Acadia Realty Trust
Annual Report 2012

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ANNUAL REPORT 2012 Dear Fellow Shareholders: In 2012, we commenced an important milestone for Acadia: our fifteenth year as a public company. True to form, we celebrated by rolling up our sleeves and continuing to advance our business plan. We had a productive year, completing $1 billion of transactions both as a buyer and as a profitable seller of real estate. We also completed $768 million of capital-raising activities, in both the public and private markets, providing fuel for our future growth. START ME UP Our future is informed by our past. Circa-1998 Acadia was created through the recapitalization of a troubled shopping center REIT, Mark Centers Trust. The newly-created company owned a number of assets located in secondary and tertiary markets, including Opelika, Alabama and Tunkhannock, Pennsylvania. Bankruptcy candidates Ames and Penn Traffic topped its list of tenants. The company’s debt to total market capitalization was 52%, even after a $100 million cash infusion at closing. But, we had a plan. We’re not in Shamokin anymore. We aggressively sold the company’s non-core assets. We used the net proceeds to acquire better real estate and further deleverage our balance sheet. Nevertheless, the public markets were reluctant to support our initiatives and, through 2000, our stock remained well below its merger pricing of $7.50 per share. So, in 2001, with limited access to capital in the public markets, we returned to our roots as a manager of private real estate funds and raised $90 million of discretionary, institutional capital for Acadia’s first fund. Then, we used our investment and redevelopment skills to put this capital to work in new acquisitions. Our plan worked. Although our stock closed 2001 at $6.35 per share, this time, our growth strategy gained traction, and our stock price nearly doubled to $12.50 per share within 24 months. Over the next several years, we committed to building our complementary, dual operating platforms: our infinite-life, core portfolio comprised of well-located retail properties and our fully-discretionary, opportunistic and value-add fund platform. Our plan has been met with continued enthusiasm, as measured by our stock’s solid track record: Total Return 12 Months 24 Months 60 Months Since 1998 Acadia 28.4% 47.0% 24.8% 949.1% CHANGES Shopping Center REITs 28.3% 16.8% -3.8% 247.8% Navigating retailing crosscurrents. There are a number of trends that will continue to significantly impact retailers and the retail real estate industry, the most significant of which is the growth of e- commerce and omni-channel retailing. Even though we already own one of the strongest retail real estate portfolios in our sector, we must continue to refine and enhance our portfolio in order to remain relevant to both our tenants and our investors in the years ahead. While we intend to remain focused on the core retail competencies that have historically driven our profitability, we will also continue to evaluate our strategies in order to keep our dual operating platforms (core and funds) well positioned to profit in the future. The reports of retail’s death are greatly exaggerated. Notwithstanding legitimate concerns about the long-term viability of certain segments of the retailing industry, the retail store is not dead. While we expect retailers to be more selective as to the locations of their next-generation stores, we also believe that “bricks and mortar” will remain an important component of retailers’ evolving multi-channel selling strategies. Why? As showrooms, stores have the ability to influence consumers’ purchase decisions across all channels. And, once a transaction is complete, stores serve as convenient order-fulfillment (pick-up, return, exchange) destinations. Most importantly, stores, when correctly located and merchandised, can play a critical role in establishing a retailer’s brand identity. Avoiding the “go-broke-last” business model. Even so, as e-commerce becomes a larger percentage of total retail sales, we do expect to see continued pressure on the four-wall productivity of certain retailers’ brick-and-mortar stores. In response, some retailers will be forced to compete more effectively on price. As part of this “race to the bottom,” these retailers may reduce their store count. In doing so, they may, for example, operate two to three stores in markets that had previously supported as many as four stores. And, in certain markets, they may pull out altogether. To date, the lack of new construction has cushioned the impact of this trend on retail real estate owners. However, in the long run, we do expect to see a further separation between the “have” locations and the “have nots.” The silver lining is that the “have” locations – our target markets – should capture a larger percentage of consumers’ offline sales and thus should be able to sustain market rent growth. COME RAIN OR COME SHINE: MAINTAINING A HIGH-QUALITY CORE PORTFOLIO CORE PORTFOLIO: Our Growth Goals GROWING UPper quartile. We have been pruning our own core portfolio of its bottom-quartile assets since 1998. As a result of this discipline, over the years, we have successfully elevated our portfolio’s quality (albeit at the expense of size). At the same time, we have continually focused our attention on adding assets that are consistent in quality with those in our existing core portfolio’s upper quartile. To that end, during 2012, we added $224 million of core assets. Our goal is to add a similar amount in 2013. We can still move the needle, now and in the foreseeable future. We acknowledge that our core acquisition volume is, perhaps, a modest goal relative to our peers in the shopping center REIT sector. However, given the size of our portfolio, last year’s acquisition activity added more than 20% to our NOI and increased our earnings by 6% to 7%. Furthermore, looking to property demographics as one of the many measures of asset quality, the impact is clear: these recent acquisitions average 360,000 people within three miles, which has increased our overall portfolio average to 238,000 people, as compared to our 2010 average of 180,000 people. This compares favorably to the current industry average of 87,000 people. This is not growth for growth’s sake. Our intention is to increase our financial stability and relevancy while also weatherproofing our portfolio from secular changes facing the retailing industry. As such, our acquisitions team is targeting high-quality, well-located properties with strong internal growth profiles. More specifically, we are seeking to acquire both street/urban retail and dense-suburban shopping centers. CORE PORTFOLIO: Street/Urban Retail Where the retail rent grows. With the U.S. on the path to an economic recovery, albeit at a slow and uneven pace, we expect to see retail rents grow over the next three, five, and ten years for high-quality space located in key metro areas. Moreover, we expect retail rents on high streets and in urban markets to outpace other locations. Why? There continues to be high retailer demand for a limited supply of multi- purpose, flagship space located in close proximity to a dense shopping population. We are building our presence in key corridors. Accordingly, over the past four years, we have steadily increased our street/urban retail holdings. Today, this product type represents nearly 40% of our core portfolio’s gross asset value (as compared to 14% in 2008). This includes the impact of $166 million of street/urban retail acquisitions completed during 2012 in:  Chicago, where our footprint now extends from Rush/Walton to Wicker Park to Halsted/Armitage to Clark/Diversey;  the New York Metro Area, where we added assets both on Spring Street in New York’s Soho neighborhood and on Main Street in Westport, Connecticut; and  Washington, D.C., where we complemented our existing M Street portfolio in Georgetown with two assets located on Connecticut Avenue in Dupont Circle and one asset situated adjacent to the Metro’s Red Line at Rhode Island Avenue. Our portfolio is scalable. Our multi-year assemblage of a portfolio in Lincoln Park’s Clark/Diversey corridor speaks, in a small way, to the increasing scalability of our core portfolio: Step 1: It’s all about location. In 2006, we planted our first flag at the intersection of Clark Street and Diversey Parkway with the acquisition of a Vitamin Shoppe and Nine West-anchored property for $10 million. Located a few miles north of downtown, this property benefits from the trade area’s highly- desirable demographics: high density (3.5 times more densely-populated than Chicago’s average) and a population that is both youthful (18-44 year olds comprise 60% of the trade area) and well educated (nearly 80% of the population has a bachelor’s degree). Step 2: Time to double down. And so, when a Trader Joe’s and Urban Outfitters-anchored property located less than 100 yards down the road came to market in mid-2011, we were highly motivated to add another well-located property with solid tenancy to our portfolio. Step 3: Repeat, repeat, repeat. Then, within the next 18 months, we completed three successive acquisitions of neighboring properties, which, all told, has given us control of two contiguous blocks on the south side of Diversey Parkway and a Clark/Diversey portfolio valued in excess of $50 million. Step 4: See Step 3. By leveraging our street/urban retail expertise, we plan to continue building a best-in- class retail portfolio from Boston to Washington, D.C. and across coastal Chicago. CORE PORTFOLIO: Dense-Suburban Shopping Centers GO BIG (box) in dense markets OR GO HOME. Notwithstanding our deliberate shift toward street/urban retail, the well-balanced portfolio that we strive for will continue to include suburban discounter and supermarket-anchored shopping centers. However, in light of e-commerce growth and big- box downsizing, we will remain selective. During 2012, we acquired $58 million of suburban shopping centers anchored by quality tenants: Whole Foods Market, Kohl’s, and Home Depot. More importantly, these recent acquisitions are located in the following densely-populated markets: Cambridge, Massachusetts; Jericho, (Long Island) New York; and Bloomfield, New Jersey. These acquisitions average 307,000 people within three miles, with strong average and median household incomes of $98,000 and $81,000, respectively. Looking ahead, you can expect more of the same. CORE PORTFOLIO: Our Existing Portfolio Portfolio pruning pays off. Acquisitions aside, throughout our company’s history, we have also been able to create long-term value by proactively recapturing underutilized anchor space at our existing shopping centers and re-leasing these spaces to higher-quality tenants. During 2012, we completed two of these re-anchoring projects in Bloomfield Hills, Michigan and Smithtown, (Long Island) New York. Taken together with the solid performance of our other assets, our portfolio was able to achieve 3.7% same-store NOI growth year over year. Even after excluding the impact of these re-anchoring projects, same-store NOI growth was a solid 2.9%. Furthermore, as another measure of our portfolio’s overall health, we ended the year at 94.2% occupancy, which is consistent with our portfolio’s historic highs. TWO IS BETTER THAN ONE: CREATING VALUE THROUGH OUR FUND PLATFORM FUND PLATFORM: Launch of Fund IV We greatly value our private partnerships. Given that the investment period for our third institutional fund was scheduled to end in mid-May 2012, last year, we returned to the private markets to raise the next in our series of discretionary funds. We successfully completed our capital-raising activities within three months with a total of $541 million of commitments, which includes a $125 million commitment from Acadia Realty Trust. With leverage, our latest opportunistic/value-add investment vehicle has up to $1.5 billion of buying power for us to deploy over the next few years. We are extremely appreciative of the strong support demonstrated by both our existing fund investors and those with whom we have recently established new relationships. We greatly value these partnerships – some of which extend for more than 15 years – and we look forward to creating value for all of our stakeholders through the disciplined application of our location-driven investment strategy. FUND PLATFORM: Our Investment Focus Driving growth, fund style. Our fund platform has been our opportunistic and value-add investment vehicle since 2001. Similar to our core portfolio, our fund activities are primarily focused in high-barrier- to-entry, supply-constrained markets. However, that is where the similarities end. Through our funds, we target assets with outsized value-creation opportunities and, consequently, more volatility. Oftentimes, our fund assets are initially characterized as “broken,” “distressed,” or in need of a long-term strategic change. We unlock value through re-tenanting or redevelopment activities. And, in doing so, we reposition these assets as stable, core product with high-quality tenants and strong, contractual internal growth. During 2012, we completed $268 million of fund acquisitions, which were consistent with the following three investment themes: distressed retailers, street/urban retail, and opportunistic. FUND PLATFORM: Distressed Retailer Investments A&P, Borders, Circuit City… retailers come and go. We continue to position our funds to profit from rotations in anchor tenants by focusing first and foremost on real estate location and properties’ re- tenanting potential rather than on current tenancy. For example, last April, we acquired a highly-visible, 63,000 square foot property located in Lincoln Park, Chicago for $32 million. Formerly anchored by Borders, the property neighbors Apple in the highly-trafficked Clybourn Corridor and presents retailers with an opportunity for a flagship store. In December, we also acquired a single-tenant Best Buy located in Baltimore, Maryland for $5 million in partnership with MCB Real Estate. Due to Best Buy’s uncertain future, we were able to purchase the property at an attractive cap rate, leading to a rapid return of our initial equity investment. In fact, if the retailer remains in place for the four years that are left on its lease, then we should receive a full return of invested capital before the property is even re-leased. And, if not, this property is well located within its submarket and, that being so, has sufficient re-tenanting possibilities. FUND PLATFORM: Street/Urban Retail Investments Miami Beach’s Lincoln Road heats up in the iPhone era. Notwithstanding technology’s proven ability to disintermediate companies and industries, many retailers are embracing multi-channel retailing and selecting brick-and-mortar locations that can complement their e-commerce initiatives. Over the past several years, Lincoln Road, in Miami Beach, Florida, has emerged as one of our retailers’ “must-have” locations, not only for its exceptional global branding opportunities but also for its high sales productivity. In 2012, we continued to build our presence at the heart of the Lincoln Road shopping corridor with the acquisition of a $139 million, three-property portfolio in partnership with the talented team at Terranova Corporation. The portfolio is currently leased to a combination of local tenants and national retailers, including Fossil, Aldo, Kiehl’s, and Dylan’s Candy Bar. Leases representing approximately half of the portfolio’s annual base rent expire within the next 24 to 36 months. Given that rents on Lincoln Road have increased significantly over the past few years, the majority of the portfolio’s in-place rental rates are significantly below market. Additionally, we have the ability to redevelop some of the assets as well as improve the portfolio’s overall merchandise mix. This portfolio acquisition, which follows Acadia/Terranova’s successful $52 million, three-property purchase in 2011, reportedly makes us Lincoln Road’s largest retail landlords. Taking part in Bowery 2.0. Then, last December, we acquired the first of what we hope will be many redevelopment sites on the Bowery in lower Manhattan. In contrast to Lincoln Road, the Bowery is an “emerging” market that has historically been home to restaurant equipment and lighting suppliers. However, as a corollary of Soho and Nolita’s popularity, the blocks immediately north and south of Houston Street have recently started to gentrify. John Varvatos was a first mover. Anthropologie, Intermix, and Patagonia have stores in the pipeline. Nonetheless, Bowery rents are still a fraction of those in other popular New York City retail corridors. Accordingly, we believe that Bowery rents are poised for outsized growth, which we plan to capture over the next several years. FUND PLATFORM: Opportunistic Investments We are not beholden to our stock price. Due to our fund business’ fully-discretionary capital structure, we can act quickly and definitively – regardless of the state of the REIT market – to capitalize on any number of factors that might motivate an owner to dispose of a property at opportunistic pricing. These factors include an anchor tenant bankruptcy, an impending debt maturity, an owner’s inability or unwillingness to fund tenant improvements and leasing commissions, and/or a lack of liquidity in the capital markets. During 2012, our opportunistic investments included the purchase of $19 million of distressed debt. Subsequent to year end, we successfully took title to this loan’s collateral, a property located in Brooklyn, New York, and we are now in the process of formulating our re-leasing strategy. FUND PLATFORM: Stabilized Asset Dispositions Last year, stabilized real estate values continued to climb at the hands of accommodative monetary policies, which kept interest rates low and investors searching for attractive yield alternatives. As a result, we chose to profitably monetize $446 million of our stabilized fund assets, achieving IRRs ranging from 13% to more than 50% and equity multiples ranging from 1.6x to 2.0x. In doing so, we validated several of our fundamental investment theses: Thesis 1: Properties saddled with distressed retailers can create cap rate arbitrage opportunities. In distressed situations, the capital markets often have a hard time differentiating between strong and weak locations, and we are able to acquire well-located properties with current cash flow at attractive pricing. In February 2011, we executed on this strategy by opportunistically acquiring a Superfresh supermarket in partnership with MCB Real Estate. As anticipated, the tenant’s parent company (A&P) declared bankruptcy two months prior to our purchase. However, once the dust settled, our distressed Superfresh was replaced by a solid ShopRite, which was attracted to the quality of this site in Silver Spring, Maryland. We sold the asset in June. Thesis 2: Street-retail assets in “A” locations are well positioned to retain/enhance their value through real estate cycles. We confirmed this thesis five years after our 2007 acquisition of a redevelopment asset located on Main Street in Westport, one of Connecticut’s affluent “Gold Coast” towns. In hindsight, 2007 was, perhaps, the peak of the U.S.’ most recent market cycle, and Main Street was not immune to the ensuing Global Financial Crisis. Nevertheless, this asset proved to be resilient, which we attribute to the trade area’s strong demographics ($136,000 median household income within three miles) and the two- block retail corridor’s limited inventory. As tenant demand rebounded, we leased the property to Gap, completed the redevelopment, and sold the asset in August. Thesis 3: As a whole, the U.S. may be over retailed; however, the supply-demand imbalance in the U.S.’ densely-populated urban markets – New York City, above all – should continue to attract the interest of retailers and the capital markets. After all, the same held true within our own portfolio during the Global Financial Crisis. For example, when Home Depot curtailed plans for expansion in 2008, we were able to quickly re-anchor our 274,000 square foot Canarsie (Brooklyn) development project with BJ’s Wholesale Club. This property benefits from the trade area’s high density (438,000 people residing within two miles) and its limited retail competition. The property was 96% occupied when we sold it in December. Thesis 4: See Thesis 3. In another year-end transaction, we sold or entered into a firm contract to sell our entire 1.1 million rentable square foot portfolio of 14 self-storage assets for $294 million. Once again, we credit the success of this February 2008 investment to the selection of quality sites within the densely- populated, supply-constrained New York City area as well as to the hard work of the Storage Post management team, who maximized occupancy in the low to mid-90’s, grew NOI, and proved the immense value and potential of these locations to the institutional investment community. FUND PLATFORM: Our Existing Portfolio Our existing investments are on track. Transactional activity aside, 2012 was also a productive year for our leasing and development teams, who continued to make progress on the stabilization of our existing projects, including:  our mixed-use property located on Fordham Road in the Bronx, which was 100% occupied as of year-end 2012 (up from 63% occupancy only one year earlier); and  our development site located in Farmingdale on Long Island, which we acquired last summer, by foreclosing on our first mortgage loan, and are now beginning to pre-lease. Most significantly, our City Point (Downtown Brooklyn) development team, led by Washington Square Partners, solidified key components of that project’s retail leasing strategy by pre-leasing more than one third of the retail area to Century 21 and Alamo Drafthouse Cinema. The team also executed a lease with Armani Exchange, which opened for business in November within the project’s completed “Phase 1” space. AIN’T MISBEHAVIN’: RESPONSIBLY MANAGING OUR LEVERAGE AND LIQUIDITY We maintain a safe and healthy balance sheet. Companies seeking long-term, responsible growth should also be focused on maintaining low leverage and appropriate levels of liquidity. We are, on all counts. For example, our net debt to EBITDA ratio was 4.6x at year-end 2012 – one of the lowest in the industry – and our fixed-charge coverage ratio was 3.3x. Likewise, our debt to total market capitalization was 25%. We intend to fuel our acquisition activities on a leverage-neutral basis in order to maintain strong balance sheet metrics. To that end, during 2012, we raised $227 million of capital from the public markets through follow-on offerings, including our ATM programs. Today, as a result, we are in a strong financial position, which, more importantly, is also consistent with our past performance. THE BEST IS YET TO COME 2028, here we come! Our senior ranks still include a core group of executives who participated in Acadia Realty Trust’s founding in 1998 and have been instrumental in driving our long-term success. However, in addition to growing our real estate assets, this team has also been focused on growing our next generation of managers. So, across our organization, you will find our seasoned veterans working alongside solid new talent at all levels of seniority. Additionally, our company has consistently benefited from the guidance – and, at times, prodding – of the experienced and astute members of our Board of Trustees. Collectively, this collaborative team is energized and committed to creating another 15 years of success. So am I. In closing, whether you have invested with us for 15 months or 15 years, thank you for your support of our company and our team. Even after 15 years, Acadia is only in its early innings. Kenneth F. Bernstein President and CEO P.S. If you are not reading this report electronically, you will notice that, this year, we chose to scale back the printed version of our annual report. Colorful printing is neither economical nor eco-friendly. Instead, I strongly encourage you to visit our website (www.acadiarealty.com) for a photo tour of our properties and our latest progress. 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, 2012 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. 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 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) YES NO 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 $1,056.0 million, based on a price of $23.11 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 27, 2013 was 53,468,275. DOCUMENTS INCORPORATED BY REFERENCE Part III – Portions of the registrant’s definitive proxy statement relating to its 2013 Annual Meeting of Shareholders presently scheduled to be held May 16, 2013 to be filed pursuant to Regulation 14A. Item No. 1. Business 1A. Risk Factors 1B. Unresolved Staff Comments 2. Properties 3. Legal Proceedings 4. Mine Safety Disclosures TABLE OF CONTENTS Form 10-K Report PART I 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 15. Exhibits and Financial Statement Schedules PART IV Page 4 9 18 18 28 28 29 31 33 47 49 49 49 50 51 51 51 51 51 51 2 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in this Annual Report on Form 10-K may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 and as such may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative thereof or other variations thereon or comparable terminology. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to those set forth under the headings “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation” in this Form 10-K. These risks and uncertainties should be considered in evaluating any forward-looking statements contained or incorporated by reference herein. 3 ITEM 1. BUSINESS. GENERAL PART I Acadia Realty Trust (the “Trust”) was formed on March 4, 1993 as a Maryland real estate investment trust (“REIT”). All references to “Acadia,” “we,” “us,” “our,” and “Company” refer to the Trust and its consolidated subsidiaries. We are a fully integrated REIT focused on the ownership, acquisition, redevelopment, and management of high-quality retail properties and urban/infill mixed- use properties with a strong retail component located primarily in high-barrier-to-entry, supply constrained, densely-populated metropolitan areas in the United States along the East Coast and in Chicago. We currently own, or have an ownership interest in these properties through our Core Portfolio (as defined in Item 2. of this Form 10-K) and our Opportunity Funds (as defined in Item 1 of this Form 10-K). We also have private equity investments in other retail real estate related opportunities in which we have a minority equity interest. All of our assets are held by, and all of our operations are conducted through, Acadia Realty Limited Partnership (the “Operating Partnership”) and entities in which the Operating Partnership owns an interest. As of December 31, 2012, 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”, respectively, and collectively, “OP Units”) and employees who have been awarded restricted Common OP Units ("LTIP Units") as long-term incentive compensation. Limited partners holding Common OP and LTIP Units are generally entitled to exchange their units on a one-for-one basis for our common shares of beneficial interest of the Trust (“Common Shares”). This structure is referred to as an umbrella partnership REIT, or “UPREIT”. BUSINESS OBJECTIVES AND STRATEGIES Our primary business objective is to acquire and manage commercial retail properties that will provide cash for distributions to shareholders while also creating the potential for capital appreciation to enhance investor returns. We focus on the following fundamentals to achieve this objective: • Own and operate a Core Portfolio of high-quality retail properties located primarily in high-barrier-to-entry, densely- populated metropolitan areas. Our goal is to create value through accretive redevelopment and re-anchoring activities within our existing portfolio and grow this platform through the acquisition of high-quality assets that have the long- term potential to outperform the asset class. • Generate additional external growth through an opportunistic yet disciplined acquisition program within our Opportunity Funds (as defined below). We target transactions with high inherent opportunity for the creation of additional value through: value-add investments in high-quality urban and/or street retail properties with re-tenanting or repositioning opportunities, opportunistic acquisitions of well-located real-estate anchored by distressed retailers or by motivated sellers and opportunistic purchases of debt which may include restructuring. 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. • Maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth. Investment Strategy — Generate External Growth through our Dual Platforms; Core Portfolio and Opportunity Funds 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 the growth of our Core Portfolio. As such, we constantly evaluate the blended cost of equity and debt and adjust the amount of acquisition activity to align the level of investment activity with capital flows. 4 Given the growing importance of technology and e-commerce, many of our retail tenants are appropriately focused on multi- channel sales and how to best utilize e-commerce initiatives to drive sales at their stores. In light of these initiatives, we have found retailers are becoming more selective as to the location, size and format of their next-generation stores and are focused on dense, high-traffic retail corridors, where they can utilize smaller and more productive formats closer to their shopping population. In addition to retailer multi-channeling initiatives, 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. Accordingly, our focus for Core Portfolio and Opportunity Fund acquisitions is on those properties which we believe will not only remain relevant to our tenants, but become even more 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. In addition to our Core Portfolio investments in real estate assets, we have also capitalized on our expertise in the acquisition, redevelopment, leasing and management of retail real estate by establishing discretionary opportunity funds. Our opportunity fund platform is an investment vehicle where the Operating Partnership invests, along with outside institutional investors, including, but not limited to, endowments, foundations, pension funds, and investment management companies, in primarily opportunistic and value-add retail real estate. To date, we have launched four opportunity funds (“Opportunity Funds”); Acadia Strategic Opportunity Fund, LP (“Fund I”), Acadia Strategic Opportunity Fund II, LLC (“Fund II”), Acadia Strategic Opportunity Fund III LLC (“Fund III”) and Acadia Strategic Opportunity Fund IV LLC ("Fund IV"). Due to the level of our control, we consolidate these Opportunity Funds for financial reporting purposes. The Opportunity Funds also include investments in operating companies through Acadia Mervyn Investors I, LLC ("Mervyns I"), Acadia Mervyn Investors II, LLC ("Mervyns II") and Fund II, all on a non-recourse basis. These investments comprise and are referred to as the Company's Retailer Controlled Property Initiative ("RCP Venture"). The Operating Partnership is the sole general partner or managing member of the Opportunity Funds and earns fees or priority distributions for asset management, property management, construction, redevelopment, leasing and legal services. Cash flows from the Opportunity Funds are distributed pro-rata to their respective partners and members (including the Operating Partnership) until each receives a certain cumulative return ("Preferred Return"), and the return of all capital contributions. Thereafter, remaining cash flow is distributed 20% to the Operating Partnership ("Promote") and 80% to the partners or members (including the Operating Partnership). Reference is made to Note 1 in the Notes to Consolidated Financial Statements, which begin on page F-1 of this Form 10-K ("Notes to Consolidated Financial Statements"), for a detailed discussion of the Opportunity Funds and RCP Venture. Capital Strategy — Balance Sheet Focus and Access to Capital Our primary capital objective is to maintain a strong and flexible balance sheet through conservative financial practices, including a moderate use of leverage, while ensuring access to sufficient capital to fund future growth. We intend to continue financing acquisitions and property redevelopment with sources of capital determined by management to be the most appropriate based on, among other factors, availability in the current capital markets, pricing and other commercial and financial terms. The sources of capital may include the issuance of public equity, unsecured debt, mortgage and construction loans, and other capital alternatives including the issuance of OP Units. We manage our interest rate risk primarily through the use of fixed rate debt and, where we use variable rate debt, we use certain derivative instruments, including London Interbank Offered Rate (“LIBOR”) swap agreements and interest rate caps as discussed further in Item 7A. of this Form 10-K. During January 2012, we established an at-the-market (“ATM”) equity program with an aggregate offering of up to $75.0 million of gross proceeds from the sale of Common Shares. Under this program, we issued approximately 3.3 million Common Shares which generated net proceeds of $73.7 million. During August 2012, we established a new ATM equity program with an additional aggregate offering of up to $125.0 million of gross proceeds from the sale of Common Shares. Through December 31, 2012, we issued approximately 2.8 million Common Shares which generated net proceeds of $67.8 million. We intend to use the future net proceeds of this or potential future ATM offerings primarily to fund acquisitions directly in the Core Portfolio and through its capital contributions to the Opportunity Funds. During October 2012, we issued approximately 3.5 million Common Shares in a separate follow-on offering, for $86.9 million. Net proceeds after expenses were approximately $85.8 million. The proceeds were primarily used for acquisitions, including our pro-rata share of acquisitions in Fund IV and for general corporate purposes. During January 2013, we closed on a new unsecured revolving credit facility of up to $150 million, which matures on January 31, 2016 with an additional one year extension option. As of February 27, 2013, no proceeds have been drawn on this facility. 