2019
ANNUAL REPORT
MELROSE COLLECTION, LOS ANGELES, CA
Dear Fellow Shareholders:
Most importantly, I hope this letter finds you and your loved ones well.
As I write this letter:
— The World Health Organization has declared coronavirus a global pandemic.
— The virus has now reached all 50 states.
— New York State is on “PAUSE,” with schools closed, Broadway theaters dark, and all non-essential
gatherings of individuals of any size banned.
— All residents of the state of California have been ordered to “stay at home.”
— The Federal Reserve has slashed interest rates to zero.
— Above all, the outlook remains unclear. In fact, the situation is rapidly evolving from one
breaking news alert to the next.
What does this mean for our retailers? At this point, there are more questions than answers:
— Will coronavirus accelerate the separation of the “haves” and “have nots” among retailers? Probably.
— Will retailers pause their expansion plans? A few days in, retailers are still pushing new deals
forward but will likely hold off on making binding commitments until the outlook is more certain.
— What will the impact be on grocery sales? Up.
— Will toilet paper be restocked? Yes! We have plenty to be concerned about, but not this.
As scary as this shock has been to our economy and our wellbeing, we will get through it. And, it is not too
early to begin thinking about what retailing will look like at that time. Prior to this crisis, there were
legitimate questions about the role of physical real estate in the retailing industry. Thankfully, during
2019, we were pleased to see some of these questions answered in the affirmative by:
1. Traditional retailers executing a multichannel strategy. Target, for example, continues to
invest in its existing fleet and add new stores, both full-size and smaller. Target’s new stores are closer to
home and are providing shoppers with the convenience of multiple fulfillment options. That is, buy
online, ship to home; buy online, pickup in-store (“BOPIS”); or, just shop. Importantly, when Target can
shift an online order from home delivery to in-store pickup, the retailer can eliminate 90% of the
incremental cost! Thus, for those retailers focused on profitability (it should be all!), the store is the future
and a key strategic advantage.
2. Traditional in-store-only retailers. T.J.Maxx, Ross Dress for Less and Trader Joe’s continue to
thrive with limited e-commerce initiatives – another win for physical real estate.
3. Young, digitally-native brands. Many digitally-native retailers have come to understand the high
cost of acquiring, and retaining, an online customer. Accordingly, many of these brands are now
incorporating physical real estate into their growth plans and successfully opening mission-critical stores.
To be clear:
— These brands will occupy a fraction of the square footage of our legacy retailers.
— They will not solve the reality that the U.S. is overretailed.
— But, they do know how to energize a shopping corridor.
— And, they know that a store is their best pathway to profitability.
What does all this mean for Acadia?
Although we didn’t anticipate this global pandemic, we knew that we were in the tenth year of economic
growth; as such, we started preparing for an inevitable slowdown. As early as a few years ago:
— We made sure we remained financially sound. A healthy balance sheet is a way of life for us.
— We continued to add high-quality real estate in key gateway markets to our core
portfolio. From one economic cycle to the next, we need to keep our company relevant to our
retailers over the next 1, 5, 10, 20 years.
— At a time when we could achieve historically-wide spreads between borrowing costs and acquisition
cap rates, we pivoted away from new and riskier developments in favor of stable cash
flow in our fund platform.
At the end of the day, our goal is to protect and grow shareholder value and to deliver attractive risk-
adjusted returns over any extended period. We are up to the task.
1. Balance sheet strength matters, again
While many things have changed over the past several days, our balance sheet strength has not.
— Our business model was never built on the use of significant leverage. With a debt to
EBITDA ratio of 6.3x and a fixed-charge coverage ratio of 3.4x for the twelve months ended December
31, 2019, the portfolio (comprised of the core and pro rata share of our opportunity funds) is
“refinanceable,” should the need arise. That said,
— We don’t have any significant impending core debt maturities.
— We have limited capital needs associated with development activities. Our core projects
are nearing completion, and our limited fund pipeline is already pre-funded with the capital
commitments on call.
2. Continuing to curate our core portfolio
While it’s still too early to quantify the short-term impact of coronavirus on our core portfolio, we believe
that the mission-critical locations that dominate our portfolio will remain valuable in the long term.
Furthermore, considering other market forces at work, including:
— the continued growth of e-commerce,
— an oversupply of retail properties in the U.S., and
— a further separation between the “haves” and “have nots” among retailers,
we still believe our shift, over the past several years, to densely-populated, high barrier-to-entry markets
will be the best way to create long-term shareholder value in our core portfolio.
After nearly a decade of thoughtful growth, more than 70% of our core portfolio is now comprised of
urban and street retail in New York, San Francisco, Chicago, Boston and Washington DC. The balance is
comprised of suburban shopping centers with a necessity or discounter focus.
Top tenants at our properties include several retailers providing essential goods to their communities,
including Target (#1 in our tenant list), Walgreens (#2), Stop & Shop (#4), and Trader Joe’s (#10).
Particularly during these turbulent times, we thank them for their service to our families and neighbors.
Although coronavirus is top of mind, I want to highlight some important leasing progress that our team
made last year in several of our key properties and corridors:
First, at City Center, a 250k-sf Target-anchored property, in San Francisco, CA, you may recall that
we recaptured a 55k-sf Best Buy in 2018 and executed a lease with Whole Foods for the entire space in
January 2019. We still have to go through an important local approval process before the tenant will be
cleared to proceed but, assuming we are successful, both the community and the property are sure to
benefit from this addition.
— Did you know — at times, there is a line to park your car and shop at the Trader Joe’s across the
street? This neighborhood needs another good grocery store (especially now)!
Next, what started with Warby Parker and Bonobos on Armitage Ave in Lincoln Park, Chicago, IL,
has become a cluster of digitally-native brands, including Serena & Lily, allbirds, and Outdoor Voices.
Including three buildings acquired during 2019, we now own 12 buildings on this three-block corridor. As
a result of our concentrated ownership, we have been able to successfully curate the merchandise mix to
create a vibrant shopping experience. In fact, during 2019, we executed leases with two more young
brands –Parachute and Lively. We even have a waiting list. When a submarket is supply constrained and
retailers can successfully operate, rents can grow – as they have on Armitage Ave.
This is just one example of Acadia’s clustering and curation strategy. Another is Rush St & Walton St in
the Gold Coast, Chicago, IL. During 2019, we executed a lease with Reformation on Walton St. We also
successfully recaptured the Marc Jacobs beneath the Waldorf-Astoria and have already pre-leased
approximately half the space to a luxury womenswear designer.
On the acquisitions front, last year, we added approximately $190 million of core assets consistent
with our long-term vision. In addition to the Armitage Ave properties previously discussed, this includes:
— A six-property Greene St portfolio and 565 Broadway, in Soho, New York, NY. Soho has
certainly been a rollercoaster ride, but (prior to the coronavirus outbreak) we were beginning to see
green shoots.
— A portfolio of five contiguous buildings on Melrose Pl in Los Angeles, CA. Pedestrian-friendly
Melrose Pl, which boasts strong retailer sales volumes, is a natural extension of our street-retail
strategy.
3. A contrarian play in our fund platform
Turning to our fund platform, our funds have been pursuing a barbell strategy, acquiring both:
⎯ High-yield or other opportunistic investments; and
⎯ High-quality, value-add properties.
Although we didn’t think things would take such a dramatic turn, a few years ago, we pivoted away from
taking on new, somewhat riskier development projects in favor of acquiring more stable (but out-of-favor)
shopping centers. During 2019, we completed approximately $320 million of acquisitions. Over the past
few years, we’ve successfully aggregated an approximately $650 million portfolio of open-air suburban
shopping centers on behalf of Fund V. We’ve done so at an unleveraged yield of approximately 8% (and at
a substantial discount to replacement cost). With two-thirds leverage, at a blended interest rate of 3.7%,
we are currently clipping a mid-teens yield on our invested equity.
This 14-property portfolio has strong geographic diversity. Based on invested equity, 39% is in the
Northeast, 26% is in the South, and 12% is in the Midwest. These are primarily non supermarket-
anchored properties and top tenants include the TJX companies, Ross Dress for Less, Best Buy and
Walmart.
As previously discussed, cash flow stability is key to our strategy. To that point, we are pleased to report
that these carefully-selected assets continue to perform consistent with our underwritten expectations.
While these shopping centers remain out of favor for now, we believe that institutional capital will return
driven by a demand for yield. In the meantime, we are enjoying the coupon.
To date, we have allocated approximately 60% of Fund V’s capital commitments. This leaves us with
approximately $600 million of dry powder, on a leveraged basis, available to deploy through the summer
of 2021.
Turning to existing investments, strong leasing velocity continues at City Point, our urban retail
property in downtown Brooklyn. During 2019, we executed leases for more than 60k sf of space and,
looking ahead, we have a healthy pipeline. Our 2019 activity included:
— An expansion of Alamo Drafthouse, which is already one of the most-productive movie theaters per
screen in the country. Alamo leased another 25k sf at City Point, which will enable it to respond to
strong demand from moviegoers by doubling its screen count and adding a second kitchen.
— During 2019, we also executed an 18k-sf lease with NYU Dental on the fourth and fifth floors.
— And, on the ground floor, we were pleased to welcome Camp, a family experience store, and Casper,
both now open.
Since year end:
— McNally Jackson, a long-standing, NYC-based independent bookstore, opened on City Point’s Prince
St Passage, and
— lululemon executed a lease for a 4k-sf shop.
Overall, as it relates to this final lease-up, we have remained patient and selective, focused on
merchandise mix and retailers’ ability to deliver strong sales volume at this successful project. After all,
our concourse level is already delivering sales of approximately $100 million per year.
4. In conclusion…
2020 has brought with it a unique and unprecedented set of challenges for our economy and the real
estate industry. And, we are still in the early innings of this crisis.
I recognize that discussing last year’s trends and progress does little to explain the uncertainty and impact
that our country and our industry is facing as a result of coronavirus. There is no doubt that several, if not
all, of our retailers will face a severe shock. Hopefully, the longer-term impact will be much less severe.
Nevertheless, we believe that we have built our company to withstand the unexpected.
— We have a strong balance sheet.
— We have a well-located and well-leased core portfolio.
— And, we have an opportunistic fund platform that is disconnected from the public markets.
Looking ahead, our healthy balance sheet and access to growth capital keeps us well-positioned to
capitalize on new opportunities as they emerge. Most importantly, our team and our Board is cycle tested
and prepared to handle volatility and recessions.
This is going to take time, patience, capital, and persistence. It won’t be easy, and not everyone will be
successful. Thankfully, given our strong portfolio, our access to capital, and our expertise, we are
confident that we will weather this storm.
Kenneth F. Bernstein
President & CEO
March 23, 2020
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
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
For the transition period from to
Commission File Number 1-12002
ACADIA REALTY TRUST
(Exact name of registrant in its charter)
Maryland
(State or Other Jurisdiction of Incorporation or
Organization)
23-2715194
(I.R.S. Employer Identification No.)
411 Theodore Fremd Avenue, Suite 300 Rye, NY 10580
(Address of principal executive offices)
(914) 288-8100
(Registrant’s telephone number, including area code)
Title of class of registered securities
Trading symbol
Name of exchange on which registered
Common shares of beneficial interest, par
value $0.001 per share
AKR
The New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES ☒
NO ☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES ☐
NO ☒
YES ☒
NO ☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted 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 such files).
YES ☒
NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
☒ Accelerated Filer
☐ Emerging Growth Company
☐
Non-accelerated Filer
☐ Smaller Reporting Company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐
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 $2,311.5 million, based on a price of $27.37 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 12, 2020 was 82,127,330.
DOCUMENTS INCORPORATED BY REFERENCE
Part III – Portions of the registrant’s definitive proxy statement relating to its 2020 Annual Meeting of Shareholders presently scheduled to be
held May 7, 2020 to be filed pursuant to Regulation 14A.
ACADIA REALTY TRUST AND SUBSIDIARIES
Item No.
Description
FORM 10-K
INDEX
1.
1A.
1B.
2.
3.
4.
5.
6.
7.
7A.
8.
9.
9A.
9B.
10.
11.
12.
13.
14.
15.
16.
PART I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters, Issuer Purchases of Equity Securities and
Performance Graph
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
Certain Relationships and Related Transactions and Director Independence
Principal Accounting Fees and Services
PART IV
Exhibits and Financial Statement Schedules
Form 10-K Summary
SIGNATURES
Page
4
7
21
21
32
33
34
36
37
49
52
113
113
114
115
115
115
115
115
116
119
120
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K (the “Report”) may contain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended (the
“Exchange Act”), and as such may involve known and unknown risks, uncertainties and other factors that 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 Operations” in this Report. These risks and uncertainties should
be considered in evaluating any forward-looking statements contained or incorporated by reference herein.
SPECIAL NOTE REGARDING CERTAIN REFERENCES
All references to “Notes” throughout the document refer to the footnotes to the consolidated financial statements of the registrant referenced in
Part II, Item 8. Financial Statements.
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, development and management of high-quality retail properties located primarily in high-barrier-to-entry, supply-
constrained, densely-populated metropolitan areas in the United States. We currently own or have an ownership interest in these properties
through our Core Portfolio (as defined below). We generate additional growth through our Funds (as defined below) in which we co-invest
with high-quality institutional investors.
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, 2019, the Trust controlled 95% 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 as long-term incentive compensation (“LTIP Units”). 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 portfolio of high-quality retail properties located primarily in high-barrier-to-entry, densely-populated metropolitan
areas (“Core Portfolio”). Our goal is to create value through accretive development and re-tenanting 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 growth through our Funds (as defined below) in which we co-invest with high-quality institutional investors. Our
Fund strategy focuses on opportunistic yet disciplined acquisitions with high inherent opportunity for the creation of additional value,
execution on this opportunity and the realization of value through the sale of these assets. In connection with this strategy, we focus
on:
o
o
o
value-add investments in street retail properties, located in established and “next-generation” submarkets, with re-tenanting
or repositioning opportunities,
opportunistic acquisitions of well-located real estate anchored by distressed retailers, and
other opportunistic acquisitions, which vary based on market conditions and may include high-yield acquisitions and
purchases of distressed debt.
Some of these investments historically have also included, and may in the future 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 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.
Given the growing importance of technology and e-commerce, many of our retail tenants are appropriately focused on omni-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
4
utilize smaller and more productive formats closer to their shopping population. Accordingly, our focus for Core Portfolio and 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 addition to our Core Portfolio investments in real estate assets, we have also capitalized on our expertise in the acquisition, development,
leasing and management of retail real estate by establishing discretionary opportunity funds. Our 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 five funds
(“Funds”); Acadia Strategic Opportunity Fund, LP (“Fund I,” which was liquidated in 2015), Acadia Strategic Opportunity Fund II, LLC
(“Fund II”), Acadia Strategic Opportunity Fund III LLC (“Fund III”), Acadia Strategic Opportunity Fund IV LLC (“Fund IV”) and Acadia
Strategic Opportunity Fund V LLC (“Fund V,” and our “current fund”). Due to our level of control, we consolidate these Funds for financial
reporting purposes. Fund I and Fund II have also included investments in operating companies through Acadia Mervyn Investors I, LLC
(“Mervyns I”, which was liquidated in 2018), Acadia Mervyn Investors II, LLC (“Mervyns II”) and, in certain instances, directly through Fund
II, all on a non-recourse basis. These investments comprise, and are referred to as, the Company's Retailer Controlled Property Venture (“RCP
Venture”).
The Operating Partnership is the sole general partner or managing member of the Funds and Mervyns I and II and earns priority distributions or
fees for asset management, property management, construction, development, leasing and legal services. Cash flows from the Funds and the
RCP Venture 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 flows are distributed 20%
to the Operating Partnership (“Promote”) and 80% to the partners or members (including the Operating Partnership).
See Note 1 in the Notes to Consolidated Financial Statements, included in Item 8 of this Report (“Notes to Consolidated Financial
Statements”), for a detailed discussion of the Funds.
Capital Strategy — Balance Sheet Focus and Access to Capital
Our primary capital objective is to maintain a strong and flexible balance sheet through conservative financial practices, including moderate use
of leverage within our Core Portfolio, while ensuring access to sufficient capital to fund future growth. We intend to continue financing
acquisitions and property development 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 through the use of fixed-rate debt and, where we use variable-rate debt, through the use of certain derivative
instruments, including London Interbank Offered Rate (“LIBOR”) swap agreements and interest rate caps as discussed further in Item 7A of
this Report.
During 2018, the Company revised its share repurchase program. The new share repurchase program authorizes management, at its discretion,
to repurchase up to $200.0 million of its outstanding Common Shares. The program may be discontinued or extended at any time. The
Company repurchased 2,294,235 shares for $55.1 million, inclusive of $0.1 million of fees, during the year ended December 31, 2018. The
Company did not repurchase any shares during the years ended December 31, 2019 or 2017. As of December 31, 2019, management may
repurchase up to approximately $145.0 million of the Company’s outstanding Common Shares under this program.
We launched an at-the-market (“ATM”) equity issuance program in 2012 which provides us an efficient and low-cost vehicle for raising public
equity to fund our capital needs. Through this program, we have been able to effectively “match-fund” a portion of the required equity for our
Core Portfolio and Fund acquisitions through the issuance of Common Shares over extended periods employing a price averaging strategy. In
addition, from time to time, we have issued and intend to continue to issue equity in follow-on offerings separate from our ATM program. Net
proceeds raised through our ATM program and follow-on offerings are primarily used for acquisitions, both for our Core Portfolio and our pro-
rata share of Fund acquisitions and for other general corporate purposes. During 2019, we issued 5,164,055 Common Shares through our ATM
program with gross proceeds of $147.7 million. See Note 10 for further details. No such issuances were made during 2018 or 2017.
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,
development, leasing and management of retail real estate by creating value through property development, re-tenanting and establishing joint
ventures, such as the Funds, in which we earn, in addition to a return on our equity interest, Promotes, priority distributions and fees.
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, the Company believes that its acquisitions are appropriately evaluated giving effect to each asset’s specific risks and
returns.
5
INVESTING ACTIVITIES
See Item 2. Properties for a description of the properties in our Core and Fund portfolios. See Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations for a detailed discussion of our consolidated and unconsolidated acquisitions.
Core Portfolio
Our Core Portfolio consists primarily of high-quality street retail and urban assets, as well as suburban properties located in high-barrier-to-
entry, densely-populated trade areas.
As we typically hold our Core Portfolio properties for long-term investment, we review the portfolio and implement programs to renovate and
re-tenant targeted properties to enhance their market position. This in turn is expected to strengthen 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 properties with greater potential
for capital appreciation.
We also make investments in first mortgages and other notes receivable collateralized by real estate, (“Structured Finance Program”) either
directly or through entities having an ownership interest therein.
Acquisitions
During 2019, we invested in one unconsolidated leasehold interest and one unconsolidated property (Note 4), acquired nine consolidated
properties (Note 2) and invested in one leasehold interest (Note 11) in our Core portfolio for a total of $185.9 million.
Dispositions
During 2019, we sold our Pacesetter Park shopping center for $22.6 million (Note 2).
Structured Financing Investments
During 2019, we provided seller financing on our sale of Pacesetter Park shopping center in the amount of $13.5 million within our Structured
Financing segment and advanced $4.3 million on an existing loan. As of December 31, 2019, we had $76.5 million invested in this program.
See Note 3, for a detailed discussion of our Structured Finance Program.
Funds
Acquisitions
Fund IV – During 2019, Fund IV acquired a consolidated leasehold interest in New York City for $10.5 million (Note 11).
Fund V – During 2019, Fund V invested in four unconsolidated properties (Note 4) and three consolidated properties (Note 2) for an aggregate
purchase price of $318.0 million.
Dispositions
Fund III – During 2019, Fund III sold two consolidated properties for a total of $38.2 million.
Fund IV – During 2019, Fund IV sold two consolidated properties and three residential condominium units for an aggregate of $48.6 million.
Structured Financing Investments
Fund IV – During 2019, Fund IV received repayment of a $15.3 million Structured Financing investment (Note 3).
Development and Redevelopment Activities
As part of our investing strategy, we invest in real estate assets that may require significant development. In addition, certain assets may require
redevelopment to meet the demand of changing markets. As of December 31, 2019, there were five Fund development projects, and one Core
development project and four Core redevelopment projects. During the year ended December 31, 2019, the Company placed one consolidated
Core property into service, placed one consolidated Core property into development, placed one consolidated Core property into redevelopment
and placed two consolidated Fund properties into development. See Item 2. Properties—Development Activities and Note 2.
6
INFLATION
Our long-term leases contain provisions designed to mitigate the adverse impact of inflation on our net income. Such provisions include
escalation clauses, which generally increase rental rates during the terms of the leases, and to a lesser extent, clauses enabling us to receive
percentage rents based on tenants’ gross sales, which generally increase as prices rise. 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.
ENVIRONMENTAL LAWS
For information relating to environmental laws that may have an impact on our business, please see “Item 1A. Risk Factors — We are exposed
to 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.
CORPORATE HEADQUARTERS AND EMPLOYEES
Our executive office is located at 411 Theodore Fremd Avenue, Suite 300, Rye, New York 10580, and our telephone number is (914) 288-
8100. As of December 31, 2019, we had 118 employees, of which 92 were located at our executive office and 26 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 Jason Blacksberg, Corporate Secretary, at Acadia Realty Trust, 411
Theodore Fremd Avenue, Suite 300, Rye, NY 10580. 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
Our board of trustees (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 will 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.
Set forth below are the risk factors that we believe are material to our investors. You should carefully consider these risk factors, together with
all of the other information included in this Report, including our consolidated financial statements and the related notes thereto, before you
decide whether to make an investment in our securities. The occurrence of any of the following risks could adversely affect our financial
condition, cash flows, results of operations, and ability to satisfy our debt service obligations and to make distributions to our shareholders. In
such case, the trading price of our Common Shares could decline, and you may lose all or a significant part of your investment. This section
includes or refers to certain forward-looking statements. See “Special Note Regarding Forward-Looking Statements” in this Report.
The following risk factors are not exhaustive. Other sections of this Report may include additional factors that could adversely affect our
financial condition, cash flows, results of operations, and ability to satisfy our debt service obligations and to make distributions to our
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shareholders. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it
is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which
any factor, or combination of factors, may affect our business. Investors should also refer to our quarterly reports on Form 10-Q and current
reports on Form 8-K for future periods for material updates to these risk factors.
RISKS RELATED TO OUR BUSINESS AND OUR PROPERTIES
There are risks relating to investments in real estate that could adversely affect our financial condition, cash flows, results of
operations, and ability to satisfy our debt service obligations and to make distributions to our shareholders.
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), the quality and philosophy of management,
competition from other available space, and the ability to provide adequate maintenance and insurance and to control variable operating costs.
Retail properties, in particular, may be affected by changing perceptions of retailers or shoppers regarding the convenience and attractiveness
of the property 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. 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 or at all. 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.
We rely on revenues derived from tenants, in particular our key tenants, and a decrease in those revenues could adversely affect our
ability to make distributions to our shareholders.
Revenue from our properties depends primarily on the ability of our tenants to pay the full amount of rent and other charges due under their
leases on a timely basis. We derive significant revenues from a concentration of 20 key tenants which occupy space at more than one property
and collectively account for approximately 37.8% of our consolidated revenue. We could be adversely affected in the event of the bankruptcy
or insolvency of, or a downturn in the business of, any of our key 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. See “Item 2. Properties—Major Tenants” in this Report for quantified information with
respect to the percentage of our minimum rents received from major tenants.
Anchor tenants and co-tenancy are crucial to the success of retail properties and vacated anchor space directly and indirectly affects
our rental revenues.
Certain of our properties are supported by “anchor” tenants. Anchor tenants pay a significant portion of the total rents at a property and
contribute to the success of other tenants by drawing large numbers of customers to a property. Vacated anchor space not only directly reduces
rental revenues, but, if not re-tenanted with a tenant with comparable consumer attraction, could adversely affect the rest of the property
primarily through the loss of customer drawing power. This can also 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”), such as the case of the departure of a “shadow” anchor
tenant that is owned by another landlord. In addition, in the event that certain anchor tenants cease to occupy a property, such an action results
in a significant number of other tenants having the contractual 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, also known as “co-tenancy.”
Although it may not directly reduce our rental revenues, and there are no contractual co-tenancy conditions, vacant retail space adjacent to, or
even on the same block as our street and urban properties may similarly affect shopper traffic and re-tenanting activities at our properties. See
“Item 2. Properties—Major Tenants” in this Report.
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 financial condition, cash flows, results of operations 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 to 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 protection, typically under
Chapter 11 of the United States Bankruptcy Code (“Chapter 11 Bankruptcy”). Pursuant to bankruptcy law, tenants have the right to reject some
or all of their leases. In the event a 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
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subject to the tenant's final bankruptcy plan and the availability of funds to pay its creditors. There can be no assurance that our major tenants
will not declare bankruptcy, in which case we may be unable to recoup past and future rent in full, and to re-lease a terminated or rejected space
on comparable terms or at all.
We may not be able to renew current leases or 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 Report for additional information regarding the scheduled lease expirations in our
portfolio.
Our business is significantly influenced by demand for retail space generally, and a decrease in such demand may have a greater
adverse effect on our business than if we owned a more diversified real estate portfolio.
A decrease in the demand for retail space, may have a greater adverse effect on our business and financial condition than if we owned a more
diversified real estate portfolio. The market for retail space has been, and could continue to be, adversely affected by weakness in the national,
regional and local economies, the adverse financial condition of some large retailing companies and bankruptcy incidence, the ongoing
consolidation in the retail sector, the excess amount of retail space in a number of markets, and increasing consumer purchases through the
Internet. To the extent that any of these conditions occur, they are likely to negatively affect market rents for retail space and could adversely
affect our financial condition, cash flows, results of operations, the trading price of our Common Shares and our ability to satisfy our debt
service obligations and to pay distributions to our shareholders.
