made During May 2011, we received a final payment of $54.7 an $8.5 million loan, which is collateralized by 3 million on a mezzanine loan, representing $33.8 million of properties located in Chicago, IL. The loan matures in principal, $13.4 million of accrued interest, and a $7.5 December 2012 and bears interest at 12.0%. million exit fee. During December 2011, Fund I made a $12.6 million loan During February 2011, the Operating Partnership made a in conjunction with the sale of 15 Kroger/Safeway locations. The loan, which is collateralized by 14 mezzanine loan for $3.8 million which accrues interest at 15% and is payable upon a capital event. The Operating Kroger/Safeway properties, matures in December 2012 Partnership also received a payment of $1.9 million on a and bears interest at 6.0%. There are two six month mezzanine loan. extension options, the first of which bears interest at 9% and the second bears interest at 12%. During September 2010, we received a final payment of $49.4 million on a preferred equity investment, During October 2011, the Operating Partnership made a representing $40.0 million of invested capital and $9.4 $5.4 million construction loan, which is collateralized by million of accrued preferred return. an interest in a development in Haledon, NJ. The loan matures in April 2012 and has one six month extension and bears interest at 15.0%. During December 2009, the Operating Partnership made a loan for $8.6 million. The original term of this loan was for one year, with two six month extensions, and bore During September 2011, the Operating Partnership made interest at 14.5%. During December 2011, this a $4.0 million loan to two members of an entity which investment was fully liquidated. The Operating owns a shopping center in Washington D.C. The note Partnership received $8.6 million of principal along with accrues interest at 7% and matures in February 2012. In $1.0 million of accrued interest. addition to the loan, the Operating Partnership entered 8 Acadia Realty Trust 2011 Annual Report 94463 The following table sets forth our notes receivable investments as of December 31, 2011: Notes Receivable (dollars in thousands) Investment Principal Accrued Interest Total Stated Interest Rate Effective Interest Rate(1) Maturity Date Extension Options (years) Underlying Third-Party First Mortgage Loan Amount Maturity Dates First mortgage and other notes $41,331 $1,772 $43,103 9.50% 10.47% 2012 Mezzanine notes 18,658 723 19,381 12.78% 14.57% 2013 — — N/A N/A 301,660 2012 through 2017 Weighted Averages Total notes receivable $59,989 $2,495 $62,484 10.52% 11.75% Note: (1) The effective rate includes points and exit fees Asset Sales and Capital/Asset Recycling Core Portfolio We periodically identify certain properties in our Core Portfolio for disposition and redeploy the capital to existing centers or acquisitions with greater potential for capital appreciation. Since 2009, we have sold the following Core Portfolio assets: (dollars in thousands) Property Ledgewood Mall Blackman Plaza Total Location Date Sold Gross Leasable Area Sales Price Ledgewood, New Jersey Wilkes-Barre, Pennsylvania May 2011 November 2009 517,151 125,264 642,415 $37,000 2,500 $39,500 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, 2011 there were four assets comprising 0.1 million square feet remaining in Fund I as summarized below: Shopping Center Tarrytown Centre Kroger/Safeway properties Total Location Tarrytown (Westchester), NY 3 locations Year Acquired 2004 2003 GLA 35,000 98,000 133,000 During December 2011, Fund I sold 15 locations in the sale along with Fund I’s recourse obligation of $0.6 Kroger/Safeway Portfolio for $17.5 million, resulting in a million were used to fully liquidate the outstanding loan $14.6 million gain. The Operating Partnership’s share of obligation. the gain was $2.4 million. During February 2009, The Kroger Co. purchased the During October 2011, Fund I sold Granville Centre, a leasehold interest at six locations in Fund I’s 135,000 square foot shopping center, located in Kroger/Safeway Portfolio for $9.5 million, resulting in a Columbus, Ohio, for $2.3 million, resulting in a loss of $5.6 million gain. The Operating Partnership’s share of $0.3 million. The Operating Partnership’s share of the the gain was $0.9 million. loss was $0.1 million. During the quarter ended June 30, 2011, we determined that the value of the Granville Centre was impaired and recorded an impairment loss of $6.9 million. The Operating Partnership’s share of the impairment loss was $1.5 million. During March 2010, Fund I sold the Sterling Heights Shopping Center for $2.3 million. The proceeds from the Fund II During January 2011, Fund II completed the sale of a 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. The Operating Partnership’s share of the gain was $0.8 million. Acadia Realty Trust 2011 Annual Report 9 69380 Environmental Laws For information relating to environmental laws that may have an impact on our business, please see “Item 1A. located at regional property management offices. None of our employees are covered by collective bargaining agreements. Management believes that its relationship Risk Factors — Possible liability relating to environmental with employees is good. 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. 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 at no cost 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 Financial Information About Market Segments We have five reportable segments: Core Portfolio, Commission’s website at www.sec.gov. Alternatively, we will provide paper copies of our filings at no cost upon request. If you wish to receive a copy of the Form 10-K, Opportunity Funds, Self-Storage Portfolio, Notes you may contact Robert Masters, Corporate Secretary, at Receivable and Other. Notes Receivable consists of our Acadia Realty Trust, 1311 Mamaroneck Avenue, Suite notes receivable and related interest income, Other 260, White Plains, NY 10605. You may also call (914) primarily consists of management fees and interest 288-8100 to request a copy of the Form 10-K. income. The accounting policies of the segments are the Information included or referred to on our website is not same as those described in the summary of significant incorporated by reference in or otherwise a part of this accounting policies set forth in Note 1 to our Form 10-K. Consolidated Financial Statements, which begin on page F-1 of this Form 10-K. We evaluate property performance primarily based on net operating income before depreciation, amortization and certain nonrecurring items. Code of Ethics and Whistleblower Policies The Board of Trustees adopted a Code of Business Investments in our Core Portfolio are typically held long- Conduct and Ethics applicable to all employees, as well term. Given the contemplated finite life of our as a “Whistleblower Policy.” Copies of these documents Opportunity Funds, these investments are typically held are available in the Investor Information section of our for shorter terms. Fees earned by us as general website. We intend to disclose future amendments to, or partner/member of the Opportunity Funds are eliminated waivers from (with respect to our senior executive in our Consolidated Financial Statements. See Note 3 to financial officers), our Code of Ethics in the Investor our Consolidated Financial Statements, which begin on page F-1 of this Form 10-K for information regarding, among other things, revenues from external customers, a Information section of our website within four business days following the date of such amendment or waiver. measure of profit and loss and total assets with respect ITEM 1A. RISK FACTORS to each of our segments. Corporate Headquarters and Employees Our executive offices are located at 1311 Mamaroneck 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 Avenue, Suite 260, White Plains, New York 10605, and qualifications and limitations on such forward-looking our telephone number is (914) 288-8100. As of statements discussed in the beginning of this Form 10-K. December 31, 2011, we had 114 employees, of which 92 were located at our executive office and 22 were 10 Acadia Realty Trust 2011 Annual Report 19011 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 adversely affect the entire shopping center because of the loss of the departed anchor tenant’s customer drawing power. Loss of customer drawing power also can occur through the exercise of the right that most anchors have to vacate and prevent re-tenanting by paying rent for the balance of the lease term (“going dark”) as would the departure of a “shadow” anchor tenant that owns its own property. In addition, in the event that certain major tenants cease to occupy a 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. 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 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. Our operations and performance depend on general economic conditions, including the health of the consumer. The U.S. economy recently experienced a financial downturn, with a decline in consumer spending, credit tightening and high unemployment. This economic downturn has had, and may continue to have, an adverse affect on the businesses of many of our tenants. We and the Opportunity Funds may experience higher vacancy rates as well as delays in re-leasing vacant space. 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. 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. we receive upon re-letting are significantly lower than Certain of our tenants have experienced financial current rates, our net income and ability to make expected distributions to our shareholders will be adversely affected due to the resulting reduction in revenues. 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 — difficulties and have filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code (“Chapter 11 Bankruptcy”). Pursuant to bankruptcy law, tenants have the right to reject their leases. In the event the tenant exercises this right, the landlord generally has the right to file a claim for lost rent equal to the greater of either Lease Expirations” in this Annual Report on Form 10-K one year’s rent (including tenant expense for additional information as to the scheduled lease reimbursements) for remaining terms greater than one expirations in our portfolio. Acadia Realty Trust 2011 Annual Report 11 60527 year, or 15% of the rent remaining under the balance of potential liability under, and changes in, environmental, the lease term, but not to exceed three years rent. zoning, tax and other laws. A significant portion of our Actual amounts to be received in satisfaction of those income is derived from rental income from real property. claims will be subject to the tenant’s final plan of Our income and cash flow would be adversely affected if reorganization and the availability of funds to pay its we were unable to rent our vacant space to viable creditors. tenants on economically favorable terms. In the event of Since January 1, 2010, there have been two significant tenant bankruptcies within our portfolio: During February 2012, the United Retail Group, which owns and operates Avenue, filed for protection under Chapter 11 Bankruptcy. Avenue operates in four locations in our Core Portfolio, totaling approximately 25,000 default by a tenant, we may experience delays in enforcing, and incur substantial costs to enforce, our rights as a landlord. In addition, certain significant expenditures associated with each 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 square feet. Rental revenues from Avenue at these four locations totaled $0.7 million for each the years ended investment. December 31, 2011, 2010 and 2009. United Retail Group has neither affirmed nor rejected any of the leases at any of our locations. On December 12, 2010, the Great Atlantic & Pacific Tea Company, Inc. (“A&P”) filed for protection under Chapter 11 Bankruptcy. At the time of filing, A&P was a tenant in five of our properties. A&P has affirmed three of its leases. It now operates in two locations in our Core Portfolio, totaling approximately 97,000 square feet. Rental revenues from A&P at these two locations totaled $2.0 million, $2.0 million and $1.9 million for the years ended December 31, 2011, 2010 and 2009, respectively. In addition, A&P operates in one Fund III location, totaling approximately 65,000 square feet. Rental revenues from A&P at this location totaled $1.0 million for each of the years ended December 31, 2011, 2010 and 2009. A&P has filed a plan of reorganization. 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 Our ability to change our portfolio is limited because real estate investments are illiquid. Equity investments in real estate are relatively illiquid and, therefore, our ability to change our portfolio promptly in response to changed conditions is limited. 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. We could change our investment, disposition and financing policies without a vote of our shareholders. 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. In addition, the viability of the interest rate hedges we use is subject to the strength of the counterparties. 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. attractiveness of the shopping center and by the overall Interest expense on our variable rate debt as of climate for the retail industry. Real estate values are also December 31, 2011 would increase by $4.3 million affected by such factors as government regulations, annually for a 100 basis point increase in interest rates. interest rate levels, the availability of financing and We may seek additional variable-rate financing if and 12 Acadia Realty Trust 2011 Annual Report 30400 when pricing and other commercial and financial terms administrative and financial resources. The continued warrant. As such, we would consider hedging against the growth of our real estate portfolio can be expected to interest rate risk related to such additional variable rate continue to place a significant strain on our resources. debt, primarily through interest rate swaps but can use Our future performance will depend in part on our ability 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 than we wish to pay. In addition, retailers at our properties (both in our Core Portfolio and in the portfolios of the Opportunity Funds) face increasing competition from outlet malls, discount shopping clubs, internet commerce, direct mail and telemarketing, which could (i) reduce rents payable to us and (ii) reduce our ability to attract and retain tenants at our properties 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 our Operating Partnership and 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. leading to increased vacancy rates at our properties. Acquisitions of additional properties entail the risk that We could be adversely affected by poor market conditions where our properties are geographically concentrated. Our performance depends on the economic conditions in markets in which our properties are concentrated. We have significant exposure to the greater New York region, from which we derive 36% of the annual base rents within our Core Portfolio and 76% of annual base rents within our Opportunity Funds’ portfolios. Our operating results could be adversely affected if market investments will fail to perform in accordance with expectations, including operating and leasing expectations. Redevelopment is subject to numerous risks, including risks of construction delays, cost overruns or uncontrollable events that may increase project costs, new project commencement risks such as the receipt of zoning, occupancy and other required governmental approvals and permits, and incurring development costs in connection with projects that are not pursued to completion. conditions, such as an oversupply of space or a reduction A component of our growth strategy is through private- in demand for real estate, in this area occurs. equity type investments made through our RCP Venture. 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, 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, Acadia Realty Trust 2011 Annual Report 13 76804 human capital issues, adequate supply of product and co-venturer may take action contrary to our instructions, material, and merchandising issues. requests, policies or objectives, including our policy with We operate through a partnership structure, which could have an adverse effect on our ability to manage our assets. Our primary property-owning vehicle is the Operating Partnership, of which we are the general partner. Our acquisition of properties through the Operating Partnership in exchange for interests in the Operating respect to maintaining our qualification as a REIT. Other risks of joint venture investments include impasse on decisions, such as a sale, because neither we nor a joint venture partner would have full control over the joint venture. Also, there is no limitation under our organizational documents as to the amount of our funds that may be invested in joint ventures. Partnership may permit certain tax deferral advantages to Any disputes that may arise between joint venture limited partners who contribute properties to the partners and us may result in litigation or arbitration that Operating Partnership. Since properties contributed to the would increase our expenses and prevent our officers Operating Partnership may have unrealized gain and/or directors from focusing their time and effort on attributable to the difference between the fair market our business. Consequently, actions by or disputes with value and adjusted tax basis in such properties prior to joint venture partners might result in subjecting contribution, the sale of such properties could cause properties owned by the joint venture to additional risk. adverse tax consequences to the limited partners who In addition, we may in certain circumstances be liable for contributed such properties. Although we, as the general the actions of our third-party joint venture partners. 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 partners who contribute such properties. Such restrictions could result in significantly reduced flexibility to manage our assets. Exclusivity obligation to our Opportunity Funds. Under the terms of our Opportunity Funds, we are required to first offer to our current fund, all of our opportunities to acquire retail shopping centers with limited exceptions. We may only pursue opportunities to acquire retail shopping centers directly if (i) the ownership of the acquisition opportunity by Fund III would create a material conflict of interest for us; (ii) we require the acquisition opportunity for a “like-kind” exchange; or (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 instead 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 During 2011, 2010 and 2009, 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. These factors could limit the return that we receive from such investments or cause our cash flows to be lower 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. Market factors could have an adverse effect on our share price and our ability to access the public equity markets. One of the factors that may influence the trading price of our Common Shares is the annual dividend rate on our Common Shares as a percentage of its market price. An increase in market interest rates may lead purchasers of our Common Shares to seek a higher annual dividend rate, which could adversely affect the market price of our Common Shares. A decline in our share price, as a result of this or other market factors, could unfavorably impact our ability to raise additional equity in the public markets. 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 14 Acadia Realty Trust 2011 Annual Report 76526 operations. We have obtained key-man life insurance for Differences in timing between the receipt of income and Mr. Bernstein. In addition, we have entered into an the payment of expenses in determining our income as employment agreement with Mr. Bernstein; however, it well as required debt amortization payments and the can be terminated by Mr. Bernstein in his discretion. We capitalization of certain expenses could require us to have not entered into employment agreements with borrow funds on a short-term basis to meet the other key executive-level employees. distribution requirements that are necessary to achieve Our Board of Trustees may change our investment policy without shareholder approval. Our Board of Trustees may determine to change our investment and financing policies, our growth strategy and our debt, capitalization, distribution, acquisition, disposition and operating policies. Our Board of Trustees may establish investment criteria or limitations as it deems appropriate, but currently does not limit the the tax benefits associated with qualifying as a REIT. The distribution requirements also severely limit our ability to retain earnings to acquire and improve properties or retire outstanding debt. 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 number of properties in which we may seek to invest or requirements for qualification as a REIT for federal 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 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, and policies, it may do so at any time without a vote by qualification as a REIT involves the application of highly our shareholders. Accordingly, the results of decisions made by our Board of Trustees and implemented by technical and complex provisions of the Internal Revenue Code, for which there are only limited judicial or management may or may not serve the interests of all of administrative interpretations. No assurance can be given 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 shareholders at least 90% of our taxable income for each calendar year. Pursuant to IRS pronouncements, up to 90% of such distribution may be made in Common Shares rather than cash. Our taxable income is determined without regard to any deduction for dividends paid and by excluding net capital gains. To the extent that we satisfy the distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed income. In addition, we will incur a 4% nondeductible excise tax on the amount, if any, by which 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. 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, administrative interpretations or court decisions will not significantly change the requirements for qualification as a REIT or adversely affect the federal income tax consequences of such qualification. Under current law, if we fail to qualify as a REIT, we would not be allowed a deduction for dividends paid to shareholders in computing our net taxable income. In addition, our 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 intend to continue to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause us, without the consent of our Acadia Realty Trust 2011 Annual Report 15 16900 shareholders, to revoke the REIT election or to otherwise take action that would result in disqualification. Limits on ownership of our capital shares. For us to qualify as a REIT for federal income tax purposes, among other requirements, not more than 50% of the value of our capital shares may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) during the last half of each taxable year after 1993, and such capital shares must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year (in each case, other than the first such year). Our Declaration of Trust includes certain restrictions regarding transfers of our capital shares and ownership limits that are intended to assist us in satisfying these limitations, among other purposes. These restrictions and limits may not be adequate in all cases, however, to prevent the transfer of our capital shares in violation of the ownership limitations. The ownership limit discussed 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 fair market value of such shares (determined in accordance with the rules set forth in our Declaration of Trust). As a result, if a violative transfer were made, the recipient of the shares would not acquire any economic or voting rights attributable to the transferred shares. Additionally, the constructive ownership rules for these limits are complex and groups of related individuals or entities may be deemed a single owner and consequently in violation of the share ownership limits. Concentration of ownership by certain investors. As of December 31, 2011, eight institutional shareholders 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 interests of the shareholders. In addition, we have entered into an employment agreement with our Chief Executive Officer and severance agreements are in place with our executives which provide that, upon the occurrence of a change in control of us and either the termination of their employment without cause (as defined) or their resignation for good reason (as defined), those executive officers would be entitled to certain termination or severance payments made by us (which may include a lump sum payment equal to defined percentages of annual salary and prior years’ average bonuses, paid in accordance with the terms and conditions of the respective agreement), which could deter a change of control of us that could be in the best interests of the shareholders. Certain provisions of Maryland law may limit the ability of a third party to acquire control of our Company. Under the Maryland General Corporation Law, as amended, which we refer to as the “MGCL,” as applicable to REITs, certain “business combinations,” including certain mergers, consolidations, share exchanges and asset transfers and certain issuances and reclassifications of equity securities, between a Maryland REIT and any person who beneficially owns 10% or more of the voting power of the trust’s outstanding voting shares or an affiliate or an associate, as defined in the MGCL, of the trust who, at any time within the two- year period immediately prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then-outstanding shares of beneficial own 5% or more individually, and 70.8% in the interest of the trust, which we refer to as an “interested aggregate, of our Common Shares. A significant shareholder,” or an affiliate of the interested shareholder, concentration of ownership may allow an investor or a are prohibited for five years after the most recent date group of investors to exert a greater influence over our on which the interested shareholder becomes an management and affairs and may have the effect of interested shareholder. After that five-year period, any delaying, deferring or preventing a change in control of such business combination must be recommended by us. the board of trustees of the trust and approved by the affirmative vote of at least (1) 80% of the votes entitled 16 Acadia Realty Trust 2011 Annual Report 88266 to be cast by holders of outstanding voting shares of regardless of what is currently provided in our beneficial interest of the trust and (2) two-thirds of the Declaration of Trust or Bylaws, to elect to be subject to votes entitled to be cast by holders of voting shares of certain provisions relating to corporate governance that the trust other than shares held by the interested may have the effect of delaying, deferring or preventing shareholder with whom, or with whose affiliate, the a transaction or a change of control of our Company that business combination is to be effected or held by an might involve a premium to the market price of our affiliate or associate of the interested shareholder, Common Shares or otherwise be in the best interests of unless, among other conditions, the trust’s common our shareholders. We are subject to some of these shareholders receive a minimum price, as defined in the provisions (for example, a two-thirds vote requirement for MGCL, for their shares and the consideration is received removing a trustee) by provisions of our Declaration of in cash or in the same form as previously paid by the Trust and Bylaws unrelated to Subtitle 8. interested shareholder for its common shares. Becoming subject to, or the potential to become subject These provisions of the MGCL do not apply, however, to to, these provisions of the MGCL could inhibit, delay or business combinations that are approved or exempted by prevent a transaction or a change of control of our the board of trustees of the trust before the interested Company that might involve a premium price for our