5 Operating Strategy — Experienced Management Team with Proven Track Record Our senior management team has decades of experience in the real estate industry. We have capitalized on our expertise in the acquisition, redevelopment, leasing and management of retail real estate by creating value through property redevelopment, re- anchoring and establishing joint ventures, such as the Opportunity Funds, in which we earn, in addition to a return on our equity interest, Promotes, fees and priority distributions. Operating functions such as leasing, property management, construction, finance and legal (collectively, the “Operating Departments”) are generally provided by our personnel, providing for a vertically integrated operating platform. By incorporating the Operating Departments in the acquisition process, acquisitions are appropriately priced giving effect to each asset’s specific risks and returns and transition time is minimized allowing management to immediately execute on its strategic plan for each asset. Our Core Portfolio consists primarily of urban/street retail properties and neighborhood and community shopping centers located in high barrier-to-entry supply constrained markets. As we typically hold our Core Portfolio properties for long-term investment, we periodically review the existing portfolio and implement programs to renovate and modernize targeted properties to enhance their market position. This in turn strengthens the competitive position of the leasing program to attract and retain quality tenants, increasing cash flow, and consequently, property values. From time to time, we also identify certain properties for disposition and redeploy the capital for acquisitions and for the repositioning of existing centers with greater potential for capital appreciation. INVESTING ACTIVITIES Core Portfolio See Item 2. PROPERTIES for the definition of our Core Portfolio. For the year ended December 31, 2012, we continued to execute on our strategy of owning a superior Core Portfolio by acquiring, through our Operating Partnership, high-quality, street/urban and suburban retail assets located in densely populated areas for an aggregate purchase price of $224.3 million. Reference is made to Note 2 in the Notes to Consolidated Financial Statements, for a detailed discussion of these acquisitions. In addition, as of December 31, 2012 we have a current acquisition pipeline of $86.6 million under contract, which is subject to certain closing conditions and as such, no assurance can be given that closing will be successfully completed. See Item 2. PROPERTIES for a description of the other properties in our Core Portfolio. Since 2010, we have sold one Core Portfolio asset, the Ledgewood Mall. This 517,151 square foot center located in Ledgewood, New Jersey was sold during May 2011 for $37.0 million. We also make investments in first mortgages and other notes receivable collateralized by real estate, either directly or through entities having an ownership interest therein. During 2012, we invested $43.3 million in first mortgage notes and $46.9 million in other notes receivable. Reference is made to Note 5 in the Notes to Consolidated Financial Statements, for a detailed discussion of our notes receivable and other real estate related investments. Opportunity Funds Acquisitions Fund III During 2012, Fund III acquired properties for an aggregate purchase price of $108.0 million. Reference is made to Note 2 in the Notes to Consolidated Financial Statements, for a detailed discussion of these acquisitions. Fund IV During 2012, Fund IV acquired its first properties for an aggregate purchase price of $151.2 million. Reference is made to Note 2 in the Notes to Consolidated Financial Statements, for a detailed discussion of these acquisitions. 6 Dispositions 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 14 self-storage property portfolio, located throughout New York and New Jersey, totaled approximately 1.1 million net rentable square feet, and was operating at various stages of stabilization. During the fourth quarter of 2012, we sold 12 of the 14 properties in this portfolio for an aggregate sales price of $261.6 million. The remaining two properties are under contract, which we anticipate closing during 2013. Other Dispositions During 2012, Funds I, II and III sold four additional shopping centers for an aggregate sales price of $184.1 million. Reference is made to Note 2 in the Notes to Consolidated Financial Statements, for a detailed discussion of these dispositions. Redevelopment Activities As part of our Opportunity Fund strategy, we invest in real estate assets that require significant redevelopment. As of December 31, 2012, the Company had eight redevelopment projects, one of which is under construction and seven are in the design phase as follows: (dollars in millions) Property City Point (2) Sherman Plaza (2) Sheepshead Bay 723 N. Lincoln Lane Cortlandt Crossing 3104 M Street NW Owner Costs to date Anticipated additional costs (1) Status Square feet upon completion Anticipated completion dates Fund II $ 142.9 $107.1 - $197.1 Under construction 675,000 Fund II Fund III Fund III Fund III Fund III 34.7 22.8 6.7 11.2 3.0 11.1 7.5 $ 239.9 TBD TBD TBD 35.8 - 44.8 4.0 - 5.5 38.9 - 48.9 4.0 - 4.5 In design In design In design In design In design In design In design TBD TBD TBD 150,000 - 170,000 10,000 180,000 - 200,000 10,000 Broad Hollow Commons Fund III 210 Bowery Total Fund IV 2015 TBD TBD TBD 2016 2014 2016 2015 Notes: TBD – To be determined (1) Anticipated additional costs are estimated ranges for completing the projects and include costs for tenant improvements and leasing commissions. (2) These projects are being redeveloped by Acadia Urban Development LLC ("Acadia Urban Development"), or subsidiaries thereof, in connection with Fund II's New York Urban/Infill Redevelopment Initiative. 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 Redevelopment Initiative.” Under Construction CityPoint — During June of 2007, Acadia-Washington Square Albee and an unaffiliated joint venture partner, California Urban Investment Partners, LLC (“CUIP”) purchased the leasehold interests in The Gallery at Fulton Street in downtown Brooklyn for approximately $115.0 million, with an option to purchase the fee position, which is owned by the City of New York, at a later date. On June 30, 2010, Acadia-Washington Square Albee acquired all of CUIP’s interest in CityPoint for total consideration of $9.2 million and the assumption of CUIP’s share of debt of $19.6 million. The redevelopment will proceed in three phases. Construction is completed on Phase 1, a five-story retail building of approximately 50,000 square feet. Phase 2, which is currently under construction, will consist of approximately 625,000 square feet of additional retail when completed. 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. Completion of the construction of this project is anticipated to be during 2015. 7 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. Mervyns I and II along with Fund II have invested a total of $62.2 million in the RCP Venture to date on a non-recourse basis. Reference is made to Note 4 in the Notes to Consolidated Financial Statements, for a detailed discussion of the RCP Venture. While we are primarily a passive partner in the investments made through the RCP Venture, historically we have provided our services in reviewing potential acquisitions and operating and redevelopment assistance in areas where we have both a presence and expertise. In the future, we may seek to opportunistically invest either on our own, with the RCP Venture or with other partners in similar investments, which may include: - Investment in operating retailers to control their real estate through private equity joint ventures - Collaboration with financially healthy retailers to create value from their surplus real estate - Investment in properties, designation rights or other control of real estate or leases associated with retailers in bankruptcy - Completion of sale-leasebacks with retailers in need of capital 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. To date, REALCO has disposed of a significant portion of the portfolio. In addition, during November 2007, we sold our interest in, and as a result, have no further investment in OPCO. During 2012, a legal proceeding relating to the disposition of OPCO was settled. Reference is made to Item 3. Part 1 of this Form 10-K for a detailed description of this settlement. Through December 31, 2012, we, through Mervyns I and Mervyns II, made additional investments in locations that are separate from these original investments (“Add-On Investments”) in Mervyns. 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. In addition, we have since made Add-On Investments in Albertson’s. Other RCP Investments We have also made other RCP investments in Shopko, Marsh, Rex Stores and in Add-On Investments in Marsh. Reference is made to Note 4 in the Notes to Consolidated Financial Statements, for a detailed discussion of these investments. ENVIRONMENTAL LAWS For information relating to environmental laws that may have an impact on our business, please see “Item 1A. Risk Factors - Possible liability relating to environmental matters.” COMPETITION There are numerous entities that compete with us in seeking properties for acquisition and tenants that will lease space in our properties. Our competitors include other REITs, financial institutions, insurance companies, pension funds, private companies and individuals. Our properties compete for tenants with similar properties primarily on the basis of location, total occupancy costs (including base rent and operating expenses) and the design and condition of the improvements. FINANCIAL INFORMATION ABOUT MARKET SEGMENTS We have four reportable segments: Core Portfolio, Opportunity Funds, Notes Receivable and Other. Notes Receivable consists of our notes receivable and related interest income. Other primarily consists of management fees and interest income. The accounting policies of the segments are the same as those described in the summary of significant accounting policies set forth in Note 1 in the Notes to Consolidated Financial Statements. We evaluate property performance primarily based on net operating income before depreciation, amortization and certain nonrecurring items. Investments in our Core Portfolio are typically held long-term. Given the contemplated finite life of our Opportunity Funds, these investments are typically held for shorter terms. Fees earned by us as general partner or managing member of the Opportunity Funds are eliminated in our Consolidated Financial Statements. See Note 3 in the Notes to Consolidated Financial Statements, for information regarding, among other things, revenues from external 8 customers, a measure of profit and loss and total assets with respect to each of our segments. Our profits and losses for both our business and each of our segments are not seasonal. CORPORATE HEADQUARTERS AND EMPLOYEES Our executive office is located at 1311 Mamaroneck Avenue, Suite 260, White Plains, New York 10605, and our telephone number is (914) 288-8100. As of December 31, 2012, we had 126 employees, of which 101 were located at our executive office and 25 were located at regional property management offices. None of our employees are covered by collective bargaining agreements. Management believes that its relationship with employees is good. COMPANY WEBSITE All of our filings with the Securities and Exchange Commission, including our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15 (d) of the Securities Exchange Act of 1934, are available 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 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, you may contact Robert Masters, Corporate Secretary, at Acadia Realty Trust, 1311 Mamaroneck Avenue, Suite 260, White Plains, NY 10605. You may also call (914) 288-8100 to request a copy of the Form 10-K. Information included or referred to on our website is not incorporated by reference in or otherwise a part of this Form 10-K. CODE OF ETHICS AND WHISTLEBLOWER POLICIES The Board of Trustees adopted a Code of Business Conduct and Ethics applicable to all employees, as well as a “Whistleblower Policy.” Copies of these documents are available in the Investor Information section of our website. We intend to disclose future amendments to, or waivers from (with respect to our senior executive financial officers), our Code of Ethics in the Investor Information section of our website within four business days following the date of such amendment or waiver. ITEM 1A. RISK FACTORS. If any of the following risks actually occur, our business, results of operations and financial condition would likely suffer. This section includes or refers to certain forward-looking statements. Refer to the explanation of the qualifications and limitations on such forward-looking statements discussed in the beginning of this Form 10-K. We rely on revenues derived from major tenants. We derive significant revenues from certain anchor tenants that occupy space in more than one center. We could be adversely affected in the event of the bankruptcy or insolvency of, or a downturn in the business of, any of our major tenants, or in the event that any such tenant does not renew its leases as they expire or renews such leases at lower rental rates. Vacated anchor space not only would reduce rental revenues, but if not re-tenanted at the same rental rates 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” in this Annual Report on Form 10-K 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 we receive upon re-letting are significantly lower than current rates, our net income and ability to make expected distributions to our shareholders will be adversely affected due to the resulting reduction in 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 - Lease Expirations” in this Annual Report on Form 10-K for additional information as to the scheduled lease expirations in our portfolio. 9 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. Historically and from time to time, certain of our tenants experienced financial difficulties and 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 one year's rent (including tenant expense reimbursements) for remaining terms greater than one year, or 15% of the rent remaining under the balance of the lease term, but not to exceed three years rent. Actual amounts to be received in satisfaction of those claims will be subject to the tenant's final plan of reorganization and the availability of funds to pay its creditors. Although currently none of our critical tenants are in bankruptcy, experience shows that there can be no assurance that one or more of our major tenants will be immune from bankruptcy. Internet sales can have an impact on our business. The use of the internet by consumers continues to gain in popularity. The migration toward internet sales is likely to continue. This increase in internet sales could result in a downturn in the business of our current tenants and could affect the way future tenants lease space. While we devote considerable effort and resources to analyze and respond to tenant trends, preferences and consumer spending patterns, we cannot predict with certainty what future tenants will want, what future retail spaces will look like and how much revenue will be generated at traditional “bricks and mortar” locations. If we are unable to anticipate and respond promptly to trends in the market due to the illiquid nature of real estate (See the Risk Factor entitled, “Our ability to change our portfolio is limited because real estate investments are illiquid” below), our occupancy levels and financial results could suffer. 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's recently experienced financial downturn, included a decline in consumer spending, credit tightening and high unemployment. The current economic environment also had, and continues to have, an 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. Political and economic uncertainty could have an adverse effect on us. We cannot predict how current political and economic uncertainty, including uncertainty related to taxation, will affect our critical tenants, joint venture partners, lenders, financial institutions and general economic conditions, including the health and confidence of the consumer and the volatility of the stock market. Political and economic uncertainty poses a risk to the Company in that it may cause consumers to postpone discretionary spending in response to tighter credit, reduced consumer confidence and other macroeconomic factors affecting consumer spending behavior, resulting in a downturn in the business of our tenants. In the event current political and economic uncertainty results in financial turmoil affecting the banking system and financial markets or significant financial service institution failures, there could be a new or incremental tightening in the credit markets, low liquidity, and extreme volatility in fixed income, credit, currency and equity markets. Each of these could have an adverse effect on our business, financial condition and operating results. 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 attractiveness of the shopping center and by the overall climate for the retail industry. Real estate values are also affected by such factors as government regulations, interest rate levels, the availability of financing and potential liability under, and changes in, environmental, zoning, tax and other laws. 10 A significant portion of our income is derived from rental income from real property. Our income and cash flow would be adversely affected if we were unable to rent our vacant space to viable tenants on economically favorable terms. In the event of default by a tenant, we may experience delays in enforcing, as well as 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 investment. 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. Interest expense on our variable rate debt as of December 31, 2012 would increase by $2.9 million annually for a 100 basis point increase in interest rates. We may seek additional variable rate financing if and when pricing and other commercial and financial terms warrant. As such, we would consider hedging against the interest rate risk related to such additional variable rate debt, primarily through interest rate swaps but can use other means. We enter into interest rate hedging transactions, including interest rate swaps and cap agreements, with counterparties, generally, the same lenders who made the loan in question. 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 leading to increased vacancy rates at our properties. 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 33% of the annual base rents within our Core Portfolio and 61% of annual base rents within our Opportunity Funds. Our operating results could be adversely affected if market conditions, such as an oversupply of space or a reduction in demand for real estate, in this area occurs. We have pursued, and may in the future continue to pursue extensive growth opportunities, which may result in significant demands on our operational, administrative and financial resources. We are pursuing extensive growth opportunities. This expansion places significant demands on our operational, administrative and financial resources. The continued growth of our real estate portfolio can be expected to continue to place a significant strain on our resources. Our future performance will depend in part on our ability to successfully attract and retain qualified management personnel to manage the growth and operations of our business. In addition, the acquired properties may fail to operate at expected levels due to the numerous factors that may affect the value of real estate. There can be no assurance that we will have sufficient resources to identify and manage the properties. 11 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 redevelopment of additional properties, including acquisitions of core properties through our Operating Partnership and our high return investment programs through Acadia Strategic Opportunity Fund IV LLC (“Fund IV“). 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, obtaining necessary entitlements, negotiating with new or existing tenants or securing acceptable financing. Acquisitions of additional properties entail the risk that investments will fail to perform in accordance with expectations, including operating and leasing expectations. In the context of our business plan, “redevelopment” generally means an expansion or renovation of an existing property. 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 redevelopment costs in connection with projects that are not pursued to completion. A component of our growth strategy is through private-equity type investments made through our RCP Venture. These include investments in operating retailers. The inability of the retailers to operate profitably would have an adverse impact on income realized from these investments. Through our investments in joint ventures we have also invested in operating businesses that have operational risk in addition to the risks associated with real estate investments, including among other risks, human capital issues, adequate supply of product and material, and merchandising issues. We operate through a partnership structure, which could have an adverse effect on our ability to manage our assets. Our primary property-owning vehicle is the Operating Partnership, of which we are the general partner. Our acquisition of properties through the Operating Partnership in exchange for interests in the Operating Partnership may permit certain tax deferral advantages to limited partners who contribute properties to the Operating Partnership. Since properties contributed to the Operating Partnership may have unrealized gains attributable to the differences between the fair market value and adjusted tax basis in such properties prior to contribution, the sale of such properties could cause adverse tax consequences to the limited partners who contributed such properties. Although we, as the general partner of the Operating Partnership, generally have no obligation to consider the tax consequences of our actions to any limited partner, we own several properties subject to material restrictions designed to minimize the adverse tax consequences to the limited partners who contributed such properties. Such restrictions may result in significantly reduced flexibility to manage some of our assets. Exclusivity obligation to our Opportunity Funds. Under the terms of Fund IV, our primary goal is to seek investments for Fund IV, subject to certain exceptions. We may only pursue opportunities to acquire retail properties directly through the Operating Partnership if (i) the ownership of the acquisition opportunity by Fund IV would create a material conflict of interest for us; (ii) we require the acquisition opportunity for a “like-kind” exchange; (iii) the consideration payable for the acquisition opportunity is our Common Shares, OP Units or other securities or (iv) the investment is outside the parameters of our investment goals for Fund IV (which, in general, seeks more opportunistic level returns). 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 IV. Risks of joint ventures. Partnership or joint venture investments may involve risks not otherwise present for investments made solely by us, including the possibility that our partner or co-venturer might become bankrupt, and that our partner or co-venturer may take action contrary to our instructions, requests, policies or objectives, including our policy with respect to maintaining our qualification as a REIT. Other risks of joint venture investments include impasse on decisions, such as a sale, because neither 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. Additionally, our partners or co-venturers may engage in malfeasance in spite of our efforts to perform a high level of due diligence on them. Such acts may or may not be covered by insurance. Finally, partners and co-venturers may engage in illegal activities which may jeopardize an investment and/or subject us to reputational risk. Any disputes that may arise between joint venture partners and us may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business. Consequently, actions by or disputes with joint venture partners might result in subjecting properties owned by the joint venture to additional risk. In addition, we may in certain circumstances be liable for the actions of our third-party joint venture partners. 12 During 2012, 2011 and 2010, 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 operations. We have obtained key-man life insurance for Mr. Bernstein. In addition, we have entered into an employment agreement with Mr. Bernstein; however, it can be terminated by Mr. Bernstein in his discretion. We have not entered into employment agreements with other key executive-level employees. 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 number of properties in which we may seek to invest or on the concentration of investments in any one geographic region. Although our Board of Trustees has no present intention to revise or amend our strategies and policies, it may do so at any time without a vote by our shareholders. Accordingly, the results of decisions made by our Board of Trustees and implemented by management may or may not serve the interests of all of our shareholders and could adversely affect our financial condition or results of operations, including our ability to distribute cash to shareholders or qualify as a REIT. Distribution requirements imposed by law limit our operating flexibility. To maintain our status as a REIT for federal income tax purposes, we are generally required to distribute to our shareholders at least 90% of our taxable income for each calendar year. 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. Differences in timing between the receipt of income and the payment of expenses in determining our income as well as required debt amortization payments and the capitalization of certain expenses could require us to borrow funds on a short-term basis to meet the distribution requirements that are necessary to achieve 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 requirements for qualification as a REIT for federal income tax purposes beginning with our taxable year ended December 31, 1993, and we intend to continue to meet these requirements in the future. However, qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code, for which there are only limited judicial or administrative interpretations. No assurance can be given that we have qualified or will remain qualified as a REIT. The Internal Revenue Code provisions and income tax regulations applicable to REITs differ significantly from those applicable to other corporations. The determination of various factual matters and circumstances not entirely within our control can potentially affect our ability to continue to qualify as a REIT. In addition, no assurance can be given that future legislation, regulations, 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 13 economic, market, legal, tax or other considerations may cause us, without the consent of our shareholders, to revoke the REIT election or to otherwise take action that would result in disqualification. Limits on ownership of our capital shares. For 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) at any time 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, 2012, seven institutional shareholders own 5% or more individually, and 62.1% in the aggregate, of our Common Shares. A significant concentration of ownership may allow an investor or a group of investors to exert a greater influence over our management and affairs and may have the effect of delaying, deferring or preventing a change in control of us. Restrictions on a potential change of control. Our Board of Trustees is authorized by our Declaration of Trust to establish and issue one or more series of 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 interest of the trust, which we refer to as an “interested shareholder,” or an affiliate of the interested shareholder, are prohibited for five years after the most recent date on which the interested shareholder becomes an interested shareholder. After that five-year period, any such business combination must be recommended by the board of trustees of the trust and approved by the affirmative vote of at least (1) 80% of the votes entitled to be cast by holders of outstanding voting shares of beneficial interest of the trust and (2) two-thirds of the votes entitled to be cast by holders of voting shares of the trust other than shares held by the interested shareholder with whom, or with whose affiliate, the business combination is to be effected or held by an affiliate or associate of the interested shareholder, unless, among other conditions, the trust's common shareholders receive a minimum price, as defined in the MGCL, for their shares and the consideration is received in cash or in the same form as previously paid by the interested shareholder for its common shares. These provisions of the MGCL do not apply, however, to business combinations that are approved or exempted by the board of trustees of the trust before the interested shareholder becomes an interested shareholder, and a person is not an interested shareholder if the board of trustees approved in advance the transaction by which the person otherwise would have become an interested 14 shareholder. In approving a transaction, our Board of Trustees may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the Board. 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 virtue of a revocable proxy), would entitle the acquirer to exercise one of three increasing ranges of voting power in electing trustees) acquired in a “control share 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 are also trustees of the trust. Our Bylaws provide that the control share acquisition statute shall not apply to shares acquired or owned, directly or indirectly, by any person acting in concert with any group (as defined in Section 13 of the Exchange Act and the rules thereunder). Our Bylaws can be amended by our Board of Trustees by majority vote, and there can be no assurance that this provision will not be amended or eliminated at any time in the future. Additionally, Title 3, Subtitle 8 of the MGCL permits our Board of Trustees, without shareholder approval and regardless of what is currently provided in our Declaration of Trust or Bylaws, to elect to be subject to certain provisions relating to corporate governance that may have the effect of delaying, deferring or preventing a transaction or a change of control of our Company that might involve a premium to the market price of our Common Shares or otherwise be in the best interests of our shareholders. We are subject to some of these provisions (for example, a two-thirds vote requirement for removing a trustee) by provisions of our Declaration of Trust and Bylaws unrelated to Subtitle 8. Becoming subject to, or the potential to become subject to, these provisions of the MGCL could inhibit, delay or prevent a transaction or a change of control of our Company that might involve a premium price for our shareholders or otherwise be in our or their best interests. In addition, the provisions of our Declaration of Trust on removal of trustees and the provisions of our Bylaws regarding advance notice of shareholder nominations of trustees and other business proposals and restricting shareholder action outside of a shareholders meeting unless such action is taken by unanimous written consent could have a similar effect. 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 eliminates the liability of our trustees and officers to the Company and its shareholders for money damages, except for liability resulting from: • • actual receipt of an improper benefit or profit in money, property or services; or 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. In addition, our Declaration of Trust authorizes, and our Bylaws obligate, us to indemnify each present or former trustee or officer, to the maximum extent permitted by Maryland law, who is made a party to any proceeding because of his or her service to our Company. As part of these indemnification obligations, we may be obligated to fund the defense costs incurred by our trustees and officers. 