E-commerce can have an impact on our business because it may cause a downturn in the business of our current tenants and affect
future leases.
The use of the Internet by retail consumers continues to gain in popularity and the migration toward e-commerce is expected to continue. The
increase in Internet sales could result in a downturn in the business of our current tenants in their “brick and mortar” locations, adversely
impacting their ability to satisfy their rent obligations, 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 because of 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 economic environment may cause us to lose tenants and may impair our ability to borrow money to purchase properties, refinance
existing debt or finance our current development projects.
Our operations and performance depend on general economic conditions, including consumer health. The U.S. economy has historically
experienced financial downturns from time to time, including a decline in consumer spending, credit tightening and high unemployment.
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While we currently believe we have adequate sources of liquidity, there can be no assurance that, in the event of a financial downturn, we will
be able to obtain secured or unsecured loan facilities to meet our needs, including to purchase additional properties, to complete current
development projects, or to 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.
Certain sectors of the U. S. economy are still experiencing weakness. Over the past several years, this structural weakness has resulted in
periods of high unemployment, the bankruptcy or weakened financial condition of a number of retailers, decreased consumer spending,
increased home foreclosures, low consumer confidence, and reduced demand and rental rates for certain retail space. There can be no assurance
that the recovery will continue. General economic factors that are beyond our control, including, but not limited to, economic recessions,
decreases in consumer confidence, reductions in consumer credit availability, increasing consumer debt levels, rising energy costs, higher tax
rates, continued business layoffs, downsizing and industry slowdowns, and/or rising inflation, could have a negative impact on the business of
our retail tenants. In turn, this could have a material adverse effect on our business because current or prospective tenants may, among other
things, (i) have difficulty paying their rent obligations as they struggle to sell goods and services to consumers, (ii) be unwilling to enter into or
renew leases with us on favorable terms or at all, (iii) seek to terminate their existing leases with us or request rental concessions on such
leases, or (iv) be forced to curtail operations or declare bankruptcy.
Political and economic uncertainty could have an adverse effect on our business.
We cannot predict how current political and economic uncertainty 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 us 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 generally 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 factors could adversely affect
our financial condition, cash flows and results of operations.
Inflation may adversely affect our financial condition, cash flows and results of operations.
Increased inflation could have a more pronounced negative impact on our mortgage and debt interest and general and administrative expenses,
as these costs could increase at a rate higher than our rents. Also, inflation may adversely affect tenant leases with stated rent increases or limits
on such tenant’s obligation to pay its share of operating expenses, which could be lower than the increase in inflation at any given time. It may
also limit our ability to recover all of our operating expenses. Inflation could also have an adverse effect on consumer spending, which could
impact our tenants’ sales and, in turn, our average rents, and in some cases, our percentage rents, where applicable. In addition, renewals of
leases or future leases may not be negotiated on current terms, in which event we may recover a smaller percentage of our operating expenses.
Many of our real estate costs are fixed, even if income from our properties decreases, which would cause a decrease in net income.
Our financial results depend primarily on leasing space at our properties to tenants on terms favorable to us. Costs associated with real estate
investment, such as real estate taxes, insurance and maintenance costs, generally are not reduced even when a property is not fully occupied,
rental rates decrease, or other circumstances cause a reduction in income from the property. As a result, cash flow from the operations of our
properties may be reduced if a tenant does not pay its rent or we are unable to fully lease our properties on favorable terms. Additionally,
properties that we develop or redevelop may not produce any significant revenue immediately, and the cash flow from existing operations may
be insufficient to pay the operating expenses and debt service associated with such projects until they are fully occupied.
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, which could adversely affect our financial condition, cash flows, and ability to satisfy our debt service obligations and to
make distributions to our shareholders. In addition, the Code contains restrictions on a REITs ability to dispose of properties that are not
applicable to other types of real estate companies. Our Board of Trustees may establish investment criteria or limitations as it deems
appropriate, but it 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. As discussed under the heading “Our Board of Trustees may change our investment policy without shareholder
approval” below, we could change our investment, disposition and financing policies and objectives without a vote of our shareholders, but
such change may be delayed or more difficult to implement due to the illiquidity of real estate.
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If we decided to employ higher leverage levels, we would be subject to increased debt service requirements and a higher risk of default
on our debt obligations, which could adversely affect our financial conditions, cash flows and ability to make distributions to our
shareholders. In addition, increases or changes in interest rates could cause our borrowing costs to rise and may limit our ability to
refinance debt.
Although we have historically used moderate levels of leverage, we have incurred, and expect to continue to incur, indebtedness to support our
activities. As of December 31, 2019, our outstanding indebtedness was $1,717.9 million, of which $314.6 million was variable rate
indebtedness.
None of our Declaration of Trust, our bylaws or 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 debt service requirements and a higher risk of default on our debt obligations. This in turn, could adversely affect our financial
condition, cash flows and ability to make distributions to our shareholders.
Although approximately 81.7% of our outstanding debt has fixed or effectively fixed interest rates, we also borrow funds at variable interest
rates. Variable rate debt exposes us to changes in interest rates, which could cause our borrowing costs to rise and may limit our ability to
refinance debt. Interest expense on our variable rate debt as of December 31, 2019 would increase by $7.5 million annually for a 100-basis-
point increase in interest rates. This exposure would increase if we seek additional variable rate financing based on pricing and other
commercial and financial terms. We enter into interest rate hedging transactions, including interest rate swap 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.
In July 2017, the Financial Conduct Authority (“FCA”) that regulates LIBOR announced it intends to stop compelling banks to submit rates for
the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the
Alternative Reference Rates Committee ("ARRC"), which identified the Secured Overnight Financing Rate ("SOFR") as its preferred
alternative to USD-LIBOR in derivatives and other financial contracts. The Company is not able to predict when LIBOR will cease to be
available or when there will be sufficient liquidity in the SOFR markets. While we expect LIBOR to be available in substantially its current
form until the end of 2021, it is possible that LIBOR will become unavailable prior to that point. In that case, the risks associated with the
transition to an alternative reference rate will be accelerated and magnified.
The Company has contracts indexed to LIBOR and is monitoring and evaluating the risks related to potential discontinuation of LIBOR,
including transitioning contracts to a new alternative rate and any resulting value transfer that may occur. If LIBOR is discontinued or if the
methods of calculating LIBOR change from their current form, interest rates on our current or future indebtedness may be adversely affected.
In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than
if LIBOR were to remain available in its current form.
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, private funds, insurance companies, pension funds, private companies, family offices, sovereign
wealth funds 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 Funds) face increasing competition from outlet malls, discount shopping
clubs, e-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 conditions in the markets where our properties are geographically concentrated.
Our performance depends on the economic conditions in markets where our properties are geographically concentrated. We have significant
exposure to the greater New York and Chicago metropolitan regions, from which we derive 36.2% and 27.6% of the annual base rents within
our Core Portfolio, respectively, and 21.0% and 3.5% of annual base rents within our Funds, respectively. Our operating results could be
adversely affected if market conditions, such as an oversupply of space or a reduction in demand for real estate, occur in these areas.
We have pursued, and may in the future continue to pursue extensive growth opportunities, including investing in new markets, which
may result in significant demands on our operational, administrative and financial resources.
We are pursuing extensive growth opportunities, some of which have been, and in the future may be, in locations in which we have not
historically invested. This expansion places significant demands on our operational, administrative and financial resources. The continued
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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 newly acquired properties.
Our inability to raise capital for new Funds or to carry out our growth strategy could adversely affect our financial condition, cash
flows and results of operations.
Our earnings growth strategy is based on the acquisition and development of additional properties, including acquisitions of core properties
through our Operating Partnership and our high return investment programs through our Fund platform. 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, “development” generally means an expansion or renovation of an existing
property. Development is subject to numerous risks, including risks of construction delays, cost overruns or uncontrollable events that may
increase project costs, new project commencement risks such as the receipt of zoning, occupancy and other required governmental approvals
and permits, and incurring development costs in connection with projects that are not pursued to completion.
Historically, a component of our growth strategy has been through private-equity type investments made through our RCP Venture, which have
included investments in operating retailers. The inability of such 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 human capital issues, adequate supply of product and material,
and merchandising issues.
Furthermore, if we were unable to obtain sufficient investor capital commitments in order to initiate future Funds, this would adversely impact
our current growth strategy would be adversely impacted. Because the Operating Partnership is the sole general partner or managing member
of our Funds and earns promote distributions or fees for asset management, property management, construction, development, leasing and legal
services, such a situation would also adversely impact the amount or ability to earn such promotes or fees.
Our development and construction activities could affect our operating results.
We intend to continue the selective development and construction of retail properties (see “Item 1. Business —Investing Activities–Funds–
Development Activities”).
As opportunities arise, we may delay construction until sufficient pre-leasing is reached and financing is in place. Our development and
construction activities include the risk that:
•
•
•
•
•
•
we may abandon development opportunities after expending resources to determine feasibility;
construction costs of a project may exceed our original estimates;
occupancy rates and rents at a newly completed property may not be sufficient to make the property profitable;
financing for development of a property may not be available to us on favorable terms;
we may not complete construction and lease-up on schedule, resulting in increased debt service expense and construction costs,
including labor and material costs; and
we may not be able to obtain, or may experience delays in obtaining necessary zoning and land use approvals as well as building,
occupancy and other required governmental permits and authorizations.
In addition, the entitlement and development of real estate entails extensive approval processes, sometimes involving multiple regulatory
jurisdictions. It is common for a project to require multiple approvals, permits and consents from U.S. federal, state and local governing and
regulatory bodies. Compliance with these and other regulations and standards is time intensive and costly and may require additional long
range infrastructure review and approvals which can add to project cost. In addition, development of properties containing delineated wetlands
may require one or more permits from the U.S. federal government and/or state and local governmental agencies. Any of these issues can
materially affect the cost, timing and economic viability of our development and redevelopment projects.
At times, we may also be required to use unionized construction workers or to pay the prevailing wage in a jurisdiction to unionized workers,
which could increase projects costs and the risk of a strike, thereby affecting construction timelines.
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Additionally, the time frame required for development, construction and lease-up of these properties means that we may not realize a
significant cash return for several years. If any of the above events occur, the development of properties may hinder our growth and could have
an adverse effect on our financial condition, cash flows and results of operations. In addition, new development activities, regardless of whether
or not they are ultimately successful, typically require substantial time and attention from management.
Developments and acquisitions may fail to perform as expected which could adversely affect our results of operations.
Our investment strategy includes the development and acquisition of retail properties in supply constrained markets in densely populated areas
with high average household incomes and significant barriers to entry. The acquisition of such properties is highly competitive. Additionally,
the development and acquisition of such properties entails risks that include the following, any of which could adversely affect our financial
condition, cash flows, results of operations, and our ability to meet our debt obligations and make distributions to shareholders:
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 or within the time frames we project
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.
•
•
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 contractual restrictions for varying periods of time 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.
We currently have an exclusive obligation to seek investments for our Funds, which may prevent us from making acquisitions directly.
Under the terms of the organizational documents of our Funds, our primary goal is to seek investments for the Funds, 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 the Funds 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 the Funds (which, in general, seek 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
the Funds.
Our joint venture investments carry additional risks not present in our direct investments.
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 with respect to maintaining our qualification as a REIT. Actions by, or disputes with, joint venture
partners might result in subjecting properties owned by the joint venture to additional risks. Other risks of joint venture investments include
impasse on decisions, such as a sale, because neither we nor a joint venture partner may 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,
which may jeopardize an investment and/or subject us to reputational risk. Such acts may or may not be covered by insurance.
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Any disputes that may arise between joint venture partners and us may result in potentially costly litigation or arbitration that would prevent
our officers and/or trustees from focusing their time and effort on our business. In addition, we may in certain circumstances be liable for the
actions of our third-party joint venture partners.
Historically, Fund I, Mervyns I and Fund III have provided Promote income. There can be no assurance that our 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.
Our structured financing portfolio is subject to specific risks relating to the structure and terms of the instruments and the underlying
collateral.
We invest in notes receivables and preferred equity investments that are collateralized by the underlying real estate, a direct interest or the
borrower’s ownership interest in the entities that own the properties and/or by the borrower’s personal guarantee. The underlying assets are
sometimes subordinate in payment and collateral to more senior loans. The ability of a borrower or entity to make payments on these
investments may be subject to the senior lender and/or the performance of the underlying real estate. In the event of a default by the borrower
or entity on its senior loan, our investment will only be satisfied after the senior loan and we may not be able to recover the full value of the
investment. In the event of a bankruptcy of an entity in which we have a preferred equity interest, or in which the borrower has pledged its
interest, the assets of the entity may not be sufficient to satisfy our investment.
Our real estate assets may be subject to impairment charges.
We periodically assess whether there are any indicators that the value of our real estate assets and other investments may be impaired. A
property’s value is considered to be impaired only if the estimated aggregate future undiscounted property cash flows are less than the carrying
value of the property. In our estimate of cash flows, we consider factors such as trends and prospects and the effects of demand and competition
on expected future operating income. If we are evaluating the potential sale of an asset or redevelopment alternatives, the undiscounted future
cash flows consider the most likely course of action as of the balance sheet date based on current plans, intended holding periods and available
market information. We are required to make subjective assessments as to whether there are impairments in the value of our real estate assets
and other investments. Impairment charges have an immediate direct impact on our earnings. There can be no assurance that we will not take
additional charges in the future related to the impairment of our assets. Any future impairment could have a material adverse effect on our
operating results in the period in which the charge is taken.
Market factors could have an adverse effect on our share price and our ability to access the public equity markets.
The market price of our Common Shares may fluctuate significantly in response to many factors, including:
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actual or anticipated variations in our operating results, funds from operations, cash flows or liquidity;
changes in our earnings estimates or those of analysts;
changes in our dividend policy;
impairment charges affecting the carrying value of one or more of our Properties or other assets;
publication of research reports about us, the retail industry or the real estate industry generally;
increases in market interest rates that lead purchasers of our securities to seek higher dividend or interest rate yields;
changes in market valuations of similar companies;
adverse market reaction to the amount of our outstanding debt at any time, the amount of our maturing debt in the near and medium
term and our ability to refinance such debt and the terms thereof or our plans to incur additional debt in the future;
additions or departures of key management personnel;
actions by institutional security holders;
proposed or adopted regulatory or legislative changes or developments;
speculation in the press or investment community;
the occurrence of any of the other risk factors included in, or incorporated by reference in, this report; and
general market and economic conditions.
Many of the factors listed above are beyond our control. Those factors may cause the market price of our Common Shares to decline
significantly, regardless of our financial performance, condition and prospects. We may not provide any assurance that the market price of our
Common Shares will not fall in the future, and it may be difficult for holders to sell such securities at prices they find attractive, or at all. 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.
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RISKS RELATED TO STRUCTURE AND MANAGEMENT
The loss of key management members could have an adverse effect on our business, financial condition and results of operations.
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 business, financial condition and results
of operations. Management continues to strengthen our team and we have CEO succession planning in place, but there can be no assurance that
such planning will be capable of implementation or that our efforts will be successful. We have obtained key-man life insurance for Mr.
Bernstein. In addition, we have entered into an employment agreement with Mr. Bernstein and into severance agreements with other senior
executives; however, Mr. Bernstein and such executives may terminate their employment with us at will.
Our Board of Trustees may change our investment policy or objectives without shareholder approval.
Our Board of Trustees may determine to change our investment and financing policies or objectives, 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 as
implemented by management may or may not serve the interests of all of our shareholders and could adversely affect our financial condition,
cash flows, results of operations, and ability to satisfy our debt service obligations and to make distributions to our shareholders.
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 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.
Concentration of ownership by certain investors.
As of December 31, 2019, five institutional shareholders own 5% or more individually, and 54.5% in the aggregate, of our Common Shares.
While this ownership concentration does not jeopardize our qualification as a REIT (due to certain “look-through provisions”), 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 could prevent changes that would be beneficial to our shareholders.
Our Board of Trustees is authorized by our Declaration of Trust to establish and issue one or more series of preferred shares of beneficial
interest without shareholder approval. We have not established any series of preferred shares other than the Series A and Series C Preferred OP
Units in the Operating Partnership. However, the establishment and issuance of a class or series of preferred shares could make a change of
control of us that could be in the best interests of the shareholders more difficult. In addition, we have entered into an employment agreement
with our Chief Executive Officer and severance agreements with certain of 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), such
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 our shareholders generally.
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Certain provisions of Maryland law may limit the ability of a third party to acquire control of our Company.
Under the provisions of the Maryland General Corporation Law (the “MGCL”) 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 REIT's outstanding voting shares or an affiliate
or an associate, as defined in the MGCL, of the REIT 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 REIT (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 REIT and approved by the affirmative vote of at least (i) 80% of the votes entitled to be cast by holders of outstanding voting
shares of beneficial interest of the REIT and (ii) two-thirds of the votes entitled to be cast by holders of voting shares of the REIT 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 REIT'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
REIT 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 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. We have not elected to opt out of the business combination statute.
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 REIT. Our Bylaws contain a provision exempting from
the control share acquisition statute any and all acquisitions by any person of our shares of beneficial interest. 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. However,
pursuant to the Articles Supplementary filed with the State Department of Assessments and Taxation of Maryland on November 9, 2017, which
are referenced in Part IV Item 15 hereto, the Board of Trustees approved a resolution to opt out of Section 3-803 of Subtitle 8 of Title 3 of the
MGCL that allows the Board, without shareholder approval, to elect to classify into three classes with staggered three-year terms. The Articles
Supplementary prohibit the Company, without the affirmative vote of a majority of the votes cast on the matter by shareholders entitled to vote
generally in the election of trustees, from classifying the Board under 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:
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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.
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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 in those or
certain other capacities. As part of these indemnification obligations, we may be obligated to fund the defense costs incurred by our trustees
and officers.
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 or cyber-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 or 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.
Cyber incidents can result from deliberate attacks or unintentional events. There have been an increased number of significant cyber-attacks
targeted at the retail, insurance, financial and banking industries that include, but are not limited to, gaining unauthorized access to digital
systems for purposes of misappropriating assets or sensitive information, corrupting data or causing operational disruption. Cyber-attacks may
also be carried out in a manner that does not require gaining unauthorized access, such as by causing denial-of-service attacks on websites.
Cyber-attacks by third parties or insiders utilize techniques that range from highly sophisticated efforts to electronically circumvent network
security or overwhelm a website to more traditional intelligence gathering and social engineering aimed at obtaining information necessary to
gain access.
Increased global IT security threats are more sophisticated and targeted computer crimes 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. Because the
techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect
for long periods of time, we may be unable to anticipate these techniques or implement adequate preventive measures.
Cyber-attacks may result in substantial financial and reputational cost, including but are not limited to:
Compromising of confidential information;
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Loss of trade secrets;
System downtimes and operational disruptions;
Remediation costs that may include liability for stolen assets or information and repairing system damage, as well as incentives
offered to customers, tenants or other business partners in an effort to maintain the business relationships;
Loss of revenues resulting from unauthorized use of proprietary information;
Cost to deploy additional protection strategies, training employees and engaging third party experts and consultants;
Reputational damage adversely affecting investor and tenant confidence; and
Costly litigation.
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While we attempt to mitigate these risks by employing a number of measures, including a dedicated IT team, employee training and
background checks, maintenance of backup systems, utilization of third-party service providers to provide redundancy over multiple locations,
and comprehensive monitoring of our networks and systems along with purchasing cyber security insurance coverage, our systems, networks
and services remain potentially vulnerable to advanced threats.
If a third-party vendor fails to provide agreed upon services, we may suffer losses.
We are dependent and rely on third party vendors, including Cloud providers, for redundancy of our network, system data, security and data
integrity. If a vendor fails to provide services as agreed, suffers outages, business interruptions, financial difficulties or bankruptcy, we may
experience service interruption, delays or loss of information. Cloud computing is dependent upon having access to an Internet connection in
order to retrieve data. If a natural disaster, blackout or other unforeseen event were to occur that disrupted the ability to obtain an Internet
connection, we may experience a slowdown or delay in our operations. We conduct appropriate due diligence on all services providers and
restrict access, use and disclosure of personal information. We engage vendors with formal written agreements clearly defining the roles of the
parties specifying privacy and data security responsibilities.
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Use of social media may adversely impact our reputation and business.
There has been a significant increase in the use of social media platforms, including weblogs, social media websites and other forms of
Internet-based communications, which allow individuals access to a broad audience, including our significant business constituents. The
availability of information through these platforms is virtually immediate as is its impact and may be posted at any time without affording us an
opportunity to redress or correct it timely. This information may be adverse to our interests, may be inaccurate and may harm our reputation,
brand image, goodwill, performance, prospects or business. Furthermore, these platforms increase the risk of unauthorized disclosure of
material non-public Company information.
Climate change, natural disasters or health crises could adversely affect our properties and business.
Some of our current or future properties could be subject to natural disasters and may be impacted by climate change. To the extent climate
change causes adverse changes in weather patterns, rising sea levels or extreme temperatures, our properties in certain markets may be
adversely affected. Specifically, properties located in coastal regions could be affected by any future increases in sea levels or in the frequency
or severity of hurricanes and storms, whether caused by climate change or other factors. Additionally, we own properties in Southern
California, which in recent years has experienced intense draught and wildfires and has had earthquake activity.
Climate change could have a variety of direct or indirect adverse effects on our properties and business, including:
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Property damage to our retail properties;
Indirect financial and operational impacts from disruptions to the operations of major tenants located in our retail properties from
severe weather, such as hurricanes, floods, wildfires or other natural disasters;
Increased insurance premiums and deductibles, or a decrease in or unavailability of coverage, for properties in areas subject to severe
weather, such as hurricanes, floods, wildfires or other natural disasters;
Increased insurance claims and liabilities;
Increases in energy costs impacting operational returns;
Changes in the availability or quality of water or other natural resources on which the tenant's business depends;
Decreased consumer demand for 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.
Moreover, compliance with new laws or regulations related to climate change, including compliance with “green” building codes, may require
us to make improvements to our existing properties or pay additional taxes and fees assessed on us or our properties. Although we strive to
identify, analyze, and respond to the risk and opportunities that climate change presents, at this time there can be no assurance that climate
change will have an adverse effect on us.
Public health crises, pandemics and epidemics, such as those caused by new strains of viruses such as H5N1 (avian flu), severe acute
respiratory syndrome (SARS) and, most recently, the novel coronavirus (COVID-19), are expected to increase as international travel continues
to rise and could adversely impact our business by interrupting our tenants’ business, supply chains and transactional activities, disrupting
travel, and negatively impacting local, national or global economies.
We are exposed to 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.
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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:
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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, cash flows and results of operations.
Uninsured losses or a loss in excess of insured limits could adversely affect our financial condition, cash flows and results of operations.
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 maintain a minimum of twelve months 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 could adversely affect our financial
condition, cash flows and results of operations.
Future terrorist attacks or civil unrest could harm the demand for, and the value of, our properties.
Over the past several years, a number of highly publicized terrorist acts and shootings have occurred at domestic and international retail
properties. Future terrorist attacks, civil unrest and other acts of terrorism or war could harm the demand for, and the value of, our properties.
Terrorist attacks could directly impact the value of our properties through damage, destruction, loss or increased security costs, and the
availability of insurance for such acts may be limited or may be subject to substantial cost increases. To the extent that our tenants are impacted
by future attacks, their ability to continue to honor obligations under their existing leases could be adversely affected. A decrease in retail
demand could make it difficult for us to renew or re-lease our properties at lease rates equal to or above historical rates. These acts might erode
business and consumer confidence and spending, and might result in increased volatility in national and international financial 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.
We may from time to time be subject to litigation that could negatively impact our financial condition, cash flows, results of operations
and the trading price of our Common Shares.
We may from time to time be a defendant in lawsuits and regulatory proceedings relating to our business. Such litigation and proceedings may
result in defense costs, settlements, fines or judgments against us, some of which may not be covered by insurance. Due to the inherent
uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such litigation or proceedings.
An unfavorable outcome may result in our having to pay significant fines, judgments or settlements, which, if uninsured, or if exceeding
insurance coverage, could adversely impact our financial condition, cash flows, results of operations and the trading price of our Common
Shares. Additionally, certain proceedings or the resolution of certain proceedings may affect the availability or cost of some of our insurance
coverage and expose us to increased risks that would be uninsured. See Item 3 included in this Report and notes to the financial statements of
our quarterly reports, for pending litigation, if any.
Compliance with the Americans with Disabilities Act and fire, safety and other regulations may require us to make unplanned
expenditures that could adversely affect our financial condition, cash flows and results of operations.
All of our properties are required to comply with the Americans with Disabilities Act (the “ADA”). The ADA has separate compliance
requirements for “public accommodations” and “commercial facilities,” but generally requires that buildings be made accessible to people with
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disabilities. Compliance with the ADA requirements could require removal of access barriers, and non-compliance could result in imposition of
fines by the U.S. government or an award of damages to private litigants, or both. While the tenants to whom we lease properties are obligated
by law to comply with applicable ADA provisions, and are typically obligated to cover costs of compliance, if required changes involve greater
expenditures than anticipated, or if the changes must be made on a more accelerated basis than anticipated, the ability of these tenants to cover
costs could be adversely affected. As a result of the foregoing or if a tenant is not obligated to cover the cost of compliance, we could be
required to expend funds to comply with the provisions of the ADA, which could adversely affect our financial condition, cash flows and
results of operations. In addition, we are required to operate our properties in compliance with fire and safety regulations, building codes and
other land use regulations, as they may be adopted by governmental agencies and bodies and become applicable to the properties. We may be
required to make substantial capital expenditures to comply with those requirements, and these expenditures could also adversely affect our
financial condition, cash flows and results of operations.