shareholder becomes an interested shareholder, and a shareholders or otherwise be in our or their best person is not an interested shareholder if the board of interests. In addition, the provisions of our Declaration of trustees approved in advance the transaction by which Trust on removal of trustees and the provisions of our the person otherwise would have become an interested Bylaws regarding advance notice of shareholder shareholder. In approving a transaction, our Board of nominations of trustees and other business proposals Trustees may provide that its approval is subject to and restricting shareholder action outside of a compliance, at or after the time of approval, with any shareholders meeting unless such action is taken by terms and conditions determined by the Board. unanimous written consent could have a similar effect. The MGCL also provides that holders of “control shares” of a Maryland REIT (defined as voting shares that, when aggregated with all other shares owned by the acquirer or in respect of which the acquirer is entitled to exercise or direct the exercise of voting power (except solely by Our rights and shareholders’ rights to take action against trustees and officers are limited, which could limit recourse in the event of actions not in the best interests of shareholders. As permitted by Maryland law, our Declaration of Trust virtue of a revocable proxy), would entitle the acquirer to eliminates the liability of our trustees and officers to the exercise one of three increasing ranges of voting power Company and its shareholders for money damages, in electing trustees) acquired in a “control share except for liability resulting from: acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by the affirmative vote of holders of at least two-thirds of all the votes entitled to be cast on the matter, excluding shares owned by the acquirer, by officers or by employees who (cid:2) actual receipt of an improper benefit or profit in money, property or services; or (cid:2) a final judgment based upon a finding of active and deliberate dishonesty by the trustee or officer that was material to the cause of action adjudicated. are also trustees of the trust. Our Bylaws provide that In addition, our Declaration of Trust authorizes, and our the control share acquisition statute shall not apply to Bylaws obligate, us to indemnify each present or former shares acquired or owned, directly or indirectly, by any trustee or officer, to the maximum extent permitted by person acting in concert with any group (as defined in Maryland law, who is made a party to any proceeding Section 13 of the Exchange Act and the rules because of his or her service to our Company. As part of thereunder). Our Bylaws can be amended by our Board these indemnification obligations, we may be obligated to of Trustees by majority vote, and there can be no fund the defense costs incurred by our trustees and assurance that this provision will not be amended or officers. eliminated at any time in the future. Additionally, Title 3, Subtitle 8 of the MGCL permits our Board of Trustees, without shareholder approval and Acadia Realty Trust 2011 Annual Report 17 94240 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 our 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 could adversely affect us or our shareholders. Reduced tax rates applicable to certain corporate dividends paid to most domestic noncorporate shareholders are not generally available to REIT shareholders since a REITs income generally is not subject to corporate level tax. As a result, investment in non-REIT corporations may be viewed as relatively more attractive than investment in REITs by domestic noncorporate investors. This could adversely affect the market price of our shares. Our development and construction activities could affect our operating results. We intend to continue the selective development and construction of retail properties, with our project at CityPoint currently being our largest development project (see “Item 1. BUSINESS — PROPERTY ACQUISITIONS — Opportunity Funds — Fund II New York Urban/Infill Redevelopment Initiative — Under Construction” for a description of the CityPoint project). As opportunities arise, we expect to delay construction until sufficient pre-leasing is reached and financing is in place. Our development and construction activities include risks that: (cid:2) We may abandon development opportunities after expending resources to determine feasibility; (cid:2) Construction costs of a project may exceed our original estimates; (cid:2) Occupancy rates and rents at a newly completed 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. Redevelopments and acquisitions may fail to perform as expected. Our investment strategy includes the redevelopment and acquisition of shopping centers in supply constrained markets in densely populated areas with high average household incomes and significant barriers to entry. The redevelopment and acquisition of properties entails risks that include the following, any of which could adversely affect our results of operations and our ability to meet our obligations: (cid:2) The property may fail to achieve the returns we have projected, either temporarily or for extended periods; (cid:2) We may not be able to identify suitable properties to acquire or may be unable to complete the acquisition of the properties we identify; (cid:2) We may not be able to integrate an acquisition into our existing operations successfully; (cid:2) Properties we redevelop or acquire may fail to achieve the occupancy or rental rates we project, within the time frames we project, at the time we make the decision to invest, which may result in the properties’ failure to achieve the returns we projected; (cid:2) Our pre-acquisition evaluation of the physical condition of each new investment may not detect certain defects or identify necessary repairs until after the property may not be sufficient to make the property property is acquired, which could significantly increase profitable; our total acquisition costs or decrease cash flow from (cid:2) Financing for development of a property may not be the property; and available to us on favorable terms; (cid:2) We may not complete construction and lease-up on schedule, resulting in increased debt service expense and construction costs; and (cid:2) We may not be able to obtain, or may experience delays in obtaining necessary zoning, land use, 18 Acadia Realty Trust 2011 Annual Report (cid:2) 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. 92713 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 change in the average weather conditions or a change in (cid:2) Decreased consumer demand for consumer products or services resulting from physical changes associated with climate change (e.g., warmer temperatures or decreasing shoreline could reduce demand for residential and commercial properties previously viewed as desirable); (cid:2) Incorrect long term valuation of an equity investment due to changing conditions not previously anticipated at the time of the investment; and (cid:2) Economic disruptions arising from the above. Possible liability relating to environmental matters. Under various federal, state and local environmental the distribution of weather events with respect to an laws, statutes, ordinances, rules and regulations, as an average, for example, greater or fewer extreme weather owner of real property, we may be liable for the costs of events. Climate change may be limited to a specific region, or may occur across the whole Earth. 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: (cid:2) Increased storm intensity and severity of weather (e.g., floods or hurricanes); (cid:2) Sea level rise; and (cid:2) Extreme temperatures. As a result of these physical impacts from climate-related events, we may be vulnerable to the following: (cid:2) Risks of property damage to our shopping centers; (cid:2) Indirect financial and operational impacts from removal or remediation of certain hazardous or toxic substances at, on, in or under our property, as well as certain other potential costs relating to hazardous or toxic substances (including government fines and penalties and damages for injuries to persons and adjacent property). These laws may impose liability without regard to whether we knew 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 property damages and our liability therefore could exceed 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 to borrow using that property as collateral, which, in turn, could reduce our revenues and affect our ability to make disruptions to the operations of major tenants located distributions. in our shopping centers from severe weather, such as A property can also be adversely affected either through hurricanes or floods; physical contamination or by virtue of an adverse effect (cid:2) Increased insurance premiums and deductibles, or a upon value attributable to the migration of hazardous or decrease in the availability of coverage, for properties toxic substances, or other contaminants that have or may in areas subject to severe weather; (cid:2) Increased insurance claims and liabilities; (cid:2) Increases in energy costs impacting operational returns; 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 (cid:2) Changes in the availability or quality of water, or other property leased to that tenant, we may be required to natural resources on which the tenant’s business satisfy such obligations. In addition, we may be held depends; directly liable for any such damages or claims irrespective of the provisions of any lease. Acadia Realty Trust 2011 Annual Report 19 50826 From time to time, in connection with the conduct of our financial obligations related to the property. Any loss of business, and prior to the acquisition of any property these types would adversely affect our financial from a third party or as required by our financing condition. sources, we authorize the preparation of Phase I environmental reports and, when necessary, Phase II environmental reports, with respect to our properties. 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: (cid:2) The discovery of previously unknown environmental conditions; (cid:2) Changes in law; (cid:2) Activities of tenants; and (cid:2) Activities relating to properties in the vicinity of our properties. 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 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 Changes in laws increasing the potential liability for markets and economies. Any one of these events might environmental conditions existing on properties or decrease demand for real estate, decrease or delay the increasing the restrictions on discharges or other occupancy of our properties, and limit our access to conditions may result in significant unanticipated capital or increase our cost of raising capital. 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 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. wars, terrorism or acts of God that generally are not ITEM 1B. UNRESOLVED STAFF COMMENTS. insured because they are either uninsurable or not None. 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 20 Acadia Realty Trust 2011 Annual Report 60414 ITEM 2. PROPERTIES. Shopping Center Properties The discussion and tables in this Item 2. include majority of our rental revenues were from national retailers. 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 89% of our properties owned through our Opportunity Funds. The total revenues for the year ended December 31, 2011. 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, 2011, there are 48 operating for payment to us of a certain percentage of a tenant’s properties in our Core Portfolio totaling approximately 5.0 gross sales in excess of a stipulated annual amount. million square feet of gross leasable area (“GLA”). The Percentage rents accounted for less than 1% of our total Core Portfolio properties are located in 12 states and the 2011 revenues. District of Columbia and are generally well-established urban/street retail locations and community and neighborhood shopping centers. Our shopping centers are predominately anchored by supermarkets or value- oriented retail. The properties are diverse in size, ranging from approximately 3,000 to 875,000 square feet and as of December 31, 2011, were, in total, 91% occupied. As of December 31, 2011, we owned and operated 19 properties totaling 2.5 million square feet of GLA in our Opportunity Funds, excluding three 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 nine states and as of December 31, 2011, were, in total, 87% occupied. Within our Core Portfolio and Opportunity Funds, we had approximately 600 leases as of December 31, 2011. A Three of our Core Portfolio properties and six of our Opportunity Fund properties are subject to long-term ground leases in which a third party owns and has leased the underlying land to us. We pay rent for the use of the land and are responsible for all costs and expenses associated with the building and improvements at all nine locations. No individual property contributed in excess of 10% of our total revenues for the years ended December 31, 2011, 2010 or 2009. Reference is made to Note 8 to our Consolidated Financial Statements, which begin on page F-1 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, 2011: Acadia Realty Trust 2011 Annual Report 21 20631 Shopping Center Location Year Constructed (C) Acquired (A) Ownership Interest GLA Occupancy % 12/31/11(1) Annual Base Rent Annual Base Rent PSF Anchor Tenants Current Lease Expiration/ Lease Option Expiration Core Portfolio NEW YORK Connecticut 239 Greenwich Avenue New Jersey Greenwich 1998 (A) Fee/JV 16,834 (2) 100% $ 1,554,663 $ 92.35 Elmwood Park Shopping Center Elmwood 1998 (A) Fee 149,262 92% 3,364,939 24.58 A&P 2017/2052 Park Walgreen’s 2022/2062 A&P Shopping Plaza New York Boonton 2006 (A) Fee/JV 62,741 97% 1,284,146 21.08 A&P 2024/2054 Village Commons Shopping Smithtown 1998 (A) Fee 87,330 91% 2,409,990 30.22 Center Branch Shopping Plaza (3) Smithtown Amboy Road Bartow Avenue Staten Island Bronx Pacesetter Park Shopping Pomona Center West Shore Expressway West 54th Street East 17th Street Staten Island Manhattan Manhattan Crossroads Shopping Center White Plains 1998 (A) 2005 (A) 2005 (C) 1999 (A) 2007 (A) 2007 (A) 2008 (A) 1998 (A) LI (4) LI (4) Fee Fee Fee Fee Fee 9,693 19,622 Fee/JV (5) 309,487 Third Avenue Mercer Street Bronx Manhattan 4401 White Plains Road Bronx Total New York Region 2006 (A) 2011 (A) 2011 (A) Fee Fee Fee 39,367 6,225 12,964 1,065,883 126,212 60,090 14,676 96,380 46% 100% 89% 90% 1,570,504 27.35 CVS 2020/— 1,619,949 26.96 King Kullen 2028/2043 439,246 33.43 1,101,867 12.76 Stop & Shop 2020/2040 55,000 100% 1,265,000 23.00 LA Fitness 2022/2037 96% 100% 82% 81% 100% 100% 84% 2,418,894 261.09 625,000 31.85 Barnes & Noble 2013/2018 5,590,135 22.10 Kmart 2012/2032 Barnes & Noble 2012/2022 Modell’s 2014/2019 Home Goods 2018/2033 20.85 Planet Fitness 2027/2042 59.76 48.21 666,631 372,000 625,000 $24,907,964 $ 27.69 NEW ENGLAND Connecticut Town Line Plaza Massachusetts Rocky Hill 1998 (A) Fee 206,346 99% $ 1,672,273 $ 15.63 Stop & Shop 2024/2064 Wal-Mart(6) 7.86 Demoulas Market 2015/— Wal-Mart 2016/2051 Methuen Shopping Center Methuen 1998 (A) Fee 130,021 100% 1,021,370 Crescent Plaza Brockton 1984 (A) Fee 218,137 91% 1,576,543 7.97 Supervalu 2012/2042 New York New Loudon Center Latham 1982 (A) Fee 255,673 100% 1,959,124 Rhode Island Walnut Hill Plaza Woonsocket 1998 (A) Fee 284,717 94% 2,408,508 Home Depot 2021/2056 7.66 Price Chopper 2015/2035 Marshall’s 2014/2029 Raymour and Flanigan 2019/2034 AC Moore 2014/2024 Hobby Lobby 2021/— 8.96 Supervalu 2013/2028 Sears 2013/2033 Savers 2013/2018 CVS 2012/— Ocean State Job Lot 2012/— Woonsocket Bowling 2021/— Vermont The Gateway Shopping Center Total New England Region South Burlington 1999 (A) Fee 101,655 93% 1,733,487 18.40 Supervalu 2024/2053 1,196,549 96% $10,371,305 $ 9.84 22 Acadia Realty Trust 2011 Annual Report 39438 Shopping Center Location Year Constructed (C) Acquired (A) Ownership Interest GLA Occupancy % 12/31/11(1) Annual Base Rent Annual Base Rent PSF Anchor Tenants Current Lease Expiration/ Lease Option Expiration MIDWEST Illinois Hobson West Plaza Clark Diversey West Diversey Chicago Street Retail Portfolio (7) Indiana Merrillville Plaza Naperville Chicago Chicago Chicago 1998 (A) 2006 (A) 2011 (A) 2011 (A) Fee Fee Fee Fee 99,125 19,265 46,259 24,374 96% 96% 100% 100% $ 1,117,715 $ 11.79 Garden Fresh Markets 2012/2032 810,154 43.93 1,757,463 1,279,938 37.99 Trader Joe’s 52.51 2021/2041 Merrillville 1998 (A) Fee 235,824 92% 2,852,636 13.22 TJ Maxx 2019/2029 JC Penney 2013/2018 OfficeMax 2013/2028 K&G Fashion 2017/2027 Michigan Bloomfield Town Square (8) Bloomfield Hills Ohio 1998 (A) Fee 236,418 69% 2,277,192 13.88 TJ Maxx 2019/2029 Home Goods 2016/2026 Best Buy 2021/2041 Mad River Station Dayton 1999 (A) Fee 125,984 (9) 81% 1,264,608 12.39 Babies ‘R’ Us 2015/2020 Total Midwest Region MID-ATLANTIC New Jersey 787,249 85% $11,359,706 $ 17.06 Office Depot 2015/— Marketplace of Absecon Absecon 1998 (A) Fee 104,762 72% $ 1,231,831 $ 16.43 Rite Aid 2020/2040 White Horse Liquors 2019/— Delaware Brandywine Town Center Wilmington 2003 (A) Fee/JV (10) 874,989 97% 12,800,555 15.13 Bed, Bath & Beyond 2014/2029 Dick’s Sporting Goods 2013/2028 Lowe’s Home Centers 2018/2048 Target 2018/2058 HH Gregg 2020/2035 Market Square Shopping Center Wilmington 2003 (A) Fee/JV (10) 102,047 98% 2,471,924 24.66 TJ Maxx 2016/2021 Trader Joe’s 2019/2034 Route 202 Shopping Center Wilmington 2006 (C) LI/JV (4) (10) 19,984 55% 558,340 50.89 Pennsylvania Mark Plaza Plaza 422 Edwardsville Lebanon 1968 (C) 1972 (C) LI/Fee (4) Fee 216,401 156,279 86% 100% 823,922 795,852 4.45 Kmart 2014/2049 5.09 Home Depot 2028/2058 Dunham’s 2016/2031 Route 6 Mall Honesdale 1994 (C) Fee 175,519 100% 1,175,170 6.70 Kmart 2020/2070 Chestnut Hill (11) (12) Abington Towne Center Philadelphia Abington 2006 (A) 1998 (A) Fee Fee 37,916 216,369 District of Columbia Georgetown Portfolio (14) Total Mid-Atlantic Region Total Core Properties Washington D.C. 2011 (A) Fee/JV 27,666 1,931,932 4,981,613 14% 99% 96% 93% 91% Fashion Bug 2016/— Advance Auto 2013/— 164,483 31.94 1,120,795 19.63 TJ Maxx 2016/2021 Target (13) 1,649,967 61.87 $22,792,839 $ 13.91 $69,431,814 $ 16.31 Acadia Realty Trust 2011 Annual Report 23 94263 Year Constructed (C) Acquired (A) Ownership Interest GLA Occupancy % 12/31/11(1) Annual Base Rent Annual Base Rent PSF Anchor Tenants Current Lease Expiration/ Lease Option Expiration Shopping Center Location Opportunity Fund Portfolio Fund I Properties New York Tarrytown Shopping Center Tarrytown 2004 (A) Fee 34,979 85% $ 847,360 $ 28.40 Walgreen’s 2080/— VARIOUS REGIONS Kroger/Safeway Portfolio 3 locations (15) Total Fund I Properties Fund II Properties New York Pelham Plaza Pelham Manor 2003 (A) LI/JV (4) 97,500 69% 302,076 4.48 Kroger 2014/2049 132,479 73% $ 1,149,436 $ 11.81 Safeway 2014/2044 2004 (A) LI/JV (4) 228,493 91% $ 5,622,651 $ 27.05 BJ’s Wholesale Club 2033/2053 Michaels 2013/2033 Petsmart 2021/2036 Fordham Place Bronx 2004 (A) Fee/JV 119,446 100% 5,519,760 46.21 Best Buy 2019/2039 Liberty Avenue Canarsie Plaza New York Brooklyn 2005 (A) 2007 (A) LI/JV (4) Fee/JV 26,125 273,536 New York Bronx 2005 (A) 2005 (A) Fee/JV Fee/JV 60,000 236,571 944,171 Sears 2023/2033 732,755 33.83 CVS 2032/2052 7,494,788 29.75 BJ’s Wholesale Club 2030/2055 Petsmart 2022/2037 2,460,000 41.00 City of New York 2027/2032 4,617,137 22.36 City of New York MTM $26,447,091 $ 30.49 83% 92% 100% 87% 92% 216th Street 161st Street (19) Total Fund II Properties Fund III Properties Connecticut 125 Main Street New York Cortlandt Towne Center 654 Broadway New Hyde Park Shopping Center Massachusetts Maryland White Oak Parkway Crossing Florida Lincoln Road Illinois Heritage Shops Westport 2007 (A) Fee/JV 27,033 80% $ 1,639,550 $ 75.64 Gap 2021/2026 Mohegan Lake New York New Hyde Park 2009 (A) Fee 641,211 90% 9,270,706 16.06 Walmart 2018/2048 A&P 2022/2047 Best Buy 2017/2032 Petsmart 2014/2034 2011 (A) 2011 (A) Fee Fee 2,896 31,498 100% 91% 300,000 103.59 855,244 29.76 White City Shopping Center Shrewsbury 2010 (A) Fee/JV (16) 255,560 93% 5,184,956 21.85 Shaw’s 2018/2033 Michaels 2012/2022 Silver Spring Baltimore 2011 (A) 2011 (A) Fee/JV (17) 64,626 Fee/JV (17) 260,264 100% 74% 874,416 13.53 Super Fresh 2021/2076 1,271,641 6.63 Home Depot 2032/— Big Lots 2016/— Miami 2011 (A) Fee/JV (18) 61,443 35% 2,305,809 105.99 Chicago 2011 (A) Fee 105,449 Total Fund III Properties Total Opportunity Fund Operating Properties (20) 1,449,980 2,526,630 76% 85% 87% 2,621,122 32.69 LA Fitness 2025/2040 $24,323,444 $ 19.84 $51,919,971 $ 23.62 Notes: (1) Does not include space for which lease term had not yet commenced as of December 31, 2011. (2) In addition to the 16,834 square feet of retail GLA, this property also has 21 apartments comprising 14,434 square feet. (3) The vacant anchor space, formerly occupied by an A&P store, is currently in the process of being re-anchored with a replacement tenant. (4) We are a ground lessee under a long-term ground lease. (5) We have a 49% investment in this property. 24 Acadia Realty Trust 2011 Annual Report 32876 (6) Includes a 97,300 square foot Wal-Mart which is not owned by us. (7) Includes six properties (56 E. Walton, 841 W. Armitage, 2731 N. Clark, 2140 N. Clybourn, 853 W. Armitage and 2299 N. Clybourn). (8) Re-anchoring activities at this property commenced during second quarter 2011 and are expected to be completed during 2012. (9) The GLA for this property excludes 29,857 square feet of office space. (10) We have a 22% investment in this property. (11) Property consists of two buildings. (12) Does not include space leased but not yet occupied as of December 31, 2011, aggregating 23,500 square feet. (13) Includes a 157,616 square foot Target Store that is not owned by us. (14) Includes six properties (1533 Wisconsin Ave., 3025 M St., 3034 M St., 3146 M St, 3259-61 M St., and 2809 M St.). We have a 50% investment in this property. (15) Three remaining assets including locations in Benton, AR, Tulsa, OK and Indianapolis, IN. (16) The Fund has an 84% investment in this property. (17) The Fund has a 90% investment in this property. (18) The Fund has a 95% investment in this property. (19) Currently operating but re-tenanting activities have commenced. (20) In addition to the Opportunity Fund operating properties, there are three properties under redevelopment; Sherman Plaza (Fund II), CityPoint (Fund II) and Sheepshead Bay (Fund III). Acadia Realty Trust 2011 Annual Report 25 95994 Major Tenants No individual retail tenant accounted for more than 4.1% of base rents for the year ended December 31, 2011 or occupied more than 7.6% of total leased GLA as of December 31, 2011. The following table sets forth certain information for the 20 largest retail tenants based upon base rents in place as of December 31, 2011. 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 Supervalu (Shaw’s) Ahold (Stop and Shop) A&P Walgreen’s TJX Companies BJ’s Wholesale Club Sears LA Fitness Restoration Hardware Home Depot Stage Deli Trader Joe’s Price Chopper Barnes & Noble Walmart Sleepy’s Best Buy Pier 1 Imports CVS JP Morgan Chase Total Notes: Number of Stores in Portfolio Total GLA Annualized Base Rent (1) Total Portfolio GLA Annualized Base Rent Percentage of Total Represented by Retail Tenant (2) 5 3 4 6 9 4 6 1 1 4 1 2 1 4 2 8 5 5 5 6 186,489 155,177 90,391 45,337 190,172 60,695 341,638 64,926 12,293 230,895 4,211 19,094 87,709 30,758 115,420 34,532 43,227 25,454 36,454 19,126 $ 2,563,450 2,131,400 1,828,055 1,783,898 1,708,874 1,663,200 1,651,067 1,479,473 1,166,090 1,121,476 1,050,000 961,105 958,924 922,077 887,440 848,374 806,162 664,439 642,022 620,914 4.1% 3.5% 2.0% 1.0% 4.2% 1.4% 7.6% 1.4% 0.3% 5.1% 0.1% 0.4% 2.0% 0.7% 2.6% 0.8% 1.0% 0.6% 0.8% 0.4% 4.1% 3.4% 2.9% 2.9% 2.7% 2.7% 2.6% 2.4% 1.9% 1.8% 1.7% 1.5% 1.5% 1.5% 1.4% 1.4% 1.3% 1.1% 1.0% 1.0% 82 1,793,998 $25,458,440 40.0% 40.8% (1) Base rents do not include percentage rents, additional rents for property expense reimbursements and contractual rent escalations due after December 31, 2011. (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. 26 Acadia Realty Trust 2011 Annual Report 92003 Lease Expirations The following table shows scheduled lease expirations for retail tenants in place as of December 31, 2011, assuming that none of the tenants exercise renewal options. (GLA and Annualized Base Rent in thousands): Core Portfolio: Leases maturing in Month to Month 2012 2013 2014 2015 2016 2017 2018 2019 2020 Thereafter Total Annualized Base Rent (1) GLA Number of Leases Current Annual Rent Percentage of Total Square Feet Percentage of Total 1 53 62 63 40 51 18 28 20 15 42 $ 64 6,041 8,931 8,834 6,747 6,677 5,344 7,399 2,021 2,986 14,388 —% 9% 13% 13% 10% 9% 8% 10% 3% 4% 21% 3 398 498 485 440 462 213 459 167 257 875 —% 9% 12% 11% 10% 11% 5% 11% 4% 6% 21% 393 $69,432 100% 4,257 100% Opportunity Fund Portfolio: Annualized Base Rent (1) GLA Number of Leases Current Annual Rent Percentage of Total Square Feet Percentage of Total 3 18 17 21 13 22 8 14 9 8 46 $ 192 5,112 3,128 3,103 1,358 2,663 2,148 3,477 3,396 933 26,410 —% 10% 6% 6% 3% 5% 4% 7% 6% 2% 51% 179 $51,920 100% 15 237 128 193 58 111 76 266 67 31 1,009 2,191 1% 11% 6% 9% 3% 5% 3% 12% 3% 1% 46% 100% Leases maturing in Month to Month 2012 2013 2014 2015 2016 2017 2018 2019 2020 Thereafter Total Note: (1) Base rents do not include percentage rents, additional rents for property expense reimbursements, nor contractual rent escalations. Acadia Realty Trust 2011 Annual Report 27 03581 Geographic Concentrations The following table summarizes our retail properties by region as of December 31, 2011. 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 Portfolio: Operating Properties: New York Region New England Midwest Mid-Atlantic Total Core Operating Properties Opportunity Fund Portfolio: Operating Properties: New York Region New England Midwest Mid-Atlantic Southeast Other Total Opportunity Fund Operating Properties Note: GLA (1) Occupied % (2) Annualized Base Rent (2) Annualized Base Rent per Occupied Square Foot 1,066 1,196 787 1,932 4,981 1,682 256 105 325 61 98 84% 96% 85% 93% 91% 91% 93% 76% 81% 35% 69% $24,908 10,371 11,360 22,793 $69,432 $39,360 5,185 2,621 2,146 2,306 302 $ 27.69 9.84 17.06 13.91 $ 16.31 $ 25.76 21.85 32.69 8.12 105.99 4.48 Percentage of Total Represented by Region GLA Annualized Base Rent 21% 24% 16% 39% 36% 15% 16% 33% 100% 100% 67% 10% 4% 13% 2% 4% 76% 10% 5% 4% 4% 1% 2,527 87% $51,920 $ 23.62 100% 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, 2011. 28 Acadia Realty Trust 2011 Annual Report 92723 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 1,124,135 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, 2011 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 78,825 100,697 76,920 36,339 84,035 89,422 42,155 97,743 606,136 134,193 134,193 740,329 85,155 87,645 72,900 62,220 75,886 89.9% 79.4% 85.3% 383,806 1,124,135 85.1% 87.0% Acadia Realty Trust 2011 Annual Report 29 40434 ITEM 3. LEGAL PROCEEDINGS. We are involved in 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. 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 defenses to the suit. ITEM 4. MINE SAFETY DISCLOSURES. In addition to the foregoing, we are currently involved in Not applicable. the following litigation matters: In September 2008, the Company, certain of its subsidiaries, and other unrelated entities (the “Investor Consortium”) 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. The action involves five claims alleging fraudulent transfers in which Mervyns is nominally seeking approximately $1.175 billion in damages from the Investor Consortium, although the actual claims made by the administrator and the unsecured creditors are substantially less. The first claim contends that, at the time of the sale of Mervyns by Target Corporation to the Investor Consortium, a transfer of assets was made in an effort to defraud creditors. The Company believes that this aspect of the case is without merit. The remaining four claims relate to transfers of assets of Mervyns at various times after the sale by Target. The Company believes that there are substantial defenses to these claims and intends to continue to defend them vigorously. This matter is in the early stages of discovery. The parties to this action have agreed to a non-binding mediation, which is scheduled for the end of March, 2012. Because of the inherently unpredictable nature of litigation, the Company could incur some amount of liability in connection with this matter. However, at the present time, there have not been sufficient developments in this matter for us to estimate the reasonably possible loss or range of loss that the Company might incur as a result of this matter. 