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 redevelopment and construction activities could affect our operating results. We intend to continue the selective redevelopment and construction of retail properties, with our project at CityPoint currently being our largest redevelopment project (see “Item 1. BUSINESS - INVESTING ACTIVITIES - Opportunity Funds - Redevelopment Activities” 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 redevelopment and construction activities include risks that: • We may abandon redevelopment opportunities after expending resources to determine feasibility; • Construction costs of a project may exceed our original estimates; 15 • Occupancy rates and rents at a newly completed property may not be sufficient to make the property profitable; • • We may not complete construction and lease-up on schedule, resulting in increased debt service expense and Financing for redevelopment of a property may not be available to us on favorable terms; construction costs; and • We may not be able to obtain, or may experience delays in obtaining necessary zoning, land use, building, occupancy and other required governmental permits and authorizations. Additionally, the time frame required for redevelopment, 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 redevelopment of properties may hinder our growth and have an adverse effect on our results of operations and cash flows. In addition, new redevelopment 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 and other retail properties 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: • The property may fail to achieve the returns we have projected, either temporarily or for extended periods; • We may not be able to identify suitable properties to acquire or may be unable to complete the acquisition of the properties we identify; • We may not be able to integrate an acquisition into our existing operations successfully; • 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; • 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 is acquired, which could significantly increase our total acquisition costs or decrease cash flow from the property; and • Our investigation of a property or building prior to our acquisition, and any representations we may receive from the seller of such building or property, may fail to reveal various liabilities, which could reduce the cash flow from the property or increase our acquisition cost. Climate change and catastrophic risk from natural perils. Some of our current properties could be subject to potential natural or other disasters. We may acquire properties that are located in areas which are subject to natural disasters. Any properties located in coastal regions would therefore be affected by any future increases in sea levels or in the frequency or severity of hurricanes and tropical storms, whether such increases are caused by global climate changes or other factors. Climate change is a long-term change in the statistical distribution of weather patterns over periods of time that range from decades to millions of years. It may be a change in the average weather conditions or a change in the distribution of weather events with respect to an average, for example, greater or fewer extreme weather 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: Increased storm intensity and severity of weather (e.g., floods or hurricanes); • • Sea level rise; and • Extreme temperatures. As a result of these physical impacts from climate-related events, we may be vulnerable to the following: • Risks of property damage to our shopping centers; • Indirect financial and operational impacts from disruptions to the operations of major tenants located in our shopping centers from severe weather, such as hurricanes or floods; Increased insurance premiums and deductibles, or a decrease in the availability of coverage, for properties in areas subject to severe weather; Increased insurance claims and liabilities; Increases in energy costs impacting operational returns; • • • 16 • Changes in the availability or quality of water, or other natural resources on which the tenant's business depends; • 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); Incorrect long term valuation of an equity investment due to changing conditions not previously anticipated at the time of the investment; and • • Economic disruptions arising from the above. Possible liability relating to environmental matters. Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, as an owner of real property, we may be liable for the costs of 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 distributions. A property can also be adversely affected either through physical contamination or by virtue of an adverse effect upon value attributable to the migration of hazardous or toxic substances, or other contaminants that have or may have emanated from other properties. Although our tenants are primarily responsible for any environmental damages and claims related to the leased premises, in the event of the bankruptcy or inability of any of our tenants to satisfy any obligations with respect to the property leased to that tenant, we may be required to satisfy such obligations. In addition, we may be held directly liable for any such damages or claims irrespective of the provisions of any lease. From time to time, in connection with the conduct of our business, and prior to the acquisition of any property from a third party or as required by our financing 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: • The discovery of previously unknown environmental conditions; • Changes in law; • Activities of tenants; and • Activities relating to properties in the vicinity of our properties. Changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of our tenants, which could adversely affect our financial condition or results of operations. Uninsured losses or a loss in excess of insured limits could adversely affect our financial condition. We carry comprehensive general liability, all-risk property, extended coverage, loss of rent insurance, and environmental liability on our properties, with policy specifications and insured limits customarily carried for similar properties. However, with respect to those properties where the leases do not provide for abatement of rent under any circumstances, we generally do not maintain loss of rent insurance. In addition, there are certain types of losses, such as losses resulting from wars, terrorism or acts of God that generally are not insured because they are either uninsurable or not economically insurable. Should an uninsured loss or a loss in excess of insured limits occur, we could lose capital invested in a property, as well as the anticipated future revenues from a property, while remaining obligated for any mortgage indebtedness or other financial obligations related to the property. Any loss of these types would adversely affect our financial condition. Future terrorist attacks or civil unrest could harm the demand for, and the value of, our properties. Future terrorist attacks or civil unrest, such as the attacks that occurred in New York, Pennsylvania and Washington, D.C. on September 11, 2001, and other acts of terrorism or war, could harm the demand for, and the value of, our properties. Terrorist attacks could directly impact the value of our properties through damage, destruction, loss or increased security costs, and the availability of insurance for such acts may be limited or may be subject to substantial cost increases. To the extent that our tenants are impacted by future attacks, their ability to continue to honor obligations under their existing leases could be adversely affected. 17 A decrease in retail demand could make it difficult for us to renew or re-lease our properties at lease rates equal to or above historical rates. These acts might erode business and consumer confidence and spending, and might result in increased volatility in national and international financial markets and economies. Any one of these events might decrease demand for real estate, decrease or delay the occupancy of our properties, and limit our access to capital or increase our cost of raising capital. Outages, computer viruses and similar events could disrupt our operations. We rely on information technology networks and systems, some of which are owned and operated by third parties, to process, transmit and store electronic information. Any of these systems may be susceptible to outages due to fire, floods, power loss, telecommunications failures, terrorist attacks and similar events. Despite the implementation of network security measures, our systems and those of third parties on which we rely may also be vulnerable to computer viruses and similar disruptions. If we and the third parties on whom we rely are unable to prevent such outages and breaches, our operations could be disrupted. Increased Information Technology ("IT") security threats and more sophisticated computer crime could pose a risk to our systems, networks and services. Increased global IT security threats and more sophisticated and targeted computer crime pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. The open nature of interconnected technologies may allow for a network or Web outage or a privacy breach that reveals sensitive data or transmission of harmful/malicious code to business partners and clients resulting in liability claims. While we attempt to mitigate these risks by employing a number of measures, including a dedicated IT team, employee training and background checks, comprehensive monitoring of our networks and systems, and maintenance of backup systems and redundancy along with purchasing available insurance coverage, our systems, networks and services remain potentially vulnerable to advanced threats. Depending on their nature and scope, such threats could potentially lead to the compromising of confidential information, improper use of our systems and networks, manipulation and destruction of data, loss of trade secrets, system downtimes and operational disruptions, which in turn could adversely affect our reputation, competitiveness and results of operations. ITEM 1B. UNRESOLVED STAFF COMMENTS. None. ITEM 2. PROPERTIES. SHOPPING CENTER PROPERTIES The discussion and tables in this Item 2. include properties held through our Core Portfolio and our Opportunity Funds. We define our Core Portfolio as those properties either 100% owned by, or partially owned through joint venture interests by, the Operating Partnership, or subsidiaries thereof, not including those properties owned through our Opportunity Funds. As of December 31, 2012, there are 72 operating properties in our Core Portfolio totaling approximately 5.3 million square feet of gross leasable area (“GLA”). The Core Portfolio properties are located in 12 states and the District of Columbia and primarily consist of urban/street retail, dense suburban neighborhood and community shopping centers and mixed-use properties with a strong retail component. 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, 2012, were, in total, 94% occupied. As of December 31, 2012, we owned and operated 20 properties totaling approximately 2.5 million square feet of GLA in our Opportunity Funds, excluding eight properties under redevelopment. In addition to shopping centers, the Opportunity Funds have invested in mixed-use properties, which generally include retail activities. The Opportunity Fund properties are located in eight states and the District of Columbia and as of December 31, 2012, were, in total, 88% occupied. Within our Core Portfolio and Opportunity Funds, we had approximately 650 leases as of December 31, 2012. A majority of our rental revenues were from national retailers and consist of rents received under long-term leases. These leases generally provide for the monthly payment of fixed minimum rent and the tenants' pro-rata share of the real estate taxes, insurance, utilities and common area maintenance of the shopping centers. Certain of our leases also provide for the payment of rent based on a percentage of a tenant's gross sales in excess of a stipulated annual amount, either in addition to, or in place of, minimum rents. Minimum rents, percentage rents and expense reimbursements accounted for approximately 92% of our total revenues for the year ended December 31, 2012. 18 Three of our Core Portfolio properties and five 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 eight locations. No individual property contributed in excess of 10% of our total revenues for the years ended December 31, 2012, 2011 or 2010. Reference is made to Note 8 in the Notes to Consolidated Financial Statements, 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, 2012: Year Constructed (C) Acquired (A) Ownership Interest GLA Occupancy % 12/31/12 (1) Annual Base Rent (2) Annual Base Rent PSF Anchor Tenants Current Lease Expiration/ Lease Option Expiration Shopping Center Location Core Portfolio New York Connecticut 239 Greenwich Avenue Greenwich 181 Main Street Westport 1998 (A) 2012 (A) Fee/JV Fee 16,834 (3) 100% $ 1,554,663 $ 92.35 11,350 100% 772,000 68.02 New Jersey Elmwood Park Shopping Center Elmwood Park 1998 (A) Fee 149,262 97% 3,596,396 24.87 A&P Shopping Plaza Boonton 60 Orange Street Bloomfield 2006 (A) 2012 (A) Fee/JV Fee/JV 62,741 101,715 100% 100% 1,343,723 907,500 21.42 8.92 New York Village Commons Shopping Center Smithtown 1998 (A) Fee 87,330 95% 2,552,470 30.68 Branch Shopping Center Smithtown 1998 (A) LI (4) 126,273 81% 2,551,407 25.06 Amboy Road Staten Island 2005 (A) LI (4) 60,090 100% 1,632,178 27.16 Bartow Avenue Pacesetter Park Shopping Center Bronx Ramapo 2005 (C) 1999 (A) West Shore Expressway Staten Island 2007 (A) West 54th Street Manhattan 2007 (A) East 17th Street Crossroads Shopping Center Manhattan White Plains 2008 (A) 1998 (A) Fee Fee Fee Fee Fee Fee/JV (5) 14,676 97,583 93% 94% 420,687 1,151,105 30.90 12.58 55,000 100% 1,391,500 25.30 9,797 48% 1,245,680 264.56 19,622 309,523 100% 78% 625,000 5,139,479 31.85 21.31 A&P 2017/2052 Walgreen’s 2022/2062 A&P 2024/2054 Home Depot 2032/2052 CVS 2020/— LA Fitness 2027/2042 Stop & Shop 2028/2043 Stop & Shop 2020/2040 LA Fitness 2022/2037 Barnes & Noble 2013/2018 Kmart 2017/2032 Modell’s 2014/2019 Home Goods 2018/2033 Party City 2024/2034 Planet Fitness 2027/2042 Kohl's 2020/2050 Third Avenue Bronx 2006 (A) Mercer Street 28 Jericho Turnpike Manhattan Westbury 4401 White Plains Road Bronx 2011 (A) 2012 (A) 2011 (A) 83 Spring Street Manhattan 2012 (A) Fee Fee Fee Fee Fee 40,320 6,225 96,363 12,964 3,000 79% 666,631 20.85 383,160 1,650,000 61.55 17.12 100% 100% 100% 625,000 48.21 Walgreens 2060/- 100% 623,884 207.96 Total New York Region 1,280,668 91% $28,832,463 $ 24.74 New England Connecticut Town Line Plaza Rocky Hill 1998 (A) Fee 206,346 98% $ 1,636,374 $ 15.69 Stop & Shop 2024/2064 Wal-Mart(6) 19 Shopping Center Location Year Constructed (C) Acquired (A) Ownership Interest GLA Occupancy % 12/31/12 (1) Annual Base Rent (2) Annual Base Rent PSF Anchor Tenants Current Lease Expiration/ Lease Option Expiration Core Portfolio, continued Massachusetts Methuen Shopping Center Methuen 1998 (A) Fee 130,021 100% 1,027,936 7.91 Crescent Plaza Brockton 1993 (A) Fee 218,137 94% 1,658,255 8.08 Demoulas Market 2015/— Wal-Mart 2016/2051 Supervalu 2014/2044 Home Depot 2021/2056 330-340 River Street Cambridge 2012 (A) Fee 54,226 100% 1,130,470 20.85 Whole Foods New York New Loudon Center Latham 1993 (A) Fee 255,673 100% 1,959,124 7.66 Rhode Island Walnut Hill Plaza Woonsocket 1998 (A) Fee 284,717 90% 2,136,086 8.38 Vermont The Gateway Shopping Center South Burlington Total New England Region Midwest Illinois 1999 (A) Fee 101,655 100% 1,969,413 19.37 1,250,775 96% $11,517,658 $ 10.41 2021/2051 Rite Aid 2028/2068 Price Chopper 2015/2035 Marshall’s 2014/2029 Raymour and Flanigan 2019/2034 AC Moore 2014/2024 Hobby Lobby 2021/- Supervalu 2013/2028 Sears 2013/2033 Savers 2013/2018 Ocean State Job Lot 2012/- Woonsocket Bowling 2021/- Supervalu 2024/2053 Hobson West Plaza Naperville 1998 (A) Clark Diversey West Diversey 639 West Diversey 930 North Rush Street Chicago Street Retail Portfolio (7) Chicago Chicago Chicago Chicago Chicago 2006 (A) 2011 (A) 2012 (A) 2012 (A) 2011 (A) Fee Fee Fee Fee Fee Fee 99,137 96% $ 1,138,122 $ 11.94 19,265 46,259 12,557 2,930 115,287 100% 100% 100% 100% 858,248 1,884,925 44.55 40.75 666,091 53.05 1,113,948 380.19 89% 4,536,341 44.26 Garden Fresh Markets 2017/2037 Trader Joe's 2021/2041 20 Year Constructed (C) Acquired (A) Ownership Interest GLA Occupancy % 12/31/12 (1) Annual Base Rent (2) Annual Base Rent PSF Anchor Tenants Current Lease Expiration/ Lease Option Expiration Shopping Center Location Core Portfolio, continued Indiana Merrillville Plaza Hobart 1998 (A) Fee 235,824 92% 2,918,290 13.52 Michigan Bloomfield Town Square Bloomfield Hills 1998 (A) Fee 236,676 97% 3,396,624 14.81 Ohio Mad River Station (8) Dayton 1999 (A) Fee 126,129 83% 1,315,006 12.54 Total Midwest Region Mid-Atlantic New Jersey 894,064 93% $17,827,595 $ 21.51 Marketplace of Absecon Absecon 1998 (A) Fee 104,762 76% $ 1,334,497 $ 16.78 Delaware Brandywine Town Center Wilmington 2003 (A) Fee/JV (9) 875,679 97% 13,080,972 15.44 Market Square Shopping Center Wilmington 2003 (A) Fee/JV (9) 102,047 98% 2,507,840 25.02 Route 202 Shopping Center Wilmington 2006 (C) LI/JV (4) (9) 19,984 100% 837,541 41.91 TJ Maxx 2019/2029 JC Penney 2013/2018 OfficeMax 2013/2028 K&G Fashion 2017/2027 TJ Maxx 2019/2029 Home Goods 2016/2026 Best Buy 2021/2041 Dick's Sporting Goods 2023/2043 Babies ‘R’ Us 2015/2020 Office Depot 2015/— Rite Aid 2020/2040 White Horse Liquors 2019/- Bed, Bath & Beyond 2014/2029 Dick’s Sporting Goods 2013/2028 Lowe’s Home Centers 2018/2048 Target 2018/2058 HH Gregg 2020/2035 TJ Maxx 2016/2021 Trader Joe’s 2019/2034 21 Kmart 2014/2049 Home Depot 2028/2058 Dunham’s 2016/2031 Kmart 2020/2070 Fashion Bug 2016/- Advance Auto 2013/- TJ Maxx 2016/2021 Target (11) Shopping Center Location Core Portfolio, continued Year Constructed (C) Acquired (A) Ownership Interest GLA Occupancy % 12/31/12 (1) Annual Base Rent (2) Annual Base Rent PSF Anchor Tenants Current Lease Expiration/ Lease Option Expiration Pennsylvania Mark Plaza Plaza 422 Edwardsville Lebanon 1993 (C) 1993 (C) LI/Fee (4) Fee 106,856 156,279 100% 100% 240,664 795,852 2.25 5.09 Route 6 Mall Honesdale 1994 (C) Fee 175,519 99% 1,160,112 6.67 Fee Fee Fee Fee Chestnut Hill (10) Philadelphia Abington Towne Center Abington 2006 (A) 1998 (A) 37,581 216,369 76% 95% 513,425 955,324 17.93 20.02 District of Columbia Rhode Island Place Shopping Center 179-53 & 1801-03 Connecticut Avenue Georgetown Portfolio (11) Washington D.C. Washington D.C. Washington D.C. 2012 (A) 2012 (A) 57,529 22,907 100% 1,622,629 28.21 93% 1,090,701 51.39 TJ Maxx 2017/- 2011 (A) Fee/JV 27,666 96% 1,799,387 67.48 Total Mid-Atlantic Region 1,903,178 96% $25,938,944 $ 15.57 Total Core Properties 5,328,685 94% $84,116,660 $ 17.66 Opportunity Fund Portfolio Fund I Properties VARIOUS REGIONS Kroger/Safeway Portfolio 3 locations (13) 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 97,500 69% $ 302,076 $ 4.48 2004 (A) LI/JV (4) 228,493 94% $ 5,887,611 $ 27.29 Fordham Place Bronx 2004(A) Fee/JV 119,446 100% 5,519,760 46.21 216th Street Manhattan 2005 (A) Fee/JV 60,000 100% 2,694,000 44.90 161st Street (17) Bronx 2005 (A) Fee/JV 232,402 85% 5,255,201 26.72 Total Fund II Properties 640,341 92% $19,356,572 $ 32.71 Kroger 2014/2049 Safeway 2014/2044 BJ’s Wholesale Club 2033/2053 Michaels 2013/2033 Petsmart 2021/2036 Best Buy 2019/2039 Sears 2023/2033 City of New York 2027/2032 City of New York 2013/- 22 Year Constructed (C) Acquired (A) Ownership Interest GLA Occupancy % 12/31/12 (1) Annual Base Rent (2) Annual Base Rent PSF Anchor Tenants Current Lease Expiration/ Lease Option Expiration Shopping Center Location Opportunity Funds, continued Fund III Properties New York Cortlandt Towne Center Mohegan 2009 (A) Fee 641,225 92% $ 9,449,199 $ 15.98 Walmart 2018/2048 A&P 2022/2047 Best Buy 2017/2032 Petsmart 2014/2034 Shaw’s 2018/2033 Iparty 2015/- Austin's Liquor 2015/- Home Depot 2032/- Big Lots 2016/- Shop Rite 2032/- Giant Food 2015/2025 Lowes 2019/2059 Lake Manhattan New Hyde Park 640 Broadway New Hyde Park Shopping Center Massachusetts White City Shopping Center Maryland 2012 (A) 2011 (A) Fee/JV Fee 4,409 31,431 74% 91% 662,103 203.54 904,986 31.56 Shrewsbury 2010 (A) Fee/JV (14) 257,288 76% 4,841,673 24.89 Parkway Crossing Baltimore 2011 (A) Fee/JV (15) 260,241 93% 1,897,981 7.84 Arundel Plaza Glen Burnie 2012 (A) Fee/JV (15) 265,116 97% 1,445,276 5.60 Florida Lincoln Road Miami 2011 (A) Fee/JV (16) 61,443 49% 3,257,573 108.31 Illinois Heritage Shops Chicago 2011 (A) Lincoln Park Centre Chicago 2012 (A) Total Fund III Properties Fund IV Properties Maryland Fee Fee 105,585 62,745 77% 3,103,565 38.29 LA Fitness 2025/2040 60% 1,607,359 42.87 1,689,483 87% $27,169,715 $ 18.48 1701 Belmont Avenue Catonsville 2012 (A) Fee/JV (15) 58,674 100% $ 936,166 $ 15.96 Best Buy 2017/2027 Florida Lincoln Road Miami 2012 (A) Fee/JV (16) Total Fund IV Properties 54,453 113,127 100% 4,949,953 90.90 100% $ 5,886,119 $ 52.03 Total Opportunity Fund Operating Properties (18) 2,540,451 88% $52,714,482 $ 23.54 23 Shopping Center Location Notes: Year Constructed (C) Acquired (A) Ownership Interest GLA Occupancy % 12/31/12 (1) Annual Base Rent (2) Annual Base Rent PSF Anchor Tenants Current Lease Expiration/ Lease Option Expiration (1) Does not include space for which lease term had not yet commenced as of December 31, 2012. (2) These amounts include, where material, the effective rent, net of concessions, including free rent. (3) In addition to the 16,834 square feet of retail GLA, this property also has 21 apartments comprising 14,434 square feet. (4) We are a ground lessee under a long-term ground lease. (5) We have a 49% investment in this property. (6) Includes a 97,300 square foot Wal-Mart which is not owned by us. (7) Includes 19 properties (56 E. Walton, 841 W. Armitage, 2731 N. Clark, 2140 N. Clybourn, 853 W. Armitage, 2299 N. Clybourn, 1520 Milwaukee Avenue, 843-45 W Armitage,1521 W Belmont, 2206-08 N Halsted, 2633 N Halsted, 50-54 E. Walton, 662 W. Diversey, 837 W. Armitage, 823 W. Armitage, 851 W. Armitage, 1240 W. Belmont, 21 E. Chestnut and 819 W. Armitage). (8) The GLA for this property excludes 29,857 square feet of office space. (9) We have a 22% investment in this property. (10) Property consists of two buildings. (11) Includes a 157,616 square foot Target Store that is not owned by us. (12) 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 these properties. (13) Three remaining assets including locations in Benton, AR, Tulsa, OK and Indianapolis, IN. (14) The Fund has an 84% investment in this property. (15) The Fund has a 90% investment in this property. (16) The Fund has a 95% investment in this property. (17) Currently operating but re-tenanting activities have commenced. (18) In addition to the Opportunity Fund operating properties, there are eight properties under redevelopment; Sherman Plaza (Fund II), CityPoint (Fund II) , Sheepshead Bay (Fund III), 723 N. Lincoln Lane (Fund III), Broad Hollow Commons (Fund III), Cortlandt Crossing (Fund III), 3104 M Street (Fund III) and 210 Bowery (Fund IV). 24 MAJOR TENANTS No individual retail tenant accounted for more than 4.0% of base rents for the year ended December 31, 2012 or occupied more than 7.4% of total leased GLA as of December 31, 2012. The following table sets forth certain information for the 20 largest retail tenants by base rent for leases in place as of December 31, 2012. The amounts below include our pro-rata share of GLA and annualized base rent for the Operating Partnership’s partial ownership interest in properties, including the Opportunity Funds (GLA and Annualized Base Rent in thousands): Retail Tenant LA Fitness Supervalu (Shaw’s) Home Depot Ahold (Stop and Shop) A&P TJX Companies Sears Walgreens Best Buy Trader Joe's TD Bank Walmart Sleepy's Dicks Sporting Goods JP Morgan Chase Citibank Pier 1 Imports Dollar Tree Payless Shoesource Coach Total Number of Stores in Portfolio (1) 4 4 7 3 3 9 5 4 4 2 2 3 6 2 7 6 4 7 8 2 92 Total GLA 110 176 313 155 90 215 342 39 57 19 15 213 35 60 28 15 25 64 20 7 1,998 Annualized Base Rent (2) 2,551 $ 2,421 2,007 1,936 1,924 1,709 1,653 1,607 1,032 961 959 887 880 849 811 739 690 653 541 530 25,340 $ Percentage of Total Represented by Retail Tenant Annualized Base Rent Total Portfolio GLA 2.4% 3.8% 6.8% 3.4% 2.0% 4.6% 7.4% 0.9% 1.2% 0.4% 0.3% 4.6% 0.8% 1.3% 0.6% 0.3% 0.5% 1.4% 0.4% 0.1% 43.2% 4.0% 3.8% 3.1% 3.0% 3.0% 2.7% 2.6% 2.5% 1.6% 1.5% 1.5% 1.4% 1.4% 1.3% 1.3% 1.1% 1.1% 1.0% 0.8% 0.8% 39.5% Notes: (1) (2) Does not include tenants that only operate at one shopping center. Base rents do not include percentage rents, additional rents for property expense reimbursements and contractual rent escalations. 25 LEASE EXPIRATIONS The following table shows scheduled lease expirations for retail tenants in place as of December 31, 2012, assuming that none of the tenants exercise renewal options. (GLA and Annualized Base Rent in thousands): Core Portfolio: Leases maturing in Month to Month 2013 (2) 2014 2015 2016 2017 2018 2019 2020 2021 2022 Thereafter Total Opportunity Fund Portfolio: Annualized Base Rent (1) GLA Number of Leases Current Annual Rent Percentage of Total Square Feet Percentage of Total 6 72 70 45 59 49 22 23 22 24 23 24 439 $ $ 322 8,588 9,704 7,302 8,499 10,341 6,705 3,422 5,663 5,865 4,756 11,704 82,871 —% 10% 12% 9% 10% 12% 8% 4% 7% 7% 6% 15% 100% 17 538 541 445 511 499 403 181 367 395 152 700 4,749 —% 11% 11% 9% 11% 11% 8% 4% 8% 8% 3% 16% 100% Leases maturing in Month to Month 2013 (2) 2014 2015 2016 2017 2018 2019 2020 2021 2022 Thereafter Total Annualized Base Rent (1) GLA Number of Leases Current Annual Rent Percentage of Total Square Feet Percentage of Total 6 34 27 19 23 12 17 12 6 12 19 23 210 $ $ 302 7,620 4,332 1,867 2,846 2,487 5,308 5,254 688 2,477 6,083 18,278 57,542 1% 13% 8% 3% 5% 4% 9% 9% 1% 4% 11% 32% 100% 24 253 220 111 99 102 310 250 22 95 180 716 2,382 1% 11% 9% 5% 4% 4% 13% 11% 1% 4% 8% 29% 100% Notes: (1) (2) Base rents do not include percentage rents, additional rents for property expense reimbursements, nor contractual rent escalations. The 106 leases scheduled to expire during 2013 are for tenants at 32 properties located in 25 markets. No single market represents a material amount of exposure to the Company as it relates to the rents from these leases. Given the diversity of these markets, properties and characteristics of the individual spaces, the Company cannot make any general representations as it relates to the expiring rents and the rates for which these spaces may be re-leased. 26 GEOGRAPHIC CONCENTRATIONS The following table summarizes our retail properties by region as of December 31, 2012. 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 GLA (1) Occupied % (2) Annualized Base Rent (2) Annualized Base Rent per Occupied Square Foot Percentage of Total Represented by Region GLA Annualized Base Rent Core Portfolio: Operating Properties: New York Region New England Midwest Mid-Atlantic Total Core Operating Properties Redevelopment Properties: New York Region Total Core Redevelopment Properties Opportunity Fund Portfolio: Operating Properties: New York Region New England Midwest Mid-Atlantic Southeast Other Total Opportunity Fund Operating Properties Redevelopment Properties: New York Region Mid-Atlantic Total Opportunity Fund Redevelopment Properties Notes: 1,271 1,251 894 1,903 5,319 10 10 1,317 257 168 584 116 98 2,540 241 5 246 91% $ 96% 93% 96% 94% $ 27,587 11,518 17,827 25,939 82,871 53% 53% $ 1,246 1,246 92% $ 76% 70% 96% 73% 69% 30,373 4,842 4,711 4,279 8,207 302 89% $ 52,714 36% $ 100% 573 177 $ $ $ $ $ $ 23.91 10.41 21.51 15.57 17.43 24% 23% 17% 36% 100% 264.56 264.56 100% 100% 24.99 24.89 39.74 7.66 97.10 4.48 52% 10% 7% 23% 4% 4% 33% 14% 22% 31% 100% 100% 100% 58% 9% 9% 8% 15% 1% 23.54 100% 100% 6.55 36.14 98% 2% 76% 24% 37% $ 750 $ 8.13 100% 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, 2012. 27 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. In addition to the foregoing, we recently settled or are currently involved in 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 involved five claims alleging fraudulent transfers in which Mervyns was nominally seeking approximately $1.175 billion in damages from the Investor Consortium, although the actual claims made by the administrator and the unsecured creditors were substantially less. The first claim contended that, at the time of the sale of Mervyns by Target Corporation ("Target") to the Investor Consortium, a transfer of assets was made in an effort to defraud creditors. The Company believed that this aspect of the case is without merit. The remaining four claims related to transfers of assets of Mervyns at various times after the sale by Target. The Company believed that there were substantial defenses to these claims. During the third quarter of 2012, the parties to this litigation arrived at an agreement to settle the claim. The settlement was approved by the bankruptcy court and provided for a payment of $166.0 million. Based on the defendants' agreement, the net cost of the settlement to the Investor Consortium amounted to approximately $149.0 million. After applying cash on hand at the investee level, Mervyns I and Mervyns II's combined contribution to this settlement was approximately $1.0 million. In addition, the Company reduced its carrying value of these investments from $6.3 million to its fair value of $5.3 million in relation to the estimated value of the remaining assets. In total, this resulted in a charge of $2.0 million during the year ended December 31, 2012, of which the Operating Partnership's share, net of income taxes, was $0.2 million. During August 2009, we terminated the employment of a former Senior Vice President (the “Former Employee”) for engaging in conduct that fell within the definition of “cause” in his severance agreement with us. Had the Former Employee not been terminated for “cause,” he would have been eligible to receive approximately $0.9 million under the severance agreement. Because we terminated him for “cause,” we did not pay the Former Employee any severance benefits under his 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. Not applicable. 28 ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. PART II (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, 2012 and 2011: Quarter Ended 2012 High Low $ March 31, 2012 June 30, 2012 September 30, 2012 December 31, 2012 2011 March 31, 2011 $ June 30, 2011 September 30, 2011 December 31, 2011 $ $ 22.94 23.51 26.05 25.91 19.80 20.99 21.97 20.72 19.39 21.49 23.00 23.91 17.86 18.63 17.82 17.85 Dividend Per Share 0.1800 $ 0.1800 0.1800 0.1800 $ 0.1800 0.1800 0.1800 0.1800 At February 27, 2013, there were 316 holders of record of our Common Shares. We have determined for income tax purposes that 63% of the total dividends distributed to shareholders during 2012 represented ordinary income and 37% represented capital gains. The dividend for the quarter ended December 31, 2012 was paid on January 15, 2013 and is 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 a combination thereof, subject to a minimum of 10% in cash. (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 repurchased by us during the year ended December 31, 2012. Under this program we have repurchased 2.1 million Common Shares, none of which were repurchased after December 2001. As of December 31, 2012, management may repurchase up to approximately $7.5 million of our outstanding Common Shares under this program. (c) Securities authorized for issuance under equity compensation plans During 2012, the Company terminated the 1999 and 2003 Share Incentive Plans (the "1999 and 2003 Plans") and adopted the Amended and Restated 2006 Share Incentive Plan (the "Amended 2006 Plan"). The Amended 2006 Plan amended and restated our 2006 Share Incentive Plan and increased the authorization to issue options, Restricted Shares and LTIP Units (collectively "Awards") available to officers and employees by 1.9 million shares. Reference is made to Note 15 in the Notes to Consolidated Financial Statements, for a summary of our Share Incentive Plans. The following table provides information related to the Amended 2006 Plan as of December 31, 2012: 29 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)) Equity compensation plans approved by security holders Equity compensation plans not approved by security holders Total 137,647 $ — 137,647 $ 18.71 — 18.71 1,910,942 — 1,910,942 Remaining Common Shares available under the Amended 2006 Plan is as follows: Outstanding Common Shares as of December 31, 2012 Outstanding OP Units as of December 31, 2012 Total Outstanding Common Shares and OP Units Common Shares and OP Units pursuant to the 1999 and 2003 Plans Common Shares pursuant to the Amended 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 (d) Share Price Performance Graph (1) 52,482,598 452,454 52,935,052 5,193,681 2,100,000 7,293,681 (2,607,220) (2,775,519) 1,910,942 The following graph compares the cumulative total shareholder return for our Common Shares for the period commencing December 31, 2007 through December 31, 2012 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, 2007, 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. Comparison of 5 Year Cumulative Total Return among Acadia Realty Trust, the Russell 2000, the NAREIT and the SNL: 30 Index Acadia Realty Trust Russell 2000 NAREIT All Equity REIT Index SNL REIT Retail Shopping Ctr Index $ 12/31/07 100.00 100.00 100.00 100.00 $ 12/31/08 60.70 66.21 62.27 60.20 $ 12/31/09 75.84 84.20 79.70 59.43 $ 12/31/10 85.33 106.82 101.98 77.15 $ 12/31/11 97.78 102.36 110.42 74.94 $ 12/31/12 125.50 119.09 132.18 94.62 Period Ended 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, 2012 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.” 