RISKS RELATED TO OUR REIT STATUS
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 may be 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 entities. 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. Also, we could be disqualified from treatment as
a REIT for the four taxable years following the year during which qualification was lost. Cash available for distribution to our shareholders
would be significantly reduced for each year in which we do not qualify as a REIT. In that event, we would not be required to continue to make
distributions. Although we currently intend to continue to qualify as a REIT, it is possible that future economic, market, legal, tax or other
considerations may cause us, without the consent of our shareholders, to revoke the REIT election or to otherwise take action that would result
in disqualification.
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.
On December 22, 2017, Pub. L. No. 115-97 (informally known as the Tax Cuts and Jobs Act (the “Act”)) was enacted into law. The Act made
major changes to the Code, including a number of provisions of the Code that affect the taxation of REITs and their shareholders. The long-
term effect of the significant changes made by the Act remains uncertain, and additional administrative guidance will be required in order to
fully evaluate the effect of many provisions. The effect of any technical corrections with respect to the Act could have an adverse effect on use
or our shareholders or holders of our debt securities.
We may be required to borrow funds or sell assets to satisfy our REIT distribution requirements.
Our cash flows may be insufficient to fund distributions required to maintain our qualification as a REIT as a result of differences in timing
between the actual receipt of income and the recognition of income for U.S. Federal income tax purposes, or as a result of our inability to
currently deduct certain expenditures that we must currently pay, such as capital expenditures, payments of compensation for which Section
162(m) of the Code denies a deduction, any business interest expense that is disallowed under Section 163 (j) of the Code (unless we elect to be
an “electing real property trade or business”), the creation of reserves or required amortization payments. If we do not have other funds
available in these situations, we may need to borrow funds on a short-term basis or sell assets, even if the then- prevailing market conditions are
not favorable for these borrowings or sales, in order to satisfy our REIT distribution requirements. Such actions could adversely affect our cash
flow and results of operations.
Dividends payable by REITs generally do not qualify for reduced tax rates.
Certain qualified dividends paid by corporations to individuals, trusts and estates that are U.S. shareholders are taxed at capital gain rates,
which are lower than ordinary income rates. Dividends of current and accumulated earnings and profits payable by REITs, however, are taxed
at ordinary income rates as opposed to the capital gain rates. Pursuant to the Act, from 2018 through 2025, certain REIT shareholders will be
permitted to deduct 20% of ordinary REIT dividends received. Dividends payable by REITs in excess of these earnings and profits generally
are treated as a non-taxable reduction of the shareholders’ basis in the shares to the extent thereof and thereafter as taxable gain. The more
favorable rates applicable to regular corporate dividends could cause investors who are individuals, trusts and estates to perceive investments in
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REITs, including us, to be relatively less attractive than investments in the stock of non-REIT corporations that pay dividends, which may
negatively impact the trading prices of our securities.
Complying with REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise attractive
investments.
To qualify as a REIT, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and
diversification of our assets, the amounts we distribute to our shareholders and the ownership of our Common Shares. In order to meet these
tests, we may be required to forego investments we might otherwise make and refrain from engaging in certain activities. Thus, compliance
with the REIT requirements may hinder our performance.
In addition, if we fail to comply with certain asset ownership tests at the end of any calendar quarter, we must correct the failure within 30 days
after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification. As a result, we may
be required to liquidate otherwise attractive investments.
We have limits on ownership of our shares of beneficial interest.
For us to qualify as a REIT for Federal income tax purposes, among other requirements, not more than 50% of the value of our shares of
beneficial interest 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, and such shares of beneficial interest 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 shares of beneficial interest 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 shares of beneficial interest in violation of the ownership limitations. The ownership limits
contained in our Declaration of Trust may have the effect of delaying, deferring or preventing a change of control of us.
Actual or constructive ownership of our shares of beneficial interest 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2.
PROPERTIES.
Retail Properties
The discussion and tables in this Item 2. include wholly-owned and partially-owned properties held through our Core Portfolio and our 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 Funds.
As of December 31, 2019, there are 123 operating properties in our Core Portfolio totaling approximately 5.6 million square feet of gross
leasable area (“GLA”) excluding four properties under redevelopment, one property in development and one pre-stabilized property. The Core
Portfolio properties are located in 12 states and the District of Columbia and primarily consist of street retail and dense suburban shopping
centers. These properties are diverse in size, ranging from approximately 1,000 to 800,000 square feet and as of December 31, 2019, were in
total, excluding the properties that were pre-stabilized or under redevelopment, 93.4% occupied.
As of December 31, 2019, we owned and operated 53 properties totaling approximately 7.5 million square feet of GLA in our Funds, excluding
four properties under development. In addition to shopping centers, the Funds have invested in mixed-use properties, which generally include
retail activities. The Fund properties are located in 17 states and the District of Columbia and, as of December 31, 2019, were in total,
excluding the properties under development, 88.6% occupied.
Within our Core Portfolio and Funds, we had approximately 1,100 retail leases as of December 31, 2019. A significant portion 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. An insignificant portion of our leases also provide for the payment of rent based on a percentage of a tenant's gross sales in
21
excess of a stipulated annual amount, either in addition to, or in place of, minimum rents. Minimum rents and expense reimbursements
accounted for substantially all of our total revenues for the year ended December 31, 2019.
Six of our Core Portfolio properties and three of our 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 of these locations.
No individual property contributed in excess of 10% of our total revenues for the years ended December 31, 2019, 2018 or 2017. See Note 7 in
the Notes to Consolidated Financial Statements, for information on the mortgage debt pertaining to our properties.
22
The following table sets forth more specific information with respect to each of our Core properties at December 31, 2019:
Key Tenants
Year
Acquired
Acadia's
Interest
Gross
Leasable
Area
(GLA)
In Place
Occupancy
Leased
Occupancy
Annualized
Base
Rent (ABR)
ABR/ Per
Square
Foot
Property (a)
STREET AND URBAN
RETAIL
Chicago Metro
664 N. Michigan Avenue
840 N. Michigan Avenue
Rush and Walton Streets
Collection (6 properties)
651-671 West Diversey
Clark Street and W. Diversey
Collection (3 properties)
Halsted and Armitage
Collection (12 properties)
Ann Taylor Loft
Tommy Bahama,
H & M, Verizon
Wireless
Lululemon, BHLDN,
Reformation,
Sprinkles
Urban Outfitters
Trader Joe's,
Ann Taylor,
Starbucks
Serena and Lily,
Bonobos, Allbirds
Warby Parker,
Marine Layer,
Kiehl's
North Lincoln Park Chicago
Collection (6 properties)
State and Washington
151 N. State Street
North and Kingsbury
Concord and Milwaukee
California and Armitage
Roosevelt Galleria
Sullivan Center
Carhartt
Champion,
Nordstrom Rack,
Uniqlo
Walgreens
Old Navy,
Pier 1 Imports
—
—
Petco, Vitamin
Shoppe
Target, DSW
New York Metro
Soho Collection
(10 properties)
5-7 East 17th Street
200 West 54th Street
61 Main Street
181 Main Street
4401 White Plains Road
Bartow Avenue
239 Greenwich Avenue
252-256 Greenwich Avenue
2914 Third Avenue
868 Broadway
313-315 Bowery (b)
120 West Broadway
Paper Source,
Faherty, ALC
Stone Island, Taft,
Frame, Theory
Union Park Events
Stage Coach Tavern
—
TD Bank
Walgreens
—
Betteridge Jewelers
Madewell,
Jack Wills,
Blue Mercury
Planet Fitness
Dr. Martens
John Varvatos,
Patagonia
HSBC Bank
2013
2014
2011
2012
2011
2011
2012
2011
2012
2019
2011
2014
2016
2016
2016
2016
2016
2015
2016
2011
2014
2019
2008
2007
2014
2012
2011
2005
1998
2014
2006
2013
2013
2013
100.0%
18,141
100.0%
100.0% $
4,845,848 $
267.12
88.4%
87,135
100.0%
100.0%
8,313,164
95.41
100.0%
40,210
81.4%
81.4%
5,209,839
159.23
100.0%
46,259
100.0%
100.0%
2,037,056
100.0%
23,531
50.1%
50.1%
697,459
100.0%
51,104
100.0%
100.0%
2,373,945
100.0%
49,921
46.8%
46.8%
822,286
100.0%
78,771
100.0%
100.0%
3,309,875
100.0%
27,385
100.0%
100.0%
1,430,000
100.0%
41,700
100.0%
100.0%
1,759,227
100.0%
13,105
100.0%
100.0%
425,203
100.0%
18,275
70.6%
70.6%
621,266
100.0%
37,995
47.7%
47.7%
604,179
100.0%
176,181
98.6%
98.6%
6,854,811
44.04
59.10
46.45
35.18
42.02
52.22
42.19
32.45
48.19
33.33
39.45
709,713
89.7%
90.8% $ 39,304,158
$
61.77
100.0%
33,553
78.6%
89.9%
8,992,661
341.03
100.0%
11,467
100.0%
100.0%
1,300,014
113.37
100.0%
5,777
77.8%
77.8%
1,921,520
427.29
100.0%
3,470
—%
100.0%
—
100.0%
11,350
100.0%
100.0%
968,387
100.0%
12,964
100.0%
100.0%
625,000
100.0%
14,590
66.6%
66.6%
324,007
75.0%
16,553
100.0%
100.0%
1,641,124
—
85.32
48.21
33.33
99.14
100.0%
7,986
100.0%
100.0%
1,350,370
169.09
100.0%
40,320
100.0%
100.0%
985,972
24.45
100.0%
2,031
100.0%
100.0%
790,705
389.32
100.0%
6,600
100.0%
100.0%
479,160
72.60
100.0%
13,838
79.8%
100.0%
1,971,384
178.59
23
Key Tenants
Year
Acquired
Acadia's
Interest
Gross
Leasable
Area
(GLA)
In Place
Occupancy
Leased
Occupancy
Annualized
Base
Rent (ABR)
ABR/ Per
Square
Foot
Property (a)
2520 Flatbush Avenue
991 Madison Avenue
Shops at Grand
Gotham Plaza
San Francisco Metro
555 9th Street
Los Angeles Metro
Melrose Place Collection
Capital One
Bob's Disc. Furniture,
Vera Wang,
Gabriella Hearst
Stop & Shop (Ahold)
Bank of America,
Footlocker
Bed, Bath &
Beyond,
Nordstrom Rack
The Row, Chloe,
Oscar de la Renta
District of Columbia Metro
1739-53 & 1801-03
Connecticut Avenue
Rhode Island Place
Shopping Center
M Street and Wisconsin
Corridor
(26 Properties) (c)
house, TD Bank
Ruth Chris Steak-
Ross Dress for Less
Lululemon,
Sephora, The
Reformation
Boston Metro
330-340 River Street
165 Newbury Street
Whole Foods
Starbucks
Total Street and Urban Retail
Acadia Share Total Street and
Urban Retail
SUBURBAN PROPERTIES
New Jersey
Marketplace of Absecon
60 Orange Street
Rite Aid, Dollar Tree
Home Depot
New York
Village Commons
Shopping Center
Branch Plaza
Amboy Center
LA Fitness
—
LA Fitness,
The Fresh Market
Stop & Shop (Ahold)
LA Fitness
2014
2016
2014
2016
2016
2019
2012
2012
2011
2016
2019
2012
2016
1998
2012
1998
1998
2005
2007
100.0%
29,114
100.0%
100.0%
1,163,976
39.98
100.0%
7,513
100.0%
100.0%
3,046,736
405.53
100.0%
99,685
100.0%
100.0%
3,332,491
49.0%
25,927
58.6%
58.6%
1,067,395
342,738
91.1%
94.1% 29,960,902
100.0%
148,832
100.0%
100.0%
6,219,355
148,832
100.0%
100.0%
6,219,355
33.43
70.25
95.90
41.79
41.79
100.0%
14,000
100.0%
100.0%
2,365,606
168.97
14,000
100.0%
100.0%
2,365,606
168.97
100.0%
20,669
100.0%
100.0%
1,359,986
100.0%
57,667
89.1%
93.4%
1,605,057
24.9%
244,709
90.8%
94.2% 16,463,715
323,045
91.1%
94.4% 19,428,758
65.80
31.24
74.08
66.01
100.0%
54,226
100.0%
100.0%
1,243,517
22.93
100.0%
1,050
100.0%
100.0%
277,719
264.49
55,276
100.0%
100.0%
1,521,236
27.52
1,593,604
91.7%
93.5% $ 98,800,015
$
67.62
1,382,320
92.1%
93.7% $ 84,810,177
$
66.64
100.0%
104,556
84.1%
84.1% $
1,372,830
$
15.61
98.0%
101,715
100.0%
100.0%
730,000
7.18
100.0%
87,128
98.1%
98.1%
2,795,940
100.0%
123,345
94.2%
94.2%
3,176,630
100.0%
63,290
80.9%
89.9%
1,683,453
100.0%
55,000
100.0%
100.0%
1,485,287
32.72
27.34
32.89
27.01
24
Property (a)
Key Tenants
Year
Acquired
Acadia's
Interest
Gross
Leasable
Area
(GLA)
In Place
Occupancy
Leased
Occupancy
Annualized
Base
Rent (ABR)
ABR/ Per
Square
Foot
Crossroads Shopping Center
New Loudon Center
28 Jericho Turnpike
Bedford Green
Connecticut
Town Line Plaza (d)
Massachusetts
Methuen Shopping Center
Crescent Plaza
201 Needham Street
163 Highland Avenue
Vermont
Smart, Kmart
HomeGoods,Pet-
Price Chopper,
Marshalls
Kohl's
Shop Rite, CVS
Wal-Mart, Stop
& Shop (Ahold)
Market Basket
Wal-Mart,
Home Depot, Shaw's
(Supervalu)
Michael's
Staples, Petco
The Gateway Shopping Center Shaw's (Supervalu)
Illinois
Hobson West Plaza
Indiana
Merrillville Plaza
Michigan
Bloomfield Town Square
Garden Fresh
Markets
Jo-Ann Fabrics,
TJ Maxx
Best Buy,
HomeGoods,
TJ Maxx
Delaware
Town Center and Other
(2 properties)
Lowes, Bed Bath &
Beyond, Target
Market Square Shopping Center Trader Joe's,
TJ Maxx
—
Naamans Road
Pennsylvania
Mark Plaza
Plaza 422
Chestnut Hill
Abington Towne Center (e)
Kmart
Home Depot
—
Target, TJ Maxx
1998
1993
2012
2014
1998
1998
1993
2014
2015
1999
1998
1998
1998
2003
2003
2006
1993
1993
2006
1998
49.0%
311,904
91.8%
91.8%
7,089,909
100.0%
255,673
100.0%
100.0%
2,188,447
100.0%
96,363
100.0%
100.0%
1,815,000
100.0%
90,589
83.0%
83.0%
2,476,876
24.77
8.56
18.84
32.95
100.0%
206,346
98.7%
98.7%
1,827,704
16.99
100.0%
130,021
100.0%
100.0%
1,360,858
100.0%
218,148
90.9%
90.9%
1,905,550
100.0%
20,409
100.0%
100.0%
646,965
100.0%
40,505
100.0%
100.0%
1,311,747
10.47
9.60
31.70
32.38
100.0%
101,474
98.4%
100.0%
2,147,052
21.50
100.0%
98,950
83.3%
96.4%
830,409
10.07
100.0%
236,087
90.0%
90.5%
3,168,339
14.91
100.0%
235,022
96.4%
96.4%
3,745,862
16.53
65.1%
800,018
91.3%
91.3% 12,642,074
100.0%
102,047
97.4%
97.4%
3,022,011
100.0%
19,850
30.1%
30.1%
433,785
100.0%
106,856
100.0%
100.0%
244,279
100.0%
156,279
100.0%
100.0%
894,880
100.0%
37,646
100.0%
100.0%
988,897
100.0%
216,871
100.0%
100.0%
1,225,915
25
17.32
30.41
72.60
2.29
5.73
26.27
20.69
Property (a)
Key Tenants
Year
Acquired
Acadia's
Interest
Gross
Leasable
Area
(GLA)
In Place
Occupancy
Leased
Occupancy
Annualized
Base
Rent (ABR)
ABR/ Per
Square
Foot
Total Suburban Properties
Acadia Share Total Suburban
Properties
Total Core Properties
Acadia Share Total Core
Properties
4,016,092
94.1%
94.6% $ 61,210,699
$
17.30
3,606,052
94.7%
95.3% $ 53,931,537
$
17.00
5,609,696
93.4%
94.3% $ 160,010,714
$
31.99
4,988,372
94.0%
94.8% $ 138,741,714
$
31.20
(a) Excludes properties under development, redevelopment or pre-stabilized, see “Development and Redevelopment Activities” section below. The above occupancy and rent
amounts do not include space which is currently leased, other than “leased occupancy,” but for which rent payment has not yet commenced. Residential and office GLA are
excluded.
(b) Represents the annual base rent paid to Acadia pursuant to a master lessee and does not reflect the rent paid by the retail tenants at the property.
(c) Excludes 94,000 square feet of office GLA.
(d) Anchor GLA includes a 97,300 square foot Wal-Mart store which is not owned by the Company. This square footage has been excluded for calculating annualized base rent
per square foot.
(e) Anchor GLA includes a 157,616 square foot Target store which is not owned by the Company. This square footage has been excluded for calculating annualized base rent per
square foot.
26
The following table sets forth more specific information with respect to each of our Fund properties at December 31, 2019:
Property (a)
Fund II Portfolio Detail
New York
City Point - Phase I and II
Total - Fund II
Fund III Portfolio Detail
New York
654 Broadway
640 Broadway
Cortlandt Crossing
Total - Fund III
Fund IV Portfolio Detail
New York
801 Madison Avenue
210 Bowery
27 East 61st Street
17 East 71st Street
1035 Third Avenue (b)
Colonie Plaza
New Jersey
Paramus Plaza
Massachusetts
Restaurants at Fort Point
Maine
Airport Mall
Wells Plaza
Shaw's Plaza (Waterville)
Shaw's Plaza (Windham)
Pennsylvania
Dauphin Plaza
Mayfair Shopping Center
Rhode Island
650 Bald Hill Road
Virginia
Promenade at Manassas
Delaware
Eden Square
Illinois
Lincoln Place
Georgia
Broughton Street Portfolio
(13 properties)
North Carolina
Wake Forest Crossing
California
Union and Fillmore
Collection (3 properties)
Total - Fund IV
Fund V Portfolio Detail
New Mexico
Plaza Santa Fe
Michigan
New Towne Plaza
Fairlane Green
Maryland
Key Tenants
Year
Acquired
Acadia's
Interest
Gross
Leasable
Area
(GLA)
In Place
Occupancy
Leased
Occupancy
Annualized
Base
Rent (ABR)
ABR/Per
Square
Foot
Century 21, Target, Alamo
Drafthouse
2007
26.7%
469,518
469,518
65.2%
65.2%
86.2% $
86.2% $
8,856,930
8,856,930
$
$
28.91
28.91
─
Swatch
ShopRite, HomeSense
─
─
─
The Row
─
Price Chopper, Big Lots
Ashley Furniture, Marshalls
─
Hannaford, Marshalls
Reny's, Dollar Tree
Shaw's
Shaw's
Price Rite, Ashley Furniture
Planet Fitness, Dollar Tree
Dick's Sporting Goods,
Burlington Coat Factory
Home Depot
Giant Food, LA Fitness
Kohl's, Marshall's, Ross
H&M, Lululemon,
Michael Kors, Starbucks
Lowe's, TJ Maxx
Eileen Fisher, L'Occitane,
Bonobos
TJ Maxx, Best Buy,
Ross Dress for Less
Kohl's, Jo-Ann's, DSW
TJ Maxx, Michaels,
Bed Bath & Beyond
24.5%
15.5%
24.5%
2,896
4,637
127,849
135,382
100.0%
73.1%
76.5%
76.9%
100.0% $
73.1%
81.1%
81.3% $
455,000
942,161
2,632,143
4,029,304
$ 157.11
277.91
26.92
38.72
$
23.1%
23.1%
23.1%
23.1%
23.1%
23.1%
2,522
2,538
4,177
8,432
7,617
153,483
—%
—%
—%
100.0%
58.7%
94.9%
$
—% $
—%
—%
100.0%
58.7%
95.8%
—
—
—
2,113,110
1,029,564
1,662,817
—
—
—
250.61
230.38
11.41
11.6%
153,060
72.9%
100.0%
2,103,780
18.86
23.1%
15,711
100.0%
100.0%
990,230
63.03
23.1%
23.1%
23.1%
23.1%
221,830
90,434
119,015
124,330
68.6%
98.3%
100.0%
88.4%
87.2%
98.3%
100.0%
88.4%
1,027,139
737,326
1,400,053
1,035,744
23.1%
23.1%
206,206
115,411
91.1%
86.8%
91.1%
97.4%
1,732,892
1,690,741
6.75
8.29
11.76
9.42
9.23
16.88
20.8%
160,448
85.3%
85.3%
1,978,902
14.45
22.8%
280,760
83.2%
98.6%
3,122,520
13.36
22.8%
231,074
85.9%
85.9%
3,045,812
15.34
23.1%
272,060
99.6%
99.6%
3,315,314
12.23
19.1%
100,676
83.7%
83.7%
3,152,794
37.40
23.1%
202,880
98.7%
99.3%
2,951,295
14.74
20.8%
7,148
2,479,812
100.0%
87.7%
100.0%
716,262
93.6% $ 33,806,295
$
100.20
15.54
20.1%
224,223
99.4%
99.4% $
3,952,239
$
17.73
20.1%
193,446
94.0%
98.3%
2,125,496
11.69
20.1%
252,904
95.7%
95.7%
5,021,289
20.74
2011
2012
2012
2015
2012
2014
2014
2015
2016
2013
2016
2016
2016
2016
2017
2016
2016
2015
2013
2014
2017
2014
2016
2015
2017
2017
2017
27
Key Tenants
Kmart, Kohl's, Best Buy,
Ross Dress for Less
TJ Maxx, HomeGoods
Best Buy, Bed Bath & Beyond,
Ross Dress for Less
TJ Maxx, PetSmart,
Ross Dress for Less
Kohl's, Best Buy, Dick's
Stop and Shop, Marshalls,
HomeGoods
Wal-Mart, Regal Cinemas
Kohl's, HomeGoods
Kohl's, HomeGoods
Target, Gordman's,
Sportman's Warehouse
Property (a)
Frederick County Acquisitions
Connecticut
Tri-City Plaza
Virginia
Landstown Commons
Florida
Palm Coast Landing
North Carolina
Hickory Ridge
Rhode Island
Lincoln Commons
Alabama
Trussville Promenade
Georgia
Hiram Pavilion
California
Elk Grove Commons
Utah
Family Center at Riverdale
Total - Fund V
TOTAL FUND PROPERTIES
Acadia Share of Total Fund
Properties
Year
Acquired
Acadia's
Interest
Gross
Leasable
Area
(GLA)
In Place
Occupancy
Leased
Occupancy
Annualized
Base
Rent (ABR)
ABR/Per
Square
Foot
2019
2019
2019
2019
2017
2019
2018
2018
2018
2019
18.1%
524,156
91.1%
97.9%
6,206,501
13.00
18.1%
300,067
56.7%
90.5%
2,726,231
16.04
20.1%
404,808
96.3%
97.3%
7,917,849
20.31
20.1%
171,324
94.0%
94.0%
3,233,194
20.08
20.1%
380,565
98.3%
98.3%
4,295,679
11.49
20.1%
455,441
84.8%
84.8%
5,104,039
13.21
20.1%
463,725
95.9%
95.9%
4,471,270
10.06
20.1%
362,675
98.6%
98.6%
4,228,143
11.82
20.1%
220,726
96.0%
96.0%
4,677,104
22.08
18.0%
427,828
96.7%
96.7%
4,027,458
9.74
4,381,888
92.0%
95.5% $ 57,986,492
$
14.38
7,466,600
88.6%
94.0% $104,679,021
$
15.82
1,559,270
88.3%
93.7% $ 22,040,271
$
16.00
(a) Excludes properties under development, see “Development and Redevelopment Activities” section below. The above occupancy and rent amounts do not include space
which is currently leased, other than “leased occupancy,” but for which rent payment has not yet commenced. Residential and office GLA are excluded.
(b) Property also includes 12,371 square feet of 2nd floor office space and a 29,760 square foot parking garage (131 spaces).
28
Major Tenants
No individual retail tenant accounted for more than 5.1% of base rents for the year ended December 31, 2019, or occupied more than 6.9% of
total leased GLA as of December 31, 2019. The following table sets forth certain information for the 20 largest retail tenants by base rent for
leases in place as of December 31, 2019. 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 Funds (GLA and Annualized Base Rent in thousands):
Retail Tenant
Number of
Stores in
Portfolio (a)
Target
H & M
Walgreens (b)
TJX Companies (c)
Royal Ahold (d)
Nordstrom, Inc.