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 30 Acadia Realty Trust 2011 Annual Report 71405 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, 2011 and 2010: Quarter Ended High Low 2011 March 31, 2011 June 30, 2011 September 30, 2011 December 31, 2011 2010 March 31, 2010 June 30, 2010 September 30, 2010 December 31, 2010 $19.80 20.99 21.97 20.72 $18.40 19.80 19.77 20.17 $17.86 18.63 17.82 17.85 $14.88 16.22 15.87 17.72 Dividend Per Share $0.1800 0.1800 0.1800 0.1800 $0.1800 0.1800 0.1800 0.1800 ended December 31, 2011 was paid on February 1, 2012 and will be taxable in 2012. 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 full amount authorized. There were no Common Shares At February 28, 2012, there were 311 holders of record repurchased by us during the year ended December 31, of our Common Shares. We have determined for income tax purposes that 97% of the total dividends distributed to shareholders during 2011 represented ordinary income (22% qualified dividends and 75% nonqualified dividends) and 3% represented capital gains. The dividend for the quarter 2011. Under this program we have repurchased 2.1 million Common Shares, none of which were repurchased after December 2001. As of December 31, 2011, management may repurchase up to approximately $7.5 million of our outstanding Common Shares under this program. Acadia Realty Trust 2011 Annual Report 31 35495 (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, 2011: 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)) 150,283 — 150,283 $18.33 — $18.33 600,451 (1) — 600,451 (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 incentive awards 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 any incentive awards 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 incentive awards 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 F-1 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, 2011 Outstanding OP Units as of December 31, 2011 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 42,586,376 497,574 43,083,950 5,170,074 500,000 5,670,074 (2,294,104) (2,775,519) 600,451 (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, 2006 through December 31, 2011 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, 2006, 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 of our filings 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. 32 Acadia Realty Trust 2011 Annual Report 51523 Comparison of 5 Year Cumulative Total Return among Acadia Realty Trust, the Russell 2000, the NAREIT and the SNL: Total Return Performance 120 100 80 60 40 e u l a V x e d n I 20 12/31/06 12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 Acadia Realty Trust Russell 2000 NAREIT All Equity REIT Index SNL REIT Retail Shopping Ctr Index Acadia Realty Trust Russell 2000 NAREIT All Equity REIT Index SNL REIT Retail Shopping Ctr Index Period Ended 12/31/06 12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 $100.00 100.00 100.00 100.00 $106.46 98.43 84.31 82.33 $64.62 65.18 52.50 49.57 $80.74 82.89 67.20 48.93 $ 90.84 105.14 85.98 63.52 $104.09 100.75 93.10 61.70 Acadia Realty Trust 2011 Annual Report 33 01420 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, 2011 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) 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 provision Income from continuing operations Income from discontinued operations Income from extraordinary item (1) Net income Loss (income) attributable to noncontrolling interests: Continuing operations Discontinued operations Extraordinary item 2011 Years ended December 31, 2010 2009 2008 2007 $ 150,161 $ 141,045 $ 134,445 $ 121,462 $ 75,917 43,647 26,290 16,633 — 6,619 — — 5,833 — — 297 58,450 31,635 22,508 763 19,906 — (4,392) 3,370 — 1,523 3,362 68,484 35,632 27,612 — (1,529) (3,768) (1,734) 642 — 7,057 1,541 66,698 40,498 28,808 — 10,971 — — 408 33,805 — 2,890 71,143 37,109 32,986 — 1,555 — — 276 — 1,268 474 11,548 42,167 — 53,715 47,335 3,332 — 50,667 1,844 10,862 — 12,706 26,677 10,760 — 37,437 1,502 11,215 27,844 40,561 8,514 (10,674) — (19,075) (1,535) — 24,730 (6,303) — (10,387) (1,982) 10,747 (1,795) — (24,167) Net (income) loss attributable to noncontrolling interests (2,160) (20,610) 18,427 (12,369) (15,215) Net income attributable to Common Shareholders $ 51,555 $ 30,057 $ 31,133 $ 25,068 $ 25,346 Supplemental Information: Income from continuing operations attributable to Common Shareholders $ 20,062 $ 28,260 $ 26,574 $ 16,290 $ 12,249 Income from discontinued operations attributable to Common Shareholders 31,493 1,797 4,559 8,778 9,420 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 — — — — 3,677 51,555 $ 30,057 $ 31,133 $ 25,068 $ 25,346 0.50 $ 0.77 — 1.27 $ 0.49 $ 0.77 — 1.26 $ 0.70 $ 0.05 — 0.75 $ 0.70 $ 0.04 — 0.74 $ 0.70 $ 0.12 — 0.82 $ 0.70 $ 0.12 — 0.82 $ 0.48 $ 0.26 — 0.74 $ 0.47 $ 0.26 — 0.73 $ 0.37 0.28 0.11 0.76 0.36 0.27 0.11 0.74 $ $ $ $ $ 34 Acadia Realty Trust 2011 Annual Report 68151 (dollars in thousands, except per share amounts) 2011 2010 2009 2008 2007 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 Total equity OTHER: Funds from Operations, adjusted for extraordinary item (1) (2) Cash flows provided by (used in): Operating activities Investing activities Financing activities 40,697 40,986 0.7200 $ 40,136 40,406 0.7200 $ 38,005 38,242 0.7500 $ 33,813 33,600 34,282 34,267 0.8951 $ 1.0325 $ $1,471,745 $1,305,561 $1,119,758 $1,004,347 $ 729,979 998,783 391,108 105,790 249,717 171,111 420,828 1,291,383 650,508 100,403 227,722 214,506 442,228 1,382,464 730,287 47,910 312,185 220,292 532,477 1,524,806 806,212 48,712 318,212 269,310 587,522 1,653,319 787,910 930 384,114 385,195 769,309 40,297 50,440 49,613 37,964 42,094 66,332 (153,157) 56,045 44,377 (60,745) 43,152 47,462 (123,380) 83,035 66,517 (302,265) 199,096 105,294 (208,998) 87,476 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. See “Reconciliation of Net Income to Funds From Operations and Adjusted Funds From Operations” in Item 7 below. (3) In addition to the $0.8951 cash dividends declared in 2008, we declared a Common Share dividend of $0.4949. Acadia Realty Trust 2011 Annual Report 35 26635 Management’s Discussion And Analysis ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW As of December 31, 2011, we operated 82 properties, which we own or have an ownership interest in, within our Core Portfolio or within our three Opportunity Funds. Our Core Portfolio consists of those properties either returns. We focus on the following fundamentals to achieve this objective: (cid:2) Own and operate a Core Portfolio (as defined in Item 2. of this Form 10-K) of high-quality retail properties located primarily in high-barrier-to-entry, densely- populated metropolitan areas and create value through accretive redevelopment and re-anchoring activities coupled with the acquisition of high-quality assets that have the long-term potential to outperform the asset 100% owned by, or partially owned through joint venture class as part of our Core asset recycling and interests by the Operating Partnership, or subsidiaries thereof, not including those properties owned through our Opportunity Funds. These 82 properties consist of commercial properties, primarily urban/street retail locations, neighborhood and community shopping centers, mixed-use properties with a retail component and urban self-storage locations. The properties we operate are located primarily in high-barrier-to-entry, densely-populated metropolitan areas in the United acquisition initiative. (cid:2) Generate additional external growth through an opportunistic yet disciplined acquisition program through our Opportunity Funds (as defined in Item 1. of this Form 10-K). We target transactions with high inherent opportunity for the creation of additional value through: (cid:2) value-add investments in high-quality urban and/or States along the East Coast and in Chicago. There are 48 street retail properties with re-tenanting or properties in our Core Portfolio totaling approximately 5.0 repositioning opportunities, million square feet. Fund I has four remaining properties comprising approximately 0.1 million square feet. Fund II has nine properties, seven of which (representing 1.2 million square feet) are currently operating, one is under construction, and one is in the design phase. Three of the properties also include a self-storage component. We (cid:2) opportunistic acquisitions of well-located real- estate anchored by distressed retailers or by motivated sellers and (cid:2) opportunistic purchases of debt which may include restructuring. expect the Fund II portfolio will have approximately 2.0 These may also include joint ventures with private million square feet upon completion of all current equity investors for the purpose of making construction and anticipated redevelopment activities. investments in operating retailers with significant Fund III has 21 properties totaling approximately 2.3 embedded value in their real estate assets. million square feet, of which 11 locations representing 0.9 million net rentable square feet are self-storage facilities. The majority of our operating income is derived from rental revenues from these 82 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 (cid:2) Maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth. Business Outlook The U.S. economy is currently in a post-recessionary period. The recession 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, 2011, should the overall economy again decline, we would expect retailers to experience deteriorating sales performance, and the likelihood of additional tenant bankruptcy filings may increase, which would negatively impact our results of operations. In addition to the impact on retailers, the recession had a significant impact on the U.S. credit markets. Some sources of financing, such as the commercial-mortgage 36 Acadia Realty Trust 2011 Annual Report 77434 backed security market, are still severely curtailed. If environment, while improving, may cause us to lose economic conditions again deteriorate, our ability to tenants and may impair our ability to borrow money to finance new acquisitions or refinance existing debts as purchase properties, refinance existing debt or finance they mature could be adversely affected. Accordingly, our our current redevelopment projects” and “The ability to generate external growth in income, as well as bankruptcy of, or a downturn in the business of, any of maintain existing operating income, could be limited. our major tenants or a significant number of our smaller See the “Item 1A. Risk Factors,” including the discussions under the headings “The current economic 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 F-1 of this Form 10-K for an overview of our five reportable segments. A discussion of the significant variances and primary factors contributing thereto within the results of operations for the years ended December 31, 2011, 2010 and 2009 are addressed below: Comparison of the year ended December 31, 2011 (“2011”) to the year ended December 31, 2010 (“2010”) (dollars in millions) 2011 2010 Revenues Rental income Interest income Expense reimbursements Lease termination income Management fee income (1) Other Total revenues Note: Core Portfolio Opportunity Funds Self- Storage Investments Notes Receivable and Other Core Portfolio Opportunity Funds Self- Storage Investments Notes Receivable and Other $45.9 — 11.6 0.1 — 0.4 $58.0 $45.0 — 10.8 — — — $55.8 $21.3 — — — — 1.9 $23.2 $ — 11.4 — — 1.7 — $13.1 $44.6 — 11.9 0.3 — 0.3 $57.1 $33.3 — 8.6 — — 0.2 $42.1 $19.6 — — — — 1.7 $21.3 $ — 19.2 — — 1.4 — $20.6 (1) Includes fees earned by us as general partner/managing member of the Opportunity Funds that are eliminated in consolidation and adjusts the loss (income) attributable to noncontrolling interests. The balance reflected in the table represents third party fees that are not eliminated in consolidation. Reference is made to Note 3 of the Notes to Consolidated Financial Statements which begin on page F-1 of this Form 10-K for an overview of our five reportable segments. The increase in rental income in the Core Portfolio was Self-Storage Investments was a result of increased primarily attributable to additional rents following the occupancy and rental rates throughout the Storage acquisitions of West Diversey, Mercer Street and the Portfolio. Latsko properties in 2011 (“2011 Core Acquisitions”). Rental income in the Opportunity Funds increased from additional rents at Canarsie, Pelham Manor, 161st Street and Westport of $10.2 million for leases that commenced during 2010 and 2011 (“Fund Redevelopment Properties”) as well as additional rents of $2.1 million following the acquisition of The Heritage Shops at Millennium Park (“2011 Fund Acquisition”) during April 2011. The increase in rental income in the Interest income decreased as a result of the full repayment of two notes during 2010 and 2011. Expense reimbursements in the Opportunity Funds increased for both real estate taxes and common area maintenance primarily as a result of the Fund Redevelopment Properties and the 2011 Fund Acquisition. Acadia Realty Trust 2011 Annual Report 37 28414 Management’s Discussion And Analysis continued (dollars in millions) 2011 2010 Operating Expenses Property operating Real estate taxes General and administrative Depreciation and amortization Total operating expenses Core Portfolio Opportunity Funds Self- Storage Investments Notes Receivable and Other Core Portfolio Opportunity Funds Self- Storage Investments Notes Receivable and Other $ 8.4 8.6 24.2 14.2 $55.4 $11.5 7.4 16.7 15.5 $51.1 $11.9 2.6 — 4.2 $18.7 $ (2.4) — (17.8) (0.9) $ 9.0 8.2 22.4 13.8 $(21.1) $53.4 $11.4 6.1 13.6 10.9 $42.0 $10.3 2.9 — 4.5 $17.7 $ (1.5) — (15.8) (0.4) $(17.7) The increase in property operating expenses in the Self- increase in general and administrative expense in the Storage Investments primarily related to higher operating Opportunity Funds related to an increase in Promote costs in 2011 following increased occupancy throughout expense within Fund I resulting from the sale of 15 the Storage Portfolio. Real estate taxes in the Opportunity Funds increased due to the Fund Redevelopment Properties and the 2011 Fund Acquisition. General and administrative expense in the Core Portfolio increased as a result of higher stock compensation expense and employee severance costs during 2011. The Kroger/Safeway properties. The variance in the Other category was related to the elimination of Fund I Promote expense for consolidated financial statement presentation purposes. Depreciation and amortization expense in the Opportunity Funds increased due to the Fund Redevelopment Properties and the 2011 Fund Acquisition. (dollars in millions) 2011 2010 Core Portfolio Opportunity Funds Self- Storage Investments Notes Receivable and Other Core Portfolio Opportunity Funds Self- Storage Investments Notes Receivable and Other Other Equity in earnings (losses) of unconsolidated affiliates Other interest income Gain from bargain purchase Gain on debt extinguishment Interest and other finance expense Income tax provision Income from discontinued operations (Loss) income attributable to noncontrolling interests: $ 0.7 — — 1.3 $ 3.7 — — — (16.0) (1.1) (16.5) 0.1 $(2.9) — — — (3.6) 0.5 $ — $ 0.6 — — — 0.3 — — $ 11.8 — 33.8 — (1.0) — (18.0) (3.2) (18.2) (0.1) — — — 42.2 — — $(1.4) — — — (4.7) 0.4 — 0.1 — $ — 0.4 — — 0.4 — 3.3 — (1.5) – Continuing operations – Discontinued operations (0.3) — 8.7 — 0.1 — — (0.3) (18.9) (10.7) — — Equity in earnings (losses) of unconsolidated affiliates in The $33.8 million gain from bargain purchase was the Opportunity Funds decreased primarily as a result of attributable to Fund II’s purchase of an unaffiliated a decrease in distributions in excess of basis from our membership interest in CityPoint in 2010. Reference is Albertson’s investment of $6.3 million in 2011 and a made to Note 4 of the Notes to Consolidated Financial decrease in our pro-rata share of income from Mervyns Statements which begin on page F-1 of this Form 10-K in 2011. The Self Storage Investments equity in earnings for a discussion of this transaction. (losses) represents our pro-rata share of losses from our unconsolidated investment in a self storage management Gain on debt extinguishment of $1.3 million was the result of the purchase of mortgage debt at a discount in company which manages 21 locations, including our 14 self storage properties. The self storage management 2011. company currently operates at a deficit, however it plans to increase third-party assets under management to ultimately achieve profitability. Interest expense in the Core Portfolio decreased $2.0 million in 2011. This was the result of a decrease in average outstanding borrowings during 2010 resulting in 38 Acadia Realty Trust 2011 Annual Report 20533 a decrease of $1.5 million as well as a decrease in loan The variance in the income tax provision in the Core amortization expense of $0.4 million related to refinanced Portfolio related to income taxes at the TRS level for our debt in 2011. Interest expense in the Opportunity Funds pro-rata share of income from our Albertson’s investment decreased $1.7 million in 2011. This was attributable to in 2010 and an overaccrual of the 2010 tax liability at the higher capitalized interest in 2011 and a decrease in loan TRS levels. amortization expense related to refinanced debt in 2010. These decreases were offset by an increase of $2.8 million related to higher average outstanding borrowings in 2011. Interest expense in the Self-Storage Investments decreased $1.1 million in 2011. This was primarily attributable to lower average interest rates during 2011. Income from discontinued operations represents activity related to property sales during 2011. (Loss) income attributable to noncontrolling interests — Continuing operations and Discontinued operations primarily represents the noncontrolling interests’ share of all the Opportunity Funds variances discussed above. 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 Interest income Expense reimbursements Lease termination income Management fee income (1) Other Total revenues Note: Core Portfolio Opportunity Funds Self- Storage Investments Notes Receivable and Other Core Portfolio Opportunity Funds Self- Storage Investments Notes Receivable and Other $44.6 — 11.9 0.3 — 0.3 $57.1 $33.3 — 8.6 — — 0.2 $42.1 $19.6 — — — — 1.7 $21.3 $ — 19.2 — — 1.4 — $20.6 $47.3 — 12.3 2.8 — 1.9 $64.3 $28.8 — 7.1 — — 1.4 $37.3 $ 9.9 — — — — 1.3 $11.2 $ — 19.7 — — 2.0 — $21.7 (1) Includes fees earned by us as general partner/managing member of the Opportunity Funds that are eliminated in consolidation and adjusts the loss (income) attributable to noncontrolling interests. The balance reflected in the table represents third party fees that are not eliminated in consolidation. Reference is made to Note 3 of the Notes to Consolidated Financial Statements which begin on page F-1 of this Form 10-K for an overview of our five reportable segments. The decrease in rental income in the Core Portfolio was activity while the year ended December 31, 2009 reflects primarily attributable to tenant vacancies at Chestnut Hill twelve months of storage activity (“Storage Portfolio and Third Avenue. Rental income in the Opportunity Activity”). Funds increased as a result of additional rents following the acquisition of Cortlandt Towne Center in January, 2009 (“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 (“2009/2010 Fund Redevelopment Properties”). The increase in rental income in the Storage Portfolio related to the full amortization of acquired lease intangible costs during 2009, increased occupancy in the Self-Storage 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 2009/2010 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. Investments in 2010 as well as our discontinued practice Other in the Core Portfolio in 2009 included $1.7 million of reporting the Storage Portfolio one month in arrears resulting from a forfeited sales contract deposit. 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 reflects thirteen months of storage 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 2011 Annual Report 39 99960 Management’s Discussion And Analysis continued (dollars in millions) 2010 2009 Operating Expenses Core Portfolio Opportunity Funds Self- Storage Investments Notes Receivable and Other Core Portfolio Opportunity Funds Self- Storage Investments Notes Receivable and Other Property operating Real estate taxes General and administrative Depreciation and amortization Abandonment of project costs Reserve for notes receivable $ 9.0 8.2 22.4 13.8 — — $11.4 6.1 13.6 10.9 — — $10.3 2.9 — 4.5 — — $ (1.5) — (15.8) (0.4) — — $10.8 8.5 24.0 14.6 — — $ 9.8 5.1 13.5 10.5 2.5 — $ 8.7 2.2 0.1 3.7 — — $ (1.2) — (15.6) (1.2) — 1.7 Total operating expenses $53.4 $42.0 $17.7 $(17.7) $57.9 $41.4 $14.7 $(16.3) Property operating expenses in the Core Portfolio Depreciation and amortization expense in the Core decreased as a result of a decrease in bad debt expense Portfolio decreased as a result of the write-off of lease in 2010. The increase in property operating expenses in intangible costs in connection with a terminated lease in the Opportunity Funds was primarily attributable to the 2009. The increase in depreciation and amortization in 2009 Fund Acquisition and 2009/2010 Fund the Self-Storage Investments was the result of two self Redevelopment Properties. The increase in property storage properties placed in service during the second operating expenses in the Self-Storage Investments quarter 2009. primarily related to higher operating costs in 2010 following increased occupancy as well as the Storage Portfolio Activity. The $2.5 million abandonment of project costs in the Opportunity Funds in 2009 was attributable to our determination that we most likely would not participate The increase in real estate taxes in the Opportunity in a specific future development project. Funds was primarily attributable to the 2009 Fund Acquisition as well as 2009/2010 Fund Redevelopment Properties. The decrease in general and administrative expense in the Core Portfolio was primarily attributable to reduced compensation expense following staff reductions in 2009. The reserve for notes receivable of $1.7 million in 2009 related to the loss of an anchor tenant at the underlying collateral property. (dollars in millions) 2010 2009 Core Portfolio Opportunity Funds Self- Storage Investments Notes Receivable and Other Core Portfolio Opportunity Funds Self- Storage Investments Notes Receivable and Other $ 0.6 $ 11.8 $(1.4) $ — $ 0.7 $ (2.2) $ — $ — 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 (Loss) income attributable to noncontrolling interests: — — — — — — 33.8 — (18.0) (3.2) (18.2) (0.1) — — – Continuing operations – Discontinued operations (0.3) (18.9) — — 40 Acadia Realty Trust 2011 Annual Report — — — — (4.7) 0.4 — 0.1 — — 0.4 — — 0.4 — 3.3 — — — 7.1 (3.8) — — — (19.5) (1.4) (10.6) (0.1) — — — — (5.7) — — 0.6 — — 0.2 — — — — 10.9 — (0.4) 24.6 (1.5) — — 0.5 — — (6.3) 54649 Equity in earnings (losses) of unconsolidated affiliates in Interest expense in the Opportunity Funds increased $7.6 the Opportunity Funds increased primarily as a result of million in 2010. This was the result of an increase of an increase in distributions in excess of basis from our $2.9 million due to higher average interest rates in 2010, Albertson’s investment of $9.5 million in 2010 and an an increase of $1.8 million due to higher average increase in our pro-rata share of income from Mervyns in outstanding borrowings in 2010, an increase in 2010. Equity in earnings (losses) in the Self Storage amortization expense of $2.6 million due to the write-off Investments represents our pro-rata share of losses from of deferred financing costs related to refinanced debt in our unconsolidated investment in the newly-formed self 2010 and $0.3 million of lower capitalized interest in storage management company. 2010. Interest expense in the Self-Storage Investments 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 as previously discussed. The gain on debt extinguishment of $7.1 million was attributable to the purchase of our convertible debt at a discount in 2009. Total interest expense in the Core Portfolio decreased $1.5 million in 2010. This was the result of a $2.4 million decrease attributable to lower average outstanding borrowings in 2010 offset by a $0.9 million increase attributable to higher average interest rates in 2010. decreased $1.0 million in 2010. This 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. Income from discontinued operations represents activity related to a property held for sale in 2010 and property sales in 2009. (Loss) income attributable to noncontrolling interests— Continuing operations and Discontinued operations primarily represents the noncontrolling interests’ share of all the Opportunity Funds variances discussed above. Acadia Realty Trust 2011 Annual Report 41 Management’s Discussion And Analysis continued Reconciliation of Net Income to Funds from Operations and Adjusted Funds from Operations 2011 For the Years Ended December 31, 2009 2008 2010 18857 2007 (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) $ 51,555 $30,057 $31,133 $25,068 $25,346 18,274 1,549 18,445 1,561 18,847 1,604 18,519 1,687 19,669 1,736 635 377 464 437 614 (31,716) — — 40,297 — — — — 50,440 — (2,435) — (7,182) (565) (5,271) — — 49,613 — — (3,677) 37,964 — 38,417 3,677 Funds from operations, adjusted for extraordinary item $ 40,297 $50,440 $49,613 $37,964 $42,094 Adjusted Funds From Operations per Share – Diluted Weighted average number of Common Shares and OP Units 41,467 40,876 38,913 34,940 34,924 Diluted funds from operations, per share $ 0.97 $ 1.23 $ 1.28 $ 1.09 $ 1.21 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. 42 Acadia Realty Trust 2011 Annual Report 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, 2011, we paid dividends and distributions on our Common Shares and Common OP Units totaling $29.9 million. 88561 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, 2011, $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, 2011, Fund I currently owned, or had ownership interests in four remaining assets comprising approximately 0.1 million square feet as further discussed in “— PROPERTY ACQUISITIONS” in Item 1. of 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 To date, Fund II’s primary investment focus has been in the New York Urban/Infill Redevelopment Initiative and the Retailer Controlled Property Venture. As of December 31, 2011, $282.2 million has been invested in Fund II, of which the Operating Partnership contributed $56.4 million. The remaining capital balance of $17.8 million is expected to be utilized to complete development activities for existing Fund II investments. Fund II has invested in the New York Urban/Infill Redevelopment and the RCP Venture initiatives and other investments. See “— PROPERTY ACQUISITIONS” in Item 1. of this Form 10-K for a table summarizing the New York Urban/Infill Redevelopment investments from inception through December 31, 2011. RCP Venture See “— PROPERTY ACQUISITIONS” in Item 1. of this Form 10-K for a table summarizing the RCP Venture investments from inception through December 31, 2011. 