31 (dollars in thousands, except per share amounts) 2012 2011 2010 2009 2008 Years ended December 31, 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 affiliates Gain (loss) on sale of unconsolidated affiliates Impairment of investment in unconsolidated affiliate Reserve for notes receivable Other interest income Gain from bargain purchase Gain on involuntary conversion of asset (Loss) gain on debt extinguishment Income tax benefit (provision) Income from continuing operations Income from discontinued operations Net income Loss (income) attributable to noncontrolling interests: Continuing operations Discontinued operations Net (income) loss attributable to noncontrolling interests Net income attributable to Common Shareholders Supplemental Information: Income from continuing operations attributable to Common Shareholders Income from discontinued operations attributable to Common Shareholders Net income attributable to Common Shareholders 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 Weighted average number of Common Shares outstanding basic diluted $ 134,425 $ 115,078 $ 116,390 $ 120,052 $ 89,053 66,232 28,768 32,931 — 550 3,061 (2,032) (405) 148 — 2,368 (198) 568 10,554 79,382 89,936 13,480 (63,710) (50,230) 57,354 29,632 25,672 — 1,555 — — — 276 — — 1,268 (461) 5,058 48,657 53,715 13,655 (15,815) (2,160) 53,723 34,414 23,419 — 12,450 (1,479) — — 406 33,805 — — (2,869) 47,147 3,520 50,667 (18,914) (1,696) (20,610) 57,042 29,013 23,421 — (1,334) (195) (3,768) (1,734) 638 — — 7,057 (1,539) 9,701 3,005 12,706 18,384 43 18,427 51,448 26,369 19,651 763 16,487 3,419 — (4,392) 3,344 — — 1,523 (3,362) 9,367 28,070 37,437 4,465 (16,834) (12,369) $ $ $ $ $ $ $ 39,706 $ 51,555 $ 30,057 $ 31,133 $ 25,068 24,034 $ 18,713 $ 28,233 $ 28,085 $ 13,832 15,672 39,706 0.51 0.34 0.85 0.51 0.34 0.85 $ $ $ $ $ 32,842 51,555 0.45 0.80 1.25 0.45 0.80 1.25 $ $ $ $ $ 1,824 30,057 0.69 0.04 0.73 0.69 0.04 0.73 $ $ $ $ $ 3,048 31,133 0.73 0.08 0.81 0.73 0.08 0.81 $ $ $ $ $ 11,236 25,068 0.41 0.33 0.74 0.41 0.33 0.74 45,854 46,335 40,697 40,986 40,136 40,406 38,005 38,242 33,813 34,293 Cash dividends declared per Common Share (1) $ 0.7200 $ 0.7200 $ 0.7200 $ 0.7500 $ 0.8951 32 (dollars in thousands, except per share amounts) 2012 2011 2010 2009 2008 BALANCE SHEET DATA: Years ended December 31, Real estate before accumulated depreciation $ 1,495,742 $ 1,098,761 $ 950,710 $ 817,170 $ 727,519 Total assets Total mortgage indebtedness Total convertible notes payable Total common shareholders’ equity Noncontrolling interests Total equity OTHER: Funds from Operations (2) Cash flows provided by (used in): Operating activities Investing activities Financing activities Notes: 1,908,440 1,653,319 1,524,806 1,382,464 1,291,383 727,048 647,739 930 622,797 447,459 1,070,256 930 384,114 385,195 769,309 694,502 48,712 318,212 269,310 587,522 656,993 47,910 312,185 220,292 532,477 545,254 100,403 227,722 214,506 442,228 48,827 42,913 50,440 49,613 37,964 59,672 66,332 44,377 47,462 66,517 (136,745) (153,157) (60,745) (123,380) (302,265) 79,074 56,045 43,152 83,035 199,096 (1) In addition to the $0.8951 cash dividends declared in 2008, we declared a Common Share dividend of $0.4949. (2) The Company considers funds from operations (“FFO”) as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) and net property operating income (“NOI”) to be appropriate supplemental disclosures of operating performance for an equity REIT due to their widespread acceptance and use within the REIT and analyst communities. FFO and NOI are presented to assist investors in analyzing the performance of the Company. They are helpful as they exclude various items included in net income that are not indicative of the operating performance, such as gains (losses) from sales of depreciated property, depreciation and amortization, and impairment of depreciable real estate. In addition, NOI excludes interest expense. The Company's method of calculating FFO and NOI may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. FFO does not represent cash generated from operations as defined by generally accepted accounting principles (“GAAP”) and is not indicative of cash available to fund all cash needs, including distributions. It should not be considered as an alternative to net income for the purpose of evaluating the Company's performance or to cash flows as a measure of liquidity. Consistent with the NAREIT definition, the Company defines FFO as net income (computed in accordance with GAAP), excluding gains (losses) from sales of depreciated property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. During 2012, NAREIT issued a clarification to the definition of FFO whereby impairment charges for depreciable real estate are to be excluded in the calculation of FFO. Accordingly, 2011 FFO has been restated to exclude an impairment charge of $2.6 million. ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW As of December 31, 2012, we operated 100 properties, which we own or have an ownership interest in, within our Core Portfolio or within our Opportunity Funds. Our Core Portfolio consists of those properties either 100% owned by, or partially owned through joint venture interests by the Operating Partnership, or subsidiaries thereof, not including those properties owned through our Opportunity Funds. These 100 properties primarily consist of urban/street retail, dense suburban neighborhood and community shopping centers and mixed-use properties with a strong retail component. The properties we operate are located primarily in high-barrier-to-entry, densely-populated metropolitan areas in the United States along the East Coast and in Chicago. There are 72 properties in our Core Portfolio totaling approximately 5.3 million square feet. Fund I has three remaining properties comprising approximately 0.1 million square feet. Fund II has six properties, four of which (representing 0.6 million square feet) are currently operating, one is under construction, and one is in the design phase. Fund III has 14 properties, nine of which (representing 1.7 million square feet) are currently operating and five of which are in the design phase. Fund IV has five properties, four of which are operating with one under design. The majority of our operating income is derived from rental revenues from these 100 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”). 33 Our primary business objective is to acquire and manage commercial retail properties that will provide cash for distributions to shareholders while also creating the potential for capital appreciation to enhance investor returns. We focus on the following fundamentals to achieve this objective: • Own and operate a Core Portfolio of high-quality retail properties located primarily in high-barrier-to-entry, densely- populated metropolitan areas and create value through accretive 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. • Generate additional external growth through an opportunistic yet disciplined acquisition program through our Opportunity Funds. We target transactions with high inherent opportunity for the creation of additional value through: value-add investments in high-quality urban and/or street retail properties with re-tenanting or repositioning opportunities, opportunistic acquisitions of well-located real-estate anchored by distressed retailers or by motivated sellers and opportunistic purchases of debt which may include restructuring. 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. • Maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth. RESULTS OF OPERATIONS Reference is made to Note 3 in the Notes to Consolidated Financial Statements for an overview of our four reportable segments. A discussion of the significant variances and primary factors contributing thereto within the results of operations for the years ended December 31, 2012, 2011 and 2010 are addressed below: Comparison of the year ended December 31, 2012 (“2012”) to the year ended December 31, 2011 (“2011”) Revenues (dollars in millions) Rental income Interest income Expense reimbursements Management fee income (1) Other Total revenues Note: 2012 2011 Core Portfolio Opportunity Funds $ $ 57.2 — 13.3 — 0.1 70.6 $ $ 42.5 — 11.1 — 0.8 54.4 Notes Receivable and Other $ — $ 7.9 — 1.5 — 9.4 $ $ Core Portfolio Opportunity Funds 45.9 — 11.5 — 0.5 57.9 $ $ 34.2 — 9.6 — 0.3 44.1 Notes Receivable and Other — $ 11.4 — 1.7 — 13.1 $ (1) Includes fees earned by us as general partner or 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 for an overview of our four reportable segments. Rental income in the Core Portfolio increased $11.3 million as a result of additional rents of (i) $6.9 million related to 2012 Core Portfolio property acquisitions as detailed in Note 2 in the Notes to Consolidated Financial Statements ("2012 Core Acquisitions"), (ii) $2.5 million related to 2011 Core Portfolio property acquisitions ("2011 Core Acquisitions") and (iii) $1.3 million as a result of re-anchoring and leasing activities at Bloomfield Town Square and 2914 Third Avenue ("Core Redevelopment Properties"). Rental income in the Opportunity Funds increased $8.3 million as a result of additional rents of (i) $3.0 million related to 2012 Opportunity Fund property acquisitions as detailed in Note 2 in the Notes to Consolidated Financial Statements ("2012 Fund Acquisitions"), (ii) $2.2 million related to 2011 Opportunity Fund property acquisitions ("2011 Fund Acquisitions") and (iii) $2.8 million from leases that commenced during 2011 and 2012 at Fordham Place and 161st Street ("Fund Redevelopment Properties"). 34 Interest income in Notes Receivable and Other decreased as a result of the full repayment of two notes during 2011. This was partially offset by five new notes originated during 2012. The increase in expense reimbursements in the Core Portfolio was the result of the 2012 and 2011 Core Acquisitions, Core Redevelopment Properties and an increase in common area maintenance ("CAM") expenses during 2012. Expense reimbursements in the Opportunity Funds increased for both real estate taxes and CAM as a result of the 2012 and 2011 Fund Acquisitions and the Fund Redevelopment Properties. Operating Expenses 2012 2011 (dollars in millions) Property operating Other operating Real estate taxes General and administrative Depreciation and amortization Reserve for notes receivable $ Core Portfolio Opportunity Funds $ 9.6 2.1 10.0 22.8 18.3 — 15.1 2.1 8.8 14.4 15.6 — Notes Receivable and Other $ Core Portfolio Opportunity Funds $ 7.7 0.8 8.6 24.2 14.2 — 12.2 0.7 6.7 16.7 12.4 — (2.8) $ (0.2) — (15.7) (1.0) 0.4 (19.3) $ Notes Receivable and Other $ (2.4) (0.1) — (17.8) (0.9) — (21.2) Total operating expenses $ 62.8 $ 56.0 $ 55.5 $ 48.7 $ The increase in property operating expenses for the Core Portfolio was a result of the 2012 and 2011 Core Acquisitions and an $1.2 million increase in credit loss during 2012. Property operating in the Opportunity Funds increased as a result of the 2012 and 2011 Fund Acquisitions and an increase in credit loss during 2012. Other operating expenses, which represent acquisition costs, increased for the Core Portfolio and the Opportunity Funds as a result of the 2012 Core Acquisitions and the 2012 Fund Acquisitions, respectively. Real estate tax expense in the Core Portfolio increased as a result of the 2012 and 2011 Core Acquisitions. Real estate taxes in the Opportunity Funds increased as a result of the 2012 and 2011 Fund Acquisitions and the Fund Redevelopment Properties. The decrease in general and administrative expense in the Core Portfolio was due to an increase in capitalized salaries related to leasing and redevelopment activities in 2012. The changes in general and administrative expense in the Opportunity Funds and Other, are offsetting, and relate to Promote expense within Fund I, which is eliminated for consolidated financial statement presentation purposes. Core Portfolio depreciation and amortization increased $4.1 million as a result of the 2012 and 2011 Core Acquisitions. Depreciation and amortization expense in the Opportunity Funds increased $3.2 million due to the 2012 and 2011 Fund Acquisitions and the Fund Redevelopment Properties. Other 2012 2011 (dollars in millions) Equity in earnings of unconsolidated affiliates $ Other interest income Gain on involuntary conversion of asset (Loss) gain on debt extinguishment Interest and other finance expense Income tax (provision) benefit Income from discontinued operations (Loss) income attributable to noncontrolling interests: - Continuing operations - Discontinued operations Core Portfolio Opportunity Funds Notes Receivable and Other Core Portfolio Opportunity Funds Notes Receivable and Other $ 0.3 — 2.4 — (15.2) (0.2) — (0.3) — 1.3 — — (0.2) (12.9) 0.8 — $ — $ 0.1 — — (0.6) — 79.4 $ 0.7 — — 1.3 (16.0) (1.1) $ 0.9 — — — (12.7) 0.6 — 0.3 — — (1.0) — — — 48.7 13.7 — — (63.8) (0.3) — 13.9 — — (15.8) 35 Equity in earnings of unconsolidated affiliates in the Opportunity Funds increased as a result of our share of the $3.4 million gain on the sale of an unconsolidated Opportunity Fund investment and a decrease in acquisition costs during 2012. This was partially offset by 2012 expenses of $2.0 million following the settlement of certain legal proceedings related to our Mervyns investment (reference is made to Legal Proceedings in Part 1, Item 3 in this Form 10-K) and a decrease of $2.6 million in distributions in excess of basis from our Albertson's investment in 2012. Gain on involuntary conversion of asset of $2.4 million relates to insurance proceeds received in excess of net basis for flood damage at Mark Plaza. Gain on debt extinguishment of $1.3 million in the Core Portfolio was the result of the purchase of mortgage debt at a discount in 2011. Income from discontinued operations represents activity related to property sales during 2012 and 2011. (Loss) income attributable to noncontrolling interests - Continuing operations and Discontinued operations represents the noncontrolling interests' share of all the Opportunity Funds variances discussed above. Comparison of the year ended December 31, 2011 (“2011”) to the year ended December 31, 2010 (“2010”) Revenues 2011 2010 (dollars in millions) Rental income Interest income Expense reimbursements Lease termination income Management fee income (1) Other Total revenues Note: Core Portfolio Opportunity Funds $ $ 45.9 — 11.5 0.1 — 0.4 57.9 $ $ 34.2 — 9.6 — — 0.3 44.1 Notes Receivable and Other $ — $ 11.4 — — 1.7 — 13.1 $ $ Core Portfolio Opportunity Funds 44.6 — 11.9 0.3 — 0.3 57.1 $ $ 30.5 — 8.0 — — 0.2 38.7 Notes Receivable and Other — $ 19.2 — 1.4 — 20.6 $ (1) Includes fees earned by us as general partner or 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 in the Notes to Consolidated Financial Statements for an overview of our four reportable segments. The increase in rental income in the Core Portfolio was attributable to additional rents following the 2011 Core Acquisitions. Rental income in the Opportunity Funds increased from additional rents at Pelham Manor and 161st Street of $1.7 million for leases that commenced during 2010 and 2011 ("2010/2011 Fund Redevelopment Properties") as well as additional rents of $2.1 million following the 2011 Fund Acquisitions. 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 as a result of the 2010/2011 Fund Redevelopment Properties and the 2011 Fund Acquisitions. Operating Expenses 2011 2010 (dollars in millions) Property operating Other operating Real estate taxes General and administrative Depreciation and amortization Total operating expenses Core Portfolio Opportunity Funds Notes Receivable and Other Core Portfolio Opportunity Funds Notes Receivable and Other $ $ 7.7 0.8 8.6 24.2 14.2 55.5 $ 12.2 $ 0.7 6.7 16.7 12.4 48.7 $ 36 $ (2.4) $ (0.1) — (17.8) (0.9) (21.2) $ 9.1 — 8.2 22.4 13.8 53.5 $ 12.0 $ — 5.8 13.6 10.1 41.5 $ $ (1.6) — — (15.8) (0.5) (17.9) Property operating expenses in the Core Portfolio decreased as a result of higher credit loss during 2010. General and administrative expense in the Core Portfolio increased as a result of higher stock compensation expense and employee severance costs during 2011. The changes in general and administrative expense in the Opportunity Funds and Other, are offsetting, and relate to Promote expense within Fund I, which is eliminated for consolidated financial statement presentation purposes. Depreciation and amortization expense in the Opportunity Funds increased due to the 2010/2011 Fund Redevelopment Properties and the 2011 Fund Acquisitions. Other 2011 2010 (dollars in millions) Equity in earnings of unconsolidated affiliates $ Other interest income Gain on debt extinguishment Gain from bargain purchase Interest and other finance expense Income tax provision Income from discontinued operations (Loss) income attributable to noncontrolling interests: - Continuing operations - Discontinued operations Core Portfolio Opportunity Funds Notes Receivable and Other Core Portfolio Opportunity Funds Notes Receivable and Other 0.7 — 1.3 — (16.0) (1.1) — (0.3) — $ 0.9 $ — $ 0.6 $ 10.4 $ — — — (12.7) 0.6 — 0.3 — — (1.0) — 48.7 — — — (18.0) (3.2) — — 33.8 (16.8) 0.4 — — — 0.4 — — 0.4 — 3.5 13.9 — — (15.8) (0.3) — (18.7) — — (1.7) Equity in earnings of unconsolidated affiliates in the Opportunity Funds decreased as a result of a decrease in distributions in excess of basis from our Albertson’s investment of $6.3 million in 2011 and a decrease in our pro-rata share of income from our Mervyns investment in 2011. Gain on debt extinguishment of $1.3 million was the result of the purchase of mortgage debt at a discount in 2011. The $33.8 million gain from bargain purchase was attributable to Fund II’s purchase of an unaffiliated membership interest in CityPoint in 2010. Interest expense in the Core Portfolio decreased $2.0 million in 2011. This was the result of a decrease in average outstanding borrowings during 2011 resulting in a decrease of $1.5 million as well as a decrease in loan amortization expense of $0.4 million related to refinanced debt in 2011. Interest expense in the Opportunity Funds decreased $4.1 million in 2011. This was attributable to higher capitalized interest in 2011 and a decrease in loan amortization expense related to refinanced debt in 2010. These were offset by an increase of $1.1 million related to higher average outstanding borrowings and an increase of $1.1 million related to higher average interest rates in 2011. The variance in the income tax provision in the Core Portfolio related to income taxes at the TRS level for our pro-rata share of income from our Albertson’s investment in 2010 and an overaccrual of the 2010 tax liability at the TRS levels. Income from discontinued operations represents activity related to property sales during 2011. (Loss) income attributable to noncontrolling interests – Continuing operations and Discontinued operations represents the noncontrolling interests’ share of all the Opportunity Funds variances discussed above. CORE PORTFOLIO The following discussion of net property operating income ("NOI") and rent spreads on new and renewal leases includes the activity from both our consolidated and our pro-rata share of unconsolidated properties within our Core Portfolio. Our Opportunity Funds invest primarily in properties that typically require significant leasing and redevelopment. Given that the Opportunity Funds are finite-life investment vehicles, these properties are sold following stabilization. For these reasons, we believe NOI and rent spreads are not meaningful measures for our Opportunity Fund investments. 37 NOI represents property revenues less property expenses. We consider NOI and rent spreads on new and renewal leases for our Core Portfolio to be appropriate supplemental disclosures of portfolio operating performance due to their widespread acceptance and use within the REIT investor and analyst communities. NOI and rent spreads on new and renewal leases are presented to assist investors in analyzing our property performance, however, our method of calculating these may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. Net Property Operating Income NOI is determined as follows: RECONCILIATION OF OPERATING INCOME TO NET OPERATING INCOME - CORE PORTFOLIO (dollars in millions) Operating Income Add back: General and administrative Depreciation and amortization Impairment of asset Less: Management fee income Interest income Straight-line rent and other adjustments Consolidated NOI Year Ended December 31, 2011 2012 $ 34.9 $ 32.0 21.5 32.9 0.4 (1.4) (7.9) (10.3) 70.1 23.0 25.7 — (1.7) (11.4) (6.6) 61.0 Noncontrolling interest in NOI Operating Partnership's interest in Opportunity Funds NOI - Core Portfolio (9.3) (7.2) 53.6 $ (8.9) (7.5) 44.6 $ Same Store NOI includes Core Portfolio properties that we owned for both the current and prior periods presented, but excludes those properties which we acquired, expect to sell, were sold or redeveloped during these periods. The following table summarizes Same Store NOI for our Core Portfolio for the years ended December 31, 2012 and 2011: SAME STORE NET OPERATING INCOME - CORE PORTFOLIO (dollars in millions) NOI Less properties excluded from Same Store NOI Same Store NOI Percent change from historic period Components of Same Store NOI Same Store Revenues Same Store Operating Expenses Same Store NOI Year Ended December 31, 2012 2011 53.6 (13.3) 40.3 3.7% 57.9 17.6 40.3 $ $ $ $ $ $ $ $ 38 44.6 (5.7) 38.9 56.5 17.6 38.9 Rent Spreads on Core Portfolio New and Renewal Leases The following table summarizes rent spreads on both a cash basis and straight-line basis for new and renewal leases based on leases executed within our Core Portfolio for the year ended December 31, 2012. Cash basis represents a comparison of rent most recently paid on the previous lease as compared to the initial rent paid on the new lease. Straight-line basis represents a comparison of rents as adjusted for contractual escalations, abated rent and lease incentives for the same comparable leases. Core Portfolio New and Renewal Leases Number of new and renewal leases executed Gross leasable area New base rent Previous base rent Percent growth in base rent Average cost per square foot (1) Weighted average lease term (years) Year Ended December 31, 2012 Cash Basis 55 315,431 $ 16.56 $ 16.71 (0.9)% $ 7.07 5.5 $ $ $ Straight-Line Basis 55 315,431 17.16 16.16 6.2% 7.07 5.5 Note: (1) The average cost per square foot includes tenant improvement costs, leasing commissions and tenant allowances. SELF-STORAGE PORTFOLIO During the fourth quarter of 2012, we sold 12 of the 14 self-storage properties with two properties remaining under contract. We anticipate closing on the remaining two properties during 2013. Accordingly, activity related to this portfolio is no longer relevant to a discussion of our results of operations. RECONCILIATION OF NET INCOME TO FUNDS FROM OPERATIONS (dollars in thousands) 2012 For the Years Ended December 31, 2010 2009 2011 2008 Net income attributable to Common Shareholders Depreciation of real estate and amortization of leasing costs: $ 39,706 $ 51,555 $ 30,057 $ 31,133 $ 25,068 Consolidated affiliates, net of noncontrolling interests’ share Unconsolidated affiliates 23,090 1,581 18,274 1,549 18,445 1,561 18,847 1,604 18,519 1,687 Income attributable to noncontrolling interests in operating partnership (1) Gain on sale of properties (net of noncontrolling interests’ share) Consolidated affiliates Unconsolidated affiliates Impairment of asset Funds from operations (2) Funds From Operations per Share - Diluted Weighted average number of Common Shares and OP Units Funds from operations, per share 510 635 377 464 437 (15,451) (609) (31,716) — — (2,435) — — (7,182) (565) — $ 48,827 2,616 $ 42,913 — $ 50,440 — $ 49,613 — $ 37,964 46,940 1.04 $ 41,467 1.04 $ 40,876 1.23 $ 38,913 1.28 $ 34,940 1.09 $ 39 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”) and net property operating income ("NOI") 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 and NOI are presented to assist investors in analyzing our performance. They are helpful as they exclude various items included in net income that are not indicative of the operating performance, such as gains (losses) from sales of depreciated property, depreciation and amortization, and impairment of depreciable real estate. In addition, NOI excludes interest expense. Our method of calculating FFO and NOI 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. During 2012 NAREIT issued a clarification to the definition of FFO whereby impairment charges for depreciable real estate are to be excluded in the calculation of FFO. Accordingly, 2011 FFO has been restated to exclude an impairment charge of $2.6 million. LIQUIDITY AND CAPITAL RESOURCES Uses of Liquidity Our principal uses of liquidity are (i) distributions to our shareholders and OP unit holders, (ii) investments which include the funding of our capital committed to the Opportunity Funds and property acquisitions and redevelopment/re-tenanting activities within our Core Portfolio, and (iii) debt service and loan repayments, including the repurchase of our Convertible Notes. Distributions In order to qualify as a REIT for Federal income tax purposes, we must currently distribute at least 90% of our taxable income to our shareholders. For the year ended December 31, 2012, we paid dividends and distributions on our Common Shares and Common OP Units totaling $33.2 million. 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, 2012, $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, 2012, Fund I currently owned, or had ownership interests in three remaining assets comprising approximately 0.1 million square feet. 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 investments involving significant redevelopment activities and the RCP Venture. As of December 31, 2012, $300.0 million has been invested in Fund II and Mervyns II, of which the Operating Partnership contributed $60.0 million. During September of 2004, through Fund II, we launched our New York Urban/Infill Redevelopment Initiative. Fund II, together with an unaffiliated partner, formed Acadia Urban Development LLC ("Acadia Urban Development") for the purpose of acquiring, constructing, redeveloping, 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. Of the nine properties acquired by Acadia Urban Development, two have been sold, and one is currently under contact for sale. Of the remaining six assets, four are currently at, or near, stabilization, one is currently under construction and one is in the design phase. Redevelopment costs incurred during 2012 by Acadia Urban Development in connection with the New York Urban/ Infill Redevelopment Initiative totaled $52.2 million. Anticipated additional costs for the property currently under construction are currently estimated to range between $107.1 and $197.1 million. 40 RCP Venture Reference is made to Note 4 in the Notes to Consolidated Financial Statements, for a table summarizing the RCP Venture investments from inception through December 31, 2012. 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. During 2012, the committed capital amount was reduced to $475.0 million. As of December 31, 2012, $341.0 million has been invested in Fund III, of which the Operating Partnership contributed $67.9 million. The remaining $134.0 million of unfunded capital will be used to fund current redevelopment projects. Fund III has invested in five redevelopment projects as previously discussed in “—INVESTING ACTIVITIES” in Item 1. of this Form 10-K. Remaining anticipated costs for the projects currently owned by Fund III that can be estimated aggregate between $78.7 million and $99.2. Other Fund III Investments In addition to its five redevelopment projects noted above, Fund III also owns, or has ownership interests in, the following 10 assets comprising approximately 1.7 million square feet as follows: (dollars in millions) Property Arundel Plaza Lincoln Park Centre 640 Broadway New Hyde Park 654 Broadway Parkway Crossing The Heritage Shops at Millennium Park Lincoln Road White City Shopping Center Cortlandt Towne Center Total Fund IV Location Date Acquired Glen Burnie, MD August 2012 $ Chicago, IL April 2012 New York, NY February 2012 New Hyde Park, NY December 2011 New York, NY Baltimore, MD Chicago, IL December 2011 December 2011 April 2011 South Miami Beach, FL February 2011 Shrewsbury, MA December 2010 Westchester Co. NY January 2009 Purchase Price GLA 17.6 31.5 32.5 11.2 13.7 21.6 31.6 51.9 56.0 78.0 265,100 62,700 39,600 31,500 18,700 260,000 105,000 61,400 225,200 642,000 $ 345.6 1,711,200 During 2012, we formed Fund IV with 17 principally institutional investors as well as some high-net worth individuals. Reference is made to Note 1 in the Notes to Consolidated Financial Statements, for a detailed discussion of Fund IV. To date, Fund IV has acquired three properties. Reference is made to Note 2 in the Notes to Consolidated Financial Statements, for a detailed discussion of these acquisitions. Fund IV has invested in one redevelopment projects as previously discussed in “—INVESTING ACTIVITIES” in Item 1. of this Form 10-K. Remaining costs for this project are currently estimated to aggregate between $4.0 million and $4.5 million. Notes Receivable As of December 31, 2012, our notes receivable, net aggregated $129.3 million, with accrued interest thereon of $2.7 million. The notes 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 from June 2013 through November 2020. Investments made in notes receivable during 2012 are discussed in Note 5 in the Notes to Consolidated Financial Statements. 41 Other Investments Acquisitions made during 2012 are discussed in Note 2 in the Notes to Consolidated Financial Statements. 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 dense 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. During 2012, we completed the Bloomfield Hills re-anchoring as well as the re-anchoring of the majority of space at one of the two former A&P supermarket locations. Costs associated with these redevelopments aggregated $10.6 million. Re-anchoring costs for the remainder of the space are estimated to range between $4.0 million and $6.0 million. Purchase of Convertible Notes Purchases of the Convertible Notes have been another use of our liquidity, although as of December 31, 2012 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. Share Repurchase We have an existing share repurchase program as further described in Item 5. of this Form 10-K. Management has not repurchased any shares under this program since December 2001, although it has the authority to repurchase up to approximately $7.5 million of our outstanding Common Shares. SOURCES OF LIQUIDITY We intend on using Fund IV, as well as new opportunity funds that we may establish in the future, as the primary vehicles for our future acquisitions. Fund IV has $365.9 million of unfunded capital commitments from noncontrolling interests as of December 31, 2012. Additional sources of capital for funding property acquisitions, redevelopment, expansion and re-tenanting are expected to be obtained primarily from (i) cash on hand of $91.8 million as of December 31, 2012 and cash flow from operating activities, (ii) the issuance of public equity or debt instruments, (iii) unfunded capital commitments from noncontrolling interests of $107.3 million for Fund III, (iv) additional debt financings, and (v) future sales of existing properties. During 2012, noncontrolling interest capital contributions to Fund II, III and IV of $14.2 million, $91.5 million and $49.7 million, respectively, were primarily used to fund acquisitions and to pay down existing credit facilities. Shelf Registration Statements and Issuance of Equity During April 2012, we filed a new 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 $231 million of these securities. During January 2012, we established an ATM equity program with an aggregate offering of up to $75.0 million in Common Shares. During 2012, we sold approximately 3.3 million Common Shares under this program for gross proceeds of $75.0 million and net proceeds of $73.7 million. During August 2012, we established a new ATM equity program with an aggregate offering of up to $125.0 million in Common Shares. Through December 31, 2012, we sold approximately 2.8 million Common Shares under this program for gross proceeds of approximately $68.8 million and net proceeds of approximately $67.8 million. As of December 31, 2012, there is $56.2 million remaining under this program. During October 2012, we issued approximately 3.5 million Common Shares, which generated gross proceeds of approximately $86.9 million and net proceeds of approximately $85.8 million. We have historically used and in the future intend to use the net proceeds of these equity issuances for general corporate 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. 