Bed, Bath, and Beyond (e)
Ascena Retail Group (f)
LA Fitness International LLC
Trader Joe's
Kohls
Verizon
Lululemon
Gap (h)
Albertsons Companies (g)
Home Depot
Ulta Salon Cosmetic & Fragrance
Bob's Discount Furniture
Tapestry (i)
DSW
Total
5
2
7
26
5
2
6
12
3
5
7
8
3
8
4
4
10
2
2
3
124
Annualized
Base
Rent (a)
Percentage of Total
Represented by Retail Tenant
Annualized
Base
Rent
Total
Portfolio
GLA
8,248
5,039
4,204
3,784
3,711
3,515
3,371
2,735
2,680
2,642
2,600
2,566
2,431
2,327
2,266
2,193
1,801
1,629
1,552
1,464
60,758
6.9%
0.9%
1.5%
5.0%
2.8%
1.4%
2.1%
0.4%
1.6%
0.7%
3.1%
0.4%
0.1%
0.9%
2.4%
5.1%
0.7%
0.9%
0.1%
0.6%
37.8%
5.1%
3.1%
2.6%
2.4%
2.3%
2.2%
2.1%
1.7%
1.7%
1.6%
1.6%
1.6%
1.5%
1.4%
1.4%
1.4%
1.1%
1.0%
1.0%
0.9%
37.8%
Total GLA
454
56
98
330
182
89
137
28
108
49
203
29
8
61
154
337
48
58
4
40
2,473
$
$
(a) Does not include tenants that operate at only one Acadia location
(b) Walgreens (5 locations), Rite Aid (2 locations)
(c) TJ Maxx (11 locations), Marshalls (8 locations), HomeGoods (6 locations), HomeSense (1 location)
(d) Stop and Shop (4 locations), Giant (1 location)
(e) Bed Bath and Beyond (4 locations), Christmas Tree Shops (1 location), Cost Plus (1 location)
(f) Catherine’s (3 locations), Lane Bryant (4 locations), Ann Taylor Loft (1 location), Ann Taylor (1 location), Justice (2 locations), Maurices (1 location)
(g) Shaw’s (4 locations)
(h) Old Navy (6 locations), Banana Republic (1 location), Gap (1 location)
(i) Kate Spade (2 locations)
29
Lease Expirations
The following tables show scheduled lease expirations on a pro rata basis for retail tenants in place as of December 31, 2019, assuming that
none of the tenants exercise renewal options (GLA and Annualized Base Rent in thousands):
Core Portfolio
Leases Maturing in
Month to Month
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
Thereafter
Total
Funds
Leases Maturing in
Month to Month
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
Thereafter
Total
Number of
Leases
Annualized Base Rent (a, b)
Current
Annual
Rent
Percentage
of Total
GLA
Square
Feet
Percentage
of Total
6
33
74
53
61
56
51
33
23
41
23
27
481
Number of
Leases
16
68
94
84
79
71
54
43
19
28
32
33
621
$
$
$
$
470
5,546
16,470
13,288
21,621
15,043
16,112
7,134
5,673
18,502
6,667
12,216
138,742
0.3%
4.0%
11.9%
9.6%
15.6%
10.8%
11.6%
5.1%
4.1%
13.3%
4.8%
8.9%
100.0%
13,994
92,281
758,396
345,694
666,307
656,819
486,153
161,679
127,084
674,430
157,652
291,551
4,432,040
0.3%
2.1%
17.1%
7.8%
15.0%
14.8%
11.0%
3.6%
2.9%
15.2%
3.6%
6.6%
100.0%
Annualized Base Rent (a, b)
Current
Annual
Rent
Percentage
of Total
GLA
Square
Feet
Percentage
of Total
164
1,522
2,325
2,321
2,133
2,182
2,503
1,238
546
1,248
1,894
3,965
22,041
0.7%
6.9%
10.5%
10.5%
9.7%
9.9%
11.4%
5.6%
2.5%
5.7%
8.6%
18.0%
100.0%
13
88
147
152
155
144
185
61
51
57
116
208
1,377
0.9%
6.4%
10.7%
11.1%
11.2%
10.5%
13.4%
4.4%
3.7%
4.1%
8.4%
15.2%
100.0%
(a) Base rents do not include percentage rents, additional rents for property expense reimbursements, nor contractual rent escalations.
(b) No single market, except as discussed below under Geographic Concentrations, 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.
30
Geographic Concentrations
The following table summarizes our operating retail properties by region, excluding redevelopment and pre-stabilization properties, as of
December 31, 2019. 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 Funds (GLA and Annualized Base Rent in thousands):
Region
Core Portfolio:
New York Metro
Mid-Atlantic
New England
Chicago Metro
Midwest
San Francisco Metro
Washington D.C. Metro
Los Angeles Metro
Total Core Operating Properties
Fund Portfolio:
Southeast
Northeast
New York Metro
West
Mid-Atlantic
Midwest
Chicago Metro
Southwest
San Francisco Metro
Total Fund Operating Properties
GLA (a,c)
% Occupied
(b)
Annualized
Base
Rent (b, c)
Percentage of Total
Represented by
Region
GLA
Annualized
Base Rent
Annualized
Base
Rent per
Occupied
Square Foot
(c)
1,454
1,191
772
700
570
149
139
14
4,989
425
480
217
121
117
90
63
45
1
1,559
93.8% $
95.5%
96.9%
89.5%
91.5%
100.0%
91.8%
100.0%
94.0% $
96.3% $
83.7%
72.1%
96.4%
84.4%
95.0%
99.6%
99.4%
100.0%
88.3% $
50,190 $
15,803
10,721
38,340
7,745
6,219
7,358
2,366
138,742 $
6,158 $
5,044
4,621
1,665
1,406
1,437
766
794
149
22,040 $
36.81
16.02
16.40
61.23
14.85
41.79
57.55
168.97
31.20
15.06
12.55
29.52
14.23
14.27
16.86
12.23
17.73
100.20
16.00
29.1%
23.9%
15.5%
14.0%
11.4%
3.0%
2.8%
0.3%
100.0%
27.3%
30.7%
13.9%
7.8%
7.5%
5.8%
4.0%
2.9%
0.1%
100.0%
36.2%
11.4%
7.7%
27.6%
5.6%
4.5%
5.3%
1.7%
100.0%
27.9%
22.9%
21.0%
7.6%
6.4%
6.5%
3.5%
3.6%
0.6%
100.0%
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.
(a)
(b) 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, 2019.
(c) The amounts presented reflect the Operating Partnership's pro-rata shares of properties included within each region.
31
Development and Redevelopment Activities
As part of our strategy, we invest in retail real estate assets that may require significant development. As of December 31, 2019, we had six
development or redevelopment projects in various stages of the development process.
Ownership
(a)
Location
Estimated
Stabilization
Square Feet
Upon
Completion
Leased
Rate
Key
Tenants
Outstanding
Debt
Incurred
(b)
Estimated Future
Range
Estimated Total
Range
100.0 % Washington DC
2022
29,000
— %
TBD
$
— $
1.3 $31.3
to $32.7 $ 32.6
to $ 34.0
94.2 % Brooklyn, NY
2021
63,000
— %
TBD
100.0 % Farmingdale, NY
2021
180,000 - 200,000
— %
TBD
110 University Place
100.0 % New York, NY
2022
46,000
— %
100.0 % San Francisco, CA
2022
13,000
— %
TBD
TBD
24.2
—
—
22.9
10.0 52.0
to 55.0 62.0
to 65.0
17.9 32.1
to 42.1 50.0
to 60.0
14.2 6.4
to 10.8 20.6
to 25.0
42.6 17.4
to 22.4 60.0
to 65.0
100.0 % Chicago, IL
2020
62,000
30.0 %
Disney Store
56.7 110.0 10.0
to 17.5 120.0
to 127.5
Property
Development:
CORE
1238 Wisconsin
FUND II
City Point Phase III
FUND III
Broad Hollow
Commons
FUND IV
146 Geary
717 N. Michigan
Avenue
Major
Redevelopment:
CORE
City Center
100.0 % San Francisco, CA
2021
241,000
90.0 %
Target
Elmwood Park
100.0 % Elmwood Park, NJ
2021
144,000
100.0 %
Walgreens
Route 6 Mall
100.0 % Honesdale, PA
Mad River
100.0 % Dayton, OH
TBD
TBD
TBD
100.0 %
TBD
50.0 %
TBD
TBD
Pre-Stabilized:
CORE
613-623 West
Diversey
FUND II
City Point, Phase I and
II
FUND III
Cortlandt Crossing
640 Broadway
FUND IV
Paramus Plaza
210 Bowery
801 Madison
27 E 61st Street
1035 Third Avenue
100.0 % Chicago, IL
2020
29,778
76.1 %
TJ Maxx, Blue
Mercury
94.2 % New York, NY
100.0 % Mohegan Lake, NY
63.1 % New York, NY
50.0 % Paramus, NJ
100.0 % New York, NY
100.0 % New York, NY
100.0 % New York, NY
100.0 % New York, NY
2020
2020
2020
2020
2020
2020
2020
2020
475,000
86.2 %
Century 21, Target,
Alamo Drafthouse
125,906
4,637
81.1 % ShopRite, HomeSense
73.1 %
Swatch
150,660
2,538
2,625
4,177
7,617
100.0 %
— %
— %
— %
58.7 %
Ashley Furniture,
Marshalls
─
─
─
─
$
(a) Ownership percentage represents the Core or Fund level ownership and not Acadia’s pro rata share.
(b)
Incurred amounts include costs associated with the initial carrying value.
ITEM 3. LEGAL PROCEEDINGS.
— 190.2 4.8
to 10.8 195.0
to 201.0
— TBD
to TBD TBD
to TBD
— TBD
to TBD TBD
to TBD
— TBD
to TBD TBD
to TBD
—
—
—
—
259.1
35.1
39.5
18.9
—
—
—
—
352.6
As previously disclosed in our periodic findings, Acadia Brandywine Holdings, LLC (“Brandywine Holdings”), a consolidated entity in which
we have a 22.22% interest, is a party to litigation in connection with a mortgage loan collateralized by a Core Portfolio property held by it (the
“Brandywine Loan”), which has been in default since July 1, 2016. The Brandywine Loan was originated in June 2006 and had an original
principal amount of $26.3 million and a scheduled maturity of July 1, 2016. The Brandywine Loan bears interest at a stated rate of
approximately 6% and is subject to additional default interest of 5%. In April 2017, the successor to the original lender, Wilmington – 5190
Brandywine Parkway, LLC (the “Successor Lender”), initiated lawsuits against Brandywine Holdings in Delaware Superior Court and
Delaware Chancery Court for, among other things, judgment on the note (the “Note Complaint”) and foreclosure on the property. In a
contemporaneously filed action in Delaware Superior Court (the “Guaranty Complaint”), the Successor Lender initiated a lawsuit against the
32
Operating Partnership as guarantor of certain guaranteed obligations of Brandywine Holdings set forth in a non-recourse carve-out guaranty
executed by the Operating Partnership. The Guaranty Complaint alleges that the Operating Partnership is liable for the full balance of the
principal, accrued interest, default interest, as well as fees and costs, under the Brandywine Loan, which the Successor Lender alleges totaled
approximately $33.0 million as of November 9, 2017 (exclusive of accruing interest, default interest, and fees and costs). In August 2019, the
Delaware Superior Court heard arguments on the parties’ cross-motions for summary judgement regarding both the Guaranty Complaint and
the Note Complaint. On February 7, 2020, the Delaware Superior Court granted in part the Successor Lender’s motion and denied Brandywine
Holdings’ and the Operating Partnership’s cross-motion, for summary judgment, finding that each of Brandywine Holdings and the Operating
Partnership have recourse liability for the outstanding balance of the Brandywine Loan. The Delaware Superior Court’s decision will be
appealable when a judgement is formally entered. Brandywine Holdings and the Operating Partnership intend to appeal the ruling as soon as it
becomes appealable and to vigorously contest it.
In addition, from time to time, we are a party to various legal proceedings, claims or regulatory inquiries and investigations arising out of, or
incident to, our ordinary course of business. While we are unable to predict with certainty the outcome of any particular matter, management
does not expect, when such matters are resolved, that our resulting exposure to loss contingencies, if any, will have a material adverse effect on
our consolidated financial position.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
33
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES AND PERFORMANCE GRAPH.
Market Information, Dividends and Holders of Record of our Common Shares
At February 12, 2020, there were 255 holders of record of our Common Shares, which are traded on the New York Stock Exchange under the
symbol “AKR.” Our quarterly dividends declared are discussed in Note 10 and the characterization of such dividends for Federal Income Tax
purposes is discussed in Note 14.
Securities Authorized for Issuance Under Equity Compensation Plans
At the 2016 annual shareholders’ meeting, the shareholders' approved the Second Amended and Restated 2006 Incentive Plan (the “Second
Amended 2006 Plan”). This plan replaced all previous share incentive plans and increased the authorization to issue options, Restricted Shares
and LTIP Units (collectively “Awards”) available to officers and employees by 1.6 million shares, for a total of 3.7 million shares available to
be issued. See Note 13 in the Notes to Consolidated Financial Statements, for a summary of our Share Incentive Plans.
The following table provides information related to the Second Amended 2006 Plan as of December 31, 2019:
Equity Compensation Plan Information
(b)
(a)
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
— $
—
— $
—
—
—
708,632
—
708,632
Remaining Common Shares available under the Amended 2006 Plan are as follows:
Outstanding Common Shares as of December 31, 2019
Outstanding OP Units as of December 31, 2019
Total Outstanding Common Shares and OP Units
Common Shares and OP Units pursuant to the Second 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
87,050,465
5,013,507
92,063,972
8,893,681
8,893,681
(5,413,276)
(2,771,773)
708,632
34
Share Price Performance
The following graph compares the cumulative total shareholder return for our Common Shares for the period commencing December 31, 2014,
through December 31, 2019, 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, 2014, and assuming reinvestment of dividends. The
shareholder return as set forth in the table below is not necessarily indicative of future performance. 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.
Index
Acadia Realty Trust
Russell 2000
NAREIT All Equity REIT Index
SNL REIT Retail Shopping Ctr Index
2014
2015
At December 31,
2017
2016
2018
2019
$
100.00 $
100.00
100.00
100.00
107.51 $
95.59
102.83
105.35
109.70 $
115.95
111.70
109.02
95.30 $
132.94
121.39
96.94
86.34 $
118.30
116.48
81.36
98.24
148.49
149.86
103.18
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
None.
Issuer Purchases of Equity Securities
During 2018, the Company revised its share repurchase program. The new share repurchase program authorizes management, at its discretion,
to repurchase up to $200.0 million of its outstanding Common Shares. The program may be discontinued or extended at any time. The
Company repurchased 2,294,235 shares for $55.1 million, inclusive of $0.1 million of fees, during the year ended December 31, 2018. The
Company did not repurchase any shares during the years ended December 31, 2019 or 2017. As of December 31, 2019, management may
repurchase up to approximately $145.0 million of the Company’s outstanding Common Shares under this program.
35
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 Report.
(dollars in thousands, except per share amounts)
OPERATING DATA:
Revenues (a)
Operating expenses, excluding depreciation and impairment charges
Depreciation and amortization
Impairment charges
Gain on disposition of properties
Equity in earnings of unconsolidated affiliates inclusive
of gains on disposition of properties
Interest income
Other income
Interest expense
Income (loss) from continuing operations before income taxes
Income tax (provision) benefit
Net income (loss)
Loss (income) attributable to noncontrolling interests
Net income attributable to Acadia
Basic and diluted earnings per share
Weighted-average number of Common Shares outstanding, basic
Weighted-average number of Common Shares outstanding, diluted
Cash dividends declared per Common Share
BALANCE SHEET DATA:
Real estate before accumulated depreciation
Total assets
Total indebtedness, net
Total common shareholders’ equity
Noncontrolling interests
Total equity
OTHER:
Funds from operations attributable to Common Shareholders
and Common OP Unit holders (b)
Cash flows provided by (used in): (c)
Operating activities
Investing activities
Financing activities
$
$
$
$
$
2019
Year Ended December 31,
2017
2018
2016
2015
295,327 $
(125,884)
(125,443)
(1,721)
30,324
8,922
7,988
6,947
(73,788)
22,672
(1,468)
21,204
31,841
53,045 $
259,681 $
(114,591)
(117,549)
—
5,140
9,302
13,231
—
(69,978)
(14,764)
(934)
(15,698)
47,137
31,439 $
248,552 $
(111,844)
(104,934)
(14,455)
48,886
23,371
29,143
5,571
(58,978)
65,312
(1,004)
64,308
(2,838)
61,470 $
189,804 $
(97,904)
(70,011)
—
81,965
39,449
25,829
—
(34,645)
134,487
105
134,592
(61,816)
72,776 $
0.62 $
0.38 $
0.73 $
0.94 $
84,436
84,436
82,080
82,080
83,683
83,685
76,231
76,244
1.13 $
1.09 $
1.05 $
1.16 $
196,783
(86,570)
(60,751)
(5,000)
89,063
37,330
16,603
1,596
(37,297)
151,757
(1,787)
149,970
(84,262)
65,708
0.94
68,851
68,870
1.22
4,099,542 $
4,309,114
1,708,196
1,542,308
644,657
2,186,965
3,697,805 $
3,958,780
1,550,545
1,459,505
622,442
2,081,947
3,466,482 $
3,960,247
1,424,409
1,567,199
648,440
2,215,639
3,382,000 $
3,995,960
1,488,718
1,588,577
589,548
2,178,125
2,736,283
3,032,319
1,358,606
1,100,488
420,866
1,521,354
126,862
118,870
134,667
117,070
111,560
127,177
(397,057)
265,042
96,076
(136,619)
(10,278)
114,655
4,063
(127,758)
109,848
(613,564)
488,365
113,598
(354,503)
96,101
(a) Amounts for credit losses have been reclassified from operating expenses to revenues for the years ended December 31, 2018, 2017, 2016 and 2015.
(b) Funds from operations is a non-GAAP measure. For an explanation of the measure and a reconciliation to the nearest GAAP measure, see “Item 7. Management’s
Discussion and Analysis — Supplemental Financial Measures.”
(c) Cash flow activities for the year ended December 31, 2015 have not been adjusted for the impact of ASUs 2016-15 and 2016-18 (Note 1).
36
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
As of December 31, 2019, there were 186 properties, which we own or have an ownership interest in, within our Core Portfolio and Funds. Our
Core Portfolio consists 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 our Funds. These properties primarily consist of street and urban retail,
and suburban shopping centers. See Item 2. Properties for a summary of our wholly-owned and partially-owned retail properties and their
physical occupancies at December 31, 2019.
The majority of our operating income is derived from rental revenues from operating properties, including expense recoveries from tenants,
offset by operating and overhead expenses.
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 development and re-tenanting 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 within our Funds. We target
transactions with high inherent opportunity for the creation of additional value through:
◦
value-add investments in street retail properties, located in established and “next generation” submarkets, with re-tenanting or
repositioning opportunities,
opportunistic acquisitions of well-located real-estate anchored by distressed retailers, and
other opportunistic acquisitions which may include high-yield acquisitions and purchases of distressed debt.
◦
◦
Some of these investments historically have also included, and may in the future 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.
37
SIGNIFICANT DEVELOPMENTS DURING THE YEAR ENDED DECEMBER 31, 2019
Investments
During the year ended December 31, 2019, within our Core portfolio we invested in twelve properties aggregating $185.9 million, inclusive of
transaction costs, as follows:
• On January 24, 2019, our unconsolidated Renaissance Portfolio venture acquired Fund III’s 3104 M Street property located in
Washington, D.C. for $10.7 million (Note 4) for which our share was $2.1 million as discussed further below.
• On March 15, March 27, May 29, July 30 and November 8, 2019, we acquired five retail condominiums located in the Soho section of
New York City for a total of $87.0 million referred to as the “Soho Acquisitions” with an aggregate purchase price of approximately
$122.0 million (Note 2).
• On May 2, 2019, we entered into a ground lease (Note 11) on a development property in Washington, D.C. referred to as “1238
Wisconsin Avenue.”
• On September 11, 2019, we acquired two buildings in Chicago, Illinois, referred to as “849 and 912 W. Armitage” for a total of $7.8
million (Note 2).
• On October 25, 2019, we acquired a retail building in Los Angeles, California, referred to as “8436-8452 Melrose Place” for $48.7
million (Note 2).
• On December 9, 2019, we acquired a master lease position on a building in the Soho section of New York City, referred to as “565
Broadway” for $28.8 million (Note 11).
• On December 11, 2019, we acquired a building in Chicago, Illinois, referred to as “907 W. Armitage” for $2.9 million (Note 2).
During the year ended December 31, 2019, within our Fund portfolio we invested in eight properties aggregating $328.5 million as follows:
• On March 19, 2019, Fund V’s unconsolidated venture (Note 4) acquired a suburban shopping center in Riverdale, Utah for $48.5
million, referred to as “Family Center at Riverdale,” of which Fund V’s share was $43.7 million.
• On April 30, 2019, Fund V’s unconsolidated venture (Note 4) acquired a suburban shopping center in Vernon, Connecticut for $36.7
million, referred to as “Tri-City Plaza,” of which Fund V’s share was $33.0 million
• On May 1, 2019, Fund IV acquired a leasehold interest (Note 11) in a retail and parking condominium in a building in New York,
New York for $10.5 million, referred to as “110 University Place.”
• On May 6, 2019, Fund V acquired a suburban shopping center (Note 2) in Palm Coast, Florida for $36.6 million, referred to as “Palm
Coast Landing.”
• On June 21, 2019, Fund V acquired a suburban shopping center (Note 2) in Lincoln, Rhode Island for $54.3 million, referred to as
“Lincoln Commons.”
• On August 2, Fund V acquired a suburban shopping center (Note 2) in Virginia Beach, Virginia for $87.0 million, referred to as
“Landstown Commons.”
• On August 21, Fund V’s unconsolidated venture (Note 4) acquired two suburban shopping centers in Frederick County, Maryland for
a total of $54.9 million, referred to as the “Frederick County Acquisitions,” for which Fund V’s share was $49.4 million.
Dispositions
On October 28, 2019, we sold our Pacesetter Park shopping center for $22.6 million (Note 2) and recognized a gain on the sale of this property
of $16.8 million.
During the year ended December 31, 2019, we made four consolidated property dispositions and sold three condominium units (Note 2) from
our Fund Portfolio for gross proceeds totaling $86.8 million as follows:
• On January 24, 2019, a venture in which Fund III holds an 80% interest sold its 3104 M Street property to an unconsolidated venture
(Note 4), in which the Core Portfolio holds a 20% interest, for $10.5 million. The acquiring venture assumed the property’s mortgage
in the amount of $4.7 million.
• On July 24, 2019, Fund IV sold its consolidated JFK Plaza property for $7.8 million (Note 2).
• On August 22, 2019, Fund III sold its consolidated Nostrand Avenue property for $27.7 million (Note 2).
• On May 17, September 23, and November 7, 2019, Fund IV sold three consolidated residential condominium units for a total of $8.8
million (Note 2).
38
• On September 27, 2019 Fund IV sold its consolidated 938 W. North Avenue property for $32.0 million (Note 2).
The Funds recognized a net aggregate gain on the sales of these consolidated properties of $13.6 million and our share was $2.9 million, net of
noncontrolling interests.
Financings
During the year ended December 31, 2019, we obtained aggregate new consolidated financings of $358.9 million (Note 7) and unconsolidated
financings of $122.5 million, including:
• An additional $100.0 million of borrowing capacity on our senior unsecured revolving credit facility was obtained by amending the
facility on October 8, 2019, bringing the total revolving credit capacity to $250.0 million.
• An aggregate of $258.9 million in new consolidated mortgage financing was obtained through one Fund II loan, three Fund IV loans
and five Fund V loans.
•
Fund V also obtained a total of $122.5 million in new mortgage financing for its three unconsolidated joint ventures (Note 4).
In addition, during the year ended December 31, 2019, the Funds repaid mortgage debt aggregating $71.1 million (Note 7) at five consolidated
Fund properties, four of which were sold, and Fund IV repaid a $9.4 million mortgage at one of its unconsolidated joint venture properties
(Note 4).
Structured Financing
During the year ended December 31, 2019, we entered into the following structured financing transactions (Note 3):
• We redeemed a $15.3 million Fund IV Structured Financing investment;
• We provided seller financing in the amount of $13.5 million in connection with the sale of our Pacesetter Park property (Note 2); and
• We funded an additional $4.3 million on an existing loan.
Equity Issuance
During the year ended December 31, 2019, the Company sold 5,164,055 shares under its ATM program (Note 10) for gross proceeds of $147.7
million, or $145.5 million net of issuance costs, at a weighted-average gross price per share of $28.61.
39
RESULTS OF OPERATIONS
See Note 12 in the Notes to Consolidated Financial Statements for an overview of our three reportable segments.
Comparison of Results for the Year Ended December 31, 2019 to the Year Ended December 31, 2018
The results of operations by reportable segment for the year ended December 31, 2019 compared to the year ended December 31, 2018 are
summarized in the table below (in millions, totals may not add due to rounding):
Year Ended
December 31, 2019
Year Ended
December 31, 2018
Increase (Decrease)
Revenues
Depreciation and amortization
Property operating expenses, other
operating and real estate taxes
General and administrative expenses
Impairment charge
Gain on disposition of properties
Operating income
Interest income
Equity in earnings (losses) of unconsolidated
affiliates
Interest expense
Other income
Income tax provision
Net income (loss)
Net loss attributable
to noncontrolling interests
Net income attributable to Acadia
Core Portfolio
Core Funds
$ 173.2
(61.8)
$ 122.2
(63.6)
SF Total
Core Funds
SF Total
Core Funds
$ — $ 295.3 $ 166.8 $ 92.9 $ — $ 259.7 $
(56.6) — (117.5)
— (125.4)
(60.9)
SF Total
6.4 $ 29.3 $ — $ 35.6
7.9
0.9
7.0 —
(47.0)
—
—
16.8
81.1
—
(43.4)
—
—
(1.7)
—
13.6 —
—
26.9
8.0
(44.1)
(90.5)
(36.2) —
(35.4) — — —
(1.7) — — —
5.1 —
30.3 —
5.2 —
72.6
61.9
13.2
8.0 — —
2.9
(80.2)
7.2 —
(34.3) — — —
1.7 —
8.5 —
21.7 —
(5.2)
— —
16.8
5.1
32.7
19.2
13.2 — —
— —
9.0
(28.3)
0.3
(0.1)
—
(45.5) —
6.6 —
— — —
8.0
(12.0)
62.1
8.9
(73.8)
7.4
(27.6)
1.9 —
(42.4) —
6.9 — — —
(1.5) — — —
13.2
21.2
(35.3)
41.7
1.6
0.7
0.3
9.3
(70.0)
—
(2.0) —
3.1 —
6.6 —
(0.9) — — —
(5.2)
(15.7)
23.3
20.4
10.3
1.1
1.7
25.2
39.9
(5.2)
(0.4)
3.8
6.9
(0.6)
36.9
0.3
$ 62.5 $ 19.5 $
31.5 —
8.0 $
31.8
46.4 —
53.0 $ 42.4 $ 11.0 $ 13.2 $
0.8
47.1
0.5
31.4 $ 20.1 $
14.9 —
15.3
8.5 $ (5.2) $ 21.6
The results of operations for our Core Portfolio segment are depicted in the table above under the headings labeled “Core.” Segment net
income attributable to Acadia for our Core Portfolio increased $20.1 million for the year ended December 31, 2019 compared to the prior year
as a result of the changes further described below.