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 of committed discretionary capital. As of December 31, 2011, $226.8 million has been invested in Fund III, of which the Operating Partnership contributed $45.1 million. Fund III has invested in 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 Brooklyn, NY 2007 Westport, CT 2007 Costs to date $22.8 24.9 $47.7 Anticipated additional costs (1) TBD $ 0.6 Estimated construction completion In design Construction complete Square feet upon completion TBD 27,000 (1) Anticipated additional costs for completed property represents costs for tenant improvements. Acadia Realty Trust 2011 Annual Report 43 31068 Management’s Discussion And Analysis continued Other Fund III Investments Fund III currently owns, or had ownership interests in, the following 19 assets comprising approximately 2.3 million square feet as follows: (dollars in millions) Property New Hyde Park 654 Broadway Perring Parkway The Heritage Shops at Millennium Park Lincoln Road White Oak White City Shopping Center Cortlandt Towne Center Self-storage Portfolio (11 locations) Total Location New Hyde Park, NY New York, NY Baltimore, MD Chicago, IL South Miami Beach, FL Silver Spring, MD Shrewsbury, MA Westchester Co. NY Various NY and NJ locations Date Acquired December 2011 December 2011 December 2011 April 2011 February 2011 February 2011 December 2010 January 2009 February 2008 Purchase Price $ 11.2 13.7 21.6 31.6 51.9 9.8 56.0 78.0 174.0 GLA 31,500 18,700 260,000 105,000 61,400 64,600 225,200 642,000 913,000 $447.8 2,321,400 Notes Receivable As of December 31, 2011, our notes receivable, net with the two former A&P supermarket locations are estimated to range between $4.0 million and $8.0 million. aggregated $60.0 million, with accrued interest thereon of $2.5 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. Effective interest rates on our notes receivable ranged from 6.0% to 24.0% with maturities through January 2017. Investments made in notes receivable and preferred equity positions during 2011, 2010 and 2009 are discussed in “— NOTES RECEIVABLE, PREFERRED Purchase of Convertible Notes Purchases of the Convertible Notes have been another use of our liquidity although as of December 31, 2011 all but $0.9 million of the Convertible Notes have been retired. During 2011, we purchased $48.8 million in face amount of our outstanding Convertible Notes for $49.0 million. During 2009, we purchased $57.0 million in face amount of our outstanding Convertible Notes for $46.7 million. EQUITY AND OTHER REAL ESTATE RELATED INVESTMENTS” in Item 1. of this Form 10-K. Share Repurchase We have an existing share repurchase program that Other Investments Acquisitions made during 2011, 2010 and 2009 are discussed in “— PROPERTY ACQUISITIONS” in Item 1. of this Form 10-K. Core Portfolio Property Redevelopment and Re- anchoring Our Core Portfolio redevelopment and re-anchoring programs focus on selecting well-located urban/street retail locations and suburban shopping centers and creating significant value through re-tenanting and property redevelopment. During 2011, we initiated the re- anchoring of three properties, the Bloomfield Town Square, located in Bloomfield Hills, MI and two former A&P supermarket locations located in the New York City metropolitan area. Re-anchoring costs for the Bloomfield Town Center totaled $1.6 million as of December 31, 2011 with total re-anchoring costs expected to be approximately $7.0 million. Re-anchoring costs associated 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 full amount authorized. Under this program we have repurchased 2.1 million Common Shares, none of which were repurchased after December 2001. As of December 31, 2011, management may repurchase up to approximately $7.5 million of our outstanding Common Shares under this program. Sources of Liquidity We intend on using Fund III, as well as new opportunity funds that we may establish in the future, as the primary vehicles for our future acquisitions. Fund III has $220.8 million of unfunded capital commitments as of December 31, 2011. Additional sources of capital for funding property acquisitions, redevelopment, expansion and re- tenanting are expected to be obtained primarily from (i) the issuance of public equity or debt instruments, (ii) cash on hand and cash flow from operating activities, 44 Acadia Realty Trust 2011 Annual Report 83168 (iii) additional debt financings, (iv) noncontrolling interests’ During November 2011, we issued 2.25 million Common unfunded capital commitments of $14.2 million for Fund Shares, which generated net proceeds of approximately II and (v) future sales of existing properties. $45.0 million. During 2011, Fund II received capital contributions of In addition, during January 2012, we established an ATM $17.0 million to fund development costs. During 2011, equity program with an aggregate offering of up to $75.0 Fund III received capital contributions of $46.5 million to million in Common Shares. We intend to use the net fund acquisitions and to pay down a portion of Fund III’s proceeds of these offerings for general corporate credit facility. As of December 31, 2011, we had cash and cash equivalents on hand of $89.8 million and $73.1 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. We currently have remaining capacity under this registration statement to issue up to approximately $311 million of these securities. This shelf registration purposes, which may include, among other things, repayment of our debt, future acquisitions, directly and through our Opportunity Funds, and redevelopments of and capital improvements to our properties. During April 2009, we issued 5.75 million Common Shares and generated net proceeds of approximately $65.0 million. The proceeds were primarily used to purchase a portion of our outstanding convertible notes payable and pay down existing lines of credit. Asset Sales Asset sales are an additional source of liquidity for us. During the years ended December 31, 2011, 2010 and statement expires in April 2012 and we intend to replace 2009, we disposed of the following properties: it with a new shelf registration on Form S-3. (dollars in millions) Property Fifteen Kroger/Safeway locations Granville Centre Ledgewood Mall Oakbrook Blackman Plaza Six Kroger locations Total Year Sold 2011 2011 2011 2011 2009 2009 Sales Price $17.5 2.3 37.0 8.2 2.5 9.5 $77.0 Gain (Loss) $14.6 (0.3) 28.6 3.9 1.5 5.6 $53.9 Operating Partnership Share of Gain (Loss) $ 2.4 (0.1) 28.6 0.8 1.5 0.9 $34.1 GLA 617,276 134,997 517,151 112,000 125,264 277,700 1,784,388 These sales are discussed in “— ASSET SALES AND CAPITAL/ASSET RECYCLING” in Item 1. of this Form 10-K. Notes Receivable and Preferred Equity Repayments Reference is made to Note 5 in our Consolidated variable to fixed-rate swap agreements currently in effect, $300.2 million of the portfolio, or 38%, was fixed at a 5.8% weighted average interest rate and $488.6 Financial Statements, which begin on Page F-1 of this million, or 62% was floating at a 3.7% weighted average Form 10-K, for an overview of our notes receivable and interest rate as of December 31, 2011. There is $298.3 preferred equity investments and for payments received million of debt maturing in 2012 at weighted average during the years ended December 31, 2011, 2010 and interest rates of 4.0%. Of this amount, $2.8 million 2009. Financing and Debt As of December 31, 2011, our outstanding mortgage and convertible notes payable aggregated $788.8 million, and were collateralized by 29 properties and related tenant leases. Interest rates on our outstanding indebtedness ranged from 1.55% to 7.34% with maturities that ranged from September 2012 to November 2032. Taking into consideration $57.0 million of notional principal under represents scheduled annual amortization. The loans relating to $56.5 million of the 2012 maturities provide for extension options, which we believe we will be able to exercise. As it relates to the remaining 2012 maturities, we may not have sufficient cash on hand to repay such indebtedness and, as such, we may have to refinance this indebtedness or select other alternatives based on market conditions at that time. Acadia Realty Trust 2011 Annual Report 45 96096 Management’s Discussion And Analysis continued The following table sets forth certain information pertaining to our secured credit facilities: (dollars in millions) Borrower Total available credit facilities Acadia Realty, LP Fund II Fund III Total $ 64.5 40.0 150.3 $254.8 Amount borrowed as of December 31, 2010 $ 1.0 40.0 171.5 $212.5 2011 net borrowings (repayments) during the year ended December 31, 2011 $ — — (35.4) $(35.4) Amount borrowed as of December 31, 2011 Letters of credit outstanding as of December 31, 2011 Amount available under credit facilities as of December 31, 2011 $ 1.0 40.0 136.1 $177.1 $4.6 — — $4.6 $58.9 — 14.2 $73.1 Reference is made to Note 8 and Note 9 to our Consolidated Financial Statements, which begin on Page F-1 of this Form 10-K, for a summary of the financing and refinancing transactions during the year ended December 31, 2011. Contractual Obligations and Other Commitments At December 31, 2011, maturities on our mortgage notes ranged from September 2012 to November 2032. In addition, we have non-cancelable ground leases at nine 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, 2011: (dollars in millions) Contractual obligations: Future debt maturities Interest obligations on debt Operating lease obligations Construction commitments (1) Total Notes: Total $ 788.8 103.4 162.6 22.9 $1,077.7 Payments due by period 1 to 3 years Less than 1 year 3 to 5 years $298.4 32.2 5.1 22.9 $358.6 $232.7 38.6 10.2 — $154.4 21.9 9.1 — $281.5 $185.4 More than 5 years $103.3 10.7 138.2 — $252.2 (1) In conjunction with the redevelopment of our Core Portfolio and Opportunity Fund properties, we have entered into construction commitments with general contractors. We intend to fund these requirements with existing liquidity. 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 F-1 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 such, our financial statements reflect related to those investments is as follows: our share of income and loss from but not the individual assets and liabilities of these joint ventures. (dollars in millions) Investment Crossroads Brandywine White City Lincoln Road Georgetown Portfolio Perring Parkway Total Pro-rata share of mortgage debt Operating Partnership Interest rate at December 31, 2011 $29.6 36.9 6.6 3.8 5.1 2.5 $84.5 5.37% 5.99% 2.90% 6.14% 5.12% 2.50% Maturity date December, 2014 July, 2016 December, 2017 August, 2014 October 2012 - May 2021 January, 2015 46 Acadia Realty Trust 2011 Annual Report 88862 In addition, we have arranged for the provision of one The increase of $92.5 million of net cash used in separate letter of credit in connection with certain leases investing activities primarily resulted from the following: and investments. As of December 31, 2011, there was no outstanding balance under the letter of credit. If the letter of credit were fully drawn, the maximum amount of our exposure would be $4.6 million. In addition to our derivative financial instruments, one of our unconsolidated affiliates is a party to two separate interest rate LIBOR swaps with a notional value of $29.6 million, which effectively fix the interest rate at 5.54% and expire in December 2017. Our pro-rata share of the fair value of the derivative liabilities totaled $0.4 million at December 31, 2011. Historical Cash Flow The following table compares the historical cash flow for the year ended December 31, 2011 (“2011”) with the Items which contributed to an increase in cash used in investing activities: (cid:2) An increase of $103.4 million in expenditures for real estate, development and tenant installations during 2011 (cid:2) An increase of $35.9 million in investments and advances to unconsolidated affiliates during 2011 related to the acquisitions of Lincoln Road, White Oak, Georgetown, and Perring Parkway (cid:2) An increase of $34.3 million in advances of notes receivable during 2011 Items which contributed to a decrease in cash used in investing activities: cash flow for the year ended December 31, 2010 (cid:2) An increase of $62.9 million in proceeds from the (“2010”). (dollars in millions) Net cash provided by Years Ended December 31, Variance 2011 2010 (cid:2) An increase of $14.5 million from the collection of notes receivable during 2011 sale of properties during 2011 operating activities $ 66.3 $ 44.4 $ 21.9 Net cash used in investing activities (153.2) (60.7) (92.5) Net cash provided by financing activities 56.1 43.1 13.0 Total $ (30.8) $ 26.8 $(57.6) A discussion of the significant changes in cash flow for 2011 versus 2010 is as follows: The increase of $21.9 million in net cash provided by The $13.0 million increase in net cash provided by financing activities resulted primarily from the following: Items which contributed to an increase in cash from financing activities: (cid:2) An additional $84.4 million in contributions from noncontrolling interests during 2011 (cid:2) An increase of $44.7 million in cash from the issuance of Common Shares, net of costs during 2011 operating activities was primarily attributable to the Items which contributed to a decrease in cash from following: financing activities: Items which contributed to an increase in cash from (cid:2) $48.8 million in repurchases of convertible notes operating activities: during 2011 (cid:2) Additional rents from Opportunity Fund (cid:2) An increase of $33.6 million in debt repayments redevelopment projects as well as Core Portfolio during 2011 and Opportunity Fund acquisitions (cid:2) Additional cash used during 2010 to fund an escrow account with the proceeds from the CityPoint bond financing Items which contributed to a decrease in cash from operating activities: (cid:2) A decrease in distributions related to our RCP investment in Albertson’s during 2010 (cid:2) A decrease of $30.8 million in borrowings during 2011 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 Acadia Realty Trust 2011 Annual Report 47 15976 Management’s Discussion And Analysis continued management to make estimates and judgments that were recognized for the years ended December 31, 2011 affect the reported amounts of assets, liabilities, and 2010. revenues and expenses. We base our estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect the significant judgments and estimates used by us in the preparation of our Consolidated Financial Statements. Valuation of Property Held for Use and Sale On a quarterly basis, we review the carrying value of Bad Debts We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make payments on arrearages in billed rents, as well as the likelihood that tenants will not have the ability to make payments on unbilled rents including estimated expense recoveries. We also maintain a reserve for straight-line rent receivables. For the years ended December 31, 2011 and 2010, the allowance for doubtful accounts totaled $5.3 million and $7.5 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 both properties held for use and for sale. We perform an required. impairment analysis by calculating and reviewing net operating income on a property-by-property basis. We evaluate leasing projections and perform other analyses to conclude whether an asset is impaired. We record impairment losses and reduce the carrying value of properties when indicators of impairment are present and the expected undiscounted cash flows related to those properties are less than their carrying amounts. In cases where we do not expect to recover our carrying costs on properties held for use, we reduce our carrying cost to fair value. For properties held for sale, we reduce our carrying value to the fair value less costs to sell. During the year ended December 31, 2011, we determined that the value of the Granville Centre owned by Fund I was impaired. Accordingly, we recorded an impairment loss of 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. 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 maintenance and repairs are charged to operations as incurred. $6.9 million. For the years ended December 31, 2010 Upon acquisitions of real estate, we assess the fair value and 2009, no impairment losses on our properties were of acquired assets (including land, buildings and recognized. Management does not believe that the value improvements, and identified intangibles such as above of any properties in its portfolio was impaired as of and below market leases and acquired in-place leases December 31, 2011. Investments in and Advances to Unconsolidated Joint Ventures We periodically review our 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, we recorded a $3.8 million impairment reserve related to a Fund I unconsolidated joint venture. No impairment charges related to our investment in unconsolidated joint ventures 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 the property. 48 Acadia Realty Trust 2011 Annual Report 44244 Involuntary Conversion of Asset We experienced significant flooding resulting in extensive damage to one of its properties during September 2011. Notes Receivable and Preferred Equity Investment Real estate notes receivable and preferred equity Costs related to the clean-up and redevelopment are investments are intended to be held to maturity and are insured to a limit sufficient that we believe will allow for carried at cost. Interest income from notes receivable full restoration of the property. Loss of rents during the redevelopment are covered by business interruption and preferred equity investments are recognized on the effective interest method over the expected life of the insurance subject to a $0.1 million deductible. We plan to loan. Under the effective interest method, interest or restore the improvements that were damaged by the flooding and expects that the costs of such restoration fees to be collected at the origination of the loan or the payoff of the loan is recognized over the term of the and rebuilding will be recoverable from insurance loan as an adjustment to yield. proceeds. In accordance with ASC Topic 360 “Property, Plant and Equipment” and as a result of the above- described property damage, we have recorded a write- down of the asset’s carrying value in the accompanying consolidated balance sheet of approximately $1.4 million. In addition, we have recorded an insurance recovery in the same amount that is included in Prepaid Expenses and Other Assets in the accompanying consolidated balance sheet as of December 31, 2011. We have also provided a $0.1 million provision in the consolidated statement of income for our exposure to the insurance deductible attributable to the loss of rents. As of December 31, 2011, we have received initial insurance proceeds of approximately $6.9 million. 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 Allowances for real estate notes receivable and preferred equity investments are established based upon management’s quarterly review of the investments. In performing this review, management considers the estimated net recoverable value of the loan as well as other factors, including the fair value of any collateral, the amount and status of any senior debt, and the prospects for the borrower. Because this determination is based upon projections of future economic events, which are inherently subjective, the amounts ultimately realized from the loans may differ materially from the carrying value at the balance sheet date. Interest income 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, 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. Inflation typically provide for the reimbursement to us of real Our long-term leases contain provisions designed to estate taxes, insurance and other property operating mitigate the adverse impact of inflation on our net expenses. These reimbursements are recognized as income. Such provisions include clauses enabling us to revenue in the period the expenses are incurred. receive percentage rents based on tenants’ gross sales, 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. 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 Acadia Realty Trust 2011 Annual Report 49 10619 Management’s Discussion And Analysis continued area maintenance, real estate taxes, insurance and Currently, we manage our exposure to fluctuations in utilities, thereby reducing our exposure to increases in interest rates primarily through the use of fixed-rate debt costs and operating expenses resulting from inflation. and interest rate swap agreements. As of December 31, Recently Issued Accounting Pronouncements Reference is made to Notes to our Consolidated Financial Statements, which begin on page F-1 of this Form 10-K. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Information as of December 31, 2011 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 F-1 of this Form 10-K, for certain quantitative details related to our mortgage debt. 2011, we had total mortgage and convertible notes payable of $788.8 million of which $300.2 million, or 38% was fixed-rate, inclusive of debt with rates fixed through the use of derivative financial instruments, and $488.6 million, or 62%, was variable-rate based upon LIBOR rates plus certain spreads. As of December 31, 2011, we were a party to five interest rate swap transactions and three interest rate caps transaction to hedge our exposure to changes in interest rates with respect to $57.0 million and $75.0 million of LIBOR- based variable-rate debt, respectively. We were also a party to one forward interest rate swap transaction with respect to $12.5 million of LIBOR-based variable-rate debt. The following table sets forth information as of December 31, 2011 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 2012 2013 2014 2015 2016 Thereafter Scheduled Amortization $ 2.8 3.6 2.8 2.4 1.2 6.9 $19.7 Maturities $295.5 124.5 101.9 77.3 73.5 96.4 $769.1 Mortgage debt in unconsolidated partnerships (at our pro-rata share): Year 2012 2013 2014 2015 2016 Thereafter Scheduled Amortization Maturities $0.7 0.7 0.7 0.1 0.1 0.1 $2.4 $ — 1.1 31.6 — — 42.9 $75.6 Total $298.3 128.1 104.7 79.7 74.7 103.3 $788.8 Total $ 0.7 1.8 32.3 0.1 0.1 43.0 $78.0 Weighted Average Interest Rate 4.0% 4.2% 4.3% 3.2% 5.6% 5.4% Weighted Average Interest Rate n/a 6.0% 5.5% n/a n/a 5.6% $298.3 million of our total consolidated debt and $0.7 interest expense would increase by approximately $4.3 million of our pro-rata share of unconsolidated million annually if the interest rate on the refinanced debt outstanding debt will become due in 2012. $128.1 million increased by 100 basis points. After giving effect to of our total consolidated debt and $1.8 million of our pro- noncontrolling interests, our share of this increase would rata share of unconsolidated debt will become due in be $0.9 million. Interest expense on our variable debt of 2013. As we intend on refinancing some or all of such $488.6 million, net of variable to fixed-rate swap debt at the then-existing market interest rates, which agreements currently in effect, as of December 31, 2011 may be greater than the current interest rate, our would increase $4.9 million if LIBOR increased by 100 50 Acadia Realty Trust 2011 Annual Report 82556 basis points. After giving effect to noncontrolling million if LIBOR increased by 100 basis points. Based on interests, our share of this increase would be $0.7 our outstanding debt balances as of December 31, 2010, million. We may seek additional variable-rate financing if the fair value of our total outstanding debt would have and when pricing and other commercial and financial decreased by approximately $12.6 million if interest rates terms warrant. As such, we would consider hedging increased by 1%. Conversely, if interest rates decreased against the interest rate risk related to such additional by 1%, the fair value of our total outstanding debt would variable-rate debt through interest rate swaps and have increased by approximately $13.8 million. protection agreements, or other means. Based on our outstanding debt balances as of December 31, 2011, the fair value of our total consolidated outstanding debt would decrease by approximately $11.1 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 $13.2 million. As of December 31, 2011 and 2010, we had notes receivable and preferred equity investments of $60.0 million and $89.2 million, respectively. We determined the estimated fair value of our notes receivable and preferred equity investments as of December 31, 2011 and 2010 were $60.0 million and $90.6 million, respectively, by discounting future cash receipts utilizing a discount rate equivalent to the rate at which similar notes receivable would be originated under conditions then existing. Based on our outstanding notes receivable and preferred equity investments balances as of December 31, 2011, the fair value of our total outstanding notes receivable and preferred equity investments would decrease by approximately $0.2 million if interest rates increase by 1%. Conversely, if interest rates decrease by 1%, the fair value of our total outstanding notes receivable and preferred equity investments would increase by approximately $0.2 million. Summarized Information as of December 31, 2010 As of December 31, 2010, we had total mortgage and convertible notes payable of $854.9 million of which $415.0 million, or 49% was fixed-rate, inclusive of interest rate swaps, and $439.9 million, or 51%, was variable-rate based upon LIBOR plus certain spreads. As of December 31, 2010, we were a party to seven interest rate swap transactions and one interest rate cap transaction to hedge our exposure to changes in interest rates with respect to $71.5 million and $28.9 million of LIBOR-based variable-rate debt, respectively. Interest expense on our variable debt of $439.9 million as of December 31, 2010 would have increased $4.4 Changes in Market Risk Exposures from 2011 to 2010 Our interest rate risk exposure from December 31, 2010 to December 31, 2011 has increased, as we had $439.9 million in variable-rate debt (or 51% of our total debt) at December 31, 2010, as compared to $488.6 million (or 62% of our total debt) in variable-rate debt at December 31, 2011. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements beginning on page F-1 of this Form 10-K are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 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, 2011 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 Officer, as appropriate to allow timely decisions regarding required disclosure. Acadia Realty Trust 2011 Annual Report 51 99511 (ii) Internal Control Over Financial Reporting control over financial reporting was effective as of (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 December 31, 2011 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. Securities Exchange Act of 1934 Rule 13(a)-15(f). Under BDO USA, LLP, an independent registered public the supervision and with the participation of our accounting firm that audited our Financial Statements management, including our principal executive officer and included in this Annual Report, has issued an attestation principal financial officer, we conducted an evaluation of report on our internal control over financial reporting as the effectiveness of our internal control over financial of December 31, 2011, which appears in paragraph (b) of reporting as of December 31, 2011 as required by the this Item 9A. 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 Acadia Realty Trust White Plains, New York February 28, 2012 52 Acadia Realty Trust 2011 Annual Report 97245 (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, 2011, 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, 2011, 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, 2011 and 2010 and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2011 and our report dated February 28, 2012 expressed an unqualified opinion thereon. /s/ BDO USA, LLP New York, New York February 28, 2012 Acadia Realty Trust 2011 Annual Report 53 43190 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, 2011 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 2012 annual meeting of stockholders (our “2012 Proxy Statement”) that we intend to file with the SEC no later than April 29, 2012. ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. The information under the following headings in the 2012 Proxy Statement is incorporated herein by reference: (cid:2) “PROPOSAL 1 — ELECTION OF TRUSTEES” (cid:2) “MANAGEMENT” (cid:2) “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” ITEM 11. EXECUTIVE COMPENSATION. The information under the following headings in the 2012 Proxy Statement is incorporated herein by reference: (cid:2) “ACADIA REALTY TRUST COMPENSATION COMMITTEE REPORT” (cid:2) “COMPENSATION DISCUSSION AND ANALYSIS” (cid:2) “EXECUTIVE AND TRUSTEE COMPENSATION” (cid:2) “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 2012 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 2012 Proxy Statement is incorporated herein by reference: (cid:2) “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” (cid:2) “PROPOSAL 1 — ELECTION OF TRUSTEES — Trustee Independence” ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. The information under the heading “AUDIT COMMITTEE INFORMATION” in the 2012 Proxy Statement is incorporated herein by reference. 