42 Asset Sales Asset sales are an additional source of liquidity for us. Dispositions made during 2012 are discussed further in Note 2 in the Notes to Consolidated Financial Statements. Notes Receivable Repayments Reference is made to Note 5 in the Notes to Consolidated Financial Statements, for an overview of our notes receivable and for payments received during the years ended December 31, 2012, 2011 and 2010. Financing and Debt As of December 31, 2012, our outstanding mortgage and convertible notes payable aggregated $728.1 million, and were collateralized by 35 properties and related tenant leases. Interest rates on our outstanding indebtedness ranged from 1.00% to 7.25% with maturities that ranged from April 2013 to September 2022. Taking into consideration $132.9 million of notional principal under variable to fixed-rate swap agreements currently in effect, $435.2 million of the portfolio, or 60%, was fixed at a 4.97% weighted average interest rate and $292.9 million, or 40% was floating at a 3.95% weighted average interest rate as of December 31, 2012. There is $109.0 million of debt maturing in 2013 at a weighted average interest rate of 4.37%. Of this amount, $6.9 million represents scheduled annual amortization. The loans relating to $20.7 million of the 2013 maturities provide for extension options, which we believe we will be able to exercise. As it relates to the remaining 2013 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. As of December 31, 2012, we had $120.4 million of additional capacity under existing revolving debt facilities. Subsequent to December 31, 2012, the Company closed on a new $150.0 million unsecured line of credit. This facility replaced the existing $64.5 million line of credit to the Operating Partnership that matured. During November 2012, the U.S. Citizenship and Immigration Services ("USCIS") approved the CityPoint project's application for $200.0 million of construction financing under the U.S.'s Immigrant Investor Program, commonly known as "EB-5". Currently all funds are in escrow and will be released upon the approval of the USCIS. The following table sets forth certain information pertaining to our secured credit facilities: (dollars in millions) Borrower Acadia Realty, LP Fund II Fund III Fund IV Total Total available credit facilities 64.5 $ — — 150.0 214.5 $ Amount borrowed as of December 31, 2011 Net borrowings (repayments) during the year ended December 31, 2012 Amount borrowed as of December 31, 2012 Letters of credit outstanding as of December 31, 2012 Amount available under credit facilities as of December 31, 2012 $ $ 1.0 40.0 136.1 — 177.1 $ $ (1.0) $ (40.0) (136.1) 93.1 (84.0) $ — $ — — 93.1 93.1 $ — $ — — — — $ 64.5 — — 56.9 121.4 Reference is made to Note 8 and Note 9 to our Consolidated Financial Statements, for a summary of the financing and refinancing transactions during the year ended December 31, 2012. CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS At December 31, 2012, maturities on our mortgage notes ranged from April 2013 to September 2022. In addition, we have non- cancelable ground leases at eight 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, 2012: 43 Contractual obligations: (dollars in millions) Future debt maturities Interest obligations on debt Operating lease obligations Construction commitments (1) Total Payments due by period Total Less than 1 year 1 to 3 years 3 to 5 years More than 5 years $ 728.1 94.1 145.7 92.7 $ 1,060.6 $ $ 109.0 28.9 4.3 92.7 234.9 $ 381.5 45.9 8.5 — $ 435.9 $ 197.6 14.2 6.5 — $ 218.3 $ $ 40.0 5.1 126.4 — 171.5 Note: (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 account for these investments using the equity method of accounting. As such, our financial statements reflect our share of income and loss from, but not the individual assets and liabilities, of these joint ventures. Reference is made to Note 4 in the Notes to Consolidated Financial Statements, for a discussion of our unconsolidated investments. The Operating Partnership's pro-rata share of unconsolidated debt related to those investments is as follows: (dollars in millions) Investment Lincoln Road (Fund III) Crossroads Shopping Center Parkway Crossing Arundel Plaza Brandywine Town Center White City Shopping Center Georgetown Portfolio Total Pro-rata share of mortgage debt Operating Partnership $ $ 3.8 29.1 2.5 1.6 36.9 6.5 9.2 89.6 Interest rate at December 31, 2012 6.14% 5.37% 2.41% 5.60% 5.99% 2.81% 4.72% Maturity date August, 2014 December, 2014 January, 2015 April, 2015 July, 2016 December, 2017 November, 2027 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 $29.1 million, which effectively fix the interest rate at 5.54% and expire in December 2017. The Operating Partnership's pro-rata share of the fair value of the derivative liabilities totaled $0.5 million at December 31, 2012 HISTORICAL CASH FLOW The following table compares the historical cash flow for the year ended December 31, 2012 (“2012”) with the cash flow for the year ended December 31, 2011 (“2011”). 44 Years Ended December 31, 2011 Variance 2012 (dollars in millions) Net cash provided by operating activities Net cash used in investing activities Net cash provided by financing activities Total $ $ 59.7 (136.7) 79.0 2.0 $ $ $ 66.3 (153.2) 56.1 (30.8) $ (6.6) 16.5 22.9 32.8 A discussion of the significant changes in cash flow for 2012 versus 2011 is as follows: The decrease of $6.6 million in net cash provided by operating activities was primarily attributable to the following: Items which contributed to a decrease in cash from operating activities: • Insurance proceeds received in 2011 related to the flood damage at the Mark Plaza shopping center and the redeployment of these proceeds in the restoration of the property during 2012 • A decrease in distributions of $2.6 million related to our RCP investment in Albertson's during 2012 Items which contributed to an increase in cash from operating activities: • Additional rents from Core Portfolio and Opportunity Fund acquisitions The decrease of $16.5 million in net cash used in investing activities primarily resulted from the following: Items which contributed to a decrease in cash used in investing activities: • An increase of $356.4 million in proceeds from the sale of the Self-Storage Portfolio and Canarsie Plaza during 2012 • An increase of $18.0 million in return of capital from unconsolidated affiliates related to the sale of the White Oak Shopping Center and the refinancing of our investment in Georgetown, D.C. Items which contributed to an increase in cash used in investing activities: • An increase of $125.5 million used for the acquisition of real estate in 2012 • An increase of $20.0 million in expenditures for redevelopment and tenant installations during 2012 • An increase of $105.9 million in investments and advances to unconsolidated affiliates during 2012 related to the acquisitions of Fund IV's Lincoln Road and 1701 Belmont Avenue • An increase of $74.3 million in advances of notes receivable during 2012 • A decrease of $31.1 million from the collection of notes receivable during 2012 The $22.9 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: • An increase of $288.9 million in mortgage debt proceeds during 2012 • An increase of $178.8 million in cash from the issuance of Common Shares, net of costs during 2012 • An additional $54.3 million in contributions from noncontrolling interests during 2012 • An additional $49.0 million in principal payments on convertible notes during 2011 Items which contributed to a decrease in cash from financing activities: • An increase of $387.7 million in principal payments on mortgage notes during 2012 • An increase of $153.2 million in distributions to noncontrolling interests during 2012 CRITICAL ACCOUNTING POLICIES Management’s discussion and analysis of financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these Consolidated Financial Statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect the significant judgments and estimates used by us in the preparation of our Consolidated Financial Statements. 45 Valuation of Property Held for Use and Sale On a quarterly basis, we review the carrying value of both properties held for use and for sale. We perform an 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 $6.9 million. Granville Centre was subsequently sold during 2011. For the years ended December 31, 2012 and 2010, no impairment losses on our properties were recognized. Management does not believe that the value of any properties in its portfolio was impaired as of December 31, 2012. 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, 2012, we recorded a reduction in the carrying amount of our investments in Mervyn's of $2.0 million related to the estimated value of the remaining assets. No impairment charges related to our investment in unconsolidated joint ventures were recognized for the years ended December 31, 2011 and 2010. 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, 2012 and 2011, the allowance for doubtful accounts totaled $6.1 million and $5.3 million, respectively. If the financial condition of our tenants were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Real Estate Real estate assets are stated at cost less accumulated depreciation. Expenditures for acquisition, redevelopment, 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. Upon acquisitions of real estate, we assess the fair value of acquired assets (including land, buildings and improvements, and identified intangibles such as above and below market leases and acquired in-place leases and customer relationships) and acquired liabilities in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805 “Business Combinations” and ASC Topic 350 “Intangibles – Goodwill and Other,” and allocate purchase price based on these assessments. We assess fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property. Involuntary Conversion of Asset We experienced significant flooding resulting in extensive damage to one of our properties during September 2011. Costs related to the clean-up and redevelopment were insured to a limit sufficient that we believed would allow for full restoration of the property. Loss of rents during the redevelopment were covered by business interruption insurance subject to a $0.1 million deductible. We planned to restore the improvements that were damaged by the flooding and expected that the costs of such restoration and rebuilding would 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, we have recorded a write-down of the asset's carrying value in the accompanying 2011 consolidated balance sheet of approximately $1.4 million. In addition, we 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 also provided a $0.1 million provision in the 2011 consolidated statement of income for its exposure to the insurance deductible attributable to the loss of rents. During the year ended, December 31 2011, we received initial insurance proceeds of approximately $6.9 million. During the year ended December 31, 2012, we received additional insurance proceeds 46 of approximately $3.7 million. In connection with these proceeds, we recognized a gain on involuntary conversion of asset of $2.4 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 typically provide for the reimbursement to us of real estate taxes, insurance and other property operating expenses. These reimbursements are recognized as revenue in the period the expenses are incurred. We make estimates of the uncollectability of our accounts receivable related to tenant revenues. An allowance for doubtful accounts has been provided against certain tenant accounts receivable that are estimated to be uncollectible. See “Bad Debts” above. Once the amount is ultimately deemed to be uncollectible, it is written off. Notes Receivable Real estate notes receivable investments are intended to be held to maturity and are carried at cost. Interest income from notes receivable and preferred equity investments are recognized on the effective interest method over the expected life of the loan. Under the effective interest method, interest or fees to be collected at the origination of the loan or the payoff of the loan is recognized over the term of the loan as an adjustment to yield. Allowances for real estate notes receivable 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 2012, we provided for a $0.4 million net reserve on notes receivable as a result of a decrease in the value of the underlying collateral properties. INFLATION Our long-term leases contain provisions designed to mitigate the adverse impact of inflation on our net income. Such provisions include clauses enabling us to receive percentage rents based on tenants’ gross sales, which generally increase as prices rise, and/ or, in certain cases, escalation clauses, which generally increase rental rates during the terms of the leases. Such escalation clauses are often related to increases in the consumer price index or similar inflation indexes. In addition, many of our leases are for terms of less than ten years, which permits us to seek to increase rents upon re-rental at market rates if current rents are below the then existing market rates. Most of our leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes, insurance and utilities, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Reference is made to the Notes to Consolidated Financial Statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Information as of December 31, 2012 Our primary market risk exposure is to changes in interest rates related to our mortgage debt. See Note 8 in the Notes to Consolidated Financial Statements, for certain quantitative details related to our mortgage debt. Currently, we manage our exposure to fluctuations in interest rates primarily through the use of fixed-rate debt and interest rate swap agreements. As of December 31, 2012, we had total mortgage and convertible notes payable of $728.1 million, net of unamortized discount of $0.1 million, of which $435.2 million, or 60% was fixed-rate, inclusive of debt with rates fixed through the use of derivative financial instruments, and $292.9 million, or 40%, was variable-rate based upon LIBOR rates plus certain spreads. As of December 31, 2012, we were a party to seven interest rate swap transactions and four interest rate caps transaction to hedge our exposure to changes in interest rates with respect to $132.9 million and $141.2 million of LIBOR-based variable- rate debt, respectively. 47 The following table sets forth information as of December 31, 2012 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 2013 2014 2015 2016 2017 Thereafter $ $ Scheduled amortization Maturities Total 6.9 6.8 6.1 2.2 1.1 2.4 25.5 $ $ 102.1 49.4 319.2 114.2 80.1 37.6 702.6 $ $ 109.0 56.2 325.3 116.4 81.2 40.0 728.1 Weighted average interest rate 4.4% 5.6% 2.7% 5.7% 5.7% 2.2% Mortgage debt in unconsolidated partnerships (at our pro-rata share): Year 2013 2014 2015 2016 2017 Thereafter $ $ Scheduled amortization Maturities Total 1.0 1.0 0.3 0.2 0.3 2.1 4.9 $ $ — $ 31.6 3.9 36.9 6.0 6.3 84.7 $ Weighted average interest rate n/a 5.5% 3.7% 6.0% 2.8% 4.7% 1.0 32.6 4.2 37.1 6.3 8.4 89.6 $109.0 million of our total consolidated debt and $1.0 million of our pro-rata share of unconsolidated outstanding debt will become due in 2013. $56.2 million of our total consolidated debt and $32.6 million of our pro-rata share of unconsolidated debt will become due in 2014. As we intend on refinancing some or all of such debt at the then-existing market interest rates, which may be greater than the current interest rate, our interest expense would increase by approximately $2.0 million annually if the interest rate on the refinanced debt increased by 100 basis points. After giving effect to noncontrolling interests, our share of this increase would be $0.6 million. Interest expense on our variable-rate debt of $292.9 million, net of variable to fixed-rate swap agreements currently in effect, as of December 31, 2012 would increase $2.9 million if LIBOR increased by 100 basis points. After giving effect to noncontrolling interests, our share of this increase would be $0.6 million. We may seek additional variable-rate financing if and when pricing and other commercial and financial terms warrant. As such, we would consider hedging against the interest rate risk related to such additional variable-rate debt through interest rate swaps and protection agreements, or other means. Based on our outstanding debt balances as of December 31, 2012, the fair value of our total consolidated outstanding debt would decrease by approximately $10.0 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 $8.0 million. As of December 31, 2012 and 2011, we had notes receivable of $129.3 million and $60.0 million, respectively. We determined the estimated fair value of our notes receivable equated the carrying values 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 balances as of December 31, 2012, the fair value of our total outstanding notes receivable would decrease by approximately $1.8 million if interest rates increase by 1%. Conversely, if interest rates decrease by 1%, the fair value of our total outstanding notes receivable would increase by approximately $1.9 million. Summarized Information as of December 31, 2011 As of December 31, 2011, we had total mortgage and convertible notes payable of $648.6 million of which $288.7 million, or 45% was fixed-rate, inclusive of interest rate swaps, and $359.9 million, or 55%, was variable-rate based upon LIBOR plus certain spreads. As of December 31, 2011, we were a party to five interest rate swap transactions and one interest rate cap transaction to hedge our exposure to changes in interest rates with respect to $57.0 million and $28.9 million of LIBOR-based variable-rate debt, 48 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. Interest expense on our variable debt of $359.9 million as of December 31, 2011 would have increased $3.6 million if LIBOR increased by 100 basis points. Based on our outstanding debt balances as of December 31, 2011, the fair value of our total outstanding debt would have decreased by approximately $10.3 million if interest rates increased by 1%. Conversely, if interest rates decreased by 1%, the fair value of our total outstanding debt would have increased by approximately $11.9 million. Changes in Market Risk Exposures from 2012 to 2011 Our interest rate risk exposure from December 31, 2011 to December 31, 2012 has decreased on both a dollar amount and as a percentage of our overall debt, as we had $359.9 million in variable-rate debt (or 55% of our total debt) at December 31, 2011, as compared to $292.9 million (or 40% of our total debt) in variable-rate debt at December 31, 2012. 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, 2012 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. (ii) Internal Control Over Financial Reporting (a) Management’s Annual Report on Internal Control Over Financial Reporting Management of Acadia Realty Trust is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Securities Exchange Act of 1934 Rule 13(a)-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2012 as required by the Securities Exchange Act of 1934 Rule 13(a)-15(c). In making this assessment, we used the criteria set forth in the framework in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). Based on our evaluation under the COSO criteria, our management concluded that our internal control over financial reporting was effective as of December 31, 2012 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. BDO USA, LLP, an independent registered public accounting firm that audited our Financial Statements included in this Annual Report, has issued an attestation report on our internal control over financial reporting as of December 31, 2012, which appears in paragraph (b) of this Item 9A. Acadia Realty Trust White Plains, New York February 27, 2013 49 (b) Attestation report of the independent registered public accounting firm The Shareholders and Trustees of Acadia Realty Trust We have audited Acadia Realty Trust and subsidiaries’ internal control over financial reporting as of December 31, 2012, 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, 2012, 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, 2012 and 2011 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, 2012 and our report dated February 27, 2013 expressed an unqualified opinion thereon. /s/ BDO USA, LLP New York, New York February 27, 2013 (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, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION. None 50 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 2013 annual meeting of stockholders (our “2013 Proxy Statement”) that we intend to file with the SEC no later than April 29, 2013. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. The information under the following headings in the 2013 Proxy Statement is incorporated herein by reference: • • • “PROPOSAL 1 — ELECTION OF TRUSTEES” “MANAGEMENT” “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” ITEM 11. EXECUTIVE COMPENSATION. The information under the following headings in the 2013 Proxy Statement is incorporated herein by reference: • • • • “ACADIA REALTY TRUST COMPENSATION COMMITTEE REPORT” “COMPENSATION DISCUSSION AND ANALYSIS” “EXECUTIVE AND TRUSTEE COMPENSATION” “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 2013 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 2013 Proxy Statement is incorporated herein by reference: • • “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” “PROPOSAL 1 — ELECTION OF TRUSTEES—Trustee Independence” ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. The information under the heading “AUDIT COMMITTEE INFORMATION” in the 2013 Proxy Statement is incorporated herein by reference. 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-48 below. 3. Exhibits: The index of exhibits below is incorporated herein by reference. 51 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. SIGNATURES 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 27, 2013 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 Title Date /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) February 27, 2013 February 27, 2013 February 27, 2013 February 27, 2013 February 27, 2013 February 27, 2013 February 27, 2013 February 27, 2013 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 52 The following is an index to all exhibits including (i) those filed with this Annual Report on Form 10-K and (ii) those incorporated by reference herein: EXHIBIT INDEX Exhibit No. Description 3.1 Declaration of Trust of the Company (1) 3.2 First Amendment to Declaration of Trust of the Company (1) 3.3 Second Amendment to Declaration of Trust of the Company (1) 3.4 Third Amendment to Declaration of Trust of the Company (1) 3.5 Fourth Amendment to Declaration of Trust (incorporated by reference to the copy thereof filed as Exhibit 3.1 (a) to Company's Quarterly Report on Form 10-Q filed for the quarter ended September 30, 1998.) 3.6 Fifth Amendment to Declaration of Trust (incorporated by reference to the copy thereof filed as Exhibit 3.4 to the Company's Quarterly Report on Form 10-Q filed for the quarter ended March 31, 2009.) 3.7 Amended and Restated Bylaws of the Company ( incorporated by reference to the copy thereof filed as Exhibit 3.3 to the Company's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2005.) 3.8 First Amendment the Amended and Restated Bylaws of the Company (incorporated by reference to the copy thereof filed as Exhibit 3.5 to the Company's Quarterly Report on Form 10-Q filed for the quarter ended March 31, 2009.) 4.1 Voting Trust Agreement between the Company and Yale University dated February 27, 2002 (incorporated by reference to the copy thereof filed as Exhibit 99.1 to Yale University's Schedule 13D filed on September 25, 2002.) 10.1 1999 Share Incentive Plan (incorporated by reference to the copy thereof filed as Exhibit 4.1 to the Company's Registration Statement on Form S-8 filed on September 28, 1999.(2) 10.2 2003 Share Incentive Plan (incorporated by reference to the copy thereof filed as Appendix A to the Company's Definitive Proxy Statement on Schedule 14A filed on April 29, 2003.) (2) 10.3 Acadia Realty Trust 1999 Share Incentive Plan and 2003 Share Incentive Plan Deferral and Distribution Election Form (incorporated by reference to the copy thereof filed as Exhibit 10.45 to the Company's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2004.) (2) 10.4 Amended and Restated Acadia Realty Trust 2006 Share Incentive Plan (incorporated by reference to the copy thereof filed as Appendix A to the Company's Definitive Proxy Statement on Schedule 14A filed on April 5, 2012.) (2) 10.5 Certain information regarding the compensation arrangements with certain officers of registrant (incorporated by reference to the copy thereof filed as to Item 5.02 of the registrant's Form 8-K filed with the SEC on February 4, 2008.) 10.6 Description of Long Term Investment Alignment Program (incorporated by reference to the copy thereof filed as Exhibit 10.13 to the Company's Quarterly Report on Form 10-Q filed for the quarter ended March 31, 2009.) 10.7 Form of Share Award Agreement (incorporated by reference to the copy thereof filed as Exhibit 99.1 to the Company's Current Report on Form S-8 filed on July 2, 2003.) (2) 10.8 Registration Rights and Lock-Up Agreement (RD Capital Transaction) (incorporated by reference to the copy thereof filed as Exhibit 99.1 (a) to the Company's Registration Statement on Form S-3 filed on March 3, 2000.) 53 10.9 Registration Rights and Lock-Up Agreement (Pacesetter Transaction) (incorporated by reference to the copy thereof filed as Exhibit 99.1 (b) to the Company's Registration Statement on Form S-3 filed on March 3, 2000.) 10.10 Form of Registration Rights Agreement and Lock-Up Agreement (incorporated by reference to the copy thereof filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2003.) 10.11 Contribution and Share Purchase Agreement dated as of April 15, 1998 among Mark Centers Trust, Mark Centers Limited Partnership, the Contributing Owners and Contributing Entities named therein, RD Properties, L.P. VI, RD Properties, L.P. VIA and RD Properties, L.P. VIB (incorporated by reference to the copy thereof filed as Exhibit 10.1 to the Company's Form 8-K filed on April 20, 1998.) 10.12 Agreement of Contribution among Acadia Realty Limited Partnership, Acadia Realty Trust and Klaff Realty, LP and Klaff Realty, Limited ( incorporated by reference to the copy thereof filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2003.) 10.13 Employment agreement between the Company and Kenneth F. Bernstein dated October 1998 (incorporated by reference to the copy thereof filed as Exhibit 10.34 to the Company's Annual Report on Form10-K filed for the fiscal year ended December 31, 1998.) (2) 10.14 First Amendment to Employment Agreement between the Company and Kenneth Bernstein dated as of January 1, 2001 (incorporated by reference to the copy thereof filed as Exhibit 10.54 to Company's Quarterly Report on Form 10-Q filed for the quarter ended June 30, 2001.) (2) 10.15 Fourth Amendment to employment agreement between the Company and Kenneth F. Bernstein dated January 19, 2007 (incorporated by reference to the copy thereof filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on January 24, 2007.) (2) 10.16 Fifth Amendment to Employment Agreement between the Company and Kenneth F. Bernstein dated August 5, 2008 (incorporated by reference to the copy thereof filed as Exhibit 10.19 to the Company's Quarterly Report on Form 10-Q filed for the quarter ended March 31, 2010.) (2) 10.17 Sixth Amendment to the Employment Agreement between the Company and Kenneth F. Bernstein dated March 7, 2011 (incorporated by reference to the copy thereof filed as Exhibit 99.1 to the Company's Current Report on Form 8-K filed on March 9, 2011.) (2) 10.18 Letter of employment offer between the Company and Michael Nelsen, Sr. Vice President and Chief Financial Officer dated February 19, 2003 (incorporated by reference to the copy thereof filed as Exhibit 10.63 to the Company's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2002.) (2) 10.19 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 copy thereof filed as Exhibit 10.1 to the Company's Form 8-K filed on June 12, 2008.) (2) 10.20 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 (incorporated by reference to the copy thereof filed as Exhibits 10.2, 10.3, 10.4 and 10.5 to the Company's Current Report on Form 8-K filed on January 24, 2007.) (2) 10.21 Amended and Restated Severance Agreement, dated April 19, 2011, that was entered into with Christopher Conlon, Senior Vice President, Leasing and Development (incorporated by reference to the copy thereof filed as Exhibit 10.43 to the Company's Quarterly Report on Form 10-Q filed for the quarter ended March 31, 2011.) (2) 54 10.22 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 (incorporated by reference to the copy thereof filed as Exhibit 10.36 to the Company's Quarterly Report on Form 10-K filed for the year ended December 31, 2010.) 10.23 Revolving Credit Agreement Dated as of November 21, 2012 by and among Acadia Strategic Opportunity Fund IV LLC as Borrower, Acadia Realty Acquisition IV LLC as Borrowers Managing Member, Acadia Realty Limited Partnership as Guarantor, Acadia Realty Trust as Guarantor General Partner, Acadia Investors IV Inc. as Pledgor and Bank of America, N.A. as Administrative Agent, Structuring Agent, Sole Bookrunner, Sole Lead Arranger, Letter of Credit Issuer, and Lender (1) 10.24 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 (incorporated by reference to the copy thereof filed as Exhibit 99.1 to the Company's Current Report on Form 8-K filed on January 4, 2006.) 10.25 Purchase and Sale Agreement dated as of December 14, 2012, by and among Acadia Storage Company LLC, Acadia Storage Post Portfolio Company LLC, Acadia Suffern LLC, Acadia Atlantic Avenue LLC, Acadia Pelham Manor LLC and Acadia Liberty LLC, as Sellers and SP Holdings I LLC, as Purchaser (1) 10.26 Amended and Restated Agreement of Limited Partnership of the Operating Partnership (incorporated by reference to the copy thereof filed as Exhibit 10.1 (c) to the Company's Registration Statement on Form S-3 filed on March 3, 2000.) 10.27 First and Second Amendments to the Amended and Restated Agreement of Limited Partnership of the Operating Partnership (incorporated by reference to the copy thereof filed as Exhibit 10.1 (d) to the Company's Registration Statement on Form S-3 filed on March 3, 2000.) 10.28 Third Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership (incorporated by reference to the copy thereof filed as Exhibit 99.3 to the Company's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2003.) 10.29 Fourth Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership ( incorporated by reference to the copy thereof filed as Exhibit 99.4 to the Company's Annual Report on Form 10- K filed for the fiscal year ended December 31, 2003.) 21 List of Subsidiaries of Acadia Realty Trust (1) 23.1 Consent of Registered Public Accounting Firm to incorporation by reference its reports into Forms S-3 and Forms S-8 (1) 31.1 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 (1) 31.2 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 (1) 32.1 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 (1) 32.2 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 (1) 55 99.1 Certificate of Designation of Series A Preferred Operating Partnership Units of Limited Partnership Interest of Acadia Realty Limited Partnership (incorporated by reference to the copy thereof filed as Exhibit 99.5 to Company's Quarterly Report on Form 10-Q filed for the quarter ended June 30, 1997.) 99.2 Certificate of Designation of Series B Preferred Operating Partnership Units of Limited Partnership Interest of Acadia Realty Limited Partnership (incorporated by reference to the copy thereof filed as Exhibit 99.6 to the Company's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2003.) 101.INS XBRL Instance Document* (3) 101.SCH XBRL Taxonomy Extension Schema Document* (3) 101.CAL XBRL Taxonomy Extension Calculation Document* (3) 101.DEF XBRL Taxonomy Extension Definitions Document* (3) 101.LAB XBRL Taxonomy Extension Labels Document* (3) 101.PRE XBRL Taxonomy Extension Presentation Document* (3) * 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) Filed herewith. (2) Management contract or compensatory plan or arrangement. (3) 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. 56 ACADIA REALTY TRUST AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2012 and 2011 Consolidated Statements of Income for the years ended December 31, 2012, 2011 and 2010 Consolidated Statements of Comprehensive Income for the years ended December 31, 2012, 2011 and 2010 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2012, 2011 and 2010 Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010 Notes to Consolidated Financial Statements Schedule III – Real Estate and Accumulated Depreciation F-2 F-3 F-4 F-5 F-6 F-9 F-11 F-48 F-1 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, 2012 and 2011 and the related consolidated statements of income and comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2012. In connection with our audits of the financial statements we have also audited the accompanying financial statement schedule listed in the accompanying index. 