Revenues for our Core Portfolio increased $6.4 million for the year ended December 31, 2019 compared to the prior year due primarily to $5.8
million from the acceleration of amortization on a below-market lease related to a tenant that vacated in 2019 and $3.4 million related to Core
Portfolio property acquisitions. These increases were offset by a $2.4 million decrease in 2019 due to the acceleration of amortization on
below- market leases due to two tenants that vacated in 2018.
Property operating expenses, other operating and real estate taxes for our Core Portfolio increased $2.9 million for the year ended December
31, 2019 compared to the prior year primarily due to $1.3 million from increased real estate tax expense at City Center and $1.1 million from
increased legal expenses in the portfolio in 2019.
Gain on disposition of properties for $16.8 million relates to the sale of Pacesetter Park in 2019 (Note 2).
Equity in earnings of unconsolidated affiliates for our Core Portfolio increased $1.6 million for the year ended December 31, 2019 compared to
the prior year primarily due to $1.0 million from the conversion of a note receivable into an increased ownership in real estate during 2018
along with $0.7 million from lease up at various joint venture properties in 2019.
Interest expense for our Core Portfolio increased $0.7 million for the year ended December 31, 2019 compared to the prior year due to a $1.3
million increase related to higher average outstanding borrowings, a $1.2 million increase related to higher average interest rates and $0.3
million from higher loan cost amortization in 2019. These increases were partially offset by $2.1 million more interest capitalized in 2019.
Funds
The results of operations for our Funds segment are depicted in the table above under the headings labeled “Funds.” Segment net income
attributable to Acadia for the Funds increased $8.5 million for the year ended December 31, 2019 compared to the prior year as a result of the
changes described below.
40
Revenues for the Funds increased $29.3 million for the year ended December 31, 2019 compared to the prior year primarily due to (i) $19.8
million increase from Fund property acquisitions in 2018 and 2019, (ii) $5.1 million from the acceleration of amortization on a below-market
lease, (iii) $3.6 million from lease up at Fund II’s City Point property, (iv) $3.0 million related to Fund III’s Cortlandt Crossing property being
placed into service and (v) $2.1 million from the consolidation of Fund IV’s Broughton Street Portfolio. These increases were partially offset
by $2.8 million due to property sales in 2019 (described further below) and $1.4 million from the acceleration of amortization of a below-
market lease related to a bankruptcy in 2018.
Depreciation and amortization for the Funds increased $7.0 million for the year ended December 31, 2019 compared to the prior year primarily
due to Fund property acquisitions in 2018 and 2019.
Property operating expenses, other operating and real estate taxes for the Funds increased $7.2 million for the year ended December 31, 2019
compared to the prior year due Fund property acquisitions in 2018 and 2019.
The $1.7 million impairment charge in 2019 (Note 8) relates to residential condominium units at Fund IV’s 210 Bowery that were sold during
2019.
Gain on disposition of properties for the Funds increased $8.5 million for the year ended December 31, 2019 compared to the prior year due to
the sales of 938 West North Avenue and JFK Plaza in Fund IV and Nostrand Avenue and 3104 M Street in Fund III during 2019 compared to
the sales of Lake Montclair and 1861 Union in Fund IV in 2018 (Note 2, Note 4).
Equity in earnings of unconsolidated affiliates for the Funds decreased $2.0 million for the year ended December 31, 2019 compared to the
prior year primarily due to a $3.2 million distribution from Fund III’s Storage Post venture in 2018, a cost method investment, (Note 4) offset
by $1.1 million from the recognition of 100% of the net loss from the Broughton Street Portfolio in 2018 as our partner is no longer absorbing
their share of the losses.
Interest expense for the Funds increased $3.1 million for the year ended December 31, 2019 compared to the prior year due to a $6.2 million
increase related to higher average outstanding borrowings and $1.5 million from higher loan cost amortization in 2019 associated with Fund
acquisitions. These increases were partially offset by $4.8 million more interest capitalized in 2019.
Other income for the Funds increased $6.6 million for the year ended December 31, 2019 compared to the prior year due to $5.0 million from
the New Market Tax Credit transaction at Fund II’s City Point investment (Note 7) and $1.6 million from an incentive fee earned from Fund
III’s Storage Post Venture.
Net loss (income) attributable to noncontrolling interests for the Funds increased $14.9 million for the year ended December 31, 2019
compared to the prior year based on the noncontrolling interests’ share of the variances discussed above. (Income) loss attributable to
noncontrolling interests in the Funds includes asset management fees earned by the Company of $17.5 million and $18.0 million for the years
ended December 31, 2019 and 2018, respectively.
Structured Financing
The results of operations for our Structured Financing segment are depicted in the table above under the headings labeled “SF.” Interest income
for the Structured Financing portfolio decreased $5.2 million for the year ended December 31, 2019 compared to the prior year primarily due to
the conversion of a portion of two notes receivable into increased ownership in the underlying real estate (Note 4) during 2018 along with the
payoff of a note made to Fund IV during 2019.
Unallocated
The Company does not allocate general and administrative expense and income taxes to its reportable segments. These unallocated amounts are
depicted in the table above under the headings labeled “Total.”
Unallocated general and administrative expense increased $1.1 million for the year ended December 31, 2019 compared to the prior year period
primarily due to internal leasing salaries no longer being capitalized in 2019.
Prior Year Periods
Discussions of 2017 items and comparisons between the year ended December 31, 2018 and 2017, respectively, that are not included in this
Report can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
41
SUPPLEMENTAL FINANCIAL MEASURES
Net Property Operating Income
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 Funds invest primarily in properties that
typically require significant leasing and development. Given that the 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 Fund investments.
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 Core 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.
A reconciliation of consolidated operating income to net operating income - Core Portfolio follows (in thousands):
Consolidated operating income (a)
Add back:
General and administrative
Depreciation and amortization
Impairment charge
Less:
Above/below market rent and straight-line rent
Gain on disposition of properties
Consolidated NOI
Year Ended December 31,
2019
2018
2017
$
72,603
$
32,681
$
66,205
35,416
125,443
1,721
34,343
117,549
—
(24,447)
(30,324)
180,412
(23,521)
(5,140)
155,912
33,756
104,934
14,455
(21,110)
(48,886)
149,354
(28,379)
(7,927)
19,539
132,587
Noncontrolling interest in consolidated NOI
Less: Operating Partnership's interest in Fund NOI included above
Add: Operating Partnership's share of unconsolidated joint ventures NOI (a)
NOI - Core Portfolio
(52,248)
(13,870)
25,948
140,242 $
(37,496)
(9,790)
24,919
133,545 $
$
Prior year amounts have been adjusted to include gains on disposition of properties, which have been reclassified to operating income effective January 1, 2019.
(a)
(b) Does not include the Operating Partnership’s share of NOI from unconsolidated joint ventures within the Funds.
Same-Property NOI includes Core Portfolio properties that we owned for both the current and prior periods presented, but excludes those
properties which we acquired, sold or expected to sell, and developed during these periods. The following table summarizes Same-Property
NOI for our Core Portfolio (in thousands):
Year Ended December 31,
2018
2019
Core Portfolio NOI
Less properties excluded from Same-Property NOI
Same-Property NOI
Percent change from prior year period
Components of Same-Property NOI:
Same-Property Revenues
Same-Property Operating Expenses
Same-Property NOI
$
$
$
$
42
140,242
(16,312)
123,930
$
$
3.9%
167,806
(43,876)
123,930
$
$
133,545
(14,235)
119,310
163,469
(44,159)
119,310
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 comparable
leases executed within our Core Portfolio for the year ended December 31, 2019. 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
GLA commencing
New base rent
Expiring base rent
Percent growth in base rent
Average cost per square foot (a)
Weighted average lease term (years)
Year Ended December 31, 2019
Straight-
Line Basis
Cash Basis
42
507,431
17.48
16.65
$
$
5.0%
5.52
6.9
$
42
507,431
18.22
15.77
15.5%
5.52
6.9
$
$
$
(a) The average cost per square foot includes tenant improvement costs, leasing commissions and tenant allowances.
Funds from Operations
We consider funds from operations (“FFO”) as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) to be an
appropriate supplemental disclosure of operating performance for an equity REIT due to its widespread acceptance and use within the REIT
and analyst communities. FFO is presented to assist investors in analyzing our performance. It is helpful as it excludes various items included
in net income that are not indicative of the operating performance, such as gains (losses) from sales of depreciated property, depreciation and
amortization, and impairment of depreciable real estate. Our method of calculating FFO may be different from methods used by other REITs
and, accordingly, may not be comparable to such other REITs. FFO does not represent cash generated from operations as defined by generally
accepted accounting principles (“GAAP”) and is not indicative of cash available to fund all cash needs, including distributions. It should not be
considered as an alternative to net income for the purpose of evaluating our performance or to cash flows as a measure of liquidity. Consistent
with the NAREIT definition, we define FFO as net income (computed in accordance with GAAP), excluding gains (losses) from sales of
depreciated property and impairment of depreciable real estate, plus depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. A reconciliation of net income attributable to Acadia to FFO follows (dollars in thousands, except per share
amounts):
Net income attributable to Acadia
Depreciation of real estate and amortization of leasing costs (net of
noncontrolling interests' share)
Impairment charge (net of noncontrolling interests' share)
Gain on disposition of properties (net of noncontrolling interests' share)
Income attributable to Common OP Unit holders
Distributions - Preferred OP Units
Funds from operations attributable to Common Shareholders and
Common OP Unit holders
Funds From Operations per Share - Diluted
Basic weighted-average shares outstanding, GAAP earnings
Weighted-average OP Units outstanding
Basic weighted-average shares outstanding, FFO
Assumed conversion of Preferred OP Units to common shares
Assumed conversion of LTIP units and restricted share units to
common shares
Diluted weighted-average number of Common Shares and Common
OP Units outstanding, FFO
2019
Year Ended December 31,
2018
2017
$
53,045
$
31,439
$
61,470
89,373
395
(19,786)
3,295
540
85,852
—
(994)
2,033
540
83,515
1,088
(15,565)
3,609
550
$
126,862 $
118,870
$
134,667
84,435,826
5,111,262
89,547,088
499,345
82,080,159
4,941,661
87,021,820
499,345
83,682,789
4,741,058
88,423,847
505,045
—
206,646
69,488
90,046,433
87,727,811
88,998,380
Diluted Funds from operations, per Common Share and Common OP Unit
$
1.41 $
1.35
$
1.51
43
LIQUIDITY AND CAPITAL RESOURCES
Uses of Liquidity and Cash Requirements
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 Funds and property acquisitions and development/re-tenanting activities within our Core Portfolio, (iii) distributions to
our Fund investors, (iv) debt service and loan repayments and (v) share repurchases.
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. During the year ended December 31, 2019, we paid dividends and distributions on our Common Shares, Common OP Units and
Preferred OP Units totaling $101.0 million.
Investments in Real Estate
As previously discussed, during the year ended December 31, 2019, within our Core and Fund portfolios we invested in 20 new properties
aggregating $514.4 million (Note 2, Note 4, Note 11). For activity subsequent to December 31, 2019, see Note 17.
Structured Financing Investment
During the year ended December 31, 2019, we advanced an additional $4.3 million on a note receivable and provided seller financing for $13.5
million (Note 3).
Capital Commitments
During the year ended December 31, 2019, we made capital contributions aggregating $32.8 million to our Funds. At December 31, 2019, our
share of the remaining capital commitments to our Funds aggregated $86.1 million as follows:
•
•
•
$3.3 million to Fund III. Fund III was launched in May 2007 with total committed capital of $450.0 million of which our original
share was $89.6 million. During 2015, we acquired an additional interest, which had an original capital commitment of $20.9 million.
$21.2 million to Fund IV. Fund IV was launched in May 2012 with total committed capital of $530.0 million of which our original
share was $122.5 million.
$61.6 million to Fund V. Fund V was launched in August 2016 with total committed capital of $520.0 million of which our initial
share is $104.5 million.
In addition, during April 2018, a distribution was made to the Fund II investors, including $4.3 million to the Operating Partnership. This
amount remains subject to re-contribution to Fund II until April 2021.
Development Activities
During the year ended December 31, 2019, capitalized costs associated with development activities totaled $25.6 million (Note 2). At
December 31, 2019, there were five Core portfolio properties under development and redevelopment and five Fund properties under
development for which the estimated total cost to complete these projects through 2022 was $154.0 million to $191.3 million and our share was
approximately $93.0 million to $111.1 million.
44
Debt
A summary of our consolidated debt, which includes the full amount of Fund related obligations and excludes our pro rata share of debt at our
unconsolidated subsidiaries, is as follows (in thousands):
Total Debt - Fixed and Effectively Fixed Rate
Total Debt - Variable Rate
Net unamortized debt issuance costs
Unamortized premium
Total Indebtedness
December 31,
2019
December 31,
2018
$
$
1,403,324
314,604
1,717,928
(10,383)
651
1,708,196
$
$
1,001,658
558,675
1,560,333
(10,541)
753
1,550,545
As of December 31, 2019, our consolidated outstanding mortgage and notes payable aggregated $1,717.9 million, excluding unamortized
premium of $0.7 million and unamortized loan costs of $10.4 million, and were collateralized by 44 properties and related tenant leases.
Interest rates on our outstanding indebtedness ranged from 2.95% to 6.00% with maturities that ranged from February 2020 to April 2035.
Taking into consideration $948.8 million of notional principal under variable to fixed-rate swap agreements currently in effect, $1,403.3
million of the portfolio debt, or 81.7%, was fixed at a 3.56% weighted-average interest rate and $314.6 million, or 18.3% was floating at a
3.71% weighted average interest rate as of December 31, 2019. Our variable-rate debt includes $143.3 million of debt subject to interest rate
caps.
There is $431.5 million of Fund debt maturing in 2020 at a weighted-average interest rate of 4.46%, including $121.5 million of debt with
available one-year extension options and $240.0 million at Fund II for which the Company is actively seeking refinancing; there is $5.8 million
of scheduled principal amortization due in 2020; and our share of scheduled remaining 2020 principal payments and maturities on our
unconsolidated debt was $10.1 million at December 31, 2019. In addition, $287.7 million of our total consolidated debt and $7.9 million of our
pro-rata share of unconsolidated debt will come due in 2021. As it relates to the maturing debt in 2020 and 2021, we may not have sufficient
liquidity on hand to repay such indebtedness, and, therefore, we expect to refinance at least a portion of this indebtedness or select other
alternatives based on market conditions as these loans mature; however, there can be no assurance that we will be able to obtain financing at
acceptable terms.
A mortgage loan in the Company’s Core Portfolio for $26.3 million was in default and subject to litigation at December 31, 2019 and 2018
(Note 7).
Share Repurchase Program
The Company did not repurchase any of its Common Shares pursuant to its new share repurchase program (Note 10) during the year ended
December 31, 2019.
Sources of Liquidity
Our primary sources of capital for funding our liquidity needs include (i) the issuance of both public equity and OP Units, (ii) the issuance of
both secured and unsecured debt, (iii) unfunded capital commitments from noncontrolling interests within our Funds, (iv) future sales of
existing properties, (v) repayments of structured financing investments, and (vi) cash on hand and future cash flow from operating activities.
Our cash on hand in our consolidated subsidiaries at December 31, 2019 totaled $15.8 million. Our remaining sources of liquidity are described
further below.
ATM Program
We have an ATM Program (Note 10) which provides us an efficient and low-cost vehicle for raising public equity to fund our capital needs.
Through this program, we have been able to effectively “match-fund” the required equity for our Core Portfolio and Fund acquisitions through
the issuance of Common Shares over extended periods employing a price averaging strategy. In addition, from time to time, we have issued
and intend to continue to issue, equity in follow-on offerings separate from our ATM Program. Net proceeds raised through our ATM Program
and follow-on offerings are primarily used for acquisitions, both for our Core Portfolio and our pro-rata share of Fund acquisitions, and for
general corporate purposes. During the year ended December 31, 2019, the Company sold 5,164,055 shares under its ATM Program for gross
proceeds of $147.7 million, or $145.5 million net of issuance costs, at a weighted-average gross price per share of $28.61.
45
Fund Capital
During the year ended December 31, 2019, Fund III called capital contributions totaling $12.5 million, Fund IV called capital contributions of
$17.3 million and Fund V called capital contributions of $128.2 million, of which our aggregate proportionate share from all Funds was $32.8
million. At December 31, 2019, unfunded capital commitments from noncontrolling interests within our Funds II, III, IV and V were $10.8
million, $10.3 million, $70.6 million and $245.1 million, respectively.
Asset Sales
As previously discussed, during the year ended December 31, 2019, within our Fund portfolio we sold one Core and four Fund consolidated
properties, and three Fund consolidated residential condominium units for an aggregate sales price of $109.3 million (Note 2).
Structured Financing Repayments
During the year ended December 31, 2019, Fund IV received full payment of $15.3 million plus accrued interest of $10.0 million on its
Structured Financing investment. (Note 3).
Financing and Debt
As of December 31, 2019, we had $326.0 million of additional capacity under existing consolidated Core and Fund revolving debt facilities. In
addition, at that date within our Core and Fund portfolios, we had 78 unleveraged consolidated properties with an aggregate carrying value of
approximately $1.5 billion and one unleveraged unconsolidated property for which our share of the carrying value was $100.7 million,
although there can be no assurance that we would be able to obtain financing for these properties at favorable terms, if at all.
HISTORICAL CASH FLOW
The following table compares the historical cash flow for the year ended December 31, 2019 with the cash flow for the year ended
December 31, 2018 (in millions):
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Decrease in cash and restricted cash
Operating Activities
Year Ended December 31,
2018
2019
Variance
$
$
127.2 $
(397.1)
265.0
(4.8) $
96.1 $
(136.6)
(10.3)
(50.8) $
31.1
(260.5)
275.3
46.0
Our operating activities provided $31.1 million more cash during the year ended December 31, 2019 as compared to the year ended December
31, 2018, primarily due to property acquisitions along with $10.0 million from the collection of accrued interest on a note receivable.
Investing Activities
During the year ended December 31, 2019 as compared to the year ended December 31, 2018, our investing activities used $260.5 million
more cash, primarily due to (i) $209.5 million more cash used in acquisition and lease of properties, (ii) $148.1 million more cash used in
investments in unconsolidated affiliates, and (iii) $10.8 million less cash received from repayments of notes receivable. These uses of cash
were partially offset by (i) $79.7 million more cash received from return of capital from unconsolidated affiliates, (ii) $24.9 million more cash
received from disposition of properties, and (iii) $5.6 million less cash used in development, construction and property improvement costs.
Financing Activities
Our financing activities provided $275.3 million more cash during the year ended December 31, 2019 as compared to the year ended December
31, 2018, primarily from (i) $145.5 million more cash received from the sale of Common Shares, (ii) $114.1 million more cash provided from
contributions from noncontrolling interests, (iii) $55.1 million less cash used to repurchase Common Shares, and (iv) $40.9 million more cash
provided from net borrowings. These sources of cash were partially offset by $69.8 million more cash used in distributions to noncontrolling
interests and $5.0 million more cash used in dividends paid to Common Shareholders.
46
CONTRACTUAL OBLIGATIONS
The following table summarizes: (i) principal and interest obligations under mortgage and other notes, (ii) rents due under non-cancelable
operating and capital leases, which includes ground leases at seven of our properties and the lease for our corporate office and (iii) construction
commitments as of December 31, 2019 (in millions):
Contractual Obligations
Principal obligations on debt
Interest obligations on debt
Lease obligations
Construction commitments (a)
Total
Total
1,717.9 $
207.4
346.9
41.1
2,313.3 $
$
$
Payments Due by Period
1 to 3
Years
Less than
1 Year
3 to 5
Years
More than
5 Years
437.3 $
63.1
7.0
41.1
548.5 $
455.2 $
78.1
13.7
—
547.0 $
627.5 $
37.4
13.8
—
678.7 $
197.9
28.8
312.4
—
539.1
(a) In conjunction with the development of our Core Portfolio and 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 the following investments made through 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 investment and our share of income and loss
from, but not the individual assets and liabilities, of these joint ventures.
See 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 non-recourse debt related to those investments is as follows (dollars in millions):
Investment
650 Bald Hill Road
Eden Square
Promenade at Manassas
3104 M Street
Family Center at Riverdale
Gotham Plaza
Renaissance Portfolio
Crossroads
Tri-City Plaza
Frederick Crossing
Frederick County Square
840 N. Michigan
Georgetown Portfolio
Total
Operating Partnership
December 31, 2019
Ownership
Percentage
Pro-rata Share
of
Mortgage Debt
Effective Interest
Rate (a)
Maturity Date
20.8% $
22.8%
22.8%
20.0%
18.0%
49.0%
20.0%
49.0%
18.1%
18.1%
18.1%
88.4%
50.0%
$
3.5
5.5
5.9
0.9
5.8
9.5
32.0
31.8
5.5
4.4
2.7
65.0
8.1
180.6
4.35%
3.00%
3.45%
5.25%
3.40%
3.30%
3.40%
3.94%
3.09%
3.26%
4.00%
4.36%
4.72%
Apr 2020
Jun 2020
Dec 2021
Dec 2021
May 2022
Jun 2023
Aug 2023
Oct 2024
Oct 2024
Dec 2024
Jan 2025
Feb 2025
Dec 2027
(a) Effective interest rates incorporate the effect of interest rate swaps and caps that were in effect at December 31, 2019, where applicable.
47
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.
Valuation of Properties
On a quarterly basis, we review the carrying value of properties held for use and for sale as well as our development properties. 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.
See Note 8 of the Notes to the Consolidated Financial Statements for a discussion of impairments recognized during the periods presented.
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. An impairment
charge is recorded for a decline that is considered to be other-than-temporary as a reduction in the carrying value of the investment. No
impairment charges related to our investment in unconsolidated joint ventures were recognized for the years ended December 31, 2019, 2018
and 2017.
Bad Debts
We assess the collectability of our accounts receivable related to tenant revenues. We first apply the guidance under ASC Topic 842 “Leases”
(“ASC 842”) in assessing our rents receivable: if collection of rents under specific operating leases is not probable, then we recognize the lesser
of that lease’s rental income on a straight-line basis or cash received, plus variable rents as earned. Once this initial assessment is completed,
we apply a general reserve, as provided under ASC 450-20, if applicable. Rents receivable at December 31, 2019 and 2018 are shown net of an
allowance for doubtful accounts of $11.4 million and $7.9 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, development, construction and improvement of
properties, as well as significant renovations are capitalized. Interest costs are capitalized until construction is substantially complete.
Construction in progress includes costs for significant property expansion and development. Depreciation is computed on the straight-line basis
over estimated useful lives of 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. When
acquisitions of properties do not meet the criteria for business combinations, as is the case for the majority of the Company’s acquisitions, no
goodwill is recorded and acquisition costs are capitalized. We assess fair value based on estimated cash flow projections that utilize appropriate
discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including
the historical operating results, known trends, and market/economic conditions that may affect the property.
48
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 non-cancelable term
of the respective leases. 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 assess the collectability of our accounts receivable related to tenant revenues as described under the heading “Bad Debts” above.
Structured Financings
Real estate notes receivable investments and preferred equity investments (“Structured Financings”) are intended to be held to maturity and are
carried at cost. Interest income from Structured Financings is 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 Structured Financing investment is recognized over
the term of the loan as an adjustment to yield.
Allowances for Structured Financing investments are established based upon management’s quarterly review of the investments. In performing
this review, management considers the estimated net recoverable value of the investment 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 Structured Financings may differ materially
from the carrying value at the balance sheet date. Interest income recognition is generally suspended for investments when, in the opinion of
management, a full recovery of income and principal becomes doubtful. Income recognition is resumed when the suspended investment
becomes contractually current and performance is demonstrated to be resumed.
Recently Issued Accounting Pronouncements
Reference is made to Note 1 for information about recently issued and recently adopted accounting pronouncements.
49
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information as of December 31, 2019
Our primary market risk exposure is to changes in interest rates related to our mortgage and other debt. See Note 7 in the Notes to Consolidated
Financial Statements, for certain quantitative details related to our mortgage and other debt.
Currently, we manage our exposure to fluctuations in interest rates primarily through the use of fixed-rate debt and interest rate swap and cap
agreements. As of December 31, 2019, we had total mortgage and other notes payable of $1,717.9 million, excluding the unamortized premium
of $0.7 million and unamortized debt issuance costs of $10.4 million, of which $1,403.3 million, or 81.7% was fixed-rate, inclusive of debt
with rates fixed through the use of derivative financial instruments, and $314.6 million, or 18.3%, was variable-rate based upon LIBOR rates
plus certain spreads. As of December 31, 2019, we were party to 40 interest rate swap and four interest rate cap agreements to hedge our
exposure to changes in interest rates with respect to $948.8 million and $143.3 million of LIBOR-based variable-rate debt, respectively.