54 Acadia Realty Trust 2011 Annual Report 10115 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. 1. Financial Statements: See “Index to Financial Statements” at page F-1 below. 2. Financial Statement Schedule: See “Schedule III — Real Estate and Accumulated Depreciation” at page F-42 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/ Jonathan W. Grisham Jonathan W. Grisham Senior Vice President and Chief Financial Officer /s/ Richard Hartmann Richard Hartmann Senior Vice President and Chief Accounting Officer Dated: February 28, 2012 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/ Jonathan W. Grisham (Jonathan W. Grisham) /s/ Richard Hartmann (Richard Hartmann) /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, 2012 February 28, 2012 February 28, 2012 February 28, 2012 February 28, 2012 February 28, 2012 February 28, 2012 February 28, 2012 Acadia Realty Trust 2011 Annual Report 55 85472 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 10.18 10.19 10.26 10.28 10.36 10.39 10.43 10.44 Declaration of Trust of the Company, as amended (1) Fourth Amendment to Declaration of Trust (3) Amended and Restated Bylaws of the Company (16) Fifth Amendment to Declaration of Trust (20) First Amendment the Amended and Restated Bylaws of the Company (20) Voting Trust Agreement between the Company and Yale University dated February 27, 2002 (9) 1999 Share Option Plan (5) (15) 2003 Share Option Plan (11) (15) Form of Share Award Agreement (12) (15) Form of Registration Rights Agreement and Lock-Up Agreement (13) Registration Rights and Lock-Up Agreement (RD Capital Transaction) (7) Registration Rights and Lock-Up Agreement (Pacesetter Transaction) (7) 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 (6) Agreement of Contribution among Acadia Realty Limited Partnership, Acadia Realty Trust and Klaff Realty, LP and Klaff Realty, Limited (13) Employment agreement between the Company and Kenneth F. Bernstein dated October 1998 (4) (15) Amendment to employment agreement between the Company and Kenneth F. Bernstein dated January 19, 2007 (18) (15) First Amendment to Employment Agreement between the Company and Kenneth Bernstein dated as of January 1, 2001 (8) (15) Description of Long Term Investment Alignment Program (20) Letter of employment offer between the Company and Michael Nelsen, Sr. Vice President and Chief Financial Officer dated February 19, 2003 (10) (15) 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) (15) 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. (22) Fifth Amendment to Employment Agreement between the Company and Kenneth F. Bernstein dated August 5, 2008 (21) 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 (15) (18) 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 (21) 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 (23) Fourth Amended and Restated Credit Agreement among Acadia Strategic Opportunity Fund II, LLC and Bank of America, N.A. dated December 22, 2010 (23) Amended and Restated Severance Agreement, dated April 19, 2011, that was entered into with Christopher Conlon, Senior Vice President, Leasing and Development (24) Prospectus Supplement Regarding Options Issued under the Acadia Realty Trust 1999 Share Incentive Plan and 2003 Share Incentive Plan (14) (15) 56 Acadia Realty Trust 2011 Annual Report 36093 Exhibit No. Description 10.45 10.48 10.49 10.55 10.59 10.67 10.68 10.69 10.75 10.79 10.80 10.81 10.82 10.84 21 23.1 31.1 31.2 32.1 32.2 99.1 99.2 Acadia Realty Trust 1999 Share Incentive Plan and 2003 Share Incentive Plan Deferral and Distribution Election Form (14) (15) Sixth Amendment to the Employment Agreement between the Company and Kenneth F. Bernstein dated March 7, 2011 (25) Second Amendment to Consolidated, Amended and Restated Term Loan Agreement and Omnibus Amendment and Ratification of Loan Documents between Acadia East Fordham Acquisitions, LLC and Eurohypo AG, New York Branch, Replacement Note between Acadia East Fordham Acquisitions, LLC and Eurohypo AG, New York Branch and First Amendment to Cash Management and Security Agreement between Acadia East Fordham Acquisitions, LLC and Eurohypo AG, New York Branch all dated June 30, 2011 (26) 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 (17) 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. (18) Acquisition and Project Loan agreement between Acadia—PA East Fordham Acquisitions, LLC and Eurohypo AG, New York Branch dated October 5, 2007 (22) Building Loan Agreement between Acadia—PA East Fordham Acquisitions, LLC and Eurohypo AG, New York Branch dated October 5, 2007 (19) Revolving credit agreement between Acadia Strategic Opportunity Fund III, LLC. and Bank of America, N.A. dated October 10, 2007 (22) 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) Amended and Restated Agreement of Limited Partnership of the Operating Partnership (7) First and Second Amendments to the Amended and Restated Agreement of Limited Partnership of the Operating Partnership (7) Third Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership (13) Fourth Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership (13) Second Amendment to the Revolving Credit Agreement between Acadia Strategic Opportunity Fund III, LLC as borrower and Bank of America, N.A., dated September 1, 2011, and Third Amendment to the Revolving Credit Agreement between Acadia Strategic Opportunity Fund III, LLC as borrower and Bank of America, N.A., dated September 23, 2011 (27) List of Subsidiaries of Acadia Realty Trust (29) Consent of Registered Public Accounting Firm to incorporation by reference its reports into Forms S-3 and Forms S-8 (29) 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 (29) 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 (29) 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 (29) 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 (29) 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 (13) 101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE XBRL Instance Document* (28) XBRL Taxonomy Extension Schema Document* (28) XBRL Taxonomy Extension Calculation Document* (28) XBRL Taxonomy Extension Definitions Document* (28) XBRL Taxonomy Extension Labels Document* (28) XBRL Taxonomy Extension Presentation Document* (28) * Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. 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 Acadia Realty Trust 2011 Annual Report 57 70945 (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 the Company’s Annual Report on Form10-K filed for the fiscal year ended December 31, 1998 (5) 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 (6) Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Form 8-K filed on April 20, 1998 (7) 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 (8) Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 2001 (9) Incorporated by reference to the copy thereof filed as an Exhibit to Yale University’s Schedule 13D filed on September 25, 2002 (10) 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 (11) 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. (12) 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 (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, 2003 (14) 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. (15) Management contract or compensatory plan or arrangement. (16) Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2005. (17) 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 (18) 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 (19) 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. (20) 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. (21) 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. (22) 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. (23) 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, 2010. (24) 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, 2011. (25) Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Current Report on Form 8-K filed on March 9, 2011. (26) 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 June 30, 2011. (27) 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, 2011. (28) XBRL Interactive Data File will be filed by amendment to this Annual Report on Form 10-K within 30 days of the filing date of this Annual Report on Form 10-K, as permitted by Rule 405(a)(2)(ii) of Regulation S-T. (29) Filed herewith. 58 Acadia Realty Trust 2011 Annual Report 52039 ACADIA REALTY TRUST AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Balance Sheets as of December 31, 2011 and 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Income for the years ended December 31, 2011, 2010 and 2009 . . . . . . . F-2 F-3 F-4 Consolidated Statements of Comprehensive Income for the years ended December 31, 2011, 2010 and 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2011, 2010 and 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009 . . . Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule III—Real Estate and Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7 F-9 F-11 F-42 Acadia Realty Trust 2011 Annual Report F-1 20223 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, 2011 and 2010 and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2011. In connection with our audits of the financial statements we have also audited the accompanying financial statement schedule listed on page F-1. 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 schedule. 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, 2011, and 2010 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, 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, 2011, 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, 2012 expressed an unqualified opinion thereon. /s/ BDO USA, LLP New York, New York February 28, 2012 F-2 Acadia Realty Trust 2011 Annual Report 52361 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 investments, net Investments in and advances to unconsolidated affiliates Cash and cash equivalents Cash in escrow Rents receivable, net Deferred charges, net Acquired lease intangibles, net Prepaid expenses and other assets Accounts receivable from related parties Assets of discontinued operations December 31, 2011 2010 $ 285,622 958,995 7,483 1,252,100 180,796 1,071,304 219,645 59,989 84,568 89,812 20,969 26,415 25,854 26,721 26,667 1,375 — $ 219,981 837,452 4,236 1,061,669 156,117 905,552 243,892 89,202 31,036 120,592 28,610 17,464 23,714 18,622 19,912 2,409 23,801 Total assets $1,653,319 $1,524,806 Liabilities Mortgages payable Convertible notes payable, net of unamortized discount of $0 and $1,063, respectively Distributions in excess of income from, and investments in, unconsolidated affiliates Accounts payable and accrued expenses Dividends and distributions payable Acquired lease and other intangibles, net Other liabilities Liabilities of discontinued operations Total liabilities $ 787,910 $ 806,212 930 48,712 21,710 39,647 7,914 5,462 20,437 — 20,884 27,458 7,427 5,737 20,279 575 884,010 937,284 Equity Shareholders’ Equity Common shares, $.001 par value, authorized 100,000,000 shares, issued and outstanding 42,586,376 and 40,254,525 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 43 348,667 (3,913) 39,317 384,114 385,195 769,309 $ 40 303,823 (2,857) 17,206 318,212 269,310 587,522 $1,653,319 $1,524,806 Acadia Realty Trust 2011 Annual Report F-3 Consolidated Statements of Income 30678 (dollars in thousands except per share amounts) Revenues Rental income 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 Income from continuing operations before income taxes Income tax provision Income from continuing operations Discontinued operations Operating income from discontinued operations Loss on impairment of asset Gain on sale of property Income from discontinued operations Net income Noncontrolling interests Continuing operations Discontinued operations Net (income) loss attributable to noncontrolling interests Years ended December 31, 2011 2010 2009 $112,223 11,429 22,388 96 1,677 2,348 $ 97,475 19,161 20,499 290 1,424 2,196 $ 86,021 19,698 19,435 2,751 1,961 4,579 150,161 141,045 134,445 29,371 18,686 23,086 32,986 — — 104,129 46,032 1,555 — 276 — 1,268 (37,109) 12,022 474 11,548 2,262 (6,925) 46,830 42,167 53,715 8,514 (10,674) (2,160) 29,223 17,255 20,220 28,808 — — 95,506 45,539 10,971 — 408 33,805 — (40,498) 50,225 2,890 47,335 3,332 — — 3,332 50,667 (19,075) (1,535) (20,610) 28,143 15,848 22,006 27,612 2,487 1,734 97,830 36,615 (1,529) (3,768) 642 — 7,057 (35,632) 3,385 1,541 1,844 3,719 — 7,143 10,862 12,706 24,730 (6,303) 18,427 Net income attributable to Common Shareholders $ 51,555 $ 30,057 $ 31,133 F-4 Acadia Realty Trust 2011 Annual Report 79449 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, 2011 2010 2009 $0.50 0.77 $1.27 $0.49 0.77 $1.26 $0.70 0.05 $0.75 $0.70 0.04 $0.74 $0.70 0.12 $0.82 $0.70 0.12 $0.82 Acadia Realty Trust 2011 Annual Report F-5 03265 Consolidated Statements of Comprehensive Income (dollars in thousands) Net income Other Comprehensive (loss) income: Unrealized loss on valuation of swap agreements Reclassification of realized interest on swap agreements Other comprehensive (loss) income Comprehensive income Comprehensive (income) loss attributable to noncontrolling interests Comprehensive income attributable to Common Shareholders The accompanying notes are an integral part of these consolidated financial statements. Years ended December 31, 2009 2010 2011 $53,715 $ 50,667 $12,706 (5,611) 3,081 (2,530) 51,185 (686) (2,683) 2,749 66 50,733 (20,539) (1,052) 2,745 1,693 14,399 18,248 $50,499 $ 30,194 $32,647 F-6 Acadia Realty Trust 2011 Annual Report Consolidated Statements of Shareholders’ Equity 01713 Common Shares Shares Amount Additional Paid-in Capital Accumulated Other Comprehensive Loss Retained Earnings Total Common Shareholders’ Equity Noncontrolling Interests Total Equity 32,357 $ 32 $218,527 $(4,508) $ 13,671 $227,722 $214,506 $442,228 (amounts in thousands, except per share amounts) Balance at January 1, 2009 Conversion of OP Units to Common Shares by limited partners of the Operating Partnership Issuance of Common Shares, net of issuance costs Issuance of Common Shares through special dividend Vesting of employee Restricted Share and 16 — 90 5,750 1,287 6 2 65,216 16,190 LTIP awards 253 — 2,957 Dividends declared ($0.75 per Common Share) Employee exercise of 258,900 options 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 — 25 — (359) — 190 — — — — — — — 106 635 (5,423) — (840) — — Comprehensive income (loss): Net income (loss) Unrealized loss on valuation of swap agreements Reclassification of realized interest on swap agreements Total comprehensive income (loss) — — — — — — — — — — — — (912) 2,426 1,514 Balance at December 31, 2009 39,787 40 299,014 (2,994) 39,787 40 299,014 (4,508) (15,008) 279,538 238,540 518,078 — — — — — — — — — — — — — — — — — 90 65,222 16,192 2,957 (90) — — — 65,222 16,192 890 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 — 31,133 31,133 (18,427) 12,706 — — 31,133 16,125 (912) (140) (1,052) 2,426 32,647 319 (18,248) 2,745 14,399 312,185 220,292 532,477 Acadia Realty Trust 2011 Annual Report F-7 Consolidated Statements of Shareholders’ Equity continued 59489 (amounts in thousands, except per share amounts) Conversion of OP Units to Common Shares by limited partners of the Operating Partnership Vesting of employee Restricted Share and LTIP awards Dividends declared ($0.72 per Common Share) Exercise of trustees options Common Shares issued under Employee Share Purchase Plan Issuance of Common Shares to Trustees Employee Restricted Shares cancelled Noncontrolling interest distributions Noncontrolling interest contributions Comprehensive income (loss): Net income Unrealized loss on valuation of swap agreements Reclassification of realized interest on swap agreements Total comprehensive income Balance at December 31, 2010 Conversion of OP Units to Common Shares by limited partners of the Operating Partnership Issuance of Common Shares, net of issuance costs Vesting of employee Restricted Share and LTIP awards Dividends declared ($0.72 per Common Share) Exercise of trustees options Common Shares issued under Employee Share Purchase Plan Issuance of LTIP Unit awards to employees Issuance of Common Shares to Trustees Employee Restricted Shares cancelled Noncontrolling interest distributions Noncontrolling interest contributions Comprehensive income (loss): Net income Unrealized loss on valuation of swap agreements Reclassification of realized interest on swap agreements Total comprehensive income (loss) Common Shares Shares Amount Additional Paid-in Capital Accumulated Other Comprehensive Loss Retained Earnings Total Common Shareholders’ Equity Noncontrolling Interests Total Equity 365 — 3,240 133 — 2,060 — — 7 — 6 — 13 — (57) — — — — — — 109 100 266 (966) — — — — — — — — — — — — — 3,240 2,060 (3,240) — 1,778 3,838 (28,976) — (28,976) 109 (723) — (29,699) 109 — — — — — 100 266 (966) — — — — — (2,892) 33,556 100 266 (966) (2,892) 33,556 40,254 40 303,823 (2,994) (12,851) 288,018 248,771 536,789 — 30,057 30,057 20,610 50,667 — — — — — — — — — — — — (2,329) 2,466 137 40,254 40 303,823 (2,857) 11 — 56 2,250 96 2 1 — — 2 — 5 — — — 8 — (40) — — — — — 44,658 481 — 16 93 — 264 (724) — — — — — — — — — — — — — — — 30,057 17,206 — — — (2,329) (354) (2,683) 2,466 30,194 283 20,539 2,749 50,733 318,212 269,310 587,522 56 44,660 (56) — — 44,660 482 3,550 4,032 (29,444) — (29,444) 16 — — — — — — 93 — 264 (724) — — (984) — — 2,441 — — (7,697) 117,945 (30,428) 16 93 2,441 264 (724) (7,697) 117,945 42,586 43 348,667 (2,857) (12,238) 333,615 384,509 718,124 — — — — — — — — — — — — — 51,555 51,555 2,160 53,715 (3,461) 2,405 (1,056) — — 51,555 (3,461) (2,150) (5,611) 2,405 50,499 676 686 3,081 51,185 Balance at December 31, 2011 42,586 $ 43 $348,667 $(3,913) $ 39,317 $384,114 $385,195 $769,309 The accompanying notes are an integral part of these consolidated financial statements F-8 Acadia Realty Trust 2011 Annual Report 23753 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 Amortization of financing costs Gain from bargain purchase Gain on sale of property Gain on debt extinguishment Impairment of asset 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 debts Other, net Changes in assets and liabilities Cash in escrow Rents receivable, net Prepaid expenses and other assets Accounts receivable from related parties 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, 2011 2010 2009 $ 53,715 $ 50,667 $ 12,706 33,683 3,918 — (46,830) (1,268) 6,925 829 (786) 4,299 (1,555) — 5,515 — 252 472 7,319 (8,894) (5,906) 1,034 14,513 (903) 66,332 (181,498) (6,298) (54,981) 4,504 56,519 (34,343) 62,940 34,499 6,054 (33,805) — — — 1,042 (6,164) 4,104 (10,971) — 12,124 — 3,331 906 (20,028) (4,662) 4,297 (2,408) 1,874 3,517 44,377 (80,520) (3,904) (19,116) 785 42,010 — — 33,520 3,722 — (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) 6,166 1,990 (5,902) 221 47,462 (127,322) (11,368) (5,603) 4,705 13,614 (9,362) 11,956 Net cash used in investing activities (153,157) (60,745) (123,380) Acadia Realty Trust 2011 Annual Report F-9 38148 Consolidated Statements of Cash Flows continued (dollars in thousands) Cash Flows from Financing Activities Principal payments on mortgage notes Proceeds received on mortgage notes Purchase 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 (Decrease) increase in cash and cash equivalents Cash and cash equivalents, beginning of period Years ended December 31, 2011 2010 2009 (161,389) 144,959 (48,997) (2,877) 117,945 (8,605) (29,033) 44,659 (726) 93 16 56,045 (30,780) 120,592 (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 Cash and cash equivalents, end of period $ 89,812 $ 120,592 $ 93,808 Supplemental disclosure of cash flow information Cash paid during the period for interest, net of capitalized interest of $4,850, $2,903, and $3,516, respectively $ 32,120 $ 31,920 $ 30,183 Cash paid for income taxes $ 3,776 $ 1,263 $ 777 Supplemental disclosure of non-cash investing and financing activities 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 Cash included in investment in real estate The accompanying notes are an integral part of these consolidated financial statements. $ $ $ — $ — $ 16,192 — — — — — — $ $(108,000) 25,990 33,805 7,532 37,824 $ (2,849) $ — — — — — — F-10 Acadia Realty Trust 2011 Annual Report 64811 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 equity real estate investment trust (“REIT”) focused on the ownership, management and redevelopment of retail 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, 2011, Fund I was fully invested, with the Operating Partnership having contributed $16.5 million to Fund I and $2.7 million to Mervyns I. properties and urban/infill mixed-use properties with a The Operating Partnership is the general partner of Fund retail component located primarily in high-barrier-to-entry, I and sole managing member of Mervyns I, with a densely-populated metropolitan areas in the United 22.2% interest in both Fund I and Mervyns I and is also States along the East Coast and in Chicago. entitled to a profit participation in excess of its invested As of December 31, 2011, the Company operated 82 properties, which it owns or has an ownership interest in, within its Core Portfolio or within the three opportunity funds (Fund I, Fund II and Fund III (defined below), which the Company refers to as the “Opportunity Funds”). The Company defines its Core Portfolio as those properties either 100% owned by, or partially owned through joint venture interests by, the Operating Partnership (defined below), or subsidiaries thereof, not including those properties owned through its Opportunity Funds. All of the Company’s assets are held by, and all of its operations are conducted through, Acadia Realty Limited Partnership (the “Operating Partnership”) and entities in which the Operating Partnership owns a controlling interest. As of December 31, 2011, 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 primarily represent entities or individuals that contributed their interests in certain properties or entities to the Operating Partnership in exchange for common or preferred units of limited partnership interest (“Common OP Units” or “Preferred OP Units”) and employees who have been awarded restricted Common OP Units (“LTIP Units”) as long-term incentive compensation (Note 15). Limited partners holding Common OP Units are generally entitled to exchange their units on a one-for-one basis for common 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 distributions. 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, 2011, the Operating Partnership had contributed $48.8 million to Fund II and $7.6 million to Mervyns II. shares of beneficial interest of the Trust (“Common The Company formed Acadia Strategic Opportunity Shares”). This structure is referred to as an umbrella Fund III LLC (“Fund III”) with fourteen institutional partnership REIT or “UPREIT.” The Company formed Acadia Strategic Opportunity Fund I, LP (“Fund I”), and formed Acadia Mervyn 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 Acadia Realty Trust 2011 Annual Report F-11 15753 Notes to Consolidated Financial Statements continued the invested capital is $100.0 million and it is the primary beneficiary under ASC Topic 810, as discussed managing member with a 19.9% interest in Fund III. The above. The Company does have significant influence over terms and structure of Fund III are substantially the the investments which requires equity method same as the previous Funds I and II, including the accounting. Under the equity method, the Company Promote structure, with the exception that the Preferred increases its investment for its proportionate share of net Return is 6%. As of December 31, 2011, the Operating income and contributions to the joint venture and Partnership had contributed $45.1 million to Fund III. decreases its investment balance by recording its Principles of Consolidation The consolidated financial statements include the consolidated accounts of the Company and its controlling investments in partnerships and limited liability companies in which the Company has control in accordance Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810 “Consolidation” (“ASC Topic 810”). The ownership interests of other investors in these entities are recorded as noncontrolling interests. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in entities for proportionate share of net loss and distributions. The Company recognizes income for distributions in excess of its investment where there is no recourse to the Company. For investments in which there is recourse to the Company, distributions in excess of the investment are recorded as a liability. Although the Company accounts for its investment in Albertson’s (Note 4) under the equity method of accounting, the Company adopted the policy of not recording its equity in earnings or losses of this unconsolidated affiliate until it receives the audited financial statements of Albertson’s to support the equity earnings or losses in accordance with ASC Topic 323, “Investments — Equity Method and Joint which the Company has the ability to exercise significant Ventures.” 