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, 2012, and 2011 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2012, 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, present 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, 2012, 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 27, 2013 expressed an unqualified opinion thereon. /s/ BDO USA, LLP New York, New York February 27, 2013 F-2 ACADIA REALTY TRUST AND SUBSIDIARIES 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, 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 Total assets LIABILITIES Mortgages payable Convertible notes payable 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 EQUITY Shareholders' Equity Common shares, $.001 par value, authorized 100,000,000 shares, issued and outstanding 52,482,598 and 42,586,376 shares, respectively Additional paid-in capital Accumulated other comprehensive loss Retained earnings Total shareholders’ equity Noncontrolling interests Total equity Total liabilities and equity December 31, 2012 2011 $ 293,691 953,020 2,429 1,249,140 187,029 1,062,111 246,602 129,278 221,694 91,813 18,934 27,744 26,777 31,975 29,241 210 22,061 $ 1,908,440 $ 176,278 698,214 5,885 880,377 160,541 719,836 218,384 59,989 84,568 89,812 20,482 23,089 19,608 26,721 25,572 1,375 363,883 $ 1,653,319 $ $ 727,048 930 22,707 29,309 9,674 14,115 21,303 13,098 838,184 647,739 930 21,710 36,569 7,914 5,462 18,517 145,169 884,010 52 581,925 (4,307) 45,127 622,797 447,459 1,070,256 $ 1,908,440 43 348,667 (3,913) 39,317 384,114 385,195 769,309 $ 1,653,319 The accompanying notes are an integral part of these consolidated financial statements F-3 ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands except per share amounts) Revenues Rental income Interest income Expense reimbursements Management fee income Other Total revenues Operating Expenses Property operating Other operating Real estate taxes General and administrative Depreciation and amortization Reserve for notes receivable Total operating expenses Operating income Equity in earnings of unconsolidated affiliates Gain (loss) on sale of unconsolidated affiliates Impairment of unconsolidated affiliates Other interest income Gain from bargain purchase Gain on involuntary conversion of asset (Loss) gain on debt extinguishment Interest and other finance expense Income from continuing operations before income taxes Income tax benefit (provision) Income from continuing operations Discontinued operations Operating income from discontinued operations Impairment of asset Loss on debt extinguishment Gain on sale of property Income from discontinued operations Net income Noncontrolling interests Continuing operations Discontinued operations Net income attributable to noncontrolling interests Net income attributable to Common Shareholders 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 Years ended December 31, 2011 2010 2012 $ $ 99,697 7,879 24,385 1,455 1,009 134,425 $ 80,140 11,429 21,141 1,674 694 115,078 75,082 19,161 19,883 1,424 840 116,390 21,991 3,898 18,811 21,532 32,931 405 99,568 34,857 550 3,061 (2,032) 148 — 2,368 (198) (28,768) 9,986 568 10,554 10,720 — (2,541) 71,203 79,382 89,936 13,480 (63,710) (50,230) 39,706 0.51 0.34 0.85 0.51 0.34 0.85 $ $ $ $ $ 17,513 1,455 15,320 23,066 25,672 — 83,026 32,052 1,555 — — 276 — — 1,268 (29,632) 5,519 (461) 5,058 8,752 (6,925) — 46,830 48,657 53,715 13,655 (15,815) (2,160) 51,555 0.45 0.80 1.25 0.45 0.80 1.25 $ $ $ $ $ 19,508 — 14,006 20,209 23,419 — 77,142 39,248 12,450 (1,479) — 406 33,805 — — (34,414) 50,016 (2,869) 47,147 3,520 — — — 3,520 50,667 (18,914) (1,696) (20,610) 30,057 0.69 0.04 0.73 0.69 0.04 0.73 $ $ $ $ $ The accompanying notes are an integral part of these consolidated financial statements F-4 ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years ended December 31, 2011 2010 2012 (dollars in thousands) Net income Other Comprehensive (loss) income: $ 89,936 $ 53,715 $ 50,667 Unrealized loss on valuation of swap agreements Reclassification of realized interest on swap agreements Other comprehensive (loss) income Comprehensive income Comprehensive income attributable to noncontrolling interests Comprehensive income attributable to Common Shareholders $ (3,519) 2,268 (1,251) 88,685 (49,373) 39,312 $ (5,611) 3,081 (2,530) 51,185 (686) 50,499 $ (2,683) 2,749 66 50,733 (20,539) 30,194 The accompanying notes are an integral part of these consolidated financial statements. F-5 ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (amounts in thousands, except per share amounts) Common Shares Share Amount Additional Paid-in Capital Accumulated Other Comprehensive Loss Retained Earnings Total Common Shareholders’ Equity Noncontrolling Interests Total Equity Balance at January 1, 2010 39,787 $ 40 $ 299,014 $ (2,994) $ 16,125 $ 312,185 $ 220,292 $ 532,477 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 canceled 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 365 133 — 7 6 13 (57) — — 40,254 — — — — Balance at December 31, 2010 40,254 — — — — — — — — — 40 — — — — 40 3,240 2,060 — 109 100 266 (966) — — — — — — 3,240 (3,240) — 2,060 1,778 3,838 — (28,976) (28,976) (723) (29,699) — — — — — — — — — — — — 109 100 266 (966) — — — — — — 109 100 266 (966) (2,892) (2,892) 33,556 33,556 303,823 (2,994) (12,851) 288,018 248,771 536,789 — — — — — 30,057 30,057 20,610 50,667 (2,329) 2,466 — — (2,329) (354) (2,683) 2,466 283 2,749 137 30,057 30,194 20,539 50,733 303,823 (2,857) 17,206 318,212 269,310 587,522 F-6 ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (amounts in thousands, except per share amounts) Common Shares Share Amount Additional Paid-in Capital Accumulated Other Comprehensive Loss Retained Earnings Total Common Shareholders’ Equity Noncontrolling Interests Total Equity Conversion of OP Units to Common Shares by limited partners of the Operating Partnership 11 — 56 Issuance of Common Shares, net of issuance costs 2,250 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 canceled 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 (loss) income 96 — 2 5 — 8 (40) — — 42,586 — — — — Balance at December 31, 2011 42,586 2 1 — — — — — — — — 43 — — — — 43 44,658 481 — 16 93 — 264 (724) — — — — — — — — — — — — 56 (56) — 44,660 — 44,660 482 3,550 4,032 — (29,444) (29,444) (984) (30,428) — — — — — — — — — — — — — — 16 93 — 264 (724) — — — — 16 93 2,441 2,441 — — 264 (724) (7,697) (7,697) 117,945 384,509 117,945 718,124 — 51,555 51,555 2,160 53,715 (3,461) (2,150) (5,611) (3,461) 2,405 — — (1,056) 51,555 50,499 2,405 676 686 3,081 51,185 348,667 (2,857) (12,238) 333,615 348,667 (3,913) 39,317 384,114 385,195 769,309 F-7 ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (amounts in thousands, except per share amounts) Common Shares Share Amount Additional Paid-in Capital Accumulated Other Comprehensive Loss Retained Earnings Total Common Shareholders’ Equity Noncontrolling Interests Total Equity Conversion of OP Units to Common Shares by limited partners of the Operating Partnership Issuance of Common Shares, net of issuance costs Issuance of OP Units to acquire real estate Dividends declared ($0.72 per Common Share) Vesting of employee Restricted Share and LTIP awards Common Shares issued under Employee Share Purchase Plan Issuance of LTIP Unit awards to employees Issuance of Common Shares to trustees Exercise of Share options Employee Restricted Shares canceled Noncontrolling interest distributions Noncontrolling interest contributions Comprehensive (loss) income: Net income Unrealized loss on valuation of swap agreements Reclassification of realized interest on swap agreements Total comprehensive (loss) income Balance at December 31, 2012 334 — 5,880 9,510 9 226,712 — — 192 75 — 384 187 (172) — — — — 44 4 — — 13 (9) — — 52,482 — — — — — — — — — — — — — — 52 — — — — — — — — — — 5,880 (5,880) — 226,721 — 226,721 — 2,279 2,279 — (33,896) (33,896) (1,098) (34,994) — — — — — — — — — — — — — — — — 192 75 — 384 187 (172) — — 3,448 3,640 — 75 2,577 2,577 — — — 384 187 (172) (160,663) (160,663) 172,228 398,086 172,228 981,571 581,925 (3,913) 5,421 583,485 — — — — — 39,706 39,706 50,230 89,936 (1,815) 1,421 — — (1,815) (1,704) (3,519) 1,421 847 2,268 (394) 39,706 39,312 49,373 88,685 52,482 $ 52 $ 581,925 $ (4,307) $ 45,127 $ 622,797 $ 447,459 $1,070,256 The accompanying notes are an integral part of these consolidated financial statements. F-8 ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2011 2010 2012 (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 Loss (gain) on debt extinguishment Gain on involuntary conversion of asset Reserve for notes receivable Impairment of asset Amortization of discount on convertible debt Non-cash accretion of notes receivable Share compensation expense Equity in earnings of unconsolidated affiliates Distributions of operating income from unconsolidated affiliates 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 Acquisition of real estate Redevelopment and property improvement costs Deferred leasing costs Insurance proceeds from involuntary conversion of asset Investments in and advances to unconsolidated affiliates Return of capital from unconsolidated affiliates Proceeds from notes receivable Issuance of notes receivable Proceeds from sale of property Net cash used in investing activities $ 89,936 $ 53,715 $ 50,667 38,769 3,569 — (71,203) 2,739 (2,368) 405 — — (453) 4,021 (1,579) 3,733 731 2,035 (6,757) 1,283 (250) (5,648) 709 59,672 33,683 3,918 — (46,830) (1,268) — — 6,925 829 (786) 4,299 (1,555) 5,515 724 7,319 (8,894) (5,906) 1,034 14,513 (903) 66,332 (241,894) (88,787) (7,275) 3,672 (160,888) 22,296 25,388 (108,629) 419,372 (136,745) (116,408) (65,090) (6,298) — (54,981) 4,504 56,519 (34,343) 62,940 (153,157) 34,499 6,054 (33,805) — — — — — 1,042 (6,164) 4,104 (10,971) 12,124 4,237 (20,028) (4,662) 4,297 (2,408) 1,874 3,517 44,377 (2,849) (77,671) (3,904) — (19,116) 785 42,010 — — (60,745) F-9 ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS 2012 Years ended December 31, 2011 (dollars in thousands) 2010 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 of $762, $206 and $0, respectively Repurchase and cancellation of Common Shares Other employee and trustee stock compensation, net Net cash provided by financing activities (549,095) 433,815 — (6,772) 172,228 (161,765) (32,143) 223,477 (762) 91 79,074 Increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Supplemental disclosure of cash flow information Cash paid during the period for interest, net of capitalized interest of $5,955, $4,850, and $2,903, respectively Cash paid for income taxes Supplemental disclosure of non-cash investing activities Acquisition of real estate through assumption of debt Acquisition of real estate through issuance of OP Units Acquisition of real estate through conversion of notes receivable 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 2,001 89,812 91,813 32,327 941 63,766 2,279 14,000 $ $ $ $ $ $ — $ — — — — — $ $ $ $ $ $ $ $ $ (161,389) 144,959 (48,997) (2,877) 117,945 (8,605) (29,033) 44,659 (726) 109 56,045 (127,823) 175,793 (240) (6,830) 33,556 (1,638) (28,909) — (966) 209 43,152 (30,780) 120,592 89,812 26,784 93,808 $ 120,592 32,120 3,776 $ $ 31,920 1,263 — $ — $ — $ — — — — $ (108,000) 25,990 — 33,805 — 7,532 — 37,824 — (2,849) — $ The accompanying notes are an integral part of these consolidated financial statements. F-10 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, acquisition, redevelopment, and management of high-quality retail properties and urban/ infill mixed-use properties with a strong retail component located primarily in high-barrier-to-entry, supply constrained, densely- populated metropolitan areas in the United States along the East Coast and in Chicago. 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 an interest. As of December 31, 2012, the Trust controlled approximately 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 and LTIP Units are generally entitled to exchange their units on a one-for-one basis for common shares of beneficial interest of the Trust (“Common Shares”). This structure is referred to as an umbrella partnership REIT or “UPREIT.” As of December 31, 2012, the Company has ownership interests in 72 properties within its core portfolio, which consist of those properties either 100% owned, or partially owned through joint venture interests, by the Operating Partnership, or subsidiaries thereof, not including those properties owned through its opportunity funds ("Core Portfolio"). The Company also has ownership interests in 28 properties within its opportunity funds, Acadia Strategic Opportunity Fund I, LP ("Fund I"), Acadia Strategic Opportunity II, LLC ("Fund II"), Acadia Strategic Opportunity Fund III LLC ("Fund III") and Acadia Strategic Opportunity Fund IV LLC (("Fund IV") and together with Funds I, II, and III, the "Opportunity Funds"). The 100 Core Portfolio and Opportunity Fund properties primarily consist of urban/street retail, dense suburban neighborhood and community shopping centers and mixed- use properties with a strong retail component. In addition, the Company, together with the investors in the Opportunity Funds, invest in operating companies through Acadia Mervyn Investors I, LLC ("Mervyns I"), Acadia Mervyn Investors II, LLC ("Mervyns II") and Fund II, all on a non-recourse basis. The Operating Partnership is the sole general partner or managing member of the Opportunity Funds and Mervyns I and II and earns fees or priority distributions for asset management, property management, construction, redevelopment, leasing, and legal services. Cash flows from the Opportunity Funds and Mervyns I and II are distributed pro-rata to their respective partners and members (including the Operating Partnership) until each receives a certain cumulative return ("Preferred Return"), and the return of all capital contributions. Thereafter, remaining cash flow is distributed 20% to the Operating Partnership ("Promote") and 80% to the partners or members (including the Operating Partnership). Following is a table summarizing the general terms and Operating Partnership's equity interests in the Opportunity Funds and Mervyns I and II: Operating Partnership Share of Capital Formation Date Committed Capital Capital Called as of December 31, 2012 Equity Interest Held By Operating Partnership Capital Returned as of December 31, 2012 Preferred Return 9/2001 6/2004 5/2007 5/2012 22.22% $ 90.0 $ 86.6 37.78% 9% $ 20.00% 19.90% 23.12% 300.0 475.0 (2) 540.6 300.0 341.0 64.6 20.00% 19.90% 23.12% 8% 6% 6% 86.6 84.5 164.0 — Entity Fund I and Mervyns I (1) Fund II and Mervyns II Fund III Fund IV Note: (1) - Fund I and Mervyns I have returned all capital and preferred return. The Operating Partnership is now entitled to a Promote on all future cash distributions. (2) - Original committed capital of Fund III was $502.5 million. During 2012, this amount was reduced to $475.0 million. F-11 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization, Basis of Presentation and Summary of Significant Accounting Policies, continued 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 with 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 which the Company has the ability to exercise significant influence over, but does not have financial or operating control, are accounted for using the equity method of accounting. Accordingly, the Company’s share of the earnings (or losses) of these entities are included in consolidated net income. 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 810 to its investments in certain joint ventures and determined that these joint ventures are not variable interest entities or that the Company is not the primary beneficiary and, therefore, consolidation of these ventures is not required. These investments are accounted for using the equity method of accounting. Investments in and Advances to Unconsolidated Joint Ventures The Company primarily accounts for its investments in unconsolidated joint ventures using the equity method as it does not exercise control over significant asset decisions such as buying, selling or financing nor is it the primary beneficiary under ASC Topic 810, as discussed above in most of these investments. The Company does have significant influence over most of these investments, which requires equity method accounting. Under the equity method, the Company increases its investment for its proportionate share of net income and contributions to the joint venture and decreases its investment balance by recording its proportionate share of net loss and distributions. The Company accounts for some of its investments under the cost method. Due to its minor ownership of three investments as well as the terms of the underlying operating agreements, the Company has no influence over such entities' operating and financial policies. Other than the minority investor rights to which the Company is entitled pursuant to statute, it has no rights other than to receive its pro-rata share of cash distributions as declared by the managers of these investments. The Company has no rights with respect to the control and operation of these investments vehicles, nor with the formulation and execution of business and investment policies. 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 Ventures.” 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 2012, the Company recorded an impairment charge of $2.0 million in connection with the estimated fair value in its investment in Mervyns. During the years ended December 31, 2011 and 2010, there were no impairment charges related to the Company’s investment in unconsolidated joint ventures. Use of Estimates Accounting principles generally accepted in the United States of America (“GAAP”) require the Company’s management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The most significant assumptions and estimates relate to the valuation of real estate, depreciable lives, revenue recognition and the collectability of 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. Real Estate Real estate assets are stated at cost less accumulated depreciation. 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 F-12 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization, Basis of Presentation and Summary of Significant Accounting Policies, continued Real Estate, continued 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. Upon acquisitions of real estate, the Company assesses the fair value of acquired assets and assumed liabilities (including land, buildings and improvements, and identified intangibles such as above and below market leases and acquired in-place leases and customer relationships) and acquired liabilities in accordance with ASC Topic 805 “Business Combinations” and ASC Topic 350 “Intangibles – Goodwill and Other,” and allocates the acquisition price based on these assessments. Fixed-rate renewal options have been included in the calculation of the fair value of acquired leases where applicable. To the extent there were fixed-rate options at below-market rental rates, the Company included these along with the current term below-market rent in arriving at the fair value of the acquired leases. The discounted difference between contract and market rents is being amortized over the remaining applicable lease term, inclusive of any option periods. The Company assesses fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property. The Company capitalizes certain costs related to the development and redevelopment of real estate including pre-construction costs, interest, real estate taxes, insurance, construction costs and salaries and related costs of personnel directly involved with the specific project. Additionally, the Company capitalizes interest costs related to development and redevelopment activities. Capitalization of these costs begin when the activities and related expenditures commence, and cease when the property is held available for occupancy upon substantial completion of tenant improvements, but no later than one year from the completion of major construction activity at which time the project is placed in service and depreciation commences. The Company reviews its long-lived assets 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 to recover its carrying costs on properties held for use, the Company reduces its carrying costs to fair value, and for properties held for sale, the Company reduces its carrying value to the fair value less costs to sell. During the year ended December 31, 2011, the Company determined that the value of the Granville Centre owned by Fund I was impaired. Accordingly, an impairment loss of $6.9 million was recorded, of which the Operating Partnership's share was $1.5 million. During the years ended December 31, 2012, and 2010, no impairment charges were recorded. Management does not believe that the values of its properties within the portfolio are impaired as of December 31, 2012. 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. The Company evaluates the held-for-sale classification of its real estate each quarter. Assets that are classified as held for sale are recorded at the lower of their carrying amount or fair value less cost to sell. Assets are generally classified as held for sale once management has initiated an active program to market them for sale and has received a firm purchase commitment. The results of operations of these real estate properties are reflected as discontinued operations in all periods presented. 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 resulting in extensive damage to one of its properties during September 2011. Costs related to the clean-up and redevelopment were insured for an amount sufficient that would allow for full restoration of the property. Loss of rents during the redevelopment were covered by business interruption insurance subject to a $0.1 million deductible. F-13 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization, Basis of Presentation and Summary of Significant Accounting Policies, continued Involuntary Conversion of Asset, continued In accordance with ASC Topic 360 “Property, Plant and Equipment” and as a result of the above-described property damage, the Company had recorded a write-down of the asset's carrying value of approximately $1.4 million, as well as an insurance recovery in the same amount that is included in Prepaid Expenses and Other Assets in the accompanying consolidated balance sheets as of December 31, 2011. The Company also provided a $0.1 million provision in the 2011 consolidated statement of income for its exposure to the insurance deductible attributable to the loss of rents. During the years ended December 31, 2012 and 2011, the Company received insurance proceeds of approximately $3.7 million and $6.9 million, respectively. The Company recognized a gain on involuntary conversion of $2.4 million as these proceeds exceeded the asset's net basis. 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. The Company capitalizes salaries, commissions and benefits related to time spent by leasing and legal department personnel involved in originating leases. Management Contracts Income from management contracts is recognized on an accrual basis as such fees are earned. The initial acquisition costs 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, net of any rent concessions or tenant lease incentives, including free rent, on a straight-line basis over the term of the respective leases, beginning when the tenant is entitled to take possession of the space. As of December 31, 2012 and 2011, included in Rents Receivable, net on the accompanying consolidated balance sheets are unbilled rents receivable relating to the straight-lining of rents of $25.7 million and $22.8 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 property operating expenses. These reimbursements are recognized as revenue in the period the related expenses are incurred. The Company makes estimates of the uncollectability of its accounts receivable related to tenant revenues. An allowance for doubtful accounts has been provided against certain tenant accounts receivable that are estimated to be uncollectible. Once the amount is ultimately deemed to be uncollectible, it is written off. Rents receivable at December 31, 2012 and 2011 are shown net of an allowance for doubtful accounts of $6.1 million and $5.3 million, respectively. Notes Receivable Notes receivable are intended to be held to maturity and are carried at amortized cost. Interest income from notes receivable are recognized on the effective interest method over the expected life of the loan. Under the effective interest method, interest or fees 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 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 their carrying values 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 2012, the Company provided a $0.4 million net reserve on note receivables as a result of changes in the value of the underlying collateral properties. F-14 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization, Basis of Presentation and Summary of Significant Accounting Policies, continued Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed the federally insured limit by the Federal Deposit Insurance Corporation. The Company has never experienced any losses related to these balances. Restricted Cash and Cash in Escrow Restricted cash and cash in escrow consist principally of cash held for real estate taxes, construction costs, property maintenance, insurance, minimum occupancy and property operating income requirements at specific properties as required by certain loan agreements. Income Taxes The Company has made an election to be taxed, and believes it qualifies, as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). To maintain REIT status for Federal income tax purposes, the Company is generally required to distribute at least 90% of its REIT taxable income to its shareholders as well as comply with certain other income, asset and organizational requirements as defined in the Code. Accordingly, the Company is generally not subject to Federal corporate income tax to the extent that it distributes 100% of its REIT taxable income each year. Although it may qualify for REIT status for Federal income tax purposes, the Company is subject to state income or franchise taxes in certain states in which some of its properties are located. In addition, taxable income from non-REIT activities managed through the Company’s taxable REIT subsidiaries (“TRS”) is fully subject to Federal, state and local income taxes. The Company accounts for TRS income taxes under the liability method as required by ASC Topic 740, “Income Taxes.” Under the liability method, deferred income taxes are recognized for the temporary differences between the GAAP basis and tax basis of the TRS 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 positions as a component of the provision for income taxes. Stock-based Compensation The Company accounts for stock-based compensation pursuant to ASC Topic 718, “Compensation – Stock Compensation.” As such, all equity based awards are reflected as compensation expense in the Company’s consolidated financial statements over their vesting period based on the fair value at the date of grant. Recent Accounting Pronouncements During February 2013, the FASB issued Accounting Standards Update (“ASU”) No. 2013-03, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." ASU 2013-03 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. ASU is effective prospectively for reporting periods beginning after December 15, 2012. The adoption of ASU 2013-03 is not expected to have a material impact on the Company's financial condition or results of operations. During April 2011, the FASB issued ASU No. 2011-02, “A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” ASU 2011-02 requires a creditor to evaluate whether a restructuring constitutes a troubled debt restructuring by concluding that the restructuring constitutes a concession and that the debtor is experiencing financial difficulties and was effective for the first interim or annual period beginning on or after June 15, 2011. The adoption of ASU 2011-02 did not have a material impact on the Company's financial condition or results of operations. F-15 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization, Basis of Presentation and Summary of Significant Accounting Policies, continued Recent Accounting Pronouncements, continued During May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU No. 2011-04 amended ASC 820, Fair Value Measurements and Disclosures, to converge the fair value measurement guidance in GAAP and International Financial Reporting Standards (“IFRS”). The amendments, which primarily require additional fair value disclosure, are to be applied prospectively. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011. The adoption of ASU No. 2011-04 did not have a material impact on the Company's financial condition or results of operations. During June 2011, the FASB issued ASU No. 2011-05, “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 other comprehensive income. ASU 2011-05 is effective for interim and annual periods beginning after December 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 Company's financial condition or results of operations. During December 2011, the FASB issued ASU No. 2011-10, “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. F-16 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. Acquisition and Disposition of Properties and Discontinued Operations A. Acquisition and Disposition of Properties Acquisitions During 2012, the Company acquired the following properties through its Core Portfolio and Opportunity Funds as follows: Core Portfolio (dollars in thousands) Property GLA Percent Owned Type Month of Acquisition Purchase Price Debt Assumption Location 1520 N Milwaukee Ave 330-340 River St Chicago Street Retail 930 N Rush St 28 Jericho Turnpike Rhode Island Shopping Center 83 Spring St 60 Orange Street Chicago Street Retail 181 Main Street Connecticut Ave 639 W Diversey Total 3,100 100% Street Retail January $ 3,800 $ — Chicago, IL Shopping Center 100% February 100% Street Retail March 100% Street Retail April 100% Single Tenant May Shopping Center 100% 100% Street Retail June July 98% Single Tenant October 100% Street Retail November 100% Street Retail December 100% Street Retail December 100% Street Retail December 53,300 42,264 2,900 96,000 57,000 4,800 129,010 42,524 14,850 42,000 22,095 509,843 18,900 18,800 20,700 27,300 21,700 11,500 12,500 41,100 14,100 23,200 10,700 Cambridge, MA 7,022 16,029 Chicago, IL — Chicago, IL — Westbury, NY 16,510 Washington, D. C. — New York, NY Bloomfield, NJ — — Chicago, IL — Westport, CT Washington, D.C. — 4,431 Chicago, IL $ 224,300 $ 43,992 The Company expensed $2.1 million of costs for the year ended December 31, 2012 related to these 2012 Core Portfolio acquisitions. F-17 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. Acquisition and Disposition of Properties and Discontinued Operations, continued Fund III (dollars in thousands) Property GLA 640 Broadway Lincoln Park Centre 45,700 62,700 Broad Hollow Commons (1)(2) Undeveloped Land Arundel Plaza 265,000 Cortlandt Crossing (1) Undeveloped Land 3104 M St Total 4,900 378,300 Percent Owned Type Month of Acquisition Purchase Price Debt Assumption Location 50% Street Retail February $ 32,500 $ — New York, NY Shopping Center 100% Undeveloped Land 100% Shopping Center 90% Undeveloped Land 100% April August August August 100% Street Retail August 31,500 19,763 Chicago, IL 12,386 17,600 11,000 3,000 Farmingdale, NY — Glen Burnie, MD 9,256 Mohegan Lake, NY Washington, D.C. — — $ 107,986 $ 29,019 Notes: (1) Acquisition of land which is not treated as a business combination in accordance with ASC Topic 805. (2) Fund III obtained a deed in lieu of foreclosure on an undeveloped property encumbered by the Fund's $10.0 million first mortgage loan which originated in September 2008. The $12,386 includes the first mortgage loan along with accrued interest. The Company expensed $2.2 million of costs for the year ended December 31, 2012 related to these 2012 Fund III acquisitions. Fund IV (dollars in thousands) Property GLA Percent Owned Type Month of Acquisition Purchase Price Debt Assumption 1701 Belmont Avenue 58,000 90% Single Tenant December $ 4,700 $ 210 Bowery 9,200 100% Street Retail December 7,500 Lincoln Road Total 54,400 121,600 95% Street Retail December 139,000 $ 151,200 Location Catonsville, MD Manhattan, NY Miami Beach, FL — — — — The Company expensed $0.5 million of costs for the year ended December 31, 2012 related to these 2012 Fund IV acquisitions. The above Core Portfolio and Opportunity Fund acquisitions, excluding the acquisitions of undeveloped land, have been accounted for as business combinations. The purchase prices were allocated to the acquired assets and assumed liabilities based on the Company's current best estimate of fair value of these acquired assets and assumed liabilities at the dates of acquisition. The preliminary measurements of fair value reflected below are subject to change. The Company expects to finalize the valuations and complete the purchase price allocations within one year from the dates of acquisition. The following table summarizes both the Company's preliminary and finalized allocations of the purchase prices of assets acquired and liabilities assumed during 2012: F-18 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. Acquisition and Disposition of Properties and Discontinued Operations, continued (dollars in thousands) Originally Reported Adjustments Allocations Finalized Purchase Price Allocation as Finalized Purchase Price Allocation Allocations Not Finalized Preliminary Purchase Price Allocation Land Buildings and Improvements Acquisition-related intangible assets (in Acquired lease intangibles, net) Acquisition-related intangible liabilities (in Acquired lease and other intangibles, net) Above-below market debt assumed (included in Mortgages payable) $ 68,439 $ 446 $ 120,010 (2,083) 68,885 117,927 $ 86,826 226,650 2,482 8,830 11,312 (4,387) (7,267) (11,654) 935 74 1,009 — — — Total Consideration $ 187,479 $ — $ 187,479 $ 313,476 During 2011, the Company acquired properties and recorded the preliminary allocation of the purchase price to the assets acquired based on provisional measurements of fair value. During 2012, the Company finalized the allocation of the purchase price and made certain measurement period adjustments. The following table summarizes the preliminary allocation of the purchase price of properties as recorded as of December 31, 2011, and the finalized allocation of the purchase price as adjusted as of December 31, 2012: (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 Preliminary Purchase Price Allocation Finalized Purchase Price Allocation $ $ 5,438 $ 18,563 — — 24,001 $ 12,150 11,009 1,027 (185) 24,001 Dispositions During 2012, there were no Core Portfolio dispositions. The Opportunity Funds disposed of the following properties: (dollars in thousands) Property White Oak Shopping Center (1) Tarrytown Centre 125 Main Street Canarsie Plaza Self Storage Portfolio Total Owner Fund III Fund I Fund III Fund II Fund II & Fund III Month Sold June June August December December Sales Price Gain (Loss) GLA $ 13,778 $ 12,800 33,500 124,000 3,402 2,935 5,867 (1,315) 261,600 445,678 $ 63,716 74,605 $ 64,600 35,000 25,732 273,542 — 398,874 Note: (1) This property was accounted for as an unconsolidated investment. F-19 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. Acquisition and Disposition of Properties and Discontinued Operations, continued B. Discontinued Operations The Company reports properties sold and held-for-sale 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, 2012 and 2011, and the results of operations of the properties classified as discontinued operations for the years ended December 31, 2012, 2011 and 2010, are summarized as follows: BALANCE SHEET ASSETS (dollars in thousands) Net real estate Rents receivable, net Deferred charges, net Prepaid expenses and other assets Total assets of discontinued operations LIABILITIES Mortgages payable Accounts payable and accrued expenses Other liabilities Total liabilities of discontinued operations December 31, 2012 December 31, 2011 $ $ $ $ 19,400 $ 917 612 1,132 22,061 $ 9,208 $ 3,125 765 13,098 $ 352,729 3,326 6,246 1,582 363,883 140,171 3,078 1,920 145,169 Years ended December 31, 2011 2010 2012 37,464 26,744 10,720 — (2,541) 71,203 79,382 (63,710) 15,672 $ $ 40,392 31,640 8,752 (6,925) — 46,830 48,657 (15,815) 32,842 $ $ 36,568 33,048 3,520 — — — 3,520 (1,696) 1,824 STATEMENTS OF OPERATIONS (dollars in thousands) Total revenues Total expenses Operating income Impairment of asset Loss on debt extinguishment Gain on sale of property Income from discontinued operations Income from discontinued operations attributable to noncontrolling interests $ Income from discontinued operations attributable to Common Shareholders $ F-20 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. Segment Reporting The Company has four reportable segments: Core Portfolio, Opportunity Funds, Notes Receivable and Other. Notes Receivable consists of the Company’s notes receivable and preferred equity investment and related interest income. Other consists primarily of management fees and interest income. As a result of the sale of the majority of the Company's Self-Storage Portfolio during 2012, the Company no longer reports these discontinued operations as a separate segment. 