The following table sets forth information as of December 31, 2019 concerning our long-term debt obligations, including principal cash flows
by scheduled maturity and weighted average interest rates of maturing amounts (dollars in millions):
Core Consolidated Mortgage and Other Debt
Year
2020
2021
2022
2023
2024
Thereafter
Fund Consolidated Mortgage and Other Debt
Year
2020
2021
2022
2023
2024
Thereafter
Scheduled
Amortization
Maturities
Total
Weighted-Average
Interest Rate
3.3 $
3.5
3.6
2.9
2.6
13.1
29.0 $
26.3 $
—
60.8
367.9
7.3
177.2
639.5 $
29.6
3.5
64.4
370.8
9.9
190.3
668.5
6.0%
—%
3.0%
3.0%
4.7%
3.8%
Scheduled
Amortization
Maturities
Total
Weighted-Average
Interest Rate
2.5 $
2.8
3.1
3.7
2.5
0.3
14.9 $
405.3 $
281.5
100.0
40.9
199.5
7.3
1,034.5 $
407.8
284.3
103.1
44.6
202.0
7.6
1,049.4
4.4%
4.0%
3.9%
3.2%
3.5%
3.6%
$
$
$
$
Mortgage Debt in Unconsolidated Partnerships (at our Pro-Rata Share)
Year
2020
2021
2022
2023
2024
Thereafter
Scheduled
Amortization
Maturities
Total
Weighted-Average
Interest Rate
8.9 $
6.7
5.8
40.6
38.2
73.9
174.1 $
10.1
7.9
7.0
41.8
39.1
74.7
180.6
4.0%
3.7%
3.4%
3.4%
3.8%
4.4%
$
$
1.2 $
1.2
1.2
1.2
0.9
0.8
6.5 $
50
In 2020, $437.3 million of our total consolidated debt and $10.1 million of our pro-rata share of unconsolidated outstanding debt will become
due, substantially all of which is Fund debt including $121.5 million of debt with available one-year extension options and $240.0 million at
Fund II for which the Company is actively seeking refinancing. In addition, $287.7 million of our total consolidated debt and $7.9 million of
our pro-rata share of unconsolidated debt will become due in 2021. 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 $7.4 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 $1.8 million. Interest expense on our variable-rate debt of $314.6 million, net of variable to fixed-rate swap agreements
currently in effect, as of December 31, 2019, would increase $3.1 million if LIBOR increased by 100 basis points. After giving effect to
noncontrolling interests, our share of this increase would be $0.3 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, 2019, the fair value of our total consolidated outstanding debt would decrease by
approximately $11.5 million if interest rates increase by 1%. Conversely, if interest rates decrease by 1%, the fair value of our total outstanding
debt would increase by approximately $13.6 million.
As of December 31, 2019, and 2018, we had consolidated notes receivable of $114.9 million and $111.8 million, respectively. We determined
the estimated fair value of our notes receivable 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, 2019, the fair value of our total outstanding notes receivable would
decrease by approximately $1.1 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 $1.1 million.
Summarized Information as of December 31, 2018
As of December 31, 2018, we had total mortgage and other notes payable of $1,560.3 million, excluding the unamortized premium of $0.8
million and unamortized debt issuance costs of $10.5 million, of which $1,001.7 million, or 64.2% was fixed-rate, inclusive of debt with rates
fixed through the use of derivative financial instruments, and $558.7 million, or 35.8%, was variable-rate based upon LIBOR or Prime rates
plus certain spreads. As of December 31, 2018, we were party to 29 interest rate swap and three interest rate cap agreements to hedge our
exposure to changes in interest rates with respect to $609.9 million and $143.8 million of LIBOR-based variable-rate debt, respectively.
Interest expense on our variable-rate debt of $558.7 million as of December 31, 2018, would have increased $5.6 million if LIBOR increased
by 100 basis points. Based on our outstanding debt balances as of December 31, 2018, the fair value of our total outstanding debt would have
decreased by approximately $13.5 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 $14.7 million.
Changes in Market Risk Exposures from December 31, 2018 to December 31, 2019
Our interest rate risk exposure from December 31, 2018, to December 31, 2019, has decreased on an absolute basis, as the $558.7 million of
variable-rate debt as of December 31, 2018, has decreased to $314.6 million as of December 31, 2019. As a percentage of our overall debt, our
interest rate risk exposure has decreased as our variable-rate debt accounted for 35.8% of our consolidated debt as of December 31, 2018
compared to 18.3% as of December 31, 2019.
51
ITEM 8. FINANCIAL STATEMENTS.
ACADIA REALTY TRUST AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
Financial Statement Schedules:
Schedule II – Valuation and Qualifying Accounts
Schedule III – Real Estate and Accumulated Depreciation
Schedule IV – Mortgage Loans on Real Estate
Page
53
55
56
57
58
59
61
105
106
112
52
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees of Acadia Realty Trust
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Acadia Realty Trust (the “Company”) as of December 31, 2019 and 2018,
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, 2019 and the related notes and financial statement schedules listed in the index at Item 15 (collectively referred to
as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the
Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated
February 20, 2020, expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to
the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to
which they relate.
Purchase price allocation
As described in note 2 to the consolidated financial statements, during the year ended December 31, 2019, the Company acquired
approximately $334 million of tangible and intangible real estate assets and $10 million of related intangible liabilities. The Company allocates
the purchase price of real estate investments to the identifiable assets and liabilities acquired based on their relative fair values. The
determination of fair value requires significant judgment by management and third-party valuation specialists to develop significant estimates
and market-based assumptions used in the cash flow models.
We identified the purchase price allocation process as a critical audit matter. Auditing management’s judgments regarding market-based
assumptions used in the discounted cash flow models including the forecasts of future revenue and operating expense growth rates, market
capitalization rates and discount rates involved especially challenging auditor judgment due to the nature and extent of audit effort required to
address these matters, including the extent of specialized skill or knowledge needed.
53
The primary procedures we performed to address this critical audit matter included:
•
Testing the design and operating effectiveness of certain controls relating to management’s purchase price allocation process
including controls over assessment of the reasonableness of market-based assumptions.
• Assessing the reasonableness of significant market-based assumptions through: (i) benchmarking against third-party market data,
industry metrics, and reviewing relevant supporting documentation, and (ii) assessing whether such assumptions were consistent
with evidence obtained in other areas of the audit.
• Utilizing personnel with specialized knowledge and skill in valuation to assist in evaluating the reasonableness of the
methodologies, certain assumptions, and mathematical accuracy of the underlying models used in the preparation of the purchase
price allocations.
Assessment of impairment of real estate and real-estate related investments
As described in note 2 to the consolidated financial statements, the Company’s net investment balance in real estate was $3.2 billion as of
December 31, 2019. This represents the Company’s ownership interest in 186 properties. In addition, as described in notes 3 and 4 to the
consolidated financial statements, the Company’s investments in unconsolidated affiliates and structured loan portfolio was $0.3 billion and
$0.1 billion, respectively. During the year ended December 31, 2019, the Company recorded impairment charges of $1.7 million related to its
real estate investments. The Company tests the recoverability of the real estate and real-estate related investments whenever events or changes
in circumstances indicate that amounts may not be recoverable. Significant management’s judgment is involved in determining if impairment
indicators exist, assessing investments for recoverability and measuring fair value of the real estate and real-estate related investments.
We identified the assessment of impairment of the real estate and real-estate related investments as a critical audit matter due to the complexity
of management’s judgments relating to: (i) assessment of impairment indicators, and (ii) assessment of inputs and assumptions used in the
expected future cash flows to determine fair values of real estate investments. Auditing management’s judgments relating to the existence of
impairment indicators and market-based assumptions used in the cash flow models including future revenue and operating expense growth rates,
market capitalization rates, discount rates, and holding periods involved especially challenging auditor judgment due to the nature and extent of
audit effort required to address these matters, including the extent of specialized skill or knowledge needed.
The primary procedures we performed to address this critical audit matter included:
•
•
Testing the design and operating effectiveness of certain controls relating to: (i) assessment of the existence of impairment
indicators, and (ii) assessment of real estate investments for recoverability and measurement of impairment including controls over
the market-based assumptions used in the cash flow models.
Testing the reasonableness of the significant market-based assumptions used in the cash flow models used by the Company against
relevant supporting documentation and market-based information, industry metrics and other relevant information.
• Assessing whether the financial forecasts used by the Company in the impairment analysis were consistent with those used to
support other judgments in the financial statements.
• Utilizing professionals with specialized skills and knowledge to assist in evaluating the reasonableness of the discount rates and
certain other market-based information utilized by management.
/s/ BDO USA, LLP
We have served as the Company’s auditor since 2005.
New York, New York
February 20, 2020
54
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
ASSETS
Investments in real estate, at cost
Operating real estate, net
Real estate under development
Net investments in real estate
Notes receivable, net
Investments in and advances to unconsolidated affiliates
Other assets, net
Cash and cash equivalents
Restricted cash
Rents receivable
Total assets
LIABILITIES
Mortgage and other notes payable, net
Unsecured notes payable, net
Unsecured line of credit
Accounts payable and other liabilities
Dividends and distributions payable
Distributions in excess of income from, and investments in, unconsolidated affiliates
Total liabilities
Commitments and contingencies
EQUITY
Acadia Shareholders' Equity
Common shares, $0.001 par value, authorized 200,000,000 shares, issued and outstanding
87,050,465 and 81,557,472 shares, respectively
Additional paid-in capital
Accumulated other comprehensive (loss) income
Distributions in excess of accumulated earnings
Total Acadia shareholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
December 31,
2019
(Unaudited)
December 31,
2018
$
$
$
$
3,355,913 $
253,402
3,609,315
114,943
305,097
190,658
15,845
14,165
59,091
4,309,114 $
1,170,076 $
477,320
60,800
371,516
27,075
15,362
2,122,149
87
1,706,357
(31,175)
(132,961)
1,542,308
644,657
2,186,965
4,309,114 $
3,160,851
120,297
3,281,148
111,775
262,410
206,408
21,268
13,580
62,191
3,958,780
1,017,288
533,257
—
286,072
24,593
15,623
1,876,833
82
1,548,603
516
(89,696)
1,459,505
622,442
2,081,947
3,958,780
The accompanying notes are an integral part of these consolidated financial statements
55
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
2018
2019
2017
$
291,190 $
4,137
295,327
254,508 $
5,173
259,681
(in thousands except per share amounts)
Revenues
Rental income
Other
Total revenues
Operating expenses
Depreciation and amortization
General and administrative
Real estate taxes
Property operating
Impairment charges
Other operating
Total operating expenses
Gain on disposition of properties
Operating income
Equity in earnings of unconsolidated affiliates inclusive of gain on disposition of
properties of $0, $0 and $15,336, respectively
Interest income
Other income
Interest expense
Income (loss) from continuing operations before income taxes
Income tax provision
Net income (loss)
Net loss (income) attributable to noncontrolling interests
Net income attributable to Acadia
Basic and diluted earnings per share
$
$
125,443
35,416
39,315
51,153
1,721
—
253,048
30,324
72,603
8,922
7,988
6,947
(73,788)
22,672
(1,468)
21,204
31,841
53,045 $
117,549
34,343
36,712
42,679
—
857
232,140
5,140
32,681
9,302
13,231
—
(69,978)
(14,764)
(934)
(15,698)
47,137
31,439 $
242,138
6,414
248,552
104,934
33,756
35,946
39,958
14,455
2,184
231,233
48,886
66,205
23,371
29,143
5,571
(58,978)
65,312
(1,004)
64,308
(2,838)
61,470
0.62 $
0.38 $
0.73
The accompanying notes are an integral part of these consolidated financial statements
56
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income (loss)
Other comprehensive (loss) income:
Unrealized (loss) income on valuation of swap agreements
Reclassification of realized interest on swap agreements
Other comprehensive (loss) income
Comprehensive (loss) income
Comprehensive loss (income) attributable to noncontrolling interests
Comprehensive income attributable to Acadia
Year Ended December 31,
2018
2019
2017
$
21,204 $
(15,698) $
64,308
(35,674)
(872)
(36,546)
(15,342)
36,696
21,354 $
(2,659)
71
(2,588)
(18,286)
47,627
29,341 $
634
3,317
3,951
68,259
(3,377)
64,882
$
The accompanying notes are an integral part of these consolidated financial statements.
57
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Years Ended December 31, 2019, 2018 and 2017
Acadia Shareholders
(in thousands, except per share
amounts)
Balance at January 1, 2019
Conversion of OP Units to Common
Shares by limited partners of the
Operating Partnership
Issuance of Common Shares
Dividends/distributions declared ($1.13
per Common Share/OP Unit)
Employee and trustee stock
compensation, net
Noncontrolling interest distributions
Noncontrolling interest contributions
Comprehensive (loss) income
Reallocation of noncontrolling interests
Balance at December 31, 2019
Balance at January 1, 2018
Conversion of OP Units to Common
Shares by limited partners of the
Operating Partnership
Repurchase of Common Shares
Dividends/distributions declared ($1.09
per Common Share/OP Unit)
Employee and trustee stock
compensation, net
Noncontrolling interest distributions
Noncontrolling interest contributions
Comprehensive income (loss)
Reallocation of noncontrolling interests
Balance at December 31, 2018
Balance at January 1, 2017
Conversion of OP Units to Common
Shares by limited partners of the
Operating Partnership
Dividends/distributions declared ($1.05
per Common Share/OP Unit)
Employee and trustee stock
compensation, net
Noncontrolling interest distributions
Noncontrolling interest contributions
Comprehensive income
Reallocation of noncontrolling interests
Balance at December 31, 2017
Share
Amount
Additional
Paid-in
Capital
82 $ 1,548,603 $
Accumulated
Other
Comprehensive
Income (Loss)
Distributions
in Excess of
Accumulated
Earnings
Total
Common
Shareholders’
Equity
1,459,505 $
Noncontrolling
Interests
Total
Equity
516 $
(89,696) $
622,442 $ 2,081,947
—
5
—
5,104
145,493
—
—
—
—
5,104
145,498
(5,104)
—
—
145,498
—
—
(96,310)
(96,310)
(7,124)
(103,434)
546
—
—
—
—
—
—
—
6,611
—
87 $ 1,706,357 $
—
—
—
(31,691)
—
(31,175) $
—
—
—
53,045
—
(132,961) $
546
—
—
21,354
6,611
1,542,308 $
10,411
(94,289)
161,628
(36,696)
(6,611)
10,957
(94,289)
161,628
(15,342)
—
644,657 $ 2,186,965
Common
Shares
81,557 $
308
5,164
—
21
—
—
—
—
87,050 $
83,708 $
84 $ 1,596,514 $
2,614 $
(32,013) $
1,567,199 $
648,440 $ 2,215,639
117
(2,294)
—
26
—
—
—
—
81,557 $
—
(2)
—
2,068
(55,109)
—
—
—
—
2,068
(55,111)
(2,068)
—
—
(55,111)
—
—
(89,122)
(89,122)
(6,888)
(96,010)
574
—
—
—
—
—
—
—
4,556
—
82 $ 1,548,603 $
—
—
—
(2,098)
—
516 $
—
—
—
31,439
—
(89,696) $
574
—
—
29,341
4,556
1,459,505 $
12,374
(24,793)
47,560
(47,627)
(4,556)
12,948
(24,793)
47,560
(18,286)
—
622,442 $ 2,081,947
83,598 $
84 $ 1,594,926 $
(798) $
(5,635) $
1,588,577 $
589,548 $ 2,178,125
87
—
23
—
—
—
—
83,708 $
—
1,541
—
—
1,541
(1,541)
—
—
—
—
(87,848)
(87,848)
(6,453)
(94,301)
698
—
—
—
—
—
—
—
—
(651)
84 $ 1,596,514 $
—
—
—
3,412
—
2,614 $
—
—
—
61,470
—
(32,013) $
698
—
—
64,882
(651)
1,567,199 $
10,457
(32,805)
85,206
3,377
651
11,155
(32,805)
85,206
68,259
—
648,440 $ 2,215,639
The accompanying notes are an integral part of these consolidated financial statements.
58
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Year Ended December 31,
2018
2019
2017
$
21,204 $
(15,698)
$
64,308
Depreciation and amortization
Distributions of operating income from unconsolidated affiliates
Equity in earnings and gains of unconsolidated affiliates
Stock compensation expense
Amortization of financing costs
Impairment charge
Gain on disposition of properties
Gain on change in control
Deferred gain on tax credits
Other, net
Changes in assets and liabilities:
Other liabilities
Prepaid expenses and other assets
Rents receivable, net
Accounts payable and accrued expenses
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of real estate
Acquisition of leasehold interests
Development, construction and property improvement costs
Issuance of or advances on notes receivable
Proceeds from the disposition of properties, net
Investments in and advances to unconsolidated affiliates and other
Return of capital from unconsolidated affiliates and other
Proceeds from notes receivable
Return of deposits for properties under contract
Payment of deferred leasing costs
Change in control of previously unconsolidated affiliate
Net cash (used in) provided by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and other notes
Principal payments on unsecured debt
Proceeds received on mortgage and other notes
Proceeds from unsecured debt
Payments of finance lease obligations
Repurchase of Common Shares
Proceeds from the sale of Common Shares, net
Capital contributions from noncontrolling interests
Distributions to noncontrolling interests
Dividends paid to Common Shareholders
Deferred financing and other costs
Net cash provided by (used in) financing activities
Decrease in cash and restricted cash
Cash of $21,268, $74,823 and $71,805 and restricted cash of $13,580, $10,846
and $22,904, respectively, beginning of year
Cash of $15,845, $21,268 and $74,823 and restricted cash of $14,165, $13,580
and $10,846, respectively, end of year
59
125,443
11,273
(8,922)
10,957
7,577
1,721
(30,324)
—
(5,034)
(11,627)
(4,466)
8,198
(455)
1,632
127,177
(319,673)
(39,031)
(89,270)
(3,608)
88,738
(151,281)
105,999
15,250
2,870
(7,051)
—
(397,057)
(168,211)
(521,600)
326,268
526,400
(2,749)
—
145,498
161,628
(101,370)
(93,902)
(6,920)
265,042
(4,838)
117,549
15,556
(9,302)
12,948
6,008
—
(5,140)
—
—
(11,768)
6,161
(7,168)
(10,044)
(3,026)
96,076
(147,985)
—
(94,834)
(3,002)
63,866
(3,161)
26,338
26,000
1,692
(6,106)
573
(136,619)
(81,726)
(632,300)
187,173
648,800
—
(55,111)
—
47,560
(31,568)
(88,887)
(4,219)
(10,278)
(50,821)
104,934
15,556
(23,371)
11,155
5,985
14,455
(48,886)
(5,571)
—
(10,621)
(4,285)
(6,498)
(11,274)
8,768
114,655
(200,429)
—
(108,142)
(10,600)
260,711
(6,535)
43,684
32,000
(2,000)
(5,202)
576
4,063
(306,119)
(277,134)
156,344
359,625
—
—
—
85,206
(39,942)
(99,527)
(6,211)
(127,758)
(9,040)
34,848
85,669
94,709
$
30,010 $
34,848
$
85,669
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(in thousands)
Supplemental disclosure of cash flow information
Cash paid during the period for interest, net of capitalized interest of $12,586 and
$5,625 and $13,509 respectively
Cash paid for income taxes, net of refunds
$
$
Supplemental disclosure of non-cash investing activities
Assumption of accounts payable and accrued expenses through acquisition of real
estate
Right-of-use assets, finance leases obtained in exchange for finance lease
liabilities
Right-of-use assets, finance leases obtained in exchange for assets under capital
lease
Right-of-use assets, operating leases obtained in exchange for operating lease
liabilities
Capital lease obligation exchanged for finance lease liability
Note receivable exchanged for sale of real estate
Other liabilities exchanged for operating lease liabilities
Assumption of debt through investments in unconsolidated affiliates
Acquisition of undivided interest in a property through conversion of notes
receivable
Acquisition of real estate through conversion of note receivable
$
$
$
$
$
$
$
$
$
$
Change in control of previously unconsolidated (consolidated) investment
(Increase) decrease in real estate
Decrease (increase) in investments in and advances to unconsolidated affiliates
Change in other assets and liabilities
Decrease in right-of-use assets, finance leases
Decrease in finance lease liability
Decrease in notes receivable
Gain on change in control
Increase in cash and restricted cash upon change of control
$
$
Year Ended December 31,
2018
2019
2017
53,586 $
730 $
61,832
1,227
4,666 $
2,597
16,349 $
76,965 $
57,165 $
71,111 $
13,530 $
946 $
4,688 $
— $
— $
828 $
(1,189)
12
11,051
(10,702)
—
—
— $
—
—
—
—
—
—
—
22,201
—
(31,836)
35,881
(3,472)
—
—
—
—
573
$
$
$
$
$
$
$
$
$
$
$
$
$
49,942
875
2,173
—
—
—
—
—
—
60,695
9,142
(39,322)
4,159
(1,842)
—
—
32,010
5,571
576
The accompanying notes are an integral part of these consolidated financial statements.
60
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Basis of Presentation and Summary of Significant Accounting Policies
Organization
Acadia Realty Trust (collectively with its subsidiaries, the “Company”) is a fully-integrated equity real estate investment trust (“REIT”)
focused on the ownership, acquisition, development, and management of retail properties located primarily in high-barrier-to-entry, supply-
constrained, densely-populated metropolitan areas in the United States.
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, 2019 and 2018, the Company controlled
approximately 95% and 94% of the Operating Partnership as the sole general partner and 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 13). 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 Company (“Common Shares”). This
structure is referred to as an umbrella partnership REIT or “UPREIT.”
As of December 31, 2019, the Company has ownership interests in 129 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 funds (“Core Portfolio”). The Company also has ownership interests in 57 properties within its opportunity funds,
Acadia Strategic Opportunity Fund II, LLC (“Fund II”), Acadia Strategic Opportunity Fund III LLC (“Fund III”), Acadia Strategic Opportunity
Fund IV LLC (“Fund IV”), and Acadia Strategic Opportunity Fund V LLC (“Fund V” and collectively with Fund II, Fund III, and Fund IV, the
“Funds”). The 186 Core Portfolio and Fund properties primarily consist of street and urban retail, and suburban shopping centers. In addition,
the Company, together with the investors in the Funds, invested in operating companies through Acadia Mervyn Investors I, LLC (“Mervyns
I,” which was liquidated in 2018) and Acadia Mervyn Investors II, LLC (“Mervyns II”), all on a non-recourse basis. The Company
consolidates the Funds as it has (i) the power to direct the activities that most significantly impact the Funds’ economic performance, (ii) is
obligated to absorb the Funds’ losses and (iii) has the right to receive benefits from the Funds that could potentially be significant.
The Operating Partnership is the sole general partner or managing member of the Funds and Mervyns II and earns fees or priority distributions
for asset management, property management, construction, development, leasing, and legal services. Cash flows from the Funds and Mervyns
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). All transactions between the
Funds and the Operating Partnership have been eliminated in consolidation.
The following table summarizes the general terms and Operating Partnership’s equity interests in the Funds and Mervyns II (dollars in
millions):
Entity
Fund II and Mervyns II (c)
Fund III
Fund IV
Fund V
Formation
Date
6/2004
5/2007
5/2012
8/2016
Operating
Partnership
Share of
Capital
Capital
Called as of
December 31,
2019 (b)
Unfunded
Commitment
(b)
Equity Interest
Held By
Operating
Partnership (a)
Preferred
Return
Total
Distributions
as of
December
31, 2019 (b)
28.33% $
24.54%
23.12%
20.10%
347.1 $
436.4
438.1
213.3
15.0
13.6
91.9
306.7
28.33%
24.54%
23.12%
20.10%
8% $
6%
6%
6%
146.6
568.8
193.1
11.1
(a) Amount represents the current economic ownership at December 31, 2019, which could differ from the stated legal ownership based upon the cumulative preferred returns of
the respective Fund.
(b) Represents the total for the Funds, including the Operating Partnership and noncontrolling interests’ shares.
61
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(c) During April 2018, a distribution of $15.0 million was made to the Fund II investors, including $4.3 million to the Operating Partnership. This amount remains subject to re-
contribution to Fund II until April 2021.
Basis of Presentation
Segments
At December 31, 2019, the Company had three reportable operating segments: Core Portfolio, Funds and Structured Financing. The
Company’s chief operating decision maker may review operational and financial data on a property-level basis and does not differentiate
properties on a geographical basis for purposes of allocating resources or capital.
Principles of Consolidation
The consolidated financial statements include the consolidated accounts of the Company and its investments in partnerships and limited
liability companies in which the Company has control in accordance with FASB Accounting Standards Codification Topic 810
“Consolidation.” 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.
Use of Estimates
GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported in the consolidated 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.
Reclassifications
Certain prior year amounts with regard to gains on dispositions of properties and credit losses have been reclassified to conform to the current
year presentation. These reclassifications had no effect on the reported results of operations.
Summary of Significant Accounting Policies
Real Estate
Land, buildings, and personal property are carried at cost less accumulated depreciation. Improvements and significant renovations that extend
the useful life of the properties are capitalized, while replacements, maintenance, and repairs that do not improve or extend the lives of the
respective assets are expensed as incurred. Real estate under development includes costs for significant property expansion and development.
Depreciation is computed on the straight-line basis over estimated useful lives of the assets as follows:
Buildings and improvements Useful lives of 40 years for buildings and 15 years for improvements
Furniture and fixtures
Useful lives, ranging from five years to 20 years
Tenant improvements
Shorter of economic life or lease terms
Purchase Accounting – 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. When acquisitions of properties do not
meet the criteria for business combinations, no goodwill is recorded and acquisition costs are capitalized.