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. Variable interest entities are accounted for within the scope of ASC Topic 810 and are required to be consolidated by their primary beneficiary. The primary beneficiary of a variable interest entity is the enterprise 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 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 the years ended December 31, 2011 and 2010, there were no impairment charges related to the Company’s investment in unconsolidated joint ventures. During the year ended December 31, 2009, the Company recorded an impairment charge of $3.8 million related to its investment in unconsolidated joint ventures. Use of Estimates Accounting principles generally accepted in the United 810 to its investments in certain joint ventures and States of America (“GAAP”) require the Company’s determined that these joint ventures are not variable management to make estimates and assumptions that interest entities or that the Company is not the primary affect the amounts reported in the financial statements beneficiary and, therefore, consolidation of these and accompanying notes. The most significant ventures is not required. These investments are assumptions and estimates relate to the valuation of real accounted for using the equity method of accounting. estate, depreciable lives, revenue recognition and the 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 F-12 Acadia Realty Trust 2011 Annual Report collectability of notes receivable and rents receivable. Application of these estimates and assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates. 14256 Real Estate Real estate assets are stated at cost less accumulated to recover its carrying costs on properties held for use, the Company reduces its carrying costs to fair value, and depreciation. Expenditures for acquisition, development, for properties held for sale, the Company reduces its construction and improvement of properties, as well as carrying value to the fair value less costs to sell. During significant renovations are capitalized. Interest costs are the year ended December 31, 2011, the Company capitalized until construction is substantially complete and determined that the value of the Granville Centre owned the real estate is ready for its intended use. Construction by Fund I was impaired. Accordingly, an impairment loss in progress includes costs for significant property of $6.9 million was recorded, of which the Operating expansion and redevelopment. Depreciation is computed Partnership’s share was $1.5 million. During the years on the straight-line basis over estimated useful lives of ended December 31, 2010, and 2009, no impairment 30 to 40 years for buildings, the shorter of the useful life losses were recognized. Management does not believe or lease term for tenant improvements and five years for that the values of its properties within the portfolio are furniture, fixtures and equipment. Expenditures for impaired as of December 31, 2011. maintenance and repairs are charged to operations as 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 — 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 the earnings process is deemed to be complete. Sales not qualifying for full recognition at the time of sale are accounted for under other appropriate deferral methods. Goodwill and Other,” and allocates the acquisition price based on these assessments. Fixed-rate renewal options Real Estate Held for Sale The Company evaluates the held-for-sale classification of have been included in the calculation of the fair value of its real estate each quarter. Assets that are classified as acquired leases where applicable. To the extent there held for sale are recorded at the lower of their carrying were fixed-rate options at below-market rental rates, the amount or fair value less cost to sell. Assets are Company included these along with the current term generally classified as held for sale once management below-market rent in arriving at the fair value of the has initiated an active program to market them for sale acquired leases. The discounted difference between and has received a firm purchase commitment. The contract and market rents is being amortized over the results of operations of these real estate properties are remaining applicable lease term, inclusive of any option reflected as discontinued operations in all periods periods. The Company assesses fair value based on presented. estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property. The Company reviews its long-lived assets used in operations for impairment when there is an event or a change in circumstances that indicates that the carrying amount may not be recoverable. The Company measures and records impairment losses and reduces the carrying value of properties when indicators of impairment are present and the expected undiscounted cash flows related to those properties are less than their carrying amounts. In cases where the Company does not expect 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. Involuntary Conversion of Asset The Company experienced significant flooding that resulted in extensive damage to one of its properties during September 2011. Costs related to the clean-up and redevelopment are insured to a limit sufficient that the Company believes will allow for full restoration of the property. Loss of rents during the redevelopment are covered by business interruption insurance subject to a Acadia Realty Trust 2011 Annual Report F-13 94105 Notes to Consolidated Financial Statements continued $0.1 million deductible. The Company plans to restore property operating expenses. These reimbursements are the improvements that were damaged by the flooding recognized as revenue in the period the related expenses and expects that the costs of such restoration and are incurred. rebuilding will be recoverable from insurance proceeds. In accordance with ASC Topic 360 “Property, Plant and Equipment” and as a result of the above-described property damage, the Company has recorded a write- down of the asset’s carrying value in the accompanying 2011 consolidated balance sheets of approximately $1.4 million as of December 31, 2011. In addition, the Company has recorded an insurance recovery in the same amount that is included in Prepaid Expenses and Other Assets in the accompanying 2011 consolidated balance sheets. The Company has also provided a $0.1 million provision in the 2011 consolidated statement of income for its exposure to the insurance deductible 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, 2011 and 2010 are shown net of an allowance for doubtful accounts of $5.3 million and $7.2 million, respectively. Notes Receivable and Preferred Equity Investments Notes receivable and preferred equity investments are attributable to the loss of rents. As of December 31, intended to be held to maturity and are carried at 2011, the Company has received initial insurance amortized cost. Interest income from notes receivable proceeds of approximately $6.9 million. 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 deferred and amortized over the term of the related debt obligation. 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 established based upon management’s quarterly review of the investments. In performing this review, Management Contracts Income from management contracts is recognized on an management considers the estimated net recoverable value of the loan as well as other factors, including the accrual basis as such fees are earned. The initial acquisition cost of any management contracts are amortized over the estimated lives of the contracts acquired. Revenue Recognition and Accounts Receivable Leases with tenants are accounted for as operating leases. Minimum rents are recognized on a straight-line basis over the term of the respective leases, beginning when the tenant is entitled to take possession of the fair value of any collateral, the amount and status of any senior debt, and the prospects for the borrower. Because this determination is based upon projections of future economic events, which are inherently subjective, the amounts ultimately realized from the loans may differ materially from the carrying value at the balance sheet date. Interest income 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 space. As of December 31, 2011 and 2010, included in becomes contractually current and performance is Rents Receivable, Net on the accompanying consolidated demonstrated to be resumed. balance sheets, are unbilled rents receivable relating to straight-lining of rents of $22.8 million and $16.9 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 addition, leases typically provide for the reimbursement to the Company of real estate taxes, insurance and other 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. 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 F-14 Acadia Realty Trust 2011 Annual Report 07836 equivalents are maintained at financial institutions and, at positions as a component of the provision for income times, balances may exceed the federally insured limit by taxes. the Federal Deposit Insurance Corporation. The Company has never experienced any losses related to these balances. Stock-based Compensation The Company accounts for stock-based compensation pursuant to ASC Topic 718, “Compensation—Stock Restricted Cash and Cash in Escrow Restricted cash and cash in escrow consist principally of Compensation.” As such, all equity based awards are reflected as compensation expense in the Company’s cash held for real estate taxes, construction costs, consolidated financial statements over their vesting property maintenance, insurance, minimum occupancy period based on the fair value at the date of grant. and property operating income requirements at specific properties as required by certain loan agreements. Recent Accounting Pronouncements During April 2011, the FASB issued Accounting Income Taxes The Company has made an election to be taxed, and Standards Update (“ASU”) No. 2011-02, “A Creditor’s Determination of Whether a Restructuring Is a Troubled believes it qualifies as a REIT under Sections 856 Debt Restructuring.” ASU 2011-02 requires a creditor to through 860 of the Internal Revenue Code of 1986, as evaluate whether a restructuring constitutes a troubled amended (the “Code”). To maintain REIT status for debt restructuring by concluding that the restructuring Federal income tax purposes, the Company is generally constitutes a concession and that the debtor is required to distribute at least 90% of its REIT taxable experiencing financial difficulties and was effective for income to its shareholders as well as comply with the first interim or annual period beginning on or after certain other income, asset and organizational June 15, 2011. The adoption of ASU 2011-02 did not requirements as defined in the Code. Accordingly, the have a material impact on the Company’s financial Company is generally not subject to Federal corporate condition or results of operations. income tax to the extent that it distributes 100% of its REIT taxable income each year. During May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Although it may qualify for REIT status for Federal Measurement and Disclosure Requirements in U.S. income tax purposes, the Company is subject to state GAAP and IFRSs.” ASU No. 2011-04 amended ASC 820, income or franchise taxes in certain states in which Fair Value Measurements and Disclosures, to converge some of its properties are located. In addition, taxable the fair value measurement guidance in GAAP and income from non-REIT activities managed through the International Financial Reporting Standards (“IFRS”). The Company’s taxable REIT subsidiaries (“TRS”) is fully amendments, which primarily require additional fair value subject to Federal, state and local income taxes. disclosure, are to be applied prospectively. ASU 2011-04 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 is effective for interim and annual periods beginning after December 15, 2011. The adoption of ASU No. 2011-04 is not expected to have a material impact on the Company’s financial condition or results of operations. between GAAP basis and the tax basis of the TRS During June 2011, the FASB issued ASU No. 2011-05, income, assets and liabilities. In accordance with ASC Topic 740, 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, if successfully challenged, could result in a material impact on the Company’s financial position or results of operation. The prior three years’ income tax returns are subject to review by the Internal Revenue Service. The Company recognizes potential interest and penalties related to uncertain tax “Presentation of Comprehensive Income,” which revises the manner in which companies present comprehensive income. Under ASU No. 2011-05, companies may present comprehensive income, which is net income adjusted for the components of other comprehensive income, either in a single continuous statement of comprehensive income or by using two separate but consecutive statements. Regardless of the alternative chosen, companies must display adjustments for items reclassified from other comprehensive income into net income within the presentation of both net income and Acadia Realty Trust 2011 Annual Report F-15 48509 Notes to Consolidated Financial Statements continued other comprehensive income. ASU 2011-05 is effective During May 2011, acquired a 44,000 square foot retail for interim and annual periods beginning after December property located in Chicago, Illinois, for $28.4 million. 15, 2011, on a retrospective basis. The Company adopted ASU 2011-05 as of December 31, 2011 and the adoption did not have a material impact on the The Company expensed $0.8 million of costs related to these 2011 Core Portfolio acquisitions. Company’s financial condition or results of operations. Fund III During December 2011, the FASB issued ASU No. 2011- During December 2011, acquired New Hyde Park 10, “Property, Plant and Equipment (Topic 360): Derecognition of In substance Real Estate - a Scope Clarification” which clarifies current guidance found in ASC Topic 810 as to how to account when a reporting entity ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt. ASU No. 2011-10 is effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. The adoption of ASU No. 2011-10 is not expected to have a material impact on the Company’s financial condition or results of operations. Note 2 Acquisition and Disposition of Properties and Discontinued Operations Shopping Center, a 31,500 square foot center, located in New Hyde Park, NY, for approximately $11.3 million. During December 2011, in a venture with an unaffiliated partner, acquired Parkway Crossing, a 260,000 square foot center located in Baltimore, MD for approximately $21.6 million. During December 2011, in a venture with an unaffiliated partner, acquired 654 Broadway, an 18,700 square foot property located in New York City for approximately $13.3 million. During April 2011, acquired a 105,000 square foot property located in the East Loop section of downtown Chicago, Illinois for $31.6 million. During February 2011, in a venture with an unaffiliated partner, acquired three retail properties (“Lincoln Road”), aggregating 61,400 square feet located in the Lincoln Road area of South Miami Beach, Florida for $51.9 A. Acquisition and Disposition of Properties million, which included the assumption of $20.6 million of Acquisitions The Company acquired the following properties through in-place mortgage debt. Fund III has a 95% interest in these properties. its Core Portfolio, Fund III and Fund II as follows: During February 2011, in a venture with an unaffiliated Core Portfolio During September 2011, acquired a 50% equity interest in an entity which owns a six property portfolio (the “Georgetown Portfolio”) located in Washington, D.C. for a purchase price of $13.4 million, which included the assumption of 50% of in-place debt of $9.2 million, partner, acquired a 64,600 square foot single-tenant retail property (“White Oak”) located in Silver Spring, Maryland for $9.8 million. Fund III has a 90% interest in the property. The Company expensed $0.6 million of costs related to these 2011 Fund III acquisitions. inclusive of the Company’s existing mezzanine loan to During December 2010, in a joint venture with an the entity (Note 5). During August 2011, acquired a six property portfolio located in Chicago, Illinois for $18.0 million. During August 2011, acquired a newly constructed 13,000 square foot property located in the Bronx, New York for $9.1 million. During June 2011, acquired a 6,000 square foot single- tenant retail condominium located in New York, New York for $4.8 million. unaffiliated partner, acquired White City Shopping Center, a 255,000 square foot center located in Shrewsbury, Massachusetts for $56.0 million. During January 2009, acquired the 641,000 square foot Cortlandt Towne Center in Cortlandt, NY for $78.0 million and expensed $0.2 million of costs associated with this acquisition. The following table sets forth a summary of the finalized acquisition purchase price consideration of each major F-16 Acadia Realty Trust 2011 Annual Report 60788 class of assets acquired and liabilities assumed in the During June 2010, Fund II acquired all of CUIP’s interest 2011 acquisitions discussed above: in CityPoint for $9.2 million (the “Transaction”), Total Purchase Price Consideration (dollars in thousands) Land Buildings and improvements Acquisition-related intangible assets (in Acquired lease intangibles, net) Acquisition-related intangible liabilities (in Acquired lease and other intangibles, net) Total consideration $24,993 39,594 9,945 (627) $73,905 Fund II 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- 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 of $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 years ended December 31, 2011, 2010 and 2009. Dispositions During 2011 and 2009, the Company disposed of the development costs and was accounted for using the following properties: equity method. (dollars in thousands) Property Fifteen Kroger/Safeway locations Granville Centre Ledgewood Mall Oakbrook Blackman Plaza Owner Year Sold Sales Price Gain (Loss) GLA Fund I Fund I Core Portfolio Fund II Core Portfolio 2011 2011 2011 2011 2009 2009 $17,490 2,250 37,000 8,200 2,500 9,481 $14,645 (313) 28,576 3,922 1,506 5,637 617,276 134,997 517,151 112,000 125,264 277,700 Six Kroger locations Fund I Total $76,921 $53,973 1,784,388 B. Discontinued Operations The Company reports properties held-for-sale and properties sold during the periods as discontinued operations. The 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 the results of operations of the properties classified as discontinued operations for the years ended Acadia Realty Trust 2011 Annual Report F-17 35253 Notes to Consolidated Financial Statements continued December 31, 2011, 2010 and 2009, are summarized as Note 3 follows: Balance Sheet (dollars in thousands) Assets Net real estate Rents receivable, net Deferred charges, net of amortization Prepaid expenses and other assets, net December 31, 2010 Segment Reporting The Company has five reportable segments: Core Portfolio, Opportunity Funds, Self-Storage Portfolio, Notes Receivable and Other. Notes Receivable consists of the $20,981 Company’s notes receivable and preferred equity 649 2,016 155 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, 2011, 2010, and 2009 (does not include unconsolidated affiliates): Total assets of discontinued operations $23,801 Liabilities Accounts payable and accrued expenses Other liabilities Total liabilities of discontinued operations $ $ 233 342 575 Statements of Operations 2011 2010 2009 Years ended December 31, (dollars in thousands) Total revenues Total expenses $ 5,309 $11,913 $12,902 9,183 8,581 3,047 Operating income Loss on impairment of asset Gain on sale of property 2,262 (6,925) 46,830 3,719 3,332 — — — 7,143 Income from discontinued operations 42,167 3,332 10,862 (Income) from discontinued operations attributable to noncontrolling interests Income from discontinued operations attributable to Common Shareholders (10,674) (1,535) (6,303) $ 31,493 $ 1,797 $ 4,559 F-18 Acadia Realty Trust 2011 Annual Report 10630 2011 Core Portfolio Opportunity Funds Self-Storage Investments Notes Receivable Other Amounts Eliminated in Consolidation Total (dollars in thousands) Revenues Property operating expenses and real estate taxes General and administrative expenses $ 57,994 $ 55,888 $ 23,189 $11,429 $25,782 $ (24,121) $ 150,161 17,087 18,952 14,435 24,226 16,678 — — — — — (2,417) 48,057 (17,818) 23,086 Income before depreciation and amortization $ 16,681 $ 20,258 Depreciation and amortization $ 14,206 $ 15,454 $ $ 4,221 8,754 $11,429 $25,782 $ $ $ — — — — — — — $ $ $ $ $ Interest and other finance expense $ 15,967 $ 16,546 $ 3,603 Real estate at cost $499,872 $773,562 $213,743 Total assets $633,345 $901,758 $192,154 $59,989 Expenditures for real estate and improvements $ 72,571 $107,231 $ 3,779 $ — Reconciliation to net income and net income attributable to Common Shareholders 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 provision Impairment of asset Gain on sale of property Income from discontinued operations Net income Net (income) attributable to noncontrolling interests Net income attributable to Common Shareholders $ $ $ (3,886) (895) $ $ 79,018 32,986 993 $ 37,109 $ (15,432) $1,471,745 $(133,927) $1,653,319 — $ (2,083) $ 181,498 $ 79,018 276 (32,986) 1,555 (37,109) 1,268 474 (6,925) 46,830 2,262 53,715 (2,160) $ 51,555 Acadia Realty Trust 2011 Annual Report F-19 07084 Notes to Consolidated Financial Statements continued 2010 Core Portfolio Opportunity Funds Self-Storage Investments Notes Receivable Other Amounts Eliminated in Consolidation Total (dollars in thousands) Revenues Property operating expenses and real estate taxes General and administrative expenses $ 57,084 $ 42,062 $ 21,314 $19,161 $22,479 $ (21,055) $ 141,045 17,236 17,671 13,107 22,439 13,588 — — — — — (1,536) 46,478 (15,807) 20,220 8,207 $19,161 $22,479 $ (3,712) $ $ $ $ $ $ $ 74,347 28,808 (440) $ $ — — — — (442) $ 40,498 $ (13,349) $1,305,561 $(105,611) $1,524,806 — $ (2,302) $ 80,520 $ 74,347 408 (28,808) 10,971 (40,498) 2,890 33,805 3,332 50,667 (20,610) $ 30,057 Income before depreciation and amortization $ 17,409 $ 10,803 Depreciation and amortization $ 13,798 $ 10,898 $ $ 4,552 Interest and other finance expense $ 18,036 $ 18,244 $ 4,660 Real estate at cost $441,714 $667,179 $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 Income before depreciation and amortization Other interest income Depreciation and amortization Equity in earnings of unconsolidated affiliates Interest and other finance expense Income tax provision Gain from bargain purchase Income from discontinued operations Net income Net (income) attributable to noncontrolling interests Net income attributable to Common Shareholders F-20 Acadia Realty Trust 2011 Annual Report 06322 2009 Core Portfolio Opportunity Funds Self-Storage Investments Notes Receivable Other Amounts Eliminated in Consolidation Total (dollars in thousands) Revenues Property operating expenses and real estate taxes Reserve for notes receivable Abandonment of project costs General and administrative expenses $ 64,249 $ 37,375 $ 11,166 $ 19,698 $23,265 $ (21,308) $ 134,445 19,282 14,874 10,985 — 12 — 2,475 23,983 13,593 — — — — 1,734 — — — — — — (1,150) — — 43,991 1,734 2,487 (15,570) 22,006 Income before depreciation and amortization $ 20,972 $ 6,433 Depreciation and amortization $ 14,595 $ 10,480 $ $ 181 $ 17,964 $23,265 $ (4,588) 3,762 — $ — $ (1,225) $ $ 64,227 27,612 Interest and other finance expense $ 19,539 $ 10,657 $ 5,681 Real estate at cost $436,071 $486,032 $208,702 $ $ $ Total assets $558,240 $607,706 $196,658 $125,221 $ — $ — $ — — — $ (245) $ 35,632 $ (11,047) $1,119,758 $(105,361) $1,382,464 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 Income before depreciation and amortization Other interest income Depreciation and amortization Equity in (losses) of unconsolidated affiliates Impairment of investment in unconsolidated affiliate Interest and other finance expense Gain on debt extinguishment Income tax provision Gain on sale of property Income from discontinued operations Net income Net loss attributable to noncontrolling interests Net income attributable to Common Shareholders $ 64,227 642 (27,612) (1,529) (3,768) (35,632) 7,057 1,541 7,143 3,719 12,706 18,427 $ 31,133 Acadia Realty Trust 2011 Annual Report F-21 90601 Notes to Consolidated Financial Statements continued Note 4 Investments In and Advances to Unconsolidated Affiliates investments (“Add-On Investments”). Additionally, they have invested in Shopko, Marsh and Rex Stores Corporation (collectively “Other RCP Investments”). Mervyns Department Stores Core Portfolio The Company owns a 22.2% interest in an approximately Through Mervyns I and Mervyns II, the Company invested in a consortium to acquire Mervyns, consisting one million square foot retail portfolio (the “Brandywine of 262 stores (“REALCO”) and its retail operations Portfolio”) located in Wilmington, Delaware and a 49% (“OPCO”), from Target Corporation. The Company’s interest in a 311,000 square foot shopping center located share of this investment was $23.2 million. Subsequent in White Plains, New York (“Crossroads”). These to the initial acquisition, the Company, through Mervyns I investments are accounted for under the equity method. and Mervyns II, made additional investments of $2.9 During September 2011, the Company acquired a 50% equity interest in the Georgetown Portfolio (Note 2). The unaffiliated venture partner for the Georgetown Portfolio maintains control over this investment and, as such, the Company accounts for this investment under the equity method. Due to this acquisition, the Company reclassified an existing $8.0 million mezzanine loan million. Through December 31, 2011, REALCO has disposed of a significant portion of 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, 2011, the Company has received distributions from this investment totaling $46.0 million. collateralized by five properties within the Georgetown Through December 31, 2011, the Company, through Portfolio from Notes Receivable to Investments in and Mervyns I and Mervyns II, made Add-On Investments in Advances to Unconsolidated Affiliates. Mervyns totaling $6.5 million and have received distributions totaling $3.6 million, including $1.9 million Opportunity Funds RCP Venture The Company, along with Klaff Realty, LP (“Klaff”) and Lubert-Adler Management, Inc. (“Lubert-Adler”), formed an investment group, the RCP Venture, 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 group has the option of participating, or not, in any individual investment and each individual received in 2011. Albertson’s 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, 2011, the Company has received distributions from this investment totaling $81.6 million, including $4.5 million and $11.4 million received in 2011 and 2010, respectively. investment has been made on a stand-alone basis Through December 31, 2011, the Company, through through a separate limited liability company (“LLC”). Mervyns II, made Add-On Investments in Albertson’s These investments have been made through different totaling $2.4 million and received distributions totaling investment vehicles with different affiliated and $1.7 million, including $0.5 million received in 2011. unaffiliated investors and different economics to the Company. Investments under the RCP Venture are Other RCP Investments structured as separate joint ventures as there may be Through December 31, 2011, the Company, through other investors participating in certain investments in Fund II, made investments of $1.1 million in Shopko, addition to Klaff, Lubert-Adler and Acadia. The Company $0.7 million in Marsh, and $2.0 million in Add-On has made these investments through its subsidiaries, Investments in Marsh. As of December 31, 2011, the Mervyns I, Mervyns II and Fund II, (together the “Acadia Company has received distributions totaling $1.7 million Investors”), all on a non-recourse basis. Through from its Shopko investment and $2.6 million from its December 31, 2011, the Acadia Investors have made Marsh and Marsh Add-On Investments. investments in Mervyns Department Stores (“Mervyns”) and Albertson’s, including additional investments in locations that are separate from these original During July of 2007, the RCP Venture acquired a portfolio of 87 retail properties from Rex Stores F-22 Acadia Realty Trust 2011 Annual Report 09278 Corporation, which the Company invested through The following table summarizes activity related to the Mervyns II. The Company’s share of this investment was RCP Venture investments from inception through $2.7 million. As of December 31, 2011, the Company December 31, 2011: has received distributions totaling $0.8 million. Year Acquired Invested Capital and Advances Distributions Invested Capital and Advances Distributions Operating Partnership Share Investment Mervyns 2004 Mervyns Add-On investments 2005/2008 Albertsons 2006 Albertsons Add-On investments 2006/2007 Shopko 2006 Marsh and Add-On investments 2006/2008 Rex Stores Total 2007 $26,058 6,517 20,717 2,416 1,108 2,667 2,701 $ 45,966 $ 4,901 3,558 81,594 1,679 1,659 2,639 840 1,046 4,239 388 222 533 535 $11,251 819 16,318 336 332 528 168 $62,184 $137,935 $11,864 $29,752 The Company accounts for the original investments in than the minority investor rights to which the Company Mervyns and Albertson’s under the equity method of is entitled pursuant to statute, it has no rights other than accounting as the Company has the ability to exercise to receive its pro-rata share of cash distributions as significant influence, but does not have financial or declared by the managers of the Add-On Investments operating control. and Other RCP Investments. The Company has no rights 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 with respect to the control and operation of these investment vehicles, nor with the formulation and execution of business and investment policies. investments as well as the terms of the underlying The Acadia Investors have non-controlling interests in the operating agreements, the Company has no influence individual investee LLC’s as follows: over such entities’ operating and financial policies. Other Investee LLC Acadia Investors Entity Investee LLC Underlying Entity(s) Acadia Investors Ownership % in: Investment Mervyns KLA/Mervyn’s, LLC Mervyns I and Mervyns II Mervyns Add-On Investments KLA/Mervyn’s, LLC Mervyns I and Mervyns II Albertsons Albertsons Add-On Investments Shopko Marsh and Add-On Investments KLA A Markets, LLC KLA A Markets, LLC KA-Shopko, LLC KA 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 of $0.6 million were used to fully liquidate the 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 $3.8 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 outstanding mortgage loan obligation. Fund II Investments Prior to June 30, 2010, Fund II had a 24.75% interest in CityPoint, a redevelopment project located in downtown Brooklyn, NY, which was accounted for under the equity method. On June 30, 2010, Fund II acquired the remaining interest in the project from its unaffiliated partner and, as a result, consolidates the CityPoint investment. (Note 2 — “Fund II”). Acadia Realty Trust 2011 Annual Report F-23 36526 Notes to Consolidated Financial Statements continued Fund III Investments interest in the entity. This entity was determined to be a The unaffiliated venture partners for the Lincoln Road variable interest entity for which the Company was (Note 2), White Oak (Note 2), Parkway Crossing (Note 2) determined not to be the primary beneficiary. As such, and the White City Shopping Center (Note 2) the Company accounts for this investment under the investments maintain control over these entities and, as equity