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 or managing 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, 2012, 2011, and 2010 (does not include unconsolidated affiliates or discontinued operations): (dollars in thousands) Revenues Property operating expenses, other operating and real estate taxes General and administrative expenses Income before depreciation and amortization Depreciation and amortization $ 26,083 $ 18,316 Interest and other finance expense $ 15,229 2012 Core Portfolio Opportunity Funds Notes Receivable Other Amounts Eliminated in Consolidation Total $ 70,599 $ 54,286 $ 7,973 $ 22,947 $ (21,380) $ 134,425 21,699 26,001 22,817 14,373 — — (3,000) 44,700 (15,658) 21,532 — — 7,973 $ $ $ $ 13,912 15,594 12,910 764,471 $ $ $ $ — $ — $ — $ — $ $ 68,193 $ 22,947 (2,722) $ (979) $ 28,768 $ 629 (13,609) $1,495,742 $ — $ (138,695) $1,886,379 32,931 — $ — $ Real estate at cost Total assets $ 744,880 $ 877,926 $ 1,017,870 $ 129,278 Acquisition of real estate $ 175,556 Redevelopment and property improvement costs $ 5,381 $ $ 66,338 78,265 $ $ — $ — $ — $ 241,894 — $ — $ (1,519) $ 82,127 Reconciliation to net income and net income attributable to Common Shareholders Income before depreciation and amortization $ 68,193 Other interest income Depreciation and amortization Equity in earnings of unconsolidated affiliates Interest and other finance expense Loss on debt extinguishment Income tax benefit Reserve for notes receivable Gain on involuntary conversion of asset Operating income from discontinued operations Loss on debt extinguishment from discontinued operations Gain on sale of property Net income Net income attributable to noncontrolling interests Net income attributable to Common Shareholders F-21 148 (32,931) 1,579 (28,768) (198) 568 (405) 2,368 10,720 (2,541) 71,203 89,936 (50,230) 39,706 $ $ $ $ ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. Segment Reporting, continued 2011 (dollars in thousands) Core Portfolio Opportunity Funds Notes Receivable Other Amounts Eliminated in Consolidation Total Revenues $ 57,994 $ 43,994 $ 11,429 $ 25,782 $ (24,121) $ 115,078 Property operating expenses, other operating and real estate taxes General and administrative expenses 17,087 19,618 24,226 16,658 — — — — (2,417) 34,288 (17,818) 23,066 Income before depreciation and amortization Depreciation and amortization $ 16,681 $ 14,206 Interest and other finance expense $ 15,967 $ $ $ 7,718 $ 11,429 $ 25,782 $ 12,361 12,672 — $ — $ — $ — $ (3,886) $ (895) $ $ 993 57,724 25,672 29,632 Real estate at cost $ 499,872 $ 614,321 — $ — $ (15,432) $ 1,098,761 Total assets $ 633,345 $ 730,029 $ 59,989 $ — $ (133,927) $ 1,289,436 Acquisition of real estate $ 60,305 Redevelopment and property improvement costs $ 12,266 $ $ 56,103 51,128 $ $ 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 Operating income from discontinued operations Impairment of asset Gain on sale of property Net income Net income attributable to noncontrolling interests Net income attributable to Common Shareholders — $ — $ — $ 116,408 — $ — $ (2,083) $ 61,311 $ 57,724 276 (25,672) 1,555 (29,632) 1,268 (461) 8,752 (6,925) 46,830 53,715 (2,160) 51,555 $ F-22 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. Segment Reporting, continued 2010 (dollars in thousands) Revenues Property operating expenses, other operating and real estate taxes General and administrative expenses Core Portfolio Opportunity Funds Notes Receivable Other Amounts Eliminated in Consolidation Total $ 57,084 $ 38,721 $ 19,161 $ 22,479 $ (21,055) $ 116,390 17,236 17,814 22,439 13,577 — — — — (1,536) 33,514 (15,807) 20,209 Income before depreciation and amortization Depreciation and amortization Interest and other finance expense $ $ $ 17,409 13,798 18,036 $ $ $ Real estate at cost Total assets 7,330 $ 19,161 $ 22,479 $ 10,061 16,820 $ $ $ — $ — $ — $ $ 441,714 $ 522,345 $ 574,497 $ 629,292 $ 89,202 $ — $ — $ (3,712) $ (440) $ (442) $ 62,667 23,419 — $ 34,414 (13,349) $ 950,710 — $ — $ (105,611) $1,187,380 2,849 — $ — $ — $ — $ (2,302) $ 76,295 $ 62,667 406 (23,419) 10,971 (34,414) (2,869) 33,805 3,520 50,667 (20,610) 30,057 $ Acquisition of real estate Redevelopment and property improvement costs $ $ — $ 2,849 4,137 $ 74,460 $ $ 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 Operating income from discontinued operations Net income Net income attributable to noncontrolling interests Net income attributable to Common Shareholders F-23 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Investments In and Advances to Unconsolidated Affiliates Core Portfolio The Company owns a 22.2% interest in an approximately one million square foot retail portfolio (the “Brandywine Portfolio”) located in Wilmington, Delaware, a 49% interest in a 311,000 square foot shopping center located in White Plains, New York (“Crossroads”) and a 50% interest in an approximately 28,000 square foot retail portfolio located in Georgetown, Washington D.C. (the "Georgetown Portfolio"). These investments are accounted for under the equity method. Opportunity Funds RCP Venture The Opportunity Funds, 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 investment has been made on a stand-alone basis through a separate limited liability company (“LLC”). These investments have been made through different investment vehicles with different affiliated and unaffiliated investors and different economics to the Company. Investments under the RCP Venture are structured as separate joint ventures as there may be other investors participating in certain investments in addition to Klaff, Lubert-Adler and Acadia. The Company has made these investments through its subsidiaries, Mervyns I, Mervyns II and Fund II, (together the “Acadia Investors”), all on a non-recourse basis. Through December 31, 2012, the Acadia Investors have made investments in Mervyns Department Stores (“Mervyns”) and Albertson’s, as well as additional investments in locations that are separate from these original investments (“Add-On Investments”). Additionally, they have invested in Shopko, Marsh and Rex Stores Corporation (collectively “Other RCP Investments”). Mervyns Department Stores Through Mervyns I and Mervyns II, the Company invested in a consortium to acquire Mervyns, consisting of 262 stores (“REALCO”) and its retail operations (“OPCO”), from Target Corporation. The Company’s share of this investment was $23.2 million. Subsequent to the initial acquisition, the Company, through Mervyns I and Mervyns II, made additional investments of $3.9 million. Through December 31, 2012, 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, 2012, the Company has received distributions from this investment totaling $46.0 million. Through December 31, 2012, the Company, through Mervyns I and Mervyns II, made Add-On Investments in Mervyns totaling $6.5 million and have received distributions totaling $3.6 million. During the year ended December 31, 2012, the Company recorded an impairment charge of $2.0 million on its investment in Mervyn's relating to a reduction in the fair value of the remaining assets of the portfolio. The Operating Partnership's share of this impairment, net of taxes, was $0.2 million. 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, 2012, the Company has received distributions from this investment totaling $81.7 million, including $2.4 million and $4.5 million received in 2012 and 2011, respectively. Through December 31, 2012, the Company, through Mervyns II, made Add-On Investments in Albertson’s totaling $2.4 million and received distributions totaling $4.8 million, including $3.1 million received in 2012. Other RCP Investments Through December 31, 2012, the Company, through Fund II, made investments of $1.1 million in Shopko, $0.7 million in Marsh, and $2.0 million in Marsh Add-On Investments. As of December 31, 2012, the Company has received distributions totaling $1.7 million from its Shopko investment and $2.6 million from its Marsh and Marsh Add-On Investments. During July of 2007, the RCP Venture acquired a portfolio of 87 retail properties from Rex Stores Corporation, which the Company invested through Mervyns II. The Company’s share of this investment was $2.7 million. As of December 31, 2012, the Company has received distributions totaling $2.0 million, including $1.1 million received in 2012. F-24 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Investments In and Advances to Unconsolidated Affiliates, continued The following table summarizes activity related to the RCP Venture investments from inception through December 31, 2012: Investment Mervyns Mervyns Add-On investments Albertsons Albertsons Add-On investments Shopko Marsh and Add-On investments Rex Stores Total Operating Partnership Share Invested Capital and Advances $ $ 27,088 6,517 20,717 2,416 1,108 2,667 2,701 63,214 Invested Capital and Advances 4,901 1,252 4,239 388 222 533 535 12,070 Distributions 45,966 $ 3,558 81,680 4,778 1,659 2,639 1,956 142,236 $ $ $ Distributions 11,251 $ 819 16,318 972 332 528 392 30,612 $ Year Acquired 2004 2005/2008 2006 2006/2007 2006 2006/2008 2007 The Company accounts for the original investments in Mervyns and Albertson’s under the equity method of accounting as the Company has the ability to exercise significant influence, but does not have financial or operating control. The Company accounts for the Add-On Investments and Other RCP Investments under the cost method. Due to its minor ownership interest, based on the size of the investments as well as the terms of the underlying operating agreements, the Company has no influence over such entities' operating and financial policies. Other than the minority investor rights to which the Company is entitled pursuant to statute, it has no rights other than to receive its pro-rata share of cash distributions as declared by the managers of the Add-On Investments and Other RCP Investments. The Company has no rights with respect to the control and operation of these investment vehicles, nor with the formulation and execution of business and investment policies. The Acadia Investors have non-controlling interests in the individual investee LLC’s as follows: Acadia Investors Ownership % in: Investment Mervyns Mervyns Add-On Investments Albertsons Albertsons Add-On Investments Shopko Marsh and Add-On Investments Rex Stores Investee LLC KLA/Mervyn's, L.L.C KLA/Mervyn's, L.L.C KLA A Markets, LLC KLA A Markets, LLC KA-Shopko, LLC KA Marsh, LLC KLAC Rex Venture, LLC Acadia Investors Entity Mervyns I and Mervyns II Mervyns I and Mervyns II Mervyns II Mervyns II Fund II Fund II Mervyns II Investee LLC 10.5% 10.5% 18.9% 20.0% 20.0% 20.0% 13.3% Underlying entity(s) 5.8% 5.8% 5.7% 6.0% 2.0% 3.3% 13.3% F-25 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Investments In and Advances to Unconsolidated Affiliates, continued Other Opportunity Fund Investments 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, has consolidated the CityPoint investment since that point. Fund III Investments The unaffiliated venture partners for the Lincoln Road, Arundel Plaza, Parkway Crossing and the White City Shopping Center investments maintain control over these entities and, as 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. Fund III has a 50% interest in the entity. This entity was determined to be a variable interest entity but it was determined that the Company was not the primary beneficiary. As such, the Company accounts for this investment under the equity method. Fund IV Investments The unaffiliated venture partners for 1701 Belmont Avenue (Note 2) and Lincoln Road (Note 2) investment maintain control over the entity and, as such, the Company accounts for these investments under the equity method. 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. Summary of Investments in Unconsolidated Affiliates, continued (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 Company's share of distributions in excess of share of income and investments in unconsolidated affiliates December 31, 2012 December 31, 2011 $ $ $ $ $ $ 441,611 93,923 39,035 574,569 326,296 24,267 224,006 574,569 221,694 $ $ $ $ $ 280,470 156,421 29,587 466,478 319,425 16,902 130,151 466,478 84,568 (22,707) $ (21,710) F-26 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Investments In and Advances to Unconsolidated Affiliates, continued (dollars in thousands) Combined and Condensed Statements of Operations Total revenues Operating and other expenses Interest expense Equity in earnings of unconsolidated affiliates Depreciation and amortization Loss on debt extinguishment Gain (loss) on sale of property, net Net income Company’s share of net income Amortization of excess investment Company’s equity in earnings of unconsolidated affiliates Years Ended December 31, 2011 2010 2012 $ $ $ $ $ $ $ 49,729 18,919 18,547 583 9,551 293 3,402 6,404 1,971 (392) $ $ $ 42,185 15,924 17,099 7,243 8,837 — — 7,568 1,946 (391) 29,460 10,617 13,525 56,482 4,839 — (2,957) 54,004 11,363 (392) 1,579 $ 1,555 $ 10,971 5. Notes Receivable and Other Real Estate Related Investments During 2012, the Company made total net investments in notes receivable aggregating $69.2 million. The following table reconciles notes receivable investments from January 1, 2010 to December 31, 2012: (dollars in thousands) Beginning Balance Additions during period: New mortgage loans Deductions during period: Collections of principal Conversion to real estate through receipt of deed or through foreclosure Reclass to investments in unconsolidated affiliates Non-cash accretion of notes receivable Reserves Other Ending Balance For the years ended December 31, 2011 89,202 2010 $ 125,221 2012 59,989 $ $ 108,629 34,758 — (25,388) (56,517) (42,010) (14,000) — 453 (405) — $ 129,278 $ — (8,000) 786 (240) — 59,989 $ — — 6,164 (93) (80) 89,202 As of December 31, 2012, the Company’s notes receivable, net, approximated $129.3 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, 2012: F-27 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. Notes Receivable and Other Real Estate Related Investments, continued Effective interest rate (1) Maturity date Periodic payment terms Prior liens Face amount of notes Carrying amount of notes Accrued Interest Note Description (dollars in thousands) First Mortgage First Mortgage First Mortgage First Mortgage First Mortgage Construction 6.00% 8.00% 5.25% 6.00% 11.00% 20.51% 12/31/2013 12/31/2013 Demand 6/1/2013 1/1/2014 12/31/2012 12/31/13 to Capital Event Individually less than 3% 10.00% to 11.60% Sub-total first mortgages 8.60% Zero Coupon Mezzanine Mezzanine Mezzanine Individually less than 3% Sub-total other Total Notes: 24.00% 10.00% 15.00% 1/3/2016 12/31/2013 Capital Event 15.00% 11/9/2020 1/1/17 to Capital Event 12.00% to 17.50% 14.78% (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) $ — $ — — — — — — 166,200 85,835 13,265 $ 10,250 8,000 23,555 12,609 25,000 5,400 2,198 87,012 5,644 9,089 3,834 $ 10,250 8,000 18,500 12,333 25,000 5,400 269 79,752 3,961 9,089 3,834 — 30,879 30,879 37,623 9,198 1,763 54 — 803 319 — 168 90 1,434 — 176 1,135 — — 58,644 145,656 $ 49,526 129,278 $ 1,311 2,745 $ (1) The effective interest rate includes points and exit fees. (2) Interest only payable monthly, principal due on maturity. The following table reconciles the allowance for notes receivable from December 31, 2010 to December 31, 2012: (dollars in thousands) Balance at December 31, 2010 Change in allowance, net Balance at December 31, 2011 Change in allowance, net Balance at December 31, 2012 Allowance for Notes Receivable $ $ $ 3,036 240 3,276 405 3,681 F-28 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. Deferred Charges Deferred charges consist of the following as of December 31, 2012 and 2011: (dollars in thousands) Deferred financing costs Deferred leasing and other costs Accumulated amortization Total $ December 31, 2012 31,835 32,302 64,137 (37,360) $ 2011 24,438 27,192 51,630 (32,022) $ 26,777 $ 19,608 7. Acquired Lease Intangibles Upon acquisitions of real estate, the Company assesses the fair value of acquired assets (including land, buildings and improvements, and identified intangibles such as above and below market leases, acquired in-place leases and customer relationships) and acquired liabilities in accordance with ASC Topic 805. The intangibles are amortized over the remaining non-cancelable terms of the respective leases. The scheduled amortization of acquired lease intangible assets and liabilities as of December 31, 2012 is as follows: (dollars in thousands) Acquired lease intangible Assets Liabilities 2013 2014 2015 2016 2017 Thereafter Total $ $ 4,490 3,989 3,787 3,536 2,798 13,375 31,975 $ $ 2,196 1,864 1,692 1,668 1,506 5,189 14,115 F-29 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Mortgages Payable At December 31, 2012 and 2011, mortgage notes payable, excluding the net valuation premium on the assumption of debt, aggregated $727.1 million and $647.7 million respectively, and were collateralized by 35 properties and related tenant leases. Interest rates on the Company’s outstanding mortgage indebtedness ranged from 1.00% to 7.25% with maturities that ranged from April 2013 to September 2022. 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 table reflects mortgage loan activity for the year ended December 31, 2012: (dollars in thousands) Property 340 River Street Chicago Street Retail Portfolio Chicago Street Retail Portfolio Lincoln Park Centre West Diversey Cortlandt Towne Center (1) Canarsie Plaza (2) 330 River Street Tarrytown Shopping Center Date February March March April April April April May June Rhode Island Place Shopping Center June 640 Broadway Atlantic Avenue 125 Main Street CityPoint (3) Heritage Shops CityPoint (4) Fordham Place 4401 White Plains Rd A&P Shopping Plaza New Hyde Park Shopping Center Six self-storage properties 639 West Diversey Total June July August August August August September September September October October December Amount Borrowed or Assumed $ 7,022 14,490 1,538 19,763 Interest Rate Maturity Date Amount Repaid 6.26% 5.62% 5.55% 5.85% $ 5/1/2016 2/1/2016 2/1/2016 12/31/2013 15,500 LIBOR + 1.90% 4/27/2019 24,005 LIBOR + 1.90% 10/26/2015 13,124 LIBOR + 2.25% 4,250 — 16,510 3.68% 6.35% 22,750 LIBOR + 2.95% 10,600 LIBOR + 3.35% — 5,262 1.00% 21,000 LIBOR + 2.25% 50,000 LIBOR + 3.30% 83,261 LIBOR + 3.00% 6,400 LIBOR + 1.90% 8,000 4.20% 5/1/2015 5/1/2016 12/1/2016 7/1/2015 7/1/2015 8/23/2019 8/10/2015 8/23/2015 9/25/2015 9/1/2022 9/6/2022 6,500 LIBOR + 2.25% 11/10/2015 — — — — — — 68,644 — 8,260 — — 22,100 12,500 — — — 83,261 — 7,763 — 120,000 LIBOR + 2.15% 10/24/2013 161,895 4,400 6.65% 3/1/2017 — $ 454,375 $ 364,423 Notes: (1) - Loan was amended from $50.0 million to $74.0 million. (2) - Loan was amended from $56.5 million to $69.6 million. (3) - The Company entered into a $20.0 million loan under the New Markets Tax Credit program to finance the construction of this property. Of the total principal, $14.8 million is due to an affiliate included in the consolidated group which has been netted on the accompanying balance sheet and the resulting $5.2 million is included in Mortgages Payable in the accompanying consolidated balance sheet at December 31, 2012. (4) - As of December 31, 2012 no funds have been drawn down on this construction loan. F-30 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Mortgages Payable, continued The following table sets forth certain information pertaining to our secured credit facilities as of December 31, 2012: (dollars in thousands) Borrower Acadia Realty, LP (1) Fund II Fund III Fund IV Total amount of credit facility Amount borrowed as of December 31, 2011 $ $ 64,498 — — 150,000 1,000 40,000 136,079 — Total $ 214,498 $ 177,079 $ Net borrowings (repayments) during the year ended December 31, 2012 $ Amount borrowed as of December 31, 2012 Letters of credit outstanding as of December 31, 2012 (1,000) $ (40,000) (136,079) 93,050 (84,029) $ — $ — — 93,050 93,050 $ Amount available under credit facilities as of December 31, 2012 64,498 — — 56,950 — $ — — — — $ 121,448 Note: (1) - Subsequent to December 31, 2012, the Company closed on a new $150.0 million unsecured credit facility, which replaced this maturing secured credit facility. F-31 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Mortgages Payable, continued The following table summarizes the Company’s mortgage and other secured indebtedness as of December 31, 2012 and December 31, 2011: (dollars in thousands) Description of Debt and Collateral 12/31/2012 12/31/2011 Mortgage notes payable – variable-rate 161st Street CityPoint $ 28,900 $ 28,900 20,650 20,650 Pelham Manor 33,833 34,000 Branch Shopping Plaza 12,526 12,761 640 Broadway Heritage Shops Fordham Place 22,750 21,000 — — 82,205 84,277 Cortlandt Towne Center 73,499 50,000 New Hyde Park Shopping Center Village Commons Shopping Center West Diversey 4401 N White Plains Rd Sub-total mortgage notes payable Secured credit facilities – variable-rate: Fund III revolving subscription line of credit Six Core Portfolio properties Fund II term loan Fund IV revolving subscription line of credit (2) Sub-total secured credit facilities Interest rate swaps (1) Total variable-rate debt 6,484 9,192 15,273 6,381 332,693 — — — 93,050 93,050 (132,857) 292,886 — 9,310 — — 239,898 136,079 1,000 40,000 — 177,079 (57,027) 359,950 Interest Rate at December 31, 2012 Maturity Payment Terms 5.71% (LIBOR+5.50%) 2.71% (LIBOR+2.50%) 2.96% (LIBOR+2.75%) 2.46% (LIBOR+2.25%) 3.16% (LIBOR+2.95%) 2.46% (LIBOR+2.25%) 3.21% (LIBOR+3.00%) 2.11% (LIBOR+1.90%) 2.46% (LIBOR+2.25%) 1.61% (LIBOR+1.40%) 2.11% (LIBOR+1.90%) 2.11% (LIBOR+1.90%) 2.46% (LIBOR+2.25%) 1.46% (LIBOR+1.25%) 3.11% (LIBOR+2.90%) 1.86% (LIBOR+1.65%) 4/1/2013 Interest only monthly. 8/12/2013 Interest only monthly. 12/1/2013 Monthly principal and interest. 9/30/2014 Monthly principal and interest. 7/1/2015 Interest only monthly. 8/10/2015 Interest only monthly. 9/25/2015 Monthly principal and interest. 10/26/2015 Monthly principal and interest. 11/10/2015 Monthly principal and interest. 6/30/2018 Monthly principal and interest. 4/27/2019 Monthly principal and interest. 9/1/2022 Monthly principal and interest. 10/10/2012 Interest only monthly. 12/1/2012 Annual principal and monthly interest. 12/22/2014 Interest only monthly. 11/20/2015 Interest only monthly. F-32 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Mortgages Payable, continued (dollars in thousands) Description of Debt and Collateral 12/31/2012 12/31/2011 Interest Rate at December 31, 2012 Maturity Payment Terms Mortgage notes payable – fixed-rate Lincoln Park Centre Clark Diversey New Loudon Center CityPoint Crescent Plaza Pacesetter Park Shopping Center Elmwood Park Shopping Center Chicago Street Retail Portfolio The Gateway Shopping Center Acadia Cambridge Acadia 330 River Street Walnut Hill Plaza Rhode Island Place Shopping Center 239 Greenwich Avenue 639 West Diversey Merrillville Plaza 216th Street CityPoint A&P Shopping Plaza Interest rate swaps (1) Total fixed-rate debt Unamortized (discount) premium $ 19,478 $ 4,345 13,634 20,000 17,025 11,742 33,258 15,835 20,036 6,931 4,197 23,194 16,426 26,000 4,431 26,151 25,500 5,262 7,967 132,857 434,269 (107) — 4,491 13,882 20,000 17,287 11,941 33,738 — 20,308 — — 23,458 — 26,000 — 26,250 25,500 — 7,874 57,027 287,756 33 Total $ 727,048 $ 647,739 5.85% 6.35% 5.64% 7.25% 4.98% 5.12% 5.53% 5.55% 5.44% 6.26% 3.68% 6.06% 6.35% 5.42% 6.65% 5.88% 5.80% 1.00% 4.20% 5.41% 12/1/2013 Monthly principal and interest. 7/1/2014 Monthly principal and interest. 9/6/2014 Monthly principal and interest. 11/1/2014 Interest only quarterly. 9/6/2015 Monthly principal and interest. 11/6/2015 Monthly principal and interest. 1/1/2016 Monthly principal and interest. 2/1/2016 3/1/2016 5/1/2016 Monthly principal and interest. Monthly principal and interest. Monthly principal and interest. 5/1/2016 Monthly principal and interest. 10/1/2016 Monthly principal and interest. 12/1/2016 Monthly principal and interest. 2/11/2017 Interest only monthly. 3/1/2017 Monthly principal and interest. 8/1/2017 Monthly principal and interest. 10/1/2017 Interest only monthly. 8/23/2019 Interest only monthly. 9/6/2022 Monthly principal and interest. Notes: (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 IV revolving subscription line of credit is secured by unfunded investor capital commitments. The scheduled principal repayments of all indebtedness, including Convertible Notes (Note 9), as of December 31, 2012 are as follows (does not include $107,000 net valuation discount on assumption of debt): $ (dollars in thousands) 2013 2014 2015 2016 2017 Thereafter $ 108,974 56,191 325,388 116,402 81,192 39,938 728,085 F-33 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. 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 equally with all other unsecured and unsubordinated indebtedness. The Convertible Notes have an effective interest rate of 6.03% giving effect to the accounting treatment required by ASC Topic 470-20, “Debt with Conversion and Other Options.” The Convertible Notes had an initial conversion price of $30.86 per share. The conversion rate may be adjusted under certain circumstances, including the payment of cash dividends in excess of the regular quarterly cash dividend in place at the time the Convertible Notes were issued. As of December 31, 2012, the adjusted conversion price is $29.26. Upon conversion of the Convertible Notes, the Company will deliver cash and, in some circumstances, Common Shares, as specified in the indenture relating to the Convertible Notes. In general, the Convertible Notes may only be converted prior to maturity during any calendar quarter beginning after December 31, 2006 if the Company’s Common Shares trade at 130% of the conversion price for at least 20 days within a consecutive 30 day trading period. Prior to December 20, 2011, the Company did not have the right to redeem Convertible 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 date. The Holders of notes may require the Company to repurchase their notes, in whole or in part, on December 20, 2011, December 15, 2016, and December 15, 2021 for cash equal to 100% of the principal amount of the notes to be repurchased plus any accrued and unpaid interest to, but not including, the repurchase date (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 any combination of the two. The Convertible Notes "if-converted" value does not exceed their principal amount as of December 31, 2012, and there are no derivative transactions that were entered into in connection with the issuance of the Convertible Notes. Effective January 1, 2009, the Company adopted ASC Topic 470-20 which required it to retrospectively restate and reclassify previously disclosed consolidated financial statements to allocate the proceeds from the issuance of convertible debt between a debt component and an equity component. The resulting discount on the debt component was amortized over the period the convertible debt was expected to be outstanding, which was December 11, 2006 to December 20, 2011, as additional non-cash interest expense. The equity component recorded as additional paid-in capital was $11.3 million, which represented the difference between the proceeds from the issuance of the Convertible Notes and the fair value of the liability at the time of issuance. As the Company determined, in connection with the Repurchase Option, that the Convertible Notes matured on December 20, 2011, as of December 31, 2012, all loan costs associated with the issuance have been expensed and there is no remaining carrying amount of the equity component included in additional paid-in capital. 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 $0.03 million, $1.5 million, and $1.9 million for the years ended December 31, 2012, 2011, and 2010, respectively, The additional non-cash interest expense recognized in the Consolidated Statements of Income was $0.8 million and $1.0 million for the years ended December 31, 2011 and 2010, respectively. During 2011, the Company purchased $48.8 million of the Convertible Notes, including $24.0 million that was repurchased on December 20, 2011 pursuant to the Repurchase Option. As of December 31, 2012, the Company has purchased $114.1 million in principal amount of its convertible debt at an average discount of approximately 11%. The transactions resulted in a loss on debt extinguishment of ($0.4) million for the year ended December 31, 2011. The outstanding Convertible Notes principal amount and net carrying amount was $0.9 million as of December 31, 2012 and 2011. F-34 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. Financial Instruments and Fair Value Measurements 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 assumptions obtained from sources independent of the Company are observable inputs that are classified within Levels 1 and 2 of the hierarchy, and the Company’s own assumptions about market participant assumptions are unobservable inputs classified within Level 3 of the 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, 2012: (dollars in thousands) Liabilities Derivative financial instruments Level 1 Level 2 Level 3 $ — $ 4,416 $ — 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 cash flows, which it determined were not sufficient to recover the property's net book value. The inputs used to determine the fair value of the Granville Centre were classified as Level 3 under authoritative guidance for fair value measurements. During the year ended December 31, 2012, the Company determined that carrying value in its investment in Mervyns was overstated and recorded an impairment of $2.0 million (Note 1). The analysis performed consisted of discounted cash flows which were used to determine the fair value of the Mervyns investment and were classified as Level 3 under authoritative guidance for fair value measurements. Derivative Financial Instruments The FASB’s derivative and hedging guidance establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As required by the FASB guidance, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecast transactions, are considered cash flow hedges. For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive (loss) income (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction. For derivatives not designated as hedges, changes in fair value would be recognized in earnings. As of December 31, 2012, the Company’s derivative financial instruments consisted of seven interest rate LIBOR swaps with an aggregate notional value of $132.9 million, which fix interest at rates from 1.57% to 3.77%, and mature between May 2015 and December 2022. The Company also has four derivative financial instruments with a notional value of $141.4 million which cap interest rates ranging from 3.0% to 6.0% and mature between April 2013 and November 2015. The fair value of the derivative liability of these instruments, which is included in other liabilities in the consolidated balance sheets, totaled $4.4 million and $3.5 million at December 31, 2012 and 2011, respectively. The notional value does not represent exposure to credit, interest rate or market risks. These derivative instruments have been designated as cash flow hedges and hedge the future cash outflows on variable rate mortgage debt. Such instruments are reported at the fair value reflected above. As of December 31, 2012 and 2011, unrealized losses totaling $4.3 million and $3.9 million, respectively, were reflected in accumulated other comprehensive loss. It is estimated that approximately $1.5 million included in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense in the 2013 results of operations. F-35 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. Financial Instruments and Fair Value Measurements, continued Derivative Financial Instruments, continued As of December 31, 2012 and 2011, no derivatives were designated as fair value hedges or hedges of net investments in foreign operations. Additionally, the Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedges. As of December 31, 2012, none of the Company’s hedges were ineffective. 