The Company assesses fair value of its tangible assets acquired and assumed liabilities based on estimated cash flow projections that utilize
appropriate discount and capitalization rates and available market information at the measurement period. Estimates of future cash flows are
62
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the
property.
In determining the value of above- and below-market leases, the Company estimates the present value difference between contractual rent
obligations and estimated market rate of leases at the time of the transaction. 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 to rental income over the remaining applicable lease term, inclusive
of any option periods.
In determining the value of acquired in-place leases and customer relationships, the Company considers market conditions at the time of the
transaction and values the costs to execute similar leases during the expected lease-up period from vacancy to existing occupancy, including
carrying costs. The value assigned to in-place leases and tenant relationships is amortized over the estimated remaining term of the leases. If a
lease were to be terminated prior to its scheduled expiration, all unamortized costs relating to that lease would be written off.
The Company estimates the value of any assumption of mortgage debt based on market conditions at the time of acquisitions including
prevailing interest rates, terms and ability to obtain financing for a similar asset. Mortgage debt discounts or premiums are amortized into
interest expense over the remaining term of the related debt instrument.
Real Estate Under Development – The Company capitalizes certain costs related to the development of real estate. Interest and real estate taxes
incurred during the period of the construction, expansion or development of real estate are capitalized and depreciated over the estimated useful
life of the building. The Company will cease the capitalization of these costs when construction activities are substantially completed and the
property is available for occupancy by tenants, 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. If the Company suspends substantially all activities related to development of a
qualifying asset, the Company will cease capitalization of interest and taxes until activities are resumed.
Real Estate Impairment – The Company reviews its real estate and real estate under development for impairment when there is an event or a
change in circumstances that indicates that the carrying amount may not be recoverable. 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. The determination of anticipated
undiscounted cash flows is inherently subjective, requiring significant estimates made by management, and considers the most likely expected
course of action at the balance sheet date based on current plans, intended holding periods and available market information. If the Company is
evaluating the potential sale of an asset, the undiscounted future cash flows analysis is probability-weighted based upon management’s best
estimate of the likelihood of the alternative courses of action as of the balance sheet date. Such cash flow projections consider factors such as
expected future operating income, trends and prospects, as well as the effects of demand, competition and other factors. If an impairment is
indicated, an impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value. See Note 8 for
information about impairment charges incurred during the periods presented.
Dispositions of Real Estate – The Company recognizes property sales in accordance with ASC Topic 970 “Real Estate.” Sales of real estate
include the sale of land, operating properties and investments in real estate joint ventures. Beginning January 1, 2018, gains on sale of
investment properties are recognized, and the related real estate derecognized, when the Company has satisfied its performance obligations by
transferring control of the property. Typically, the timing of payment and satisfaction of performance obligations occur simultaneously on the
disposition date upon transfer of the property’s ownership. Prior to January 1, 2018, gains from dispositions were recognized under the full
accrual or partial sales method provided that various criteria relating to terms of sales and subsequent involvement by the Company with the
asset sold are met.
Real Estate Held for Sale – The Company generally considers assets to be held for sale when it has entered into a contract to sell the property,
all material due diligence requirements have been satisfied, and management believes it is probable that the disposition will occur within one
year. Assets that are classified as held for sale are recorded at the lower of their carrying amount or fair value, less cost to sell.
Notes Receivable
Notes receivable include certain loans that are held for investment and are collateralized by real estate-related investments and may be
subordinate to other senior loans. Notes receivable are recorded at stated principal amounts or at initial investment less accretive yield for loans
purchased at a discount, which is accreted over the life of the note. The Company defers loan origination and commitment fees, net of
origination costs, and amortizes them over the term of the related loan. The Company evaluates the collectability of both principal and interest
based upon an assessment of the underlying collateral value to determine whether it is impaired. A reserve is recorded when, based upon
current information and events, it is probable that the Company will be unable to collect all amounts due according to the existing contractual
63
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
terms. The amount of the reserve is calculated by comparing the recorded investment to the value of the underlying collateral. As the
underlying collateral for a majority of the notes receivable is real estate-related investments, the same valuation techniques are used to value the
collateral as those used to determine the fair value of real estate investments for impairment purposes. Given the small number of notes
outstanding, the Company does not provide for an additional reserve based on the grouping of loans, as the Company believes the
characteristics of its notes are not sufficiently similar to allow an evaluation of these notes as a group for a possible loan loss allowance. As
such, all of the Company’s notes are evaluated individually for this purpose. Interest income on performing notes is accrued as earned. A note
is placed on non-accrual status when, based upon current information and events, it is probable that the Company will not be able to collect all
amounts due according to the existing contractual terms. Recognition of interest income on an accrual basis on non-performing notes is
resumed when it is probable that the Company will be able to collect amounts due according to the contractual terms.
Investments in and Advances to Unconsolidated Joint Ventures
Some of the Company’s joint ventures obtain non-recourse third-party financing on their property investments, contractually limiting the
Company’s exposure to losses. The Company recognizes income for distributions in excess of its investment where there is no recourse to the
Company and no intention or obligation to contribute additional capital. For investments in which there is recourse to the Company or an
obligation or intention to contribute additional capital exists, distributions in excess of the investment are recorded as a liability.
When characterizing distributions from equity investees within the Company's consolidated statements of cash flows, all distributions received
are first applied as returns on investment to the extent there are cumulative earnings related to the respective investment and are classified as
cash inflows from operating activities. If cumulative distributions are in excess of cumulative earnings, distributions are considered return of
investment. In such cases, the distribution is classified as cash inflows from investing activities.
To the extent that the Company’s carrying basis in an unconsolidated affiliate is different from the basis reflected at the joint venture level, the
basis difference is amortized over the life of the related assets and included in the Company’s share of equity in net income (loss) of
investments in unconsolidated affiliates the joint venture.
The Company periodically reviews its investments in unconsolidated joint ventures for other-than-temporary losses in investment value. Any
decline that is not expected to be recovered based on the underlying assets of the investment, is considered other than temporary and an
impairment charge is recorded as a reduction in the carrying value of the investment. During the periods presented there were no impairment
charges related to the Company’s investments in unconsolidated joint ventures.
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 limits insured by the Federal Deposit
Insurance Corporation.
Restricted Cash
Restricted cash consists 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.
Deferred Costs
External 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. External fees and costs incurred in connection with obtaining financing are deferred and amortized as a component of interest
expense over the term of the related debt obligation on a straight-line basis, which approximates the effective interest method. Effective
January 1, 2019, internal leasing costs are no longer being capitalized as discussed further below under ASU 2016-02.
Derivative Instruments and Hedging Activities
The Company measures derivative instruments at fair value and records them as assets or liabilities, depending on its rights or obligations
under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. For a
derivative designated and that qualified as a cash flow hedge, the effective portion of the change in fair value of the derivative is recognized in
Other comprehensive (loss) income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair
value is immediately recognized in earnings.
64
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Although the Company's derivative contracts are subject to master netting arrangements, which serve as credit mitigants to both the Company
and its counterparties under certain situations, the Company does not net its derivative fair values or any existing rights or obligations to cash
collateral on the consolidated balance sheets. The Company does not use derivatives for trading or speculative purposes. For the periods
presented, all of the Company's derivatives qualified and were designated as cash flow hedges, and none of its derivatives were deemed
ineffective.
Noncontrolling Interests
Noncontrolling interests represent the portion of equity that the Company does not own in those entities it consolidates. The Company
identifies its noncontrolling interests separately within the equity section on the Company’s consolidated balance sheets. The amounts of
consolidated net earnings attributable to the Company and to the noncontrolling interests are presented separately on the Company’s
consolidated statements of income. Noncontrolling interests also include amounts related to common and preferred OP Units issued to
unrelated third parties in connection with certain property acquisitions. In addition, the Company periodically issues common OP Units and
LTIPs to certain employees of the Company under its share-based incentive program. Unit holders generally have the right to redeem their
units for Common Shares subject to blackout and other limitations. Common and restricted OP Units are included in the caption
Noncontrolling interest within the equity section on the Company’s consolidated balance sheets.
Revenue Recognition and Accounts Receivable
Effective January 1, 2019, and as further described below, the Company accounts for its leases under ASC 842. Pursuant to ASC 842, the
Company has made an accounting policy election to not separate the non-lease components from its leases, such as common area maintenance,
and has accounted for each of its leases as a single lease component. In addition, the Company has elected to account only for those taxes that it
pays on behalf of the tenant as reimbursable costs and will not account for those taxes paid directly by the tenant. Minimum rents from tenants
are recognized using the straight-line method over the non-cancelable lease term of the respective leases. Lease termination fees are recognized
upon the effective termination of a tenant’s lease when the Company has no further obligations under the lease. As of December 31,
2019 and 2018, unbilled rents receivable relating to the straight-lining of rents of $48.4 million and $47.2 million, respectively, are included in
Rents Receivable, net on the accompanying consolidated balance sheets. 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 assesses the collectability of its accounts receivable related to tenant revenues. With the adoption of ASC Topic 842, the
Company will first apply the guidance under ASC 842 in assessing its rents receivable: if collection of rents under specific operating leases is
not probable, then the Company recognizes the lesser of that lease’s rental income on a straight-line basis or cash received, plus variable rents
as earned. Once this initial assessment is completed, the Company applies a general reserve, as provided under ASC 450-20, if applicable.
Rents receivable at December 31, 2019 and 2018 are shown net of an allowance for doubtful accounts of $11.4 million and $7.9 million,
respectively.
Stock-Based Compensation
Stock-based compensation expense for all equity-classified stock-based compensation awards is based on the grant date fair value estimated in
accordance with current accounting guidance for share-based payments. The Company recognizes these compensation costs for only those
shares or units expected to vest on a straight-line or graded-vesting basis, as appropriate, over the requisite service period of the award. The
Company includes stock-based compensation within general and administrative expense on the consolidated statements of income.
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.
In connection with the REIT Modernization Act, the Company is permitted to participate in certain activities and still maintain its qualification
as a REIT, so long as these activities are conducted in entities that elect to be treated as taxable subsidiaries under the Code. As such, the
Company is subject to Federal and state income taxes on the income from these activities.
65
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Act was enacted in December 2017 and is generally effective for tax years beginning in 2018. This new legislation did not have a material
adverse effect on the Company’s business and allows non-corporate shareholders to deduct a portion of the Company’s dividends.
Although it may qualify for REIT status for federal income tax purposes, the Company is subject to state or local income or franchise taxes in
certain jurisdictions in which some of its properties are located. In addition, taxable income from non-REIT activities managed through the
Company’s 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.
The Company records net deferred tax assets to the extent it believes it is more likely than not that these assets will be realized. In 2019, the
Company recorded valuation allowances to reduce deferred tax assets when it determined that an uncertainty existed regarding their realization,
which increased the provision for income taxes. In making such determination, the Company considered all available positive and negative
evidence, including forecasts of future taxable income, the reversal of other existing temporary differences, available net operating loss carry-
forwards, tax planning strategies and recent results of operations. Several of these considerations require assumptions and significant judgment
about the forecasts of future taxable income and are consistent with the plans and estimates that the Company is utilizing to manage its
business. To the extent facts and circumstances change in the future, further adjustments to the valuation allowances may be required.
Recently Adopted Accounting Pronouncements
Lease Accounting
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 outlines a new model for accounting by lessees,
whereby their rights and obligations under substantially all leases, existing and new, will be capitalized and recorded on the balance sheet. For
lessors, however, the accounting remains largely unchanged from the former model, with the distinction between operating, sales-type and
direct-financing leases retained, but updated to align with certain changes to the lessee model and the new revenue recognition standard, ASC
Topic 606, Revenue from Contracts with Customers (Topic 606).
To ease the transition, the new lease accounting guidance permits companies to utilize certain practical expedients in their implementation of
the new standard:
• A package of three practical expedients that must be elected together for all leases and includes: (i) not reassessing expired or existing
contracts as to whether they are or contain leases; (ii) not reassessing lease classification of existing leases and (iii) not reassessing the
amount of capitalized initial direct costs for existing leases;
• A practical expedient to use hindsight in determining the lease term or assessing purchase options for existing leases and in assessing
impairment of right of use assets;
Lessees may make an accounting policy election by class of underlying asset not to separate lease components from non-lease
components; and
Lessees may make an accounting policy election not to apply the recognition and measurement requirements to short-term leases.
•
•
ASU 2016-02 was modified by the following subsequently issued ASU’s (together with ASU 2016-02, “Topic 842”), many of which
provided additional transition practical expedients:
• ASU 2018-01, Land Easements Practical Expedient for Transition to Topic 842 added a transition practical expedient to not reassess
existing or expired land easement agreements not previously accounted for as leases;
• ASU 2018-10, Codification Improvements to Topic 842, Leases. These amendments provide minor clarifications and corrections to
ASU 2016-02
• ASU 2018-11, Leases (Topic 842): Targeted Improvements.
o The amendments in this Update provide entities with an additional optional transition method to adopt ASU 2016-02. Under
this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a
cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s
reporting under this additional transition method for the comparative periods presented in the financial statements in which it
adopts the new leases standard would continue to be in accordance with former GAAP (Topic 840, Leases).
o The amendments in this Update also provide lessors with a practical expedient, by class of underlying asset, to make a policy
election to not separate non-lease components from the associated lease component and, instead, to account for those
components as a single component if the non-lease components otherwise would be accounted for under the new revenue
66
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
guidance (Topic 606). Conditions are required to elect the practical expedient, and if met, the single component will be
accounted for under either under Topic 842 or Topic 606 depending on which component(s) are predominant. The lessor
practical expedient to not separate non-lease components from the associated component must be elected for all existing and
new leases.
• ASU 2018-20, Leases (Topic 842), Narrow-Scope Improvements for Lessors. This ASU modifies ASU No. 2016-02 to permit lessors,
as an accounting policy election, not to evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs.
Instead, those lessors will account for those costs as if they are lessee costs. Consequently, a lessor making this election will exclude
from the consideration in the contract and from variable payments not included in the consideration in the contract all collections from
lessees of taxes within the scope of the election and will provide certain disclosures (includes sales, use, value added, and some excise
taxes and excludes real estate taxes). ASU 2019-01, Leases (Topic 842), Codification Improvements. There are three codification
updates to Topic 842 covered by this ASU: Issue 1 provides guidance on how to compute fair value of leased items for lessors who are
non-dealers or manufacturers; Issue 2 relates to cash flow presentation for lessors of sales-type and direct financing leases; and Issue 3
clarifies that certain transition disclosures will only be required in annual disclosures.
• Under the new leasing guidance, contract consideration shall be allocated to its lease components (such as the lease of retail
properties) and non-lease components (such as maintenance). For lessors, any non-lease components will be accounted for under
Topic 606 unless the entity elects the lessor practical expedient to not separate the non-lease components from the associated lease
component as described above. The new guidance also includes a definition of initial direct costs that is narrower than the prior
definition in former GAAP (Topic 840, Leases). Topic 842 was effective for the Company beginning January 1, 2019.
The Company adopted Topic 842 effective January 1, 2019 utilizing the new transition method described in ASU 2018-11 and has availed
itself of all the available practical expedients described above except it did not use hindsight in determining the lease term or assessing
purchase options for existing leases and in assessing impairment of right of use assets.
As lessor, the Company has more than 1,000 leases with retail tenants and to a lesser extent with office and residential tenants. A
significant majority of its leases are on a triple-net basis. The impact of adoption of ASU 2016-02 for the Company as lessor was as
follows effective January 1, 2019:
•
The Company has elected the lessor practical expedient to not separate common area maintenance from the associated lease for all
existing and new leases and to account for the combined component as a single lease component. Common area maintenance is
considered a non-lease component within the scope of Topic 606 and reimbursements of taxes and insurance are considered
contractual payments that do not transfer a good or service to the tenant; however, such revenues related to leases, which were
formerly reported as reimbursed expenses, have been reported within lease revenues in the presentation of the statement of income
subsequent to the implementation of ASC 842. Prior year classifications under ASC 840 have been reclassified to conform to the
current period presentation.
• Due to its election of available practical expedients, the Company notes that post-adoption substantially all existing leases, and new
•
•
•
leases compared to similar existing leases, had no change in the timing of revenue recognition.
The Company’s internal leasing costs have been expensed as incurred, as opposed to being capitalized and deferred. Commissions
subsequent to successful lease execution will continue to be capitalized. After adoption, the Company no longer capitalizes internal
leasing costs that were previously capitalized (the Company capitalized $1.7 million of internal leasing costs during the year ended
December 31, 2018).
The Company has existing easement arrangements that have not been previously identified as leases. The Company’s existing and
similar future easement arrangements will not be classified as rental revenue but as other revenues as these arrangements do not
transfer control to the counterparty.
The Company has made a policy election to continue to account for only those taxes described under ASU 2018-20 that it pays on
behalf of the tenant as reimbursable costs and will not account for those taxes paid directly by the lessee which are considered lessee
costs.
As lessee, the Company was party to 13 ground, office and equipment leases with future payment obligations aggregating approximately
$203.1 million at December 31, 2018. The impact of adoption of ASU 2016-02 for the Company as lessee was as follows (Note 11):
67
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
•
•
•
As lessee, the Company has applied the following practical expedients in the implementation ASU 2016-02: (i) to not separate non-
lease components from the associated lease component as described above and (ii) to not apply the right-of-use recognition
requirements to short-term leases. As such, there were no changes in the timing of recognition of expenses related to its operating
leases.
The Company recognized right-of-use assets and lease liabilities of $11.9 million and $12.8 million, respectively, related to its
operating leases.
The Company reclassified its existing capital lease asset of $77.0 million and capital lease liability of $71.1 million to a right-of-use
asset and a lease liability, respectively, pertaining to finance leases.
Subsequent to the adoption of and in accordance with Topic 842, the Company reassessed the circumstances surrounding three of its
operating ground leases and determined that it had made significant leasehold improvements and was now reasonably certain to
exercise their purchase options. Accordingly, the Company reclassified the existing right-of-use assets and lease liabilities from
operating leases to finance leases and adjusted the leases’ right-of-use assets and corresponding lease liabilities to $5.7 million and
$5.7 million, respectively, to incorporate the present value of the purchase options, which totaled $4.7 million at January 1, 2019.
• With the adoption of ASC Topic 842, the Company will first apply the guidance under ASC 842 in assessing its rents receivable: if
collection of rents under specific operating leases is not probable, then the Company recognizes the lesser of that lease’s rental income
on a straight-line basis or cash received, plus variable rents as earned. Once this initial assessment is completed, the Company may
apply a general reserve, as provided under ASC 450-20, if applicable.
•
The Company did not record any cumulative effect of change in accounting principle upon the adoption of ASC Topic 842 as lessor or lessee.
Consistent with the transition guidance under ASU 2018-11, all prior period disclosures remain in accordance with ASC Topic 840.
Other Accounting Topics
In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of
Certain Tax Effects from Accumulated Other Comprehensive Income. These amendments provide financial statement preparers with an option
to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the
change in the U.S. federal corporate income tax rate in the Act is recorded. This guidance is effective for fiscal years beginning after December
15, 2018, and interim periods therein. The Company adopted this guidance effective January 1, 2019, which had no material effect on the
Company’s financial statements.
In June 2018, the FASB issued ASU No. 2018-07, Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-
Based Payment Accounting. These amendments provide specific guidance for transactions for acquiring goods and services from
nonemployees and specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be
used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not
apply to share-based payments used to effectively provide (i) financing to the issuer or (ii) awards granted in conjunction with selling goods or
services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. This guidance is effective
for fiscal years beginning after December 15, 2018, and interim periods beginning after December 15, 2020. Early adoption is permitted but not
earlier than the adoption of Topic 606. The Company adopted this guidance effective January 1, 2019 and there was no impact on the
Company’s consolidated financial statements as it has not historically issued share-based payments in exchange for goods or services to be
consumed within its operations.
In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements. These amendments provide clarifications and corrections to
certain ASC subtopics including the following: 220-10 (Income Statement - Reporting Comprehensive Income - Overall), 470-50 (Debt -
Modifications and Extinguishments), 480-10 (Distinguishing Liabilities from Equity - Overall). Some of the amendments in ASU 2018-09 do
not require transition guidance and were effective upon issuance; however, many of the amendments do have transition guidance with effective
dates for annual periods beginning after December 15, 2018. For those amendments that were effective January 1, 2019 or earlier, there was no
material effect on the Company’s financial statements.
Recently Issued Accounting Pronouncements
In April 2019, the FASB issued ASU No. 2019-04 Codification Improvements to Topic 326, Financial Instruments — Credit Losses, Topic
815, Derivatives and Hedging, and Topic 825, Financial Instruments, which provides updates and clarifications to three previously-issued
ASUs: 2016-01 Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial
Liabilities; 2016-13 Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, described
further below and which the Company has not yet adopted; and 2017-12 Derivatives and Hedging (Topic 815): Targeted Improvements to
Accounting for Hedging Activities, which the Company early adopted effective January 1, 2018. The updates related to ASU 2016-13
(discussed below) have the same transition as ASU 2016-13 and are effective for periods beginning after December 15, 2019, with adoption
68
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
permitted after the issuance of ASU 2019-04. The updates related to ASU 2017-12 are effective for the Company on January 1, 2020. The
updates related to ASU 2016-01 are effective for fiscal years beginning after December 15, 2019.
In May 2019, the FASB issued ASU No. 2019-05 Financial Instruments — Credit Losses (Topic 326) which provides relief to certain entities
adopting ASU 2016-13 (discussed below). The amendments accomplish those objectives by providing entities with an option to irrevocably
elect the fair value option in Subtopic 825-10, applied on an instrument-by-instrument basis for eligible instruments, that are within the scope
of Subtopic 326-20, upon adoption of Topic 326. The fair value option election does not apply to held-to-maturity debt securities. ASU 2019-
05 has the same transition as ASU 2016-13 and is effective for periods beginning after December 15, 2019, with adoption permitted after this
update. The Company currently does not expect to utilize this election upon adoption of ASU 2016-13 (discussed below) because it does not
currently have any significant held-to-maturity debt securities.
In November 2018, the FASB issued ASU No. 2018-19 Codification Improvements to Topic 326, Financial Instruments — Credit Losses. This
ASU modifies ASU 2016-13 (discussed below). The amendment clarifies that receivables arising from operating leases are not within the scope
of Subtopic 326-20, Financial Instruments – Credit Losses – Measure at Amortized Cost. Instead, impairment of receivables arising from
operating leases should be accounted for in accordance with Topic 842, Leases. ASU 2018-19 is effective for periods beginning after
December 15, 2019, with adoption permitted for fiscal years beginning after December 15, 2018. As previously discussed, the Company
accounts for its lease receivables utilizing the guidance of ASC 842 and does not expect to make any adjustments related to the implementation
of ASU 2019-19.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses. ASU 2016-13 introduces a new model for
estimating credit losses for certain types of financial instruments, including loans receivable, held-to-maturity debt securities, and net
investments in direct financing leases, amongst other financial instruments. ASU 2016-13 also modifies the impairment model for available-
for-sale debt securities and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the
allowance for losses. ASU 2016-13 is effective for periods beginning after December 15, 2019, with adoption permitted for fiscal years
beginning after December 15, 2018. Retrospective adjustments shall be applied through a cumulative-effect adjustment to retained earnings.
Upon implementation of ASU 2016-13 and other related guidance, the Company expects to record additional reserves related to its Structured
Financing portfolio of loans receivable, but does not expect that these adjustments will be material to the Company’s consolidated financial
statements.
In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework — Changes to the Disclosure Requirements for Fair Value
Measurement which removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC 820. This
guidance is effective for public companies in fiscal years beginning after December 15, 2019 with early adoption permitted. The Company will
make the required updates to its fair value disclosures beginning with its 2020 interim reports.
In August 2018, the FASB issued ASU No. 2018-15 Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing
Arrangement That Is a Service Contract to provide guidance on implementation costs incurred in a cloud computing arrangement that is a
service contract. The ASU aligns the accounting for such costs with the guidance on capitalizing costs associated with developing or obtaining
internal-use software. Specifically, the ASU amends ASC 350 to include in its scope implementation costs of such arrangements that are
service contracts and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized. This
ASU, which is effective for fiscal years beginning after December 15, 2019, has been early adopted by the Company effective January 1, 2019.
As of December 31, 2019, the Company has capitalized and deferred approximately $0.2 million related to the ongoing implementation of two
separate software applications for internal use pursuant to this new guidance.
69
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Real Estate
The Company’s consolidated real estate is comprised of the following for the periods presented (in thousands):
Land
Buildings and improvements
Tenant improvements
Construction in progress
Properties under capital lease (Note 11)
Right-of-use assets - finance leases (Note 11)
Right-of-use assets - operating leases (Note 11), net
Total
Less: Accumulated depreciation and amortization
Operating real estate, net
Real estate under development, at cost
Net investments in real estate
December 31,
2019
December 31,
2018
$
$
756,297 $
2,740,479
173,686
13,617
—
102,055
60,006
3,846,140
(490,227)
3,355,913
253,402
3,609,315 $
710,469
2,594,828
151,154
44,092
76,965
—
—
3,577,508
(416,657)
3,160,851
120,297
3,281,148
70
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Acquisitions and Conversions
During the years ended December 31, 2019 and December 31, 2018, the Company acquired the following consolidated retail properties (dollars
in thousands):
Property and Location
2019 Acquisitions
Core
Soho Acquisitions - 41, 45, 47, 51 and 53 Greene Street - New York, NY (a)
849, 907 and 912 W. Armitage - Chicago, IL
8436-8452 Melrose Place - Los Angeles, CA
Subtotal Core
Fund V
Palm Coast Landing - Palm Coast, FL
Lincoln Commons - Lincoln, RI
Landstown Commons - Virginia Beach, VA
Subtotal Fund V
Total 2019 Acquisitions
2018 Acquisitions and Conversions
Core
Bedford Green Land Parcel - Bedford Hills, NY
Subtotal Core
Fund IV
Broughton Street Partners I - Savannah, GA (Conversion) (Note 4)
Subtotal Fund IV
Fund V
Trussville Promenade - Trussville, AL
Elk Grove Commons - Elk Grove, CA
Hiram Pavilion - Hiram, GA
Subtotal Fund V
Total 2018 Acquisitions and Conversions
Percent
Acquired
Date of
Acquisition
Purchase
Price
100%
100%
100%
Mar 15, 2019
Mar 27, 2019
May 29, 2019
Jul 30, 2019
Nov 8, 2019
Sep 11, 2019
Dec 11, 2019
Oct 25, 2019
$
87,006
10,738
48,691
146,435
36,644
54,299
86,961
177,904
324,339
1,337
1,337
36,104
36,104
45,259
59,320
44,443
149,022
186,463
100%
100%
100%
May 6, 2019
Jun 21, 2019
Aug 2, 2019
$
100%
Mar 23, 2018
$
100%
Oct 11, 2018
100%
100%
100%
Feb 21, 2018
Jul 18, 2018
Oct 23, 2018
$
(a) The Soho Acquisitions are a collection of seven properties located in New York, NY with an aggregate purchase price of approximately $122.0 million under two
separate contracts. One of the remaining properties was acquired in January 2020 (Note 17). The acquisition of the remaining property is expected to be finalized during
2020. No assurance can be given that the Company will successfully close on the remaining acquisitions under contract, which are subject to customary closing
conditions.