method. such, the Company accounts for these investments 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% Summary of Investments in Unconsolidated Affiliates The following combined and condensed Balance Sheets and Statements of Operations, in each period, summarize the financial information of the Company’s investments in unconsolidated affiliates. December 31, 2011 December 31, 2010 (dollars in thousands) Combined and Condensed Balance Sheets Assets: Rental property, net Investment in unconsolidated affiliates Other assets Total assets Liabilities and partners’ equity: Mortgage notes payable Other liabilities Partners’ equity Total liabilities and partners’ equity Company’s investment in and advances to unconsolidated affiliates $280,470 156,421 29,587 $466,478 $319,425 16,902 130,151 $466,478 $ 84,568 $186,802 192,002 27,841 $406,645 $267,565 13,815 125,265 $406,645 $ 31,036 Company’s share of distributions in excess of share of income and investments in unconsolidated affiliates $ (21,710) $ (20,884) Years Ended December 31, 2009 2010 2011 (dollars in thousands) Combined and Condensed Statements of Operations Total revenues Operating and other expenses Interest expense Equity in earnings (losses) of unconsolidated affiliates Depreciation and amortization Loss on sale of property, net Net income (loss) Company’s share of net income (loss) Impairment loss Amortization of excess investment $42,185 15,924 17,099 7,243 8,837 — $29,460 10,617 13,525 56,482 4,839 (2,957) $ 30,835 9,851 13,786 (30,568) 5,152 (390) $ 7,568 $54,004 $(28,912) $ 1,946 — (391) $11,363 — (392) $ (1,141) (3,768) (388) Company’s equity in earnings (losses) of unconsolidated affiliates $ 1,555 $10,971 $ (5,297) F-24 Acadia Realty Trust 2011 Annual Report 09671 Note 5 Notes Receivable and Preferred Equity Investment As of December 31, 2011, the Company’s notes receivable, net approximated $60.0 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 were as follows at December 31, 2011: (dollars in thousands) Description Zero Coupon Loan Mezzanine Loan Mezzanine Loan Mezzanine Loan First Mortgage Loan First Mortgage Loan First Mortgage Loan Construction Loan First Mortgage Loan Individually less than 3% Total Notes: Effective Interest Rate Maturity Date Periodic Payment Terms Prior Liens Face Amount of Mortgages Carrying Amount of Mortgages 24.00% 10.00% 15.00% 17.50% 12.00% 10.77% 7.00% 20.51% 6.00% 10.00% to 12.00% 1/3/2016 12/31/2013 Capital Event 1/1/2017 12/5/2012 Demand Note 2/1/2012 4/1/2012 12/1/2012 12/31/13 to Capital Event (2) (2) (2) (2) (1) (2) (1) (2) (1) $166,200 85,835 11,925 37,700 — — — — — — $ 5,644 9,089 3,834 3,550 8,500 10,000 4,000 5,400 12,609 8,399 $ 3,563 9,089 3,834 2,173 8,500 10,000 4,000 5,400 12,609 821 $71,025 $59,989 (1) Payable upon maturity. (2) Interest only payable monthly, principal due on maturity. During December 2011, the Company made an $8.5 shopping center in Washington D.C. The note accrues million loan, which is collateralized by three properties interest at 7% and matures in February 2012. In addition located in Chicago, IL. The loan matures in December to the loan, the Company entered into and subsequently 2012 and bears interest at 12.0%. exercised an option to purchase the shopping center at a During December 2011, the Company made a $12.6 million loan in conjunction with the sale of 15 Kroger/Safeway locations. The loan, which is collateralized by 14 Kroger/Safeway properties, matures future date, pending the servicer’s approval of the assignment of a first mortgage loan of $17.0 million. The loan will be offset against the purchase price when the Company acquires the property. in December 2012 and bears interest at 6.0%. There are During May 2011, the Company received a final payment two six-month extension options, the first of which bears of $54.7 million on a mezzanine loan, representing $33.8 interest at 9% and the second bears interest at 12%. million of principal, $13.4 million of accrued interest, and During October 2011, the Company made a $5.4 million a $7.5 million exit fee. construction loan which is collateralized by an interest in During February 2011, the Company made a mezzanine a development property located in Haledon, NJ. The loan loan for $3.8 million which accrues interest at 15% and matures in April 2012 and has one six-month extension is payable upon a capital event. The Company also option and bears interest at 15.0%. received a payment of $1.9 million on a mezzanine loan. During September 2011, the Company reclassified an During September 2010, the Company received a $8.0 million mezzanine loan from Notes Receivable to payment of $49.4 million on a preferred equity Investments in and Advances to Unconsolidated Affiliates investment, representing $40.0 million of invested capital related to the acquisition of the Georgetown Portfolio and $9.4 million of accrued preferred return. (Note 4). During April 2010, the Company received a payment of During September 2011, the Company made a $4.0 $2.1 million and during December 2009 received a million loan to two members of an entity which owns a payment of $4.7 million, both representing paydowns on Acadia Realty Trust 2011 Annual Report F-25 01708 Notes to Consolidated Financial Statements continued its first mortgage loan secured by three retail properties, The following table reconciles the allowance for notes following the sale of two of the collateralized properties. receivable from December 31, 2009 to December 31, During December 2009, the Company made a loan for $8.6 million. The original term of this loan was for one year, with two six- month extension options, and bore interest at 14.5%. During December 2011, this investment was fully liquidated. The Company received $8.6 million of principal and $1.0 million of accrued interest. 2011: (dollars in thousands) Balance at December 31, 2009 Reserves Write off of notes receivable Balance at December 31, 2010 Reserves Balance at December 31, 2011 Allowance for Notes Receivable $ 5,943 93 (3,000) 3,036 240 $ 3,276 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 Note 6 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. During March 2009, the Company received a payment of $0.3 million representing the entire balance on a loan secured by an interest in a property in South Carolina. The following table reconciles notes receivable and preferred equity investments from January 1, 2009 to December 31, 2011: For the years ended December 31, Deferred Charges Deferred charges consist of the following as of December 31, 2011 and 2010: (dollars in thousands) December 31, 2011 2010 Deferred financing costs $ 31,860 $ 29,692 Deferred leasing and other costs 32,103 30,485 Accumulated amortization Total Note 7 63,963 60,177 (38,109) (36,463) $ 25,854 $ 23,714 Acquired Lease Intangibles Upon acquisitions of real estate, the Company assesses (dollars in thousands) 2011 2010 2009 the fair value of acquired assets (including land, buildings Balance at beginning of period $ 89,202 $125,221 $125,587 Additions during period: New mortgage loans 34,758 — 10,839 Deductions during period: and improvements, and identified intangibles such as above and below market leases, acquired in-place leases and customer relationships) and acquired liabilities in accordance with ASC Topic 805. The intangibles are amortized over the remaining non-cancelable terms of Collections of principal (56,517) (42,010) (13,614) the respective leases. Reclass to investments in unconsolidated affiliates Non-cash accretion of notes receivable Reserves Other Balance at close of (8,000) — — 786 (240) — 6,164 (93) (80) 5,352 (2,943) — period $ 59,989 $ 89,202 $125,221 F-26 Acadia Realty Trust 2011 Annual Report 70886 The scheduled amortization of acquired lease intangible assets and liabilities as of December 31, 2011 is as continues to bear interest at LIBOR plus 125 basis points. follows: (dollars in thousands) Assets Liabilities Acquired lease intangible iv) During October 2011, the Company amended and extended the maturity of a $13.7 million loan collateralized by a property that was scheduled to $ 3,695 $1,112 mature in December 2011. The amendment 2012 2013 2014 2015 2016 Thereafter Total Note 8 3,083 2,688 2,550 2,387 12,318 $26,721 895 587 419 395 2,054 $5,462 required a $0.9 million pay down of principal, reducing the balance of the loan to $12.8 million. The loan bears interest at LIBOR plus 225 basis points, matures on September 30, 2014, and has one three-year extension option. v) During September 2011, the Company modified and extended the Fund III subscription line of credit. The modification provided a one year extension of the maturity date to October 10, 2012 and adjusted the interest rate to LIBOR plus 225 basis points. During 2011, the Company borrowed Mortgages Payable At December 31, 2011 and 2010, mortgage notes payable, excluding the net valuation premium on the $71.6 million and repaid $107.0 million under this assumption of debt, aggregated $787.9 million and line of credit. As of December 31, 2011, the total $806.1 million, respectively, and were collateralized by 29 outstanding amount on this line of credit was properties and related tenant leases. Interest rates on $136.1 million. the Company’s outstanding mortgage indebtedness ranged from 1.55% to 7.34% with maturities that ranged from September 2012 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 ratios. The following reflects mortgage loan activity for the year ended December 31, 2011: vi) During September 2011, the Company closed on a $12.5 million loan collateralized by a property. The loan bears interest at LIBOR plus 235 basis points and matures on September 30, 2014 with two one-year extension options. vii) During August 2011, the Company amended an existing $58.0 million loan collateralized by a property. The amendment provided for an additional $4.0 million of proceeds. The amended loan continues to bear interest at LIBOR plus 400 basis points, subject to a LIBOR floor of 250 basis points and matured on January 12, 2012 and was i) During November 2011, the Company extended extended. Previously, during January 2011, the the maturity date of a $9.9 million loan to Company had amended this loan to provide for an September 1, 2012. The extension required a additional $3.0 million supplemental loan and a $7.0 payment of $0.5 million, reducing the balance of million subordinate loan. During 2011, the Company the loan to $9.4 million. The loan continues to bear drew down an additional $16.2 million on this interest at LIBOR plus 325 basis points. ii) During November 2011, the Company extended the maturity date of an $8.3 million loan that was maturing to October 30, 2012. The loan continues to bear interest at LIBOR plus 165 basis points. iii) During October 2011, the Company extended the maturity date of its $64.5 million revolving credit facility collateralized by six properties from December 1, 2011 to December 1, 2012. The loan construction loan. As of December 31, 2011, the total outstanding amount on this loan was $56.5 million. Subsequent to December 31, 2011, the loan maturity date was extended to September 11, 2012. All other terms have remained the same. viii) During August 2011, the Company closed on a $42.0 million loan collateralized by six properties. The loan bears interest at LIBOR plus 415 basis points, with a LIBOR floor of 50 basis points and Acadia Realty Trust 2011 Annual Report F-27 22858 Notes to Consolidated Financial Statements continued matures on August 31, 2013. The proceeds of this property. The modification extended the maturity loan were used to repay a $41.5 million loan that date from June 29, 2012 to June 30, 2018. The matured July 31, 2011. loan continues to bear interest at LIBOR plus 140 ix) During June 2011, the Company modified an basis points. existing $85.3 million loan collateralized by a xi) During January 2011, the Company purchased a property. The modification extended the maturity $9.3 million mortgage loan collateralized by one of date from October 4, 2011 to September 30, 2012. its properties for $7.6 million, resulting in a $1.7 The loan continues to bear interest at LIBOR plus million gain on extinguishment of debt. 350 basis points subject to a LIBOR floor of 150 basis points. xii) During January 2011, the Company borrowed the remaining $2.4 million of a $34.0 million loan x) During June 2011, the Company modified an collateralized by a property. existing $9.4 million loan collateralized by a The following table sets forth certain information pertaining to our secured credit facilities: (dollars in thousands) Borrower Acadia Realty, LP Fund II Fund III Total Total amount of credit facility Amount borrowed as of December 31, 2010 Net borrowings (repayments) during the year ended December 31, 2011 Amount borrowed as of December 31, 2011 Letters of credit outstanding as of December 31, 2011 Amount available under credit facilities as of December 31, 2011 $ 64,498 40,000 150,286 $254,784 $ 1,000 40,000 171,450 $212,450 $ — — (35,371) $ 1,000 40,000 136,079 $(35,371) $177,079 $4,561 — — $4,561 $58,937 — 14,207 $73,144 F-28 Acadia Realty Trust 2011 Annual Report 53960 The following table summarizes the Company’s mortgage and other secured indebtedness as of December 31, 2011 and December 31, 2010: (dollars in thousands) December 31, 2011 2010 Interest Rate at December 31, 2011 Maturity Payment Terms Description of Debt and Collateral Mortgage notes payable — variable-rate Canarsie Plaza $ 56,476 $ 40,243 Liberty Avenue Fordham Place Tarrytown Shopping Center 161st Street CityPoint Six self-storage properties Pelham Manor Branch Shopping Plaza 125 Main Street, Westport Cortlandt Towne Center Village Commons Shopping Center Sub-total mortgage notes payable 9,395 84,277 8,260 28,900 20,650 42,000 34,000 12,761 12,500 50,000 9,310 10,000 85,910 8,427 28,900 20,650 — 31,554 13,932 — 50,000 9,305 368,529 298,921 Secured credit facilities — variable-rate: Fund III revolving subscription Greater of 6.50% or 4.30% (LIBOR+4.00%) 3.55% (LIBOR+3.25%) Greater of 1.5%+3.5% or 5.00% (LIBOR+3.50%) 1.95% (LIBOR+1.65%) 5.80% (LIBOR+5.50%) 2.80% (LIBOR+2.50%) Greater of 4.65% or 4.45% (LIBOR+4.15%) 9/11/2012 Interest only monthly. 9/1/2012 Interest only monthly. 9/30/2012 Monthly principal and interest. 10/30/2012 4/1/2013 8/12/2013 8/31/2013 Interest only monthly. Interest only monthly. Interest only monthly. Interest only monthly until 10/2012; monthly principal and interest thereafter. 3.05% (LIBOR+2.75%) 2.55% (LIBOR+2.25%) 2.65% (LIBOR+2.35%) 2.20% (LIBOR+1.90%) 1.70% (LIBOR+1.40%) 12/1/2013 Monthly principal and interest. 9/30/2014 Monthly principal and interest. 9/30/2014 Interest only monthly. 10/26/2015 Monthly principal and interest. 6/30/2018 Monthly principal and interest. line of credit (2) Six Core Portfolio properties 136,079 1,000 171,450 1,000 2.55% (LIBOR+2.25%) 1.55% (LIBOR+1.25%) 10/10/2012 12/1/2012 Fund II term loan 40,000 40,000 3.20% (LIBOR+2.90%) 12/22/2014 Interest only monthly. Annual principal and monthly interest. Interest only monthly. Sub-total secured credit facilities 177,079 212,450 Interest rate swaps (1) Total variable-rate debt (57,027) (71,535) 488,581 439,836 Mortgage notes payable — fixed-rate Five Self-Storage properties Chestnut Hill Clark Diversey New Loudon Center CityPoint Crescent Plaza Pacesetter Park Shopping — — 4,491 13,882 20,000 17,287 11,941 Center Elmwood Park Shopping Center The Gateway Shopping Center Walnut Hill Plaza 239 Greenwich Avenue Merrillville Plaza 33,738 20,308 23,458 26,000 26,250 41,500 9,338 4,625 14,119 20,000 17,539 12,132 34,197 20,500 23,500 26,000 26,250 216th Street Atlantic Avenue 25,500 11,540 25,500 11,540 A&P Shopping Plaza Interest rate swaps (1) Total fixed-rate debt Unamortized premium Total 7,874 57,027 299,296 33 8,033 71,535 366,308 68 $787,910 $806,212 6.35% 5.64% 7.25% 4.98% 5.12% 5.53% 5.44% 6.06% 5.42% 5.88% 5.80% 7.34% 6.40% 5.41% 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. 11/6/2015 Monthly principal and interest. 1/1/2016 Monthly principal and interest. 3/1/2016 Monthly principal and interest. 10/1/2016 Monthly principal and interest. 2/11/2017 8/1/2017 Interest only monthly. Interest only monthly until 7/2012; monthly principal and interest thereafter. Interest only monthly. Interest only upon drawdown on construction loan until 1/2015; 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). (2) The Fund III revolving subscription line of credit is secured by unfunded investor capital commitments. Acadia Realty Trust 2011 Annual Report F-29 01214 Notes to Consolidated Financial Statements continued The scheduled principal repayments of all indebtedness date. The Holders of notes may require the Company to including Convertible Notes (Note 9) as of December 31, repurchase their notes, in whole or in part, on December 2011 are as follows (does not include $33,000 net 20, 2011, December 15, 2016, and December 15, 2021 valuation premium on assumption of debt): for cash equal to 100% of the principal amount of the (dollars in thousands) 2012 2013 2014 2015 2016 Thereafter Note 9 $298,335 128,059 104,667 79,710 74,722 103,314 $788,807 Convertible Notes Payable In December 2006 and January 2007, the Company issued a total of $115.0 million 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 obligations and rank notes to be repurchased plus any accrued and unpaid interest to, but not including, the repurchase date (the “Repurchase Option”). 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 their principal amount as of December 31, 2011 and there are no derivative transactions that were entered into in connection with the issuance of the Convertible Notes. equally with all other unsecured and unsubordinated Effective January 1, 2009, the Company adopted ASC indebtedness. The Convertible Notes have an effective Topic 470-20 which required it to retrospectively restate interest rate of 6.03% giving effect to the accounting and reclassify previously disclosed consolidated financial treatment required by ASC Topic 470-20, “Debt with statements to allocate the proceeds from the issuance of Conversion and Other Options.” The Convertible Notes convertible debt between a debt component and an had an initial conversion price of $30.86 per share. The equity component. The resulting discount on the debt conversion rate may be adjusted under certain component was amortized over the period the circumstances, including the payment of cash dividends convertible debt was expected to be outstanding, which in excess of the regular quarterly cash dividend in place was December 11, 2006 to December 20, 2011, as at the time the Convertible Notes were issued. As of additional non-cash interest expense.The equity December 31, 2011, the adjusted conversion price is component recorded as additional paid-in capital was $29.26. Upon conversion of the Convertible Notes, the $11.3 million, which represented the difference between Company will deliver cash and, in some circumstances, the proceeds from the issuance of the Convertible Notes Common Shares, as specified in the indenture relating to and the fair value of the liability at the time of issuance. the Convertible Notes. In general, the Convertible Notes As the Company determined, in connection with the may only be converted prior to maturity during any Repurchase Option, that the Convertible Notes matured calendar quarter beginning after December 31, 2006 if on December 20, 2011, as of December 31, 2011, all the Company’s Common Shares trade at 130% of the loan costs associated with the issuance have been conversion price for at least 20 days within a consecutive expensed and there is no remaining carrying amount of 30 day trading period. Prior to December 20, 2011, the the equity component included in additional paid-in Company did not have the right to redeem Convertible capital. Notes, except to preserve its status as a REIT. After December 20, 2011, the Company has the right to redeem the notes, in whole or in part, at any time and from time to time, for cash equal to 100% of the principal amount of the notes plus any accrued and unpaid interest to, but not including, the redemption The carrying amount of the equity component included in additional paid-in capital totaled $1.1 million at December 31, 2010. Interest expense relating to the contractual interest coupon recognized in the Consolidated Statements of Income was $1.5 million, $1.9 million and $2.5 million for the years ended December 31, 2011, F-30 Acadia Realty Trust 2011 Annual Report 35066 2010, and 2009, respectively, The additional non-cash (outside of earnings) and subsequently reclassified to interest expense recognized in the Consolidated earnings when the hedged transaction affects earnings, Statements of Income was $0.8 million, $1.0 million and and the ineffective portion of changes in the fair value of $1.3 million for the years ended December 31, 2011, the derivative is recognized directly in earnings. The 2010, and 2009, respectively. During 2011, the Company purchased $48.8 million of the Convertible Notes, including $24.0 million that were repurchased on December 20, 2011 pursuant to the Repurchase Option. As of December 31, 2011, the Company has purchased $114.1 million in principal amount of its convertible debt at an average discount of 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 would be recognized in earnings. approximately 11%. The transactions resulted in a (loss) As of December 31, 2011, the Company’s derivative gain on debt extinguishment of ($0.4) million and $7.1 financial instruments consisted of six interest rate LIBOR million for the years ended December 31, 2011 and swaps with an aggregate notional value of $57.0 million 2009, respectively. The outstanding Convertible Notes which fix interest at rates from 2.7% to 5.1% and mature principal amount as of December 31, 2011 and 2010 was between March 2012 and December 2022. The Company $0.9 million and $49.8 million, respectively. The also has three derivative financial instruments with a outstanding Convertible Notes net carrying amount as of notional value of $75.0 million which cap interest at 3.0%, December 31, 2011 and 2010 was $0.9 million and $48.7 6.0% and 3.5% and mature in October 2012, April 2013 million, respectively. Note 10 Financial Instruments and Fair Value Measurements and August 2013, respectively. The fair value of the derivative liability of these instruments, which is included in other liabilities in the consolidated balance sheets, totaled $3.5 million and $2.8 million at December 31, 2011 and 2010, respectively. The notional value does not represent exposure to credit, interest rate or market risks. Derivative Financial Instruments The FASB’s derivative and hedging guidance establishes These derivative instruments have been designated as cash flow hedges and hedge the future cash outflows on accounting and reporting standards for derivative variable rate mortgage debt. Such instruments are instruments, including certain derivative instruments reported at the fair value reflected above. As of embedded in other contracts, and for hedging activities. December 31, 2011 and 2010, unrealized losses totaling As required by the FASB guidance, the Company records $3.9 million and $2.8 million, respectively, were reflected all derivatives on the balance sheet at fair value. The in accumulated other comprehensive loss. It is estimated accounting for changes in the fair value of derivatives that approximately $1.5 million included in accumulated depends on the intended use of the derivative and the other comprehensive loss related to derivatives will be resulting designation. Derivatives used to hedge the reclassified to interest expense in the 2012 results of exposure to changes in the fair value of an asset, operations. 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 forecast transactions, are considered cash flow hedges. As of December 31, 2011 and 2010, 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 For derivatives designated as fair value hedges, changes December 31, 2011, none of the Company’s hedges in the fair value of the derivative and the hedged item were ineffective. 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 (loss) income The FASB’s fair value measurements and disclosure guidance requires the valuation of certain of the Company’s financial assets and liabilities, based on a three-level fair value hierarchy. Market participant Acadia Realty Trust 2011 Annual Report F-31 04534 Notes to Consolidated Financial Statements continued assumptions obtained from sources independent of the cash flows, which it determined were not sufficient to Company are observable inputs that are classified within recover the property’s net book value. The inputs used Levels 1 and 2 of the hierarchy, and the Company’s own to determine the fair value of the Granville Centre were assumptions about market participant assumptions are classified as Level 3 under authoritative guidance for fair unobservable inputs classified within Level 3 of the value measurements. hierarchy. 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, 2011: (dollars in thousands) Liabilities Derivative financial instruments Level 1 Level 2 Level 3 $ — $3,518 $ — During the year ended December 31, 2011, the Company determined that the value of the Granville Centre owned by Fund I was impaired and recorded an impairment loss of $6.9 million (Note 1). The Company estimated the Granville Centre’s fair value by using projected future (dollars in thousands) 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, 2011 December 31, 2010 Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value Notes Receivable and Preferred Equity Investments $ 59,989 $ 59,989 $ 89,202 $ 90,612 Mortgage Notes Payable and Convertible Notes Payable $788,840 $792,737 $854,924 $863,639 Note 11 Shareholders’ Equity and Noncontrolling Interests Common Shares During the first quarter of 2011, 40,254 employee Restricted Shares were canceled to pay the employees’ income taxes due on the value of the portion of their Restricted Shares that vested. During the year ended December 31, 2011, the Company recognized accrued Common Share and Common OP Unit-based compensation totaling $4.0 million in connection with the vesting of Restricted Shares and Units (Note 15). During November 2011, the Company issued 2.25 million Common Shares generating net proceeds of approximately $45.0 million. F-32 Acadia Realty Trust 2011 Annual Report 28831 Noncontrolling Interests The following table summarizes the change in the noncontrolling interests since December 31, 2010: Noncontrolling Interests in Operating Partnership Noncontrolling Interests in Partially-Owned Affiliates (dollars in thousands) Balance at December 31, 2010 Distributions declared of $0.72 per Common OP Unit Net income for the period January 1 through December 31, 2011 Conversion of 11,569 OP Units to Common Shares by limited partners of the Operating Partnership Issuance of LTIP Unit Awards to employees 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, 2011 $4,409 (984) 652 (56) 2,441 (48) 28 — — 3,550 $9,992 $264,901 — 1,508 — — (2,102) 648 117,945 (7,697) — $375,203 Noncontrolling interests in the Operating Partnership call for the conversion of the Series A Preferred OP represents (i) the limited partners’ 279,748 and 281,294 Units at the lesser of $7.50 or the market price of the Common OP Units at December 31, 2011 and 2010, Common Shares as of the conversion date. (ii) 188 Series A Preferred OP Units at December 31, 2011 and 2010, with a stated value of $1,000 per unit, Note 12 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 attributable to a Series A Preferred OP Unit if such unit were converted into a Common OP Unit, and Related Party Transactions During February 2010, Klaff converted all 250,000 of its Restricted Common OP Units into 250,000 Common Shares. (iii) 1,061,564 and 641,534 LTIP units as of December In 2009, the Company earned asset management, 31, 2011 and December 31, 2010 respectively, as leasing, disposition, development and construction fees discussed in Share Incentive Plan (Note 15). for providing services to an existing portfolio of retail Noncontrolling interests in partially-owned affiliates include third-party interests in Fund I, II and III, Mervyns I and II, and ten 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, 2011, 1,392 Series A Preferred OP Units were converted into 185,600 Common OP Units and then into Common Shares. The 188 remaining Series A properties and/or leasehold interests in which Klaff had an interest. Fees earned by the Company in connection with this portfolio were $0.4 million for the year ended December 31, 2009. The Company earns fees from one of its investments in unconsolidated partnerships (Note 4). The Company earned property management, construction, legal and leasing fees from the Brandywine Portfolio totaling $1.0 million, $0.8 million and $0.7 million for the years ended December 31, 2011, 2010 and 2009, respectively. Related party receivables due from unconsolidated affiliates totaled $1.4 million and $2.4 million at December 31, 2011 and 2010, respectively. Preferred OP Units are currently convertible into Lee Wielansky, the Lead Trustee of the Company, was Common OP Units based on the stated value divided by paid a consulting fee of $0.1 million for each of the years $7.50. Either the Company or the holders can currently ended December 31, 2011, 2010, and 2009. Acadia Realty Trust 2011 Annual Report F-33 37637 Notes to Consolidated Financial Statements continued Note 13 (dollars in thousands) 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. 