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: (dollars in thousands) Notes Receivable Mortgage Notes Payable and Convertible Notes Payable December 31, 2012 December 31, 2011 Carrying Amount $ $ 129,278 727,978 Estimated Fair Value 129,278 734,807 $ $ Carrying Amount Estimated Fair Value $ $ 59,989 648,669 $ $ 59,989 652,269 11. Shareholders’ Equity and Noncontrolling Interests Common Shares During the year ended December 31, 2012, 8,595 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, 2012, the Company recognized accrued Common Share and Common OP Unit-based compensation totaling $3.6 million in connection with the vesting of Restricted Shares and Units (Note 15). During 2012, the Company issued approximately 6.1 million Common Shares from the ATM program generating net proceeds of approximately $140.8 million and completed a public share offering of approximately 3.5 million Common Shares generating net proceeds of approximately $85.9 million. During 2012, Kenneth Bernstein, President and CEO, converted 250,000 Common OP Units into Common Shares. During November 2011, the Company issued 2.3 million Common Shares generating net proceeds of approximately $45.0 million. Noncontrolling Interests The following table summarizes the change in the noncontrolling interests since December 31, 2011: F-36 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. Shareholders’ Equity and Noncontrolling Interests, continued Noncontrolling Interests, continued Noncontrolling Interests in Operating Partnership Noncontrolling Interests in Partially- Owned Affiliates (dollars in thousands) Balance at December 31, 2011 Distributions declared of $0.72 per Common OP Unit Net income for the period January 1 through December 31, 2012 Conversion of 334,445 OP Units to Common Shares by limited partners of the Operating Partnership Issuance of LTIP Unit Awards to employees Issuance of OP Units to acquire real estate 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, 2012 $ $ $ 9,992 (1,098) 528 (5,880) 2,577 2,279 (72) 20 — — 3,448 11,794 $ 375,203 — 49,702 — — — (1,632) 827 172,228 (160,663) — 435,665 Noncontrolling interests in the Operating Partnership represents (i) the limited partners’ 284,097 and 279,748 Common OP Units at December 31, 2012 and 2011, respectively, (ii) 188 Series A Preferred OP Units at both December 31, 2012 and 2011, with a stated value of $1,000 per unit, which are entitled to a preferred quarterly distribution of the greater of (a) $22.50 (9% annually) per Series A Preferred OP Unit or (b) the quarterly distribution attributable to a Series A Preferred OP Unit if such unit was converted into a Common OP Unit, and (iii) 1,109,727 and 1,061,564 LTIP units as of December 31, 2012 and December 31, 2011, respectively, as discussed in Share Incentive Plan (Note 15). Noncontrolling interests in partially-owned affiliates include third-party interests in Fund I, II, III and IV, and Mervyns I and II, and twelve 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, 2012, 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 Preferred OP Units are currently convertible into Common OP Units based on the stated value divided by $7.50. Either the Company or the holders can currently call for the conversion of the Series A Preferred OP Units at the lesser of $7.50 or the market price of the Common Shares as of the conversion date. 12. Related Party Transactions During February 2010, Klaff converted all 250,000 of its Restricted Common OP Units into 250,000 Common Shares. The Company earned property management, construction development, legal and leasing fees from three of its investments in unconsolidated partnerships totaling $0.8 million, $1.3 million and $0.8 million for the years ended December 31, 2012, 2011 and 2010, respectively. Related party receivables due from unconsolidated affiliates totaled $0.2 million and $1.4 million at December 31, 2012 and 2011, respectively. Lee Wielansky, the Lead Trustee of the Company, was paid a consulting fee of $0.1 million for each of the years ended December 31, 2012, 2011, and 2010. F-37 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13. Tenant Leases Space in the shopping centers and other retail properties is leased to various tenants under operating leases that usually grant tenants renewal options and generally provide for additional rents based on certain operating expenses as well as tenants’ sales volume. Minimum future rentals to be received under non-cancelable leases for shopping centers and other retail properties as of December 31, 2012 are summarized as follows: (dollars in thousands) 2013 2014 2015 2016 2017 Thereafter Total $ $ 102,003 93,026 86,460 81,154 73,551 533,293 969,487 During the years ended December 31, 2012, 2011 and 2010, no single tenant collectively accounted for more than 10% of the Company’s total revenues. 14. Lease Obligations The Company leases land at eight of its shopping centers, which are accounted for as operating leases and generally provide the Company with renewal options. Ground rent expense was $3.2 million, $2.2 million, and $3.2 million (including capitalized ground rent at properties under redevelopment of $0.8 million, ($0.2 million) and $0.5 million) for the years ended December 31, 2012, 2011 and 2010, 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, $1.4 million and $1.5 million for the years ended December 31, 2012, 2011 and 2010, respectively. Future minimum rental payments required for leases having remaining non-cancelable lease terms are as follows: $ (dollars in thousands) 2013 2014 2015 2016 2017 Thereafter Total $ 4,248 4,174 4,362 3,256 3,256 126,425 145,721 15. Share Incentive Plan During 2012, the Company terminated the 1999 and 2003 Plans and adopted the Amended 2006 Plan. The Amended 2006 Plan increased the authorization to issue options, Restricted Shares and LTIP Units (collectively "Awards") available to officers and employees by 1.9 million shares to 2.1 million shares. 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. 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 the awards based on the attainment of specified performance objectives of the Company within a specified performance period. F-38 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. Share Incentive Plan, continued On March 15, 2012, the Company issued a total of 279,611 LTIP Units and 1,358 Restricted Share Units to officers of the Company and 9,435 Restricted Share Units to other employees of the Company. Vesting with respect to these awards is generally recognized ratably over the five annual anniversaries following the issuance date. Vesting with respect to 17% of the awards issued to officers is also generally subject to achieving certain Company performance measures. LTIP Units are similar to Restricted Shares but provide for a quarterly partnership distribution in a like amount as paid to Common OP Units. This distribution is paid on both unvested and vested LTIP Units. The LTIP Units are convertible into Common OP Units and Common Shares upon vesting and a revaluation of the book capital accounts. These awards were measured at their fair value as if they were vested on the grant date. Fair value was established as the market price of the Company's Common Shares as of the close of trading on the day preceding the grant date. The total value of the above Restricted Share Units and LTIP Units as of the grant date was $6.4 million, of which $2.6 million was recognized in compensation expense during 2011 and $3.8 million will be recognized in compensation expense over the vesting period. The weighted average fair value for Restricted Shares and LTIP Units granted for the years ended December 31, 2012, 2011 and 2010 were $21.98, $19.08 and $16.73, respectively. Total long-term incentive compensation expense, including the expense related to the above mentioned plans, was $3.6 million, $4.0 million and $3.8 million for the years ended December 31, 2012, 2011 and 2010, respectively. On May 10, 2012, the Company issued 19,360 Restricted Shares to Trustees of the Company in connection with Trustee fees. Vesting with respect to 8,983 of the Restricted Shares will be on the first anniversary of the date of issuance and 10,377 of the Restricted Shares vest over three years with 33% vesting on each of the next three anniversaries of the issuance date. The Restricted Shares do not carry voting rights or other rights of Common Shares until vesting and may not be transferred, assigned or pledged until the recipients have a vested non-forfeitable right to such shares. Dividends are not paid currently on unvested Restricted Shares, but are paid cumulatively from the issuance date through the applicable vesting date of such Restricted Shares. Trustee fee expense of $0.2 million for the year ended December 31, 2012 has been recognized in the accompanying consolidated statement of income related to this issuance. In 2009, the Company adopted the Long Term Investment Alignment Program (the “Program”) pursuant to which the Company may award units primarily to senior executives which would entitle them to receive up to 25% of any future Fund III Promote when and if such Promote is ultimately realized. The Company has awarded units representing 81% of the Program, which were determined to have no value at issuance or as of December 31, 2012. In accordance with ASC Topic 718, “Compensation - Stock Compensation,” compensation relating to these awards will be recorded based on the change in the estimated fair value at each reporting period. As of December 31, 2012, the Company had 100,647 options outstanding to officers and employees and 37,000 options outstanding to non-employee Trustees of the Company all of which 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. A summary of option activity under all option arrangements as of December 31, 2012 and 2011, and changes during the years then ended, is presented below: F-39 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. Share Incentive Plan, continued Options Outstanding and exercisable at December 31, 2010 Granted Exercised Forfeited or Expired Outstanding and exercisable at December 31, 2011 Granted Exercised Forfeited or Expired Outstanding and exercisable at December 31, 2012 Weighted Average Exercise Price 18.20 — 8.21 — 18.33 — 14.23 — 18.71 Shares 152,283 — (2,000) — 150,283 — (12,636) — 137,647 $ $ Weighted Average Remaining Contractual Term (years) 4.5 — — — 3.5 — — — 2.6 Aggregate Intrinsic Value (dollars in thousands) 6 $ — 24 — 272 — 137 — 877 $ The total intrinsic value of options exercised during the years ended December 31, 2012, 2011 and 2010 was $0.1 million, $0.02 million and $0.03 million, respectively. A summary of the status of the Company’s unvested Restricted Shares and LTIP Units as of December 31, 2012 and 2011 and changes during the years then ended is presented below: F-40 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. Share Incentive Plan, continued Unvested Restricted Shares and LTIP Units Unvested at December 31, 2010 Granted Vested Forfeited Unvested at December 31, 2011 Granted Vested Forfeited Unvested at December 31, 2012 Restricted Shares 153,430 32,970 (104,196) (6,465) 75,739 30,153 (43,819) (1,157) 60,916 Weighted Grant-Date Fair Value 19.75 $ 19.13 20.95 14.73 18.25 21.88 19.29 16.02 19.36 $ LTIP Units 562,739 431,412 (153,895) (1,358) 838,898 281,714 (176,926) — 943,686 Weighted Grant-Date Fair Value 16.61 $ 19.08 16.78 16.86 17.85 21.99 16.92 — 19.27 $ As of December 31, 2012, there was $9.6 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under share incentive plans. That cost is expected to be recognized over a weighted-average period of 1.6 years. The total fair value of Restricted Shares that vested during the years ended December 31, 2012, 2011 and 2010 was $0.8 million, $2.2 million and $3.0 million, respectively. 16. Employee Share Purchase and Deferred Share Plan The Acadia Realty Trust Employee Share Purchase Plan (the “Purchase Plan”), allows eligible employees of the Company to purchase Common Shares through payroll deductions. The Purchase Plan provides for employees to purchase Common Shares on a quarterly basis at a 15% discount to the closing price of the Company’s Common Shares on either the first day or the last day of the quarter, whichever is lower. A participant may not purchase more the $25,000 in Common Shares per year. Compensation expense will be recognized by the Company to the extent of the above discount to the closing price of the Common Shares with respect to the applicable quarter. During 2012, 2011 and 2010, a total of 3,829, 4,886 and 6,184 Common Shares, respectively, were purchased by employees under the Purchase Plan. Associated compensation expense of $0.01 million was recorded in both 2012 and 2011 and $0.02 million was recorded in 2010. During May of 2006, the Company adopted a Trustee Deferral and Distribution Election (“Trustee Deferral Plan”), whereby the participating Trustees have deferred compensation of $0.06 million for 2012, 2011 and 2010. 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 $17,000, for the year ended December 31, 2012. The Company contributed $0.3 million for the year ended December 31, 2012 and $0.2 million for each of the years ended December 31, 2011 and 2010. F-41 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 18. Dividends and Distributions Payable On November 5, 2012, the Board of Trustees declared a cash dividend for the quarter ended December 31, 2012 of $0.18 per Common Share, which was paid on January 15, 2013 to holders of record as of December 31, 2012. 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, 2012, 2011 and 2010, no U.S. Federal income or excise taxes were incurred. If the Company fails to qualify as a REIT in any taxable year, it will be subject to Federal income taxes at the regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for the four subsequent taxable years. Even though the Company qualifies for taxation as a REIT, the Company is subject to certain state and local taxes on its income and property and Federal income and excise taxes on any undistributed taxable income. In addition, taxable income from non-REIT activities managed through the Company’s Taxable REIT Subsidiaries (“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 Taxable REIT Subsidiaries For the years ended December 31, 2010 2011 2012 63% —% 37% 100% 75% 22% 3% 100% 100% —% —% 100% Income taxes have been provided for using the liability method as required by ASC Topic 740, “Income Taxes.” The Company’s TRS income and provision for income taxes for the years ended December 31, 2012, 2011 and 2010 are summarized as follows: (dollars in thousands) TRS (loss) income before income taxes (Benefit) provision for income taxes: Federal State and local TRS net (loss) income before noncontrolling interests Noncontrolling interests TRS net (loss) income 2012 2011 2010 $ (2,056) $ 376 $ 5,716 (592) (147) (1,317) 702 (615) $ 222 59 95 1,245 1,340 $ 2,164 543 3,009 (545) 2,464 $ F-42 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 19. Federal Income Taxes, continued 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): (dollars in thousands) Federal (benefit) provision at statutory tax rate TRS state and local taxes, net of federal benefit Tax effect of: Permanent differences, net Prior year overaccrual, net Restricted stock vesting Other REIT state and local income and franchise taxes Total (benefit) provision for income taxes $ $ 2012 2011 2010 (699) $ (109) 809 (553) (159) (35) 178 (568) $ $ 128 20 1,943 358 (279) — 266 133 193 461 $ 406 — — (21) 183 2,869 20. Earnings Per Common Share Basic earnings per Common Share is computed by dividing net income attributable to Common Shareholders by the weighted average Common Shares outstanding. At December 31, 2012, the Company has unvested LTIP Units (Note 15) which provide for non-forfeitable rights to dividend equivalent payments. Accordingly, these unvested LTIP Units are considered participating securities and are included in the computation of basic earnings per Common Share pursuant to the two-class method. Diluted earnings per Common Share reflects the potential dilution of the conversion of obligations and the assumed exercises of securities including the effects of restricted share unit ("Restricted Share Units") and share option awards issued under the Company’s Share Incentive Plans (Note 15). The effect of the assumed conversion of 188 Series A Preferred OP Units into 25,067 Common Shares would be dilutive and therefore are included in the computation of diluted earnings per share for the years ended December 2012, 2011 and 2010. The effect of the conversion of Common OP Units is not reflected in the computation of basic and diluted earnings per share, 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 interests in the accompanying consolidated financial statements. As such, the assumed conversion of these units would have no net impact on the determination of diluted earnings per share. The conversion of the convertible notes payable (Note 9) is not included in the computation of basic and diluted earnings per share as such conversion, based on the current market price of the Common Shares, would be settled with cash. F-43 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 20. Earnings Per Common Share, continued (dollars in thousands, except per share amounts) Numerator: Income from continuing operations Less: net income attributable to participating securities Income from continuing operations net of income attributable to participating securities 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 Denominator for diluted earnings per share Basic earnings per Common Share from continuing operations attributable to Common Shareholders Diluted earnings per Common Share from continuing operations attributable to Common Shareholders Years ended December 31, 2011 2010 2012 $ $ 24,034 466 23,568 $ 18,713 384 18,329 28,233 389 27,844 18 23,586 18 18,347 18 27,862 45,854 40,697 40,136 456 25 481 46,335 264 25 289 40,986 $ $ 0.51 0.51 $ $ 0.45 0.45 $ $ 245 25 270 40,406 0.69 0.69 F-44 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 21. Summary of Quarterly Financial Information (unaudited) The quarterly results of operations of the Company for the years ended December 31, 2012 and 2011 are as follows: (dollars in thousands, except per share amounts) 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: March 31, 2012 June 30, 2012 September 30, 2012 December 31, 2012 $ $ $ $ $ $ $ $ 29,913 3,437 573 4,010 0.08 0.01 0.09 0.08 0.01 0.09 0.18 $ $ $ $ $ $ $ $ 32,723 5,677 1,162 6,839 0.13 0.02 0.15 0.13 0.02 0.15 0.18 $ $ $ $ $ $ $ $ 34,648 6,238 1,343 7,581 0.13 0.03 0.16 0.13 0.03 0.16 0.18 $ $ $ $ $ $ $ $ 37,141 8,682 12,594 21,276 0.17 0.25 0.42 0.17 0.25 0.42 0.18 Basic Diluted 42,735,731 44,245,401 43,146,093 44,673,565 46,338,218 46,812,349 50,046,774 50,582,584 F-45 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 21. Summary of Quarterly Financial Information (unaudited) (continued) (dollars in thousands, except per share amounts) 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: March 31, 2011 June 30, 2011 September 30, 2011 December 31, 2011 $ $ $ $ $ $ $ $ 29,733 7,897 1,526 9,423 0.19 0.04 0.23 0.19 0.04 0.23 0.18 $ $ $ $ $ $ $ $ 29,206 3,841 26,393 30,234 0.09 0.64 0.73 0.09 0.64 0.73 0.18 $ $ $ $ $ $ $ $ 27,356 3,514 497 4,011 0.09 0.01 0.10 0.09 0.01 0.10 0.18 $ $ $ $ $ $ $ $ 28,783 3,462 4,425 7,887 0.08 0.10 0.18 0.08 0.11 0.19 0.18 Basic Diluted 40,317,603 40,333,575 40,580,173 40,633,317 40,339,958 40,628,781 41,785,261 42,066,390 22. Commitments and Contingencies Under various Federal, state and local laws, ordinances and regulations relating to the protection of the environment, a current or previous owner or operator of real estate may be liable for the cost of removal or remediation of certain hazardous or toxic substances disposed, stored, generated, released, manufactured or discharged from, on, at, under, or in a property. As such, the Company may be potentially liable for costs associated with any potential environmental remediation at any of its formerly or currently owned properties. The Company conducts Phase I environmental reviews with respect to properties it acquires. These reviews include an investigation for the presence of asbestos, underground storage tanks and polychlorinated biphenyls (PCBs). Although such reviews are intended to evaluate the environmental condition of the subject property as well as surrounding properties, there can be no assurance that the review conducted by the Company will be adequate to identify environmental or other problems that may exist. Where a Phase II assessment is so recommended, a Phase II assessment is conducted to further determine the extent of possible environmental contamination. In all instances where a Phase I or II assessment has resulted in specific recommendations for remedial actions, the Company has either taken or scheduled the recommended remedial action. To mitigate unknown risks, the Company has obtained environmental insurance for most of its properties, which covers only unknown environmental risks. 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 substances. Management is not aware of any environmental liability that it believes would have a material adverse impact on the Company’s financial position or results of operations. Management is unaware of any instances in which the Company would incur significant environmental costs if any or all properties were sold, disposed of or abandoned. However, there can be no assurance that any such non-compliance, liability, claim or expenditure will not arise in 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 Company's policy is to accrue legal expenses as they are incurred. F-46 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 22. Commitments and Contingencies (continued) 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 Mervyns LLC (“Mervyns”) in the United States Bankruptcy Court for the District of Delaware. The action involved five claims alleging fraudulent transfers in which Mervyns was nominally seeking approximately $1.175 billion in damages from the Investor Consortium, although the actual claims made by the administrator and the unsecured creditors were substantially less. The first claim contended that, at the time of the sale of Mervyns by Target Corporation ("Target") to the Investor Consortium, a transfer of assets was made in an effort to defraud creditors. The Company believed that this aspect of the case is without merit. The remaining four claims related to transfers of assets of Mervyns at various times after the sale by Target. The Company believed that there were substantial defenses to these claims. During the third quarter of 2012, the parties to this litigation arrived at an agreement to settle the claim. The settlement was approved by the bankruptcy court and provided for a payment of $166.0 million. Based on the defendants' agreement, the net cost of the settlement to the Investor Consortium amounted to approximately $149.0 million. After applying cash on hand at the investee level, Mervyns I and Mervyns II's combined contribution to this settlement was approximately $1.0 million. In addition, the Company reduced its carrying value of these investments from $6.3 million to its fair value of $5.3 million. In total, this resulted in a charge of $2.0 million during the year ended December 31, 2012, of which the Operating Partnership's share, net of income taxes, was $0.2 million. During August 2009, the Company terminated the employment of a former Senior Vice President (the “Former Employee”) for engaging in conduct that fell within the definition of “cause” in his severance agreement with the Company. Had the Former Employee 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 defenses to the suit. 23. Subsequent Events During January 2013, the Company closed on a new $150 million unsecured credit facility. This revolving facility replaced the $64.5 million secured credit facility that has matured. The new credit facility matures on January 31, 2016 with an additional one- year extension option. During January 2013, Fund III received $2.5 million, representing the reimbursement of costs and accrued interest, relating to a project that was previously fully impaired for financial reporting purposes. This will be recognized as income during 2013. During February 2013, Fund III acquired a property on Nostrand Avenue located in Brooklyn, New York for $19.0 million. In connection with this acquisition, we received repayment of an $18.5 million note receivable. In addition, as part of this transaction, Fund III closed on a new mortgage loan for $16.0 million. The new loan bears interest at LIBOR plus 265 basis points and matures on February 1, 2016 with two one-year extension options. During February 2013, the Board of Trustees declared a cash dividend for the quarter ended March 31, 2013 of $0.21 per Common Share, which is payable on April 15, 2013 to holders of record as of March 29, 2013. The effective date for record holders is March 28, 2013. F-47 ACADIA REALTY TRUST SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2012 Initial Cost to Company Amount at which Carried at December 31, 2012 Buildings & Improvements Costs Capitalized Subsequent to Acquisition Land Buildings & Improvements Total Accumulated Depreciation Date of Acquisition (a) Construction (c) Description Encumbrances Land 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 Road Staten Island, NY Abington Towne Center Abington, PA Bloomfield Town Square Bloomfield Hills, MI Walnut Hill Plaza Woonsocket, RI Elmwood Park Shopping Center Elmwood Park, NJ Merrillville Plaza Hobart, IN Marketplace of Absecon Absecon, NJ Clark Diversey Chicago, IL A&P Shopping Plaza 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 Smithtown, NY Methuen Shopping Center Methuen, MA The Gateway Shopping Center South Burlington, VT 330 River Street Cambridge, MA Rhode Island Place Shopping Center Washington, D.C. Mad River Station Dayton, OH $ 17,025 $ 1,147 $ 7,425 $ 1,335 $ 1,147 $ 8,760 $ 9,907 $ 6,385 1993 (a) 505 — 190 1,664 1,691 — 799 13,634 — — — — — — — 16,679 17,184 12,231 1993 (a) 4,161 4,268 3,004 12,518 (872) 2,301 505 — 190 3,396 3,396 5,305 5,495 — 11,422 1,664 11,422 13,086 5,803 11,909 3,197 560 1,691 6,363 8,054 2,035 2,007 — 799 13,944 13,944 5,204 6,003 2,663 4,336 6,746 1,919 2,813 2,704 1993 (c) 1993 (c) 1994 (c) 2005 (c) 2005 (a) 1998 (a) 3,207 13,774 20,420 3,207 34,194 37,401 11,867 1998 (a) 23,194 3,122 12,488 1,941 3,122 14,429 17,551 5,804 1998 (a) 33,258 3,248 12,992 15,401 3,798 27,843 31,641 13,235 1998 (a) 26,151 4,288 17,152 2,677 4,288 19,829 24,117 — 2,573 10,294 3,799 2,577 14,089 16,666 4,345 10,061 7,967 1,328 — — — 8,289 11,108 1,793 2,773 7,188 5,691 8,038 7,172 246 10,061 3,019 13,080 399 1,328 7,587 8,915 3,577 8,289 9,268 17,557 4,288 11,855 11,579 23,434 1,771 1,793 8,943 10,736 9,192 3,229 12,917 3,934 3,229 16,851 20,080 — 878 3,510 7,508 907 10,989 11,896 12,526 3,156 12,545 7,181 3,401 19,481 22,882 7,797 5,574 553 1,297 1,169 1,252 3,638 6,691 8,207 5,299 1998 (a) 1998 (a) 2006 (a) 2006 (a) 2006 (a) 2006 (a) 1998 (a) 1998 (a) 1998 (a) 1998 (a) — 956 3,826 594 961 4,415 5,376 1,811 1998 (a) 20,036 1,273 4,197 3,510 5,091 2,886 16,426 4,340 17,360 12,230 1,273 17,321 18,594 6,257 1999 (a) — — 3,510 2,886 6,396 4,340 17,360 21,700 77 217 2012 (a) 2012 (a) — 2,350 9,404 1,058 2,350 10,462 12,812 3,926 1999 (a) F-48 Initial Cost to Company Amount at which Carried at December 31, 2012 Buildings & Improvements Costs Capitalized Subsequent to Acquisition Land Buildings & Improvements Total Accumulated Depreciation Date of Acquisition (a) Construction (c) Description Encumbrances Land Shopping Centers Pacesetter Park Shopping Center Ramapo, NY 239 Greenwich Avenue Greenwich, CT West Shore Expressway Staten Island, NY West 54th Street Manhattan, NY East 17th Street Manhattan, NY West Diversey Chicago, IL Mercer Street Manhattan, NY 4401 White Plains Bronx, NY Chicago Street Retail Portfolio 1520 Milwaukee Avenue Chicago, IL 340 River Street Cambridge, MA 930 North Rush Street Chicago, IL 28 Jericho Turnpike Westbury, NY 181 Main Street Westport, CT 83 Spring Street Manhattan, NY 60 Orange Street Bloomfield, NJ 179-53 & 1801-03 Connecticut Avenue Washington, D.C. 639 West Diversey Chicago, IL Undeveloped Land Fund I: Kroger/Safeway Various Fund II: Pelham Plaza Pelham Manor, NY Fordham Place Bronx, NY 216th Street Manhattan, NY 161st Street Bronx, NY Fund III: Cortlandt Towne Center Mohegan Lake, NY Cortlandt Crossing Mohegan Lake, NY Heritage Shops Chicago, IL 654 Broadway Manhattan, NY New Hyde Park Shopping Center New Hyde Park, NY 640 Broadway Manhattan, NY 15,775 17,816 56,965 153 17,854 57,080 74,934 11,742 1,475 5,899 2,040 1,475 7,939 9,414 26,000 1,817 15,846 549 1,817 16,395 18,212 3,380 13,554 (55) 3,380 13,499 16,879 — — — 16,699 18,704 3,048 7,281 15,273 8,576 17,256 — 1,887 6,381 1,581 2,483 5,054 — 2,110 1,306 6,528 4,704 10,208 15,525 24,416 10,618 9,200 — 17,433 8,016 — 4,215 — — — — — — 4,431 — — 33,833 5,175 6,220 3,539 1,754 12,477 5,811 2,672 250 — — 74 40 — — — 16,699 18,778 35,477 3,048 8,576 1,887 1,581 7,321 10,369 17,256 25,832 2,483 4,370 5,054 6,635 — — — — — — — — — — — 2,110 4,704 5,175 6,220 3,539 1,754 1,306 3,416 10,208 14,912 15,525 20,700 24,416 30,636 10,618 14,157 9,200 10,954 12,477 — 12,477 17,433 23,244 8,016 — 10,688 250 5,811 2,672 250 — — 3,023 5,701 2,206 2,695 945 683 93 168 800 66 237 291 374 22 115 — — — 1999 (a) 1998 (a) 2007 (a) 2007 (a) 2008 (a) 2011 (a) 2011 (a) 2011 (a) 2011 (a) 2012 (a) 2012 (a) 2012 (a) 2012 (a) 2012 (a) 2012 (a) 2012 (a) 2012 (a) 2012 (a) — 57,001 4,215 4,215 4,016 2003 (a) 57,001 57,001 6,055 2004 (a) 82,205 11,144 18,010 102,590 16,254 115,490 131,744 11,912 2004 (a) 25,500 7,261 — 19,197 7,261 19,197 26,458 28,900 16,679 28,410 17,355 16,679 45,765 62,444 3,023 6,082 2005 (a) 2005 (a) 73,499 7,293 61,395 5,600 7,293 66,995 74,288 11,833 2009 (a) — 11,000 — 21,000 13,131 15,409 — 54 11,000 13,131 — 11,000 15,463 28,594 — 9,040 3,654 (2) 9,040 3,652 12,692 6,484 3,115 7,285 623 3,115 7,908 11,023 22,750 12,503 19,960 — 12,503 19,960 32,463 — 923 99 208 487 2012 (a) 2011 (a) 2011 (a) 2011 (a) 2012 (a) F-49 Initial Cost to Company Amount at which Carried at December 31, 2012 Buildings & Improvements Costs Capitalized Subsequent to Acquisition Land Buildings & Improvements Total Accumulated Depreciation Date of Acquisition (a) Construction (c) Description Encumbrances Land Shopping Centers Lincoln Park Centre Chicago, IL 3104 M Street Washington, D.C. Broad Hollow Commons Farmingdale, NY Fund IV: 210 Bowery New York, NY Acadia Strategic Opportunity Fund IV Real Estate Under Development 25,353 30,443 481 2012 (a) 19,834 5,090 25,353 — — 750 12,386 — 1,875 93,050 — 2,251 — 5,625 — — — — — — 5,090 750 12,386 1,875 — 2,251 3,001 — 12,386 5,625 7,500 — — 45,912 45,658 2,564 200,809 45,658 203,373 249,031 23 — — — — 2012 (a) 2012 (a) 2012 (a) (a) (a) Total $ 727,048 $332,621 $ 638,763 $ 524,358 $339,349 $ 1,156,393 $1,495,742 $ 187,029 1. Depreciation on buildings and improvements reflected in the consolidated 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 $1,347.0 million as of December 31, 2012 3. (a) Reconciliation of Real Estate Properties: The following table reconciles the real estate properties from January 1, 2010 to December 31, 2012: (dollars in thousands) Balance at beginning of year Other improvements Property Acquired Balance at end of year For the years ended December 31, 2010 2011 2012 817,170 950,710 $ 1,098,761 133,540 72,633 42,167 — 105,884 324,348 950,710 $ 1,098,761 $ 1,495,742 $ $ $ 3. (b) Reconciliation of Accumulated Depreciation: The following table reconciles accumulated depreciation from January 1, 2010 to December 31, 2012: For the years ended December 31, 2011 2012 2010 143,232 160,541 17,309 26,488 160,541 187,029 124,562 18,670 143,232 $ $ $ $ (dollars in thousands) Balance at beginning of year Depreciation related to real estate Balance at end of year $ $ F-50

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