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