2012 2013 2014 2015 2016 Thereafter Total Minimum future rentals to be received under non- cancelable leases for shopping centers and other retail properties as of December 31, 2011 are summarized as Note 15 $ 5,115 5,162 4,975 5,093 3,986 138,242 $162,573 follows: (dollars in thousands) 2012 2013 2014 2015 2016 Thereafter Total $ 87,873 82,153 75,099 69,636 65,245 574,137 $954,143 During the years ended December 31, 2011, 2010 and 2009, no single tenant collectively accounted for more than 10% of the Company’s total revenues. Note 14 Lease Obligations The Company leases land at nine of its shopping centers, which are accounted for as operating leases and generally provide the Company with renewal options. Ground rent expense was $4.6 million, $3.7 million, and $2.5 million (including capitalized ground rent at properties under development of $1.5 million, $0.5 million and $0.6 million) for the years ended December 31, 2011, 2010 and 2009, 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 71 years. The Company leases space for its White Plains corporate office for a term expiring in 2015. Office rent expense under this lease was $1.4 million, $1.5 million and $1.5 million for the years ended December 31, 2011, 2010 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 2009, respectively. Future minimum rental payments required for leases having remaining non-cancelable lease December 31, 2011, no share appreciation rights or performance units/shares had been awarded. In terms are as follows: F-34 Acadia Realty Trust 2011 Annual Report 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. 18402 During 2006, the Company adopted the 2006 Share the years ended December 31, 2011, 2010 and 2009, Incentive Plan (the “2006 Plan”). The 2006 Plan is respectively. substantially similar to the 2003 Plan, except that the maximum number of Common Share equivalents that the Company may issue pursuant to the 2006 Plan is 500,000. On May 10, 2011, the Company issued 22,154 Restricted Shares to Trustees of the Company in connection with Trustee fees. Vesting with respect to 10,279 of the Restricted Shares will be on the first On March 3, 2011 and March 22, 2011, the Company anniversary of the date of issuance and 11,875 of the issued a combined total of 431,248 LTIP Units and 210 Restricted Shares vest over three years with 33% Restricted Shares to officers of the Company and 164 vesting on each of the next three anniversaries of the LTIP Units and 9,584 Restricted Shares to other issuance date. The Restricted Shares do not carry voting employees of the Company. Vesting with respect to rights or other rights of Common Shares until vesting these awards is recognized ratably over the five annual and may not be transferred, assigned or pledged until anniversaries following the issuance date. Vesting with the recipients have a vested non-forfeitable right to such respect to 11% of the awards issued to officers are also shares. Dividends are not paid currently on unvested generally subject to achieving certain Company Restricted Shares, but are paid cumulatively from the performance measures. LTIP Units are similar to issuance date through the applicable vesting date of such Restricted Shares but provide for a quarterly partnership Restricted Shares. Trustee fee expense of $0.2 million distribution in a like amount as paid to Common OP for the year ended December 31, 2011 has been Units. This distribution is paid on both unvested and recognized in the accompanying consolidated financial vested LTIP Units. The LTIP Units are convertible into statements related to this issuance. Common OP Units and Common Shares upon vesting and a revaluation of the book capital accounts. In 2009, the Company adopted the Long Term Investment Alignment Program (the “Program”) pursuant These awards were measured at their fair value as if to which the Company may award units primarily to they were vested on the grant date. Fair value was senior executives which would entitle them to receive up established as the market price of the Company’s to 25% of any future Fund III Promote when and if such Common Shares as of the close of trading on the day Promote is ultimately realized. The Company has preceding the grant date. The total value of the above Restricted Shares and LTIP Units as of the grant date was $8.4 million, of which $2.4 million was recognized in compensation expense during 2011 and $6.0 million will be recognized in compensation expense over the vesting period. The weighted average fair value for Restricted Shares and awarded units representing 71% of the Program, which were determined to have no value at issuance or as of December 31, 2011. 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. LTIP Units granted for the years ended December 31, As of December 31, 2011, the Company had 101,283 2011, 2010 and 2009 were $19.08, $16.73 and $10.31, options outstanding to officers and employees and respectively. Total long-term incentive compensation expense, including the expense related to the above mentioned plans, was $4.0 million, $3.8 million and $3.7 million for 49,000 options outstanding to non-employee Trustees of the Company of which all have vested. These options are for ten-year terms from the grant date and vested in three equal annual installments, which began on their respective grant dates. Acadia Realty Trust 2011 Annual Report F-35 Notes to Consolidated Financial Statements continued A summary of option activity under all option arrangements as of December 31, 2010 and 2011, and changes during the years then ended is presented below: 41194 Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value (dollars in thousands) Options Outstanding and exercisable at December 31, 2009 Granted Exercised Forfeited or Expired Outstanding and exercisable at December 31, 2010 Granted Exercised Forfeited or Expired Shares 159,283 — (7,000) — 152,283 — (2,000) — $18.04 — 14.46 — 18.20 — 8.21 — Outstanding and exercisable at December 31, 2011 150,283 $18.33 5.5 — — — 4.5 — — — 3.5 $ — — 26 — 6 — — — $272 The total intrinsic value of options exercised during the A summary of the status of the Company’s unvested years ended December 31, 2011, 2010 and 2009 was Restricted Shares and LTIP Units as of December 31, $0.02 million, $0.03 million and $2.8 million, respectively. 2010 and 2011 and changes during the years ended December 31, 2010 and 2011, is presented below: Unvested Shares and LTIP Units Restricted Shares Unvested at December 31, 2009 Granted Vested Forfeited Unvested at December 31, 2010 Granted Vested Forfeited Unvested at December 31, 2011 272,512 24,473 (143,042) (513) 153,430 32,970 (104,196) (6,465) 75,739 Weighted Grant-Date Fair Value $20.76 17.32 21.26 13.74 19.75 19.13 20.95 14.73 $18.25 LTIP Units 362,833 266,928 (67,022) — 562,739 431,412 (153,895) (1,358) 838,898 Weighted Grant-Date Fair Value $16.35 16.73 15.69 — 16.61 19.08 16.78 16.86 $17.85 As of December 31, 2011, there was $9.4 million of total deductions. The Purchase Plan provides for employees to unrecognized compensation cost related to unvested purchase Common Shares on a quarterly basis at a 15% share-based compensation arrangements granted under discount to the closing price of the Company’s Common share incentive plans. That cost is expected to be Shares on either the first day or the last day of the recognized over a weighted-average period of 1.9 years. quarter, whichever is lower. A participant may not The total fair value of Restricted Shares that vested during purchase more the $25,000 in Common Shares per year. the years ended December 31, 2011, 2010 and 2009 was Compensation expense will be recognized by the $2.2 million, $3.0 million and $5.0 million, respectively. Company to the extent of the above discount to the Note 16 Employee Share Purchase and Deferred Share Plan The Acadia Realty Trust Employee Share Purchase Plan (the “Purchase Plan”), allows eligible employees of the Company to purchase Common Shares through payroll F-36 Acadia Realty Trust 2011 Annual Report closing price of the Common Shares with respect to the applicable quarter. During 2011, 2010 and 2009, a total of 4,886, 6,184 and 8,744 Common Shares, respectively, were purchased by employees under the Purchase Plan. Associated compensation expense of $0.01 million was recorded in 2011 and $0.02 million was recorded in both 2010 and 2009. 45539 During May of 2006, the Company adopted a Trustee will be subject to Federal income taxes at the regular Deferral and Distribution Election (“Trustee Deferral corporate rates (including any applicable alternative Plan”) whereby the participating Trustees have deferred minimum tax) and may not be able to qualify as a REIT compensation of $0.06 million in both 2011 and 2010 for the four subsequent taxable years. Even though the and $0.05 million for 2009. During 2009, certain trustees Company qualifies for taxation as a REIT, the Company is elected to receive 14,722 Common Shares, which were subject to certain state and local taxes on its income and previously deferred, from the Trustee Deferral Plan. property and Federal income and excise taxes on any Note 17 Employee 401(k) Plan The Company maintains a 401(k) plan for employees under which the Company currently matches 50% of a plan participant’s contribution up to 6% of the employee’s annual salary. A plan participant may contribute up to a maximum of 15% of their compensation up to $16,500 for the year ended December 31, 2011. The Company contributed $0.2 million for each of the years ended December 31, 2011, 2010 and 2009. Note 18 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 to the shareholders is characterized as follows for Federal income tax purposes: Ordinary income Qualified dividend Capital gain For the years ended December 31, 2011 75% 22% 3% 100% 2010 100% —% —% 100% 2009 95% —% 5% 100% Dividends and Distributions Payable On November 29, 2011, the Board of Trustees declared Taxable REIT Subsidiaries Income taxes have been provided for using the liability method as required by ASC Topic 740 “Income Taxes.” a cash dividend for the quarter ended December 31, The Company’s TRS income and provision for income 2011, of $0.18 per Common Share, which was paid on taxes for the years ended December 31, 2011, 2010 and February 1, 2012 to holders of record as of December 2009 are summarized as follows: 31, 2011. 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 requirement that it currently distribute at least 90% of its annual REIT taxable income to its shareholders. As a REIT, the Company generally will not be subject to corporate Federal income tax, provided that distributions to its shareholders equal at least the amount of its REIT taxable income as defined under the Code. As the Company distributed sufficient taxable income for the years ended December 31, 2011, 2010 and 2009, no U.S. Federal income or excise taxes were incurred. If the Company fails to qualify as a REIT in any taxable year, it (dollars in thousands) TRS income before income taxes 2011 2010 2009 $ 376 $5,716 $2,671 Provision for income taxes: Federal State and local TRS net income before noncontrolling interests Noncontrolling interests 222 59 2,164 543 1,025 292 95 3,009 1,354 1,245 (545) — TRS net income $1,340 $2,464 $1,354 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): Acadia Realty Trust 2011 Annual Report F-37 Notes to Consolidated Financial Statements continued 2011 2010 2009 Note 20 66483 (dollars in thousands) Federal provision at statutory tax rate TRS State and local taxes, net of federal benefit Tax effect of: Permanent differences, net Restricted stock vesting Other REIT state and local income and franchise taxes Total provision for income taxes $ 128 $1,943 $ 908 20 358 193 (279) 406 138 — 78 — — 183 224 266 146 193 $ 474 $2,890 $1,541 (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 Earnings Per Common Share Basic earnings per Common Share is computed using net income attributable to common shareholders and the 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 GAAP, all Common Shares used to calculate earnings per 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 operations for the periods indicated: Years ended December 31, 2011 2010 2009 $20,062 $28,260 $26,574 18 20,080 18 28,278 19 26,593 40,697 40,136 38,005 264 25 289 245 25 270 212 25 237 Denominator for diluted earnings per share 40,986 40,406 38,242 Basic earnings per Common Share from continuing operations attributable to Common Shareholders Diluted earnings per Common Share from continuing operations attributable to Common Shareholders $ 0.50 $ 0.70 $ 0.70 $ 0.49 $ 0.70 $ 0.70 The weighted average shares used in the computation of such, the assumed conversion of these units would have dilutive earnings per share include unvested restricted no net impact on the determination of diluted earnings Common Shares (“Restricted Shares”) and restricted OP per share. The conversion of the convertible notes Units (“LTIP Units”) (Note 15) that are entitled to receive payable (Note 9) is not reflected in the table above as dividend equivalent payments. The effect of the such conversion, based on the market price of the conversion of Common OP Units is not reflected in the Common Shares, would be settled with cash. above table, as they are exchangeable for Common Shares on a one-for-one basis. The income allocable to such units is allocated on this same basis and reflected as noncontrolling interest in subsidiaries in the accompanying consolidated financial statements. As The effect of the assumed conversion of 188 Series A Preferred OP Units into 25,067 Common Shares would be dilutive for the years ended December 31, 2011, 2010 and 2009 and are accordingly included in the table above. F-38 Acadia Realty Trust 2011 Annual Report 84778 Note 21 Summary of Quarterly Financial Information (unaudited) The quarterly results of operations of the Company for the years ended December 31, 2011 and 2010 are as follows: 2011 (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 $ $ $ $ $ $ $ $ 37,447 8,185 1,238 $ $ 37,845 4,245 25,989 9,423 $ 30,234 0.20 0.03 0.23 0.20 0.03 0.23 0.18 $ $ $ $ $ 0.11 0.64 0.75 0.10 0.64 0.74 0.18 $ $ $ $ $ $ $ $ 36,656 3,843 168 4,011 0.10 — 0.10 0.10 — 0.10 0.18 $ $ $ $ $ $ $ $ 38,213 3,789 4,098 7,887 0.09 0.10 0.19 0.09 0.10 0.19 0.18 40,317,603 40,333,575 40,339,958 41,785,261 40,580,173 40,633,317 40,628,781 42,066,390 Acadia Realty Trust 2011 Annual Report F-39 Notes to Consolidated Financial Statements continued (dollars in thousands, except per share amounts) March 31, June 30, September 30, December 31, 2010 10888 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 $ $ $ $ $ $ $ $ 34,702 4,829 301 $ $ 33,997 12,250 548 5,130 $ 12,798 0.12 0.01 0.13 0.12 0.01 0.13 0.18 $ $ $ $ $ 0.30 0.02 0.32 0.30 0.01 0.31 0.18 $ $ $ $ $ $ $ $ 36,302 4,592 525 5,117 0.12 0.01 0.13 0.12 0.01 0.13 0.18 $ $ $ $ $ $ $ $ 36,044 6,589 423 7,012 0.16 0.01 0.17 0.16 0.01 0.17 0.18 39,980,646 40,134,706 40,169,141 40,257,378 40,149,931 40,371,812 40,430,998 40,594,009 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 F-40 Acadia Realty Trust 2011 Annual Report 71101 compliance, liability, claim or expenditure will not arise in agreement with the Company. Had the Former Employee 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 the opinion that, when such litigation is resolved, the Company’s resulting liability, if any, will not have a significant effect on the Company’s consolidated financial position, results of operations, or liquidity. The not been terminated for “cause,” he would have been eligible to receive approximately $0.9 million under the severance agreement. Because the Company terminated him for “cause,” it did not pay the Former Employee any severance benefits under the agreement. The Former 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 Company’s policy is to accrue legal expenses as they are defenses to the suit. incurred. In September 2008, the Company, certain of its subsidiaries, and other unrelated entities (the “Investor Consortium”) 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. The action involves five claims alleging fraudulent transfers in which Mervyns is nominally seeking approximately $1.175 billion in damages from the Investor Consortium, although the actual claims made by the administrator and the unsecured creditors are substantially less. The first claim contends that, at the time of the sale of Mervyns by Target Corporation to the Investor Consortium, a transfer of assets was made in an effort to defraud creditors. The Company believes that this aspect of the case is without merit. The remaining four claims relate to transfers of assets of Mervyns at various times after the sale by Target. The Company believes that there are substantial defenses to these claims and intends to continue to defend them vigorously. This matter is in the early stages of discovery. The parties to this action have agreed to a The Company has arranged for the provision of one letter of credit in connection with a certain lease and investment. As of December 31, 2011, there were no outstanding balances under the letter of credit. If the letter of credit was fully drawn, the combined maximum amount of exposure would be $4.6 million. Note 23 Subsequent Events During January 2012, the Company established an at-the- market (“ATM”) equity program with an aggregate offering price of up to $75.0 million in Common Shares. The Company intends to use the future net proceeds of this offering for general corporate purposes, which may include, among other things, repayment of its debt, future acquisitions, (directly in the Core Portfolio and through its Opportunity Funds), and redevelopments of and capital improvements to its properties. During January 2012, the Company acquired 1520 North Milwaukee Ave, a 3,100 square foot property located in Chicago, IL for approximately $3.8 million. non-binding mediation, which is scheduled for the end of During February 2012, Fund III, in a venture with an March, 2012. Because of the inherently unpredictable nature of litigation, the Company could incur some amount of unaffiliated partner, acquired 640 Broadway, a 45,700 square foot property located in New York, NY for approximately $32.5 million. liability in connection with this matter. However, at the During February 2012, the Company acquired a 40,000 present time, there have not been sufficient square foot single tenant property, located in Cambridge, developments in this matter for us to estimate the MA, for approximately $19.2 million, which included the reasonably possible loss or range of loss that the Company might incur as a result of this matter. During August 2009, the Company terminated the employment of a former Senior Vice President (the assumption of $7.0 million of in-place mortgage debt. During February 2012, Kenneth Bernstein, President and CEO, converted 150,000 Common OP Units into Common Shares and subsequently sold 75,000 Common “Former Employee”) for engaging in conduct that fell Shares. within the definition of “cause” in his severance Acadia Realty Trust 2011 Annual Report F-41 68619 Schedule III — Real Estate and Accumulated Depreciation December 31, 2011 Description Encumbrances Land Buildings & Improvements Initial Cost to Company Costs Capitalized Subsequent to Acquisition Amount at which Carried at December 31, 2011 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 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 Center Abington, PA Bloomfield Town Square Bloomfield Hills, MI Walnut Hill Plaza Woonsocket, RI Elmwood Park Plaza Elmwood Park, NJ Merrillville Plaza Hobart, IN Marketplace of Absecon Absecon, NJ Clark Diversey Chicago, IL Boonton Boonton, NJ Chestnut Hill Philadelphia, PA Third Avenue Bronx, NY Hobson West Plaza Naperville, IL Village Commons Shopping Center Smithtown, NY Town Line Plaza Rocky Hill, CT Branch Shopping Center Village of the Branch, NY The Methuen Shopping Center Methuen, MA Gateway Shopping Center Burlington, VT Mad River Station Dayton, OH $17,287 $ 1,147 $ 7,425 $ 1,219 $ 1,147 $ 8,644 $ 9,791 $ 6,116 1984(a) 13,882 505 4,161 11,469 505 15,630 16,135 11,770 1982(a) — — — — — (1) (1) — 4,268 (872) — 3,396 3,396 2,596 1968(c) 190 3,004 2,199 190 5,203 5,393 4,010 1972(c) 1,664 — 11,185 1,664 11,185 12,849 6,381 1994(c) 1,691 5,803 560 1,691 6,363 8,054 1,686 2005(c) — 11,909 1,519 — 13,428 13,428 2,184 2005(a) 799 3,197 2,007 799 5,204 6,003 2,504 1998(a) 3,207 13,774 13,647 3,207 27,421 30,628 10,260 1998(a) 23,458 3,122 12,488 1,941 3,122 14,429 17,551 5,378 1998(a) 33,738 3,248 12,992 14,789 3,798 27,231 31,029 12,081 1998(a) 26,250 4,288 17,152 2,702 4,288 19,854 24,142 7,203 1998(a) (1) 2,573 10,294 3,798 2,577 14,088 16,665 5,090 1998(a) 4,491 10,061 2,773 187 10,061 2,960 13,021 452 2006(a) 7,874 1,328 7,188 196 1,328 7,384 8,712 1,076 2006(a) — — 8,289 5,691 44 8,289 5,735 14,024 11,108 8,038 3,943 11,855 11,234 23,089 794 965 2006(a) 2006(a) (1) 1,793 7,172 1,763 1,793 8,935 10,728 3,286 1998(a) 9,310 3,229 12,917 3,358 3,229 16,275 19,504 6,168 1998(a) (1) 878 3,510 7,502 907 10,983 11,890 7,935 1998(a) 12,761 3,156 12,545 1,021 3,156 13,566 16,722 4,816 1998(a) (1) 956 3,826 594 961 4,415 5,376 1,681 1998(a) 20,308 1,273 5,091 12,009 1,273 17,100 18,373 5,607 1999(a) — 2,350 9,404 1,058 2,350 10,462 12,812 3,573 1999(a) F-42 Acadia Realty Trust 2011 Annual Report 36793 December 31, 2011 Description Encumbrances Land Buildings & Improvements Initial Cost to Company Costs Capitalized Subsequent to Acquisition Amount at which Carried at December 31, 2011 Buildings & Land Improvements Total Accumulated Depreciation Date of Acquisition (a) Construction (c) Shopping Centers, continued 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 West Diversey 651-671 W Diversey Chicago, IL Mercer Street 15 Mercer Street New York, NY 4401 White Plains Bronx, NY Chicago Street Retail Portfolio Undeveloped Land Fund I: Tarrytown Centre Westchester, NY Kroger/Safeway Various Fund II: Liberty Avenue New York, NY Pelham Manor Westchester, NY 400 E. Fordham Road Bronx, NY 216th Street New York, NY 161st Street Bronx, NY Atlantic Avenue Brooklyn, NY Canarsie Plaza Brooklyn, NY ASOF II, LLC Fund III: 125 Main Street Assoc. Westport, CT Suffern Self Storage Suffern, NY Linden Self Storage Linden, NJ Webster Self Storage Bronx, NY 11,941 1,475 5,899 1,121 1,475 7,020 8,495 2,720 1999(a) 26,000 1,817 15,846 549 1,817 16,395 18,212 5,276 1998(a) — — 3,380 13,554 16,699 18,704 10 28 3,380 13,564 16,944 1,818 2007(a) 16,699 18,732 35,431 2,221 2007(a) — 3,048 7,281 — 3,048 7,281 10,329 743 2008(a) — 8,576 17,256 — 8,576 17,256 25,832 252 2011(a) — — — — 1,887 2,483 1,581 5,054 3,319 13,187 251 — — — — — 1,887 2,483 4,370 1,581 5,054 6,635 3,319 13,187 16,506 251 — 251 31 42 137 — 2011(a) 2011(a) 2011(a) 8,260 2,323 7,396 619 2,323 8,015 10,338 1,641 2004(a) — 9,395 34,000 — — — 4,265 12,627 — 721 — 65,399 — — — 4,265 4,265 4,067 2003(a) 13,348 13,348 1,717 2005(a) 65,399 65,399 5,544 2004(a) 84,277 11,144 18,010 95,318 16,253 108,219 124,472 9,090 2004(a) 25,500 7,261 — 19,146 7,261 19,146 26,407 2,467 2005(a) 28,900 16,679 28,410 261 16,679 28,671 45,350 4,642 2005(a) 11,540 5,322 56,476 32,543 40,000 — — — — 15,350 5,322 15,350 20,672 945 2007(a) 82,915 32,543 82,915 115,458 2,368 2007(a) — — — — — 12,500 12,993 4,316 8,012 12,993 12,328 25,321 364 2007(a) — 4,561 7,484 208 4,561 7,692 12,253 815 2008(a) (2) (2) 3,515 6,139 385 3,515 6,524 10,039 726 2008(a) 959 5,506 157 959 5,663 6,622 592 2008(a) Acadia Realty Trust 2011 Annual Report F-43 24214 Schedule III — Real Estate and Accumulated Depreciation continued December 31, 2011 Description Encumbrances Land Buildings & Improvements Initial Cost to Company Costs Capitalized Subsequent to Acquisition Amount at which Carried at December 31, 2011 Buildings & Improvements Land Total Accumulated Depreciation Date of Acquisition (a) Construction (c) Fund III, continued Jersey City Self Storage Jersey City, NJ Bronx Self Storage Bronx, NY Lawrence Self Storage 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 Heritage Shops Chicago, IL 654 Broadway New York, NY Marcus Avenue New Hyde Park, NY Real Estate Under Development Total Notes: (2) (2) 2,377 9,654 91 2,377 9,745 12,122 1,059 2008(a) 10,835 5,936 153 10,835 6,089 16,924 688 2008(a) (2) 6,977 12,688 86 6,977 12,774 19,751 1,272 2008(a) — — — — 7,597 22,391 512 7,597 22,903 30,500 2,420 2008(a) 1,977 4,769 443 1,977 5,212 7,189 544 2008(a) 3,121 17,457 283 3,121 17,740 20,861 1,765 2008(a) 6,244 10,551 245 6,244 10,796 17,040 1,105 2008(a) (2) 8,000 — — — — 13,942 8,000 13,942 21,942 1,083 — 1,083 1,083 979 208 2008(c) 2008(a) 50,000 7,293 61,395 3,712 7,293 65,107 72,400 8,512 2009(a) — — — 13,131 15,409 3,188 9,563 2,250 9,000 13,131 15,409 28,540 394 2011(a) — — — — 3,188 9,563 12,751 2,250 9,000 11,250 — — — 2011(a) 2011(a) 20 — — — 40,650 45,658 2,564 171,423 45,658 181,470 227,128 $787,877 $324,836 $559,416 $580,010 $331,280 $1,140,465 $1,471,745 $180,796 ASOF III, LLC 136,079 — — (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 $42,000. F-44 Acadia Realty Trust 2011 Annual Report 74500 December 31, 2011 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 $1,345.0 million as of December 31, 2011 3. (a) Reconciliation of Real Estate Properties: The following table reconciles the real estate properties from January 1, 2009 to December 31, 2011: (dollars in thousands) Balance at beginning of year Other improvements Property Acquired Balance at end of year For the years ended December 31, 2011 2010 2009 $1,305,561 60,300 105,884 $1,119,758 185,803 — $1,004,347 46,723 68,688 $1,471,745 $1,305,561 $1,119,758 3. (b) Reconciliation of Accumulated Depreciation: The following table reconciles accumulated depreciation from January 1, 2009 to December 31, 2011: (dollars in thousands) Balance at beginning of year Depreciation related to real estate Balance at end of year For the years ended December 31, 2011 2010 2009 $156,117 24,679 $180,796 $132,488 23,629 $156,117 $109,376 23,112 $132,488 Acadia Realty Trust 2011 Annual Report F-45 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 Executive Vice President, Chief Operating Officer Jon Grisham Sr. Vice President, Chief Financial Officer Richard Hartman 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(cid:31) Heather Moore, Esq. Sr. Vice President, Associate General Counsel Joseph M. Napolitano Sr. Vice President, Chief Administrative Officer Michael Nelsen Sr. Vice President, Accounting and Financial Principal Investor Relations Jon Grisham Sr. Vice President, Chief Financial 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 2011 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 Goodwin Procter, LLP 620 Eighth Avenue New York, NY 10018 Annual Meeting Acadia’s Board of Trustees has sched- uled the Annual Shareholder Meeting for Wednesday, May 16, 2012, at 1:00 p.m., local time, to be held at the offices of Paul, Hastings, Janofsky & Walker, LLP, 191 North Wacker Drive, Chicago, IL 60606. The record date for determination of shareholders entitled to vote is March 21, 2012. 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. 68749_ACD251 AR11_FrontCvr_M.indd 3 3/26/12 3:12 PM 1311 Mamaroneck Avenue Suite 260 White Plains, NY 10605 Tel: 914.288.8100 68749_ACD251 AR11_FrontCvr_M.indd 4 3/26/12 3:12 PM E Printed on recycled paper. 

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