The 2019 Acquisitions and 2018 Acquisitions and Conversions were considered asset acquisitions based on accounting guidance effective as of
January 1, 2018. For the years ended December 31, 2019 and 2018, the Company capitalized $2.6 million and $0.3 million of acquisition costs,
respectively, of which $2.2 million related to the Core Portfolio and $0.4 million related to the Funds in 2019 and $0.3 million related to the
Funds in 2018. No debt was assumed in any of the 2019 Acquisitions or 2018 Acquisitions or Conversions.
71
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Purchase Price Allocations
The purchase prices for the 2019 Acquisitions and the 2018 Acquisitions and Conversions were allocated to the acquired assets and assumed
liabilities based on their estimated fair values at the dates of acquisition. The following table summarizes the allocation of the purchase price of
properties acquired during the years ended December 31, 2019 and 2018 (in thousands):
Net Assets Acquired
Land
Buildings and improvements
Acquisition-related intangible assets (Note 6)
Acquisition-related intangible liabilities (Note 6)
Net assets acquired
Consideration
Cash
Liabilities assumed
Existing interest in previously unconsolidated investment
Total consideration
Dispositions
Year Ended
December 31,
2019
Year Ended
December 31,
2018
$
$
$
$
78,263 $
221,185
34,972
(10,081)
324,339 $
319,673 $
4,666
—
324,339 $
38,086
129,586
26,693
(7,902)
186,463
147,985
2,597
35,881
186,463
During the years ended December 31, 2019 and 2018, the Company disposed of the following consolidated properties (in thousands):
Property and Location
2019 Dispositions
3104 M Street - Washington, DC (Note 4)
210 Bowery - 3 Residential Condos - New York, NY
JFK Plaza - Waterville, ME
3780-3858 Nostrand Avenue - New York, NY
938 W North Avenue - Chicago, IL
Pacesetter Park - Pomona, NY
Total 2019 Dispositions
2018 Dispositions
Sherman Avenue - New York, NY
Lake Montclair - Dumfries, VA
1861 Union Street - San Francisco, CA
210 Bowery - 4 Residential Condos - New York, NY
Total 2018 Dispositions
Owner
Date Sold
Sale Price
Gain (Loss)
on Sale
Jan 24, 2019 $
May 17, 2019
Sep 23, 2019
Nov 7, 2019
Jul 24, 2019
Aug 22, 2019
Sep 27, 2019
Oct 28, 2019
$
10,500 $
2,014
8,826
7,800
27,650
32,000
22,550
109,326 $
(242)
2,075
2,562
7,144
16,771
30,324
Apr 17, 2018 $
Aug 27, 2018
Aug 29, 2018
Nov 30, 2018
Dec 10, 2018
Dec 17, 2018
Dec 21, 2018
$
26,000 $
22,450
6,000
33
2,923
2,184
12,050
66,500 $
—
5,140
Fund III
Fund IV
Fund IV
Fund III
Fund IV
Core
Fund II
Fund IV
Fund IV
Fund IV
72
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The aggregate rental revenue, expenses and pre-tax income reported within continuing operations for the aforementioned consolidated
properties that were sold during the years ended December 31, 2019, 2018 and 2017 were as follows (in thousands):
Revenues
Expenses
Gain on disposition of properties
Net income attributable to noncontrolling interests
Net income attributable to Acadia
Real Estate Under Development and Construction in Progress
2019
Year Ended December 31,
2018
2017
$
$
7,295 $
(6,403)
30,324
(10,515)
20,701 $
11,633 $
(10,084)
5,140
(4,742)
1,947 $
23,617
(31,651)
48,886
(29,233)
11,619
Real estate under development represents the Company’s consolidated properties that have not yet been placed into service while undergoing
substantial development or construction.
Development activity for the Company’s consolidated properties comprised the following during the periods presented (dollars in thousands):
December 31, 2018
Year Ended December 31, 2019
December 31, 2019
Core
Fund II
Fund III
Fund IV
Total
Number
of
Properties
Carrying
Value
7,759 $
1 $
7,462
—
21,242
1
1
83,834
3 $ 120,297 $
Transfers
In
57,342 $
—
12,313
47,689
117,344 $
Capitalized
Costs
Transfers
Out
Number
of
Properties
Carrying
Value
5,581 $
3,241
2,685
14,073
25,580 $
9,819
—
—
—
9,819
60,863
— $
10,703
—
36,240
1
2 145,596
3 $ 253,402
The number of properties in the table above refers to projects comprising the entire property; however, certain projects represent a portion of a
property. During the year ended December 31, 2019, the Company placed the following projects into development:
•
•
•
•
a portion of City Center (Core)
a portion of Cortlandt Crossing (Fund III)
a portion of 110 University Place (Fund IV, Note 11)
its 146 Geary Street property (Fund IV)
During the year ended December 31, 2019, the Company placed one Core development project, 56 E. Walton, into service. Fund II amounts
relate to the City Point Phase III project.
Core
Fund II
Fund III
Fund IV
Total
Number of
Properties
December 31, 2017
Carrying
Value
21,897 $
2 $
4,908
—
63,939
2
1
82,958
5 $ 173,702 $
Year Ended 2018
Capitalized
Costs
December 31, 2018
Carrying
Value
Number of
Properties
Transfers In
Transfers Out
— $
—
—
—
— $
6,320 $
2,554
36,117
876
45,867 $
20,458
—
78,814
—
99,272
7,759
1 $
7,462
—
21,242
1
1
83,834
3 $ 120,297
During the year ended December 31, 2018, the Company placed one Core development project into service and one Fund III development
project into service. In addition to the consolidated projects noted above, the Company had one unconsolidated project in development at
December 31, 2017, which it placed into service during the year ended December 31, 2018.
73
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Construction in progress pertains to construction activity at the Company’s operating properties that are in service and continue to operate
during the construction period.
3. Notes Receivable, Net
The Company’s notes receivable, net were generally collateralized either by the underlying properties or the borrower’s ownership interest in
the entities that own the properties, and were as follows (dollars in thousands):
Description
Core Portfolio (a)
Fund II
Fund III
Fund IV
December 31, December 31,
2019
2018
Number
$
76,467 $
33,170
5,306
—
$
114,943 $
58,637
32,582
5,306
15,250
111,775
December 31, 2019
Maturity Date
5 Apr 2020 - Apr 2026
1
1
—
7
Dec 2020
Jul 2020
Feb 2021
Interest Rate
4.7% - 8.1%
1.75%
18.0%
15.3%
(a)
Includes two notes receivable from OP Unit holders, which are collateralized by their OP Units, with balances totaling $6.5 million at December 31, 2019 and $4.8
million at December 31, 2018.
During the year ended December 31, 2019, the Company:
•
•
•
•
•
redeemed its $15.3 million Fund IV investment plus accrued interest of $10.0 million;
provided seller financing to the buyer in the amount of $13.5 million with an effective interest rate of 5.1%, collateralized by
Pacesetter Park, in connection with the sale of the property (Note 2);
funded an additional $4.3 million on a Core note receivable from an OP Unit holder;
increased the balance of a Fund II note receivable by the interest accrued of $0.4 million;
stopped accruing interest on one Fund III loan, due to the estimated market value of the collateral. The note had $4.7 million of
accrued interest at each of December 31, 2018 and December 31, 2019 and was guaranteed by a third party;
extended the maturity for a Core note receivable to June 2, 2020; and
•
• modified one Core loan to defer $0.4 million of interest until maturity. Subsequent to modification, the first mortgage, which
aggregated $20.8 million including accrued interest, was in default as of December 31, 2019. The Company believes that the collateral
is sufficient to cover the outstanding principal and interest.
During the year ended December 31, 2018, the Company:
•
•
•
•
•
exchanged $22.0 million of a Core note receivable plus accrued interest thereon of $0.3 million for an additional undivided interest in
the Town Center property (Note 4);
received full payment on $26.0 million of Core notes receivable plus accrued interest of $0.2 million;
funded an additional $2.8 million to its existing $15.0 million Core note receivable and entered into an agreement to extend the
maturity to April 1, 2020;
advanced an additional $0.2 million on a Fund III note receivable; and
increased the balance of a Fund II note receivable by the interest accrued of $0.8 million.
The Company monitors the credit quality of its notes receivable on an ongoing basis and considers indicators of credit quality such as loan
payment activity, the estimated fair value of the underlying collateral, the seniority of the Company’s loan in relation to other debt secured by
the collateral and the prospects of the borrower.
Earnings from these notes and mortgages receivable are reported within the Company’s Structured Financing segment (Note 12). See Note 17
for information about investments subsequent to December 31, 2019.
74
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Investments in and Advances to Unconsolidated Affiliates
The Company accounts for its investments in and advances to unconsolidated affiliates primarily under the equity method of accounting as it
has the ability to exercise significant influence, but does not have financial or operating control over the investment, which is maintained by
each of the unaffiliated partners who co-invest with the Company. The Company’s investments in and advances to unconsolidated affiliates
consist of the following (dollars in thousands):
Portfolio
Core:
Property
Ownership Interest
December 31, 2019
December 31, December 31,
2019
2018
840 N. Michigan (a)
Renaissance Portfolio
Gotham Plaza
Town Center
Georgetown Portfolio
1238 Wisconsin Avenue
(a, b)
Mervyns I & II:
KLA/Mervyn's, LLC (c)
Fund III:
Fund IV:
Fund V:
Various:
Core:
Fund III Other Portfolio
Self Storage Management (d)
Broughton Street Portfolio (e)
Fund IV Other Portfolio
650 Bald Hill Road
Family Center at Riverdale (a)
Tri-City Plaza
Frederick County Acquisitions
Due to Related Parties
Other (f)
Investments in and advances to
unconsolidated affiliates
88.43%
20%
49%
75.22%
50%
80%
10.5%
94.23%
95%
50%
98.57%
90%
89.42%
90%
90%
$
61,260 $
31,815
29,466
97,674
4,498
1,194
225,907
—
17
207
224
12,702
14,733
12,450
39,885
13,329
10,250
15,070
38,649
(1,902)
2,334
65,013
32,458
29,550
99,758
4,653
—
231,432
—
21
206
227
3,236
14,540
12,880
30,656
—
—
—
—
(461)
556
$
305,097 $
262,410
Crossroads (g)
Distributions in excess of income from,
and investments in, unconsolidated affiliates
49%
$
15,362 $
15,623
$
15,362 $
15,623
(a) Represents a tenancy-in-common interest.
(b) During November 2017 and March 2018, as discussed below, the Company increased its ownership in Town Center.
(c) Distributions, discussed below, have exceeded the Company’s non-recourse investment, therefore the carrying value is zero.
(d) Represents a variable interest entity for which the Company was determined not to be the primary beneficiary.
(e) Also referred to as “BSP II” as discussed further below. The Company is entitled to a 15% return on its cumulative capital contribution which was $5.9 million and $3.0
million at December 31, 2019 and 2018, respectively. In addition, the Company is entitled to a 9% preferred return on a portion of its equity, which was $9.4 million and $2.8
million at December 31, 2019 and 2018, respectively.
Includes cost-method investments in Albertson’s (Note 8), Storage Post, Fifth Wall (discussed below) and other investments.
(f)
(g) Distributions have exceeded the Company’s investment; however, the Company recognizes a liability balance as it may be required to return distributions to fund future
obligations of the entity.
75
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Core Portfolio
2019 Acquisitions of Unconsolidated Investments
On January 24, 2019, the Renaissance Portfolio, in which the Company owns a 20% noncontrolling interest, acquired a 7,300 square foot
property in Fund III’s 3104 M Street property located in Washington, D.C. for $10.7 million (Note 2) less the assumption of the outstanding
mortgage of $4.7 million.
On August 8, 2019, the Company invested $1.8 million in Fifth Wall Ventures Retail Fund, L.P. (“Fifth Wall”). During the fourth quarter
2019, the Company invested $0.1 million in Fifth Wall. Additionally, in November 2019, Fifth Wall distributed $0.2 million. The Company’s
total commitment is $5.0 million. The Company accounts for its interest at cost less impairment given its ownership is less than five percent,
the investment has no readily determinable fair value, and the Company has virtually no influence over the partnership’s operating and
financial policies. At December 31, 2019, the Company’s investment was $1.7 million.
On May 2, 2019, the Company acquired a ground lease interest at 1238 Wisconsin Avenue in Washington, D.C. (“1238 Wisconsin”). Prior to
the fourth quarter of 2019, the Company had a controlling interest, and therefore consolidated the property within the Company’s financial
statements. During December 2019, the Company entered into an operating agreement in order to admit a co-investor and property manager,
who was also appointed the development manager under a separate agreement. As a result of these transactions and the significant participation
rights of the co-investor, the Company de-consolidated 1238 Wisconsin and accounted for its interest under the equity method of accounting
effective October 1, 2019 as it does not control but exercises significant influence over the investment. No gain or loss was recognized as the
Company’s investment approximated fair value at the time of de-consolidation.
Brandywine Portfolio, Market Square and Town Center
The Company owns an interest in an approximately one million square foot retail portfolio (the “Brandywine Portfolio” joint venture) located
in Wilmington, Delaware, which includes two properties referred to as “Market Square” and “Town Center.” Prior to the second quarter of
2016, the Company had a controlling interest in the Brandywine Portfolio, and it was therefore consolidated within the Company’s financial
statements. During April 2016, the arrangement with the partners of the Brandywine Portfolio was modified to change the legal ownership
from a partnership to a tenancy-in-common interest, as well as to provide certain participating rights to the outside partners. As a result of these
modifications, the Company de-consolidated the Brandywine Portfolio and accounted for its interest under the equity method of accounting
effective May 1, 2016. Furthermore, as the owners of the Brandywine Portfolio had consistent ownership interests before and after the
modification and the underlying net assets were unchanged, the Company reflected the change from consolidation to equity method based upon
its historical cost. The Brandywine Portfolio and Market Square ventures do not include the property held by Acadia Brandywine Holdings,
LLC (“Brandywine Holdings”), an entity in which the Company has a 22.22% controlling interest and therefore consolidates.
Additionally, in April 2016, the Company repaid the outstanding balance of $140.0 million of non-recourse debt collateralized by the
Brandywine Portfolio and provided a note receivable collateralized by the partners’ tenancy-in-common interest in the Brandywine Portfolio
for their proportionate share of the repayment. On May 1, 2017, the Company exchanged $16.0 million of the $153.4 million notes receivable
(the “Brandywine Notes Receivable”) (Note 3) plus accrued interest of $0.3 million for one of the partner’s 38.89% tenancy-in-common
interests in Market Square. The Company already had a 22.22% interest in Market Square and continued to apply the equity method of
accounting for its aggregate 61.11% noncontrolling interest in Market Square and its 22.22% interest in Town Center through November 16,
2017. The incremental investment in Market Square was recorded at $16.3 million and the excess of this amount over the venture’s book value
associated with this interest, or $9.8 million, was being amortized over the remaining depreciable lives of the venture’s assets through
November 16, 2017. On November 16, 2017, the Company exchanged an additional $16.0 million of Brandywine Notes Receivable plus
accrued interest of $0.6 million for the remaining 38.89% interest in Market Square, thereby obtaining a 100% controlling interest in the
property. The exchange was deemed to be a business combination and as a result, the property was consolidated and a gain on change of
control of $5.6 million was recorded.
On November 16, 2017, the Company exchanged $60.7 million of the Brandywine Notes Receivable plus accrued interest of $0.9 million for
one of the partner’s 38.89% tenancy-in-common interests in Town Center. The incremental investment in Town Center was recorded at $61.6
million and the excess of this amount over the venture’s book value associated with this interest, or $34.5 million, is being amortized over the
remaining depreciable lives of the venture’s assets. The Company previously had a 22.22% interest in Town Center which then became 61.11%
following the November 2017 transaction.
On March 28, 2018, the Company exchanged $22.0 million of its Brandywine Notes Receivable plus accrued interest of $0.3 million for one of
the partner’s 14.11% tenancy-in-common interests in Town Center. The incremental investment in Town Center was recorded at $ 22.3 million
and the excess of this amount over the venture’s book value associated with this interest, or $12.7 million, is being amortized over the
76
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
remaining depreciable lives of the venture’s assets. The Company continues to apply the equity method of accounting for its aggregate 75.22%
noncontrolling interest in Town Center after the March 2018 transaction.
At December 31, 2019, $38.7 million of the Brandywine Note Receivable remains outstanding (Note 3), which is collateralized by the
remaining 24.78% undivided interest in Town Center.
Fund Investments
2019 Acquisitions of Unconsolidated Investments
On March 19, 2019, Fund V obtained a 99.35% interest in a joint venture which in turn obtained a 90% undivided interest in the property and
invested in a 428,000 square-foot property located in Riverdale, Utah referred to as “Family Center at Riverdale” for $48.5 million. The
property is held by the venture as a tenancy in common. The Company accounts for its interest in the Family Center at Riverdale under the
equity method of accounting as it does not control but exercises significant influence over the investment.
On April 30, 2019, Fund V acquired a 90% interest in a venture which invested in a 300,000 square-foot property located in Vernon,
Connecticut referred to as “Tri-City Plaza” for $36.7 million. The Company accounts for its interest in Tri-City Plaza under the equity method
of accounting as it does not control but exercises significant influence over the investment.
On August 21, 2019, Fund V acquired a 90% interest in a venture which invested in a 225,000 square foot property and a 300,000 square foot
property, both located in Frederick County, Maryland collectively referred to as the “Frederick County Acquisitions” for $21.8 million and
$33.1 million, respectively. The Company accounts for its interest in the Frederick County Acquisitions under the equity method of accounting
as it does not control but exercises significant influence over the investment.
Storage Post
On June 29, 2019, Fund III’s Storage Post venture, which is a cost-method investment with no carrying value, distributed $1.6 million of which
the Operating Partnership’s share was $0.4 million. On May 15, 2018, Fund III’s Storage Post venture, distributed $3.2 million of which the
Operating Partnership’s share was $0.8 million.
Broughton Street Portfolio
During 2014, Fund IV acquired 50% interests in two joint ventures referred to as “BSP I” and “BSP II” with the same venture partner to
acquire and operate a total of 23 properties in Savannah, Georgia referred to as the “Broughton Street Portfolio.” Since that time, as described
below, the ventures have sold eight of the properties and terminated the master leases on two of the properties. In October 2018, the venture
partner relinquished its interest in BSP I, which held 11 consolidated properties (Note 2), resulting in Fund IV becoming the 100% owner of the
BSP I venture. Fund IV accounted for this transaction as an asset purchase at fair value whereby its existing preferred and common interests
were deemed consideration for the properties and no gain or loss was recognized. At December 31, 2019, the Broughton Street portfolio had 13
remaining properties, two of which are unconsolidated and are held within the BSP II venture.
2018 Dispositions of Unconsolidated Investments
On January 18, 2018, Fund IV’s Broughton Street Portfolio venture sold two properties for aggregate proceeds of $8.0 million, resulting in a
net loss of $0.4 million at the property level of which the Fund’s share and the Operating Partnership’s proportionate share of the loss was zero,
due to Fund IV’s preferred return.
On June 29, 2018, Fund IV’s Broughton Street Portfolio venture terminated its master leases on two of its properties resulting in a net loss of
$1.0 million at the property level for which the Operating Partnership’s share was less than $0.1 million.
On August 29, 2018, Fund IV’s Broughton Street Portfolio venture sold a property for proceeds of $2.0 million, resulting in a net loss of $0.3
million at the property level, of which the Operating Partnership’s share was less than $0.1 million.
77
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fees from Unconsolidated Affiliates
The Company earned property management, construction, development, legal and leasing fees from its investments in unconsolidated
partnerships totaling $0.3 million and $0.5 million and $0.7 million for the years ended December 31, 2019, 2018 and 2017, respectively,
which is included in other revenues in the consolidated financial statements.
In addition, the Company paid to certain unaffiliated partners of its joint ventures, $1.3 million and $1.6 million and $1.9 million for the years
ended December 31, 2019, 2018 and 2017, respectively, for leasing commissions, development, management, construction and overhead fees.
Summarized Financial Information of Unconsolidated Affiliates
The following combined and condensed Balance Sheets and Statements of Income, in each period, summarize the financial information of the
Company’s investments in unconsolidated affiliates (in thousands):
Combined and Condensed Balance Sheets
Assets:
Rental property, net
Real estate under development
Other assets
Total assets
Liabilities and partners’ equity:
Mortgage notes payable
Other liabilities
Partners’ equity
Total liabilities and partners’ equity
Company's share of accumulated equity
Basis differential
Deferred fees, net of portion related to the Company's interest
Amounts payable by the Company
Investments in and advances to unconsolidated affiliates, net of Company's
share of distributions in excess of income from and investments in
unconsolidated affiliates
Cost method investments
Company's share of distributions in excess of income from and
investments in unconsolidated affiliates
Investments in and advances to unconsolidated affiliates
December 31,
2019
December 31,
2018
$
$
$
$
$
$
656,265 $
1,341
85,540
743,146 $
502,036 $
77,785
163,325
743,146 $
186,864 $
100,962
1,270
(1,902)
287,194
2,541
15,362
305,097 $
487,846
—
89,890
577,736
408,967
54,585
114,184
577,736
139,028
103,812
3,646
(461)
246,025
762
15,623
262,410
78
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Combined and Condensed Statements of Income
Total revenues
Operating and other expenses
Interest expense
Depreciation and amortization
Loss on debt extinguishment
(Loss) gain on disposition of properties
Net income attributable to unconsolidated affiliates
Company’s share of equity in net income of unconsolidated affiliates
Basis differential amortization
Company’s equity in earnings of unconsolidated affiliates
2019
Year Ended December 31,
2018
2017
$
$
$
$
88,585 $
(24,624)
(21,874)
(25,358)
—
—
16,729 $
11,772 $
(2,850)
8,922 $
80,184 $
(23,586)
(19,954)
(22,228)
—
(1,673)
12,743 $
12,345 $
(3,043)
9,302 $
83,222
(24,711)
(18,733)
(24,192)
(154)
18,957
34,389
26,039
(2,668)
23,371
79
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Other Assets, Net and Accounts Payable and Other Liabilities
Other assets, net and accounts payable and other liabilities are comprised of the following for the periods presented:
(in thousands)
Other Assets, Net:
Lease intangibles, net (Note 6)
Deferred charges, net (a)
Prepaid expenses
Other receivables
Accrued interest receivable
Due from seller
Deposits
Corporate assets, net
Income taxes receivable
Derivative financial instruments (Note 8)
Deferred tax assets
Due from related parties
(a) Deferred Charges, Net:
Deferred leasing and other costs
Deferred financing costs related to line of credit
Accumulated amortization
Deferred charges, net
Accounts Payable and Other Liabilities:
Lease intangibles, net (Note 6)
Lease liability - finance leases, net (Note 11)
Accounts payable and accrued expenses
Lease liability - operating leases, net (Note 11)
Derivative financial instruments (Note 8)
Deferred income
Tenant security deposits, escrow and other
Capital lease obligations (Note 11)
Other
December 31,
2019
December 31,
2018
$
$
$
$
$
116,820 $
28,746
18,873
3,996
9,872
3,682
1,853
1,565
1,755
2,583
913
—
190,658 $
49,081 $
10,051
59,132
(30,386)
28,746 $
82,926 $
77,657
68,838
56,762
39,061
33,682
12,590
—
—
$
371,516 $
115,939
28,619
18,422
2,896
17,046
4,000
4,611
1,953
2,070
7,018
2,032
1,802
206,408
45,011
8,960
53,971
(25,352)
28,619
95,045
—
65,215
—
7,304
34,052
10,588
71,111
2,757
286,072
80
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. 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, including below-market options and acquired in-place leases) and assumed
liabilities. The lease intangibles are amortized over the remaining terms of the respective leases, including option periods where applicable.
Intangible assets and liabilities are included in other assets and other liabilities (Note 5) on the consolidated balance sheet and summarized as
follows (in thousands):
Gross Carrying
Amount
December 31, 2019
Accumulated
Amortization
Net Carrying
Amount
Gross Carrying
Amount
December 31, 2018
Accumulated
Amortization
Net Carrying
Amount
Amortizable Intangible Assets
In-place lease intangible assets
Above-market rent
Amortizable Intangible Liabilities
Below-market rent
Above-market ground lease
$
$
$
$
249,961 $ (137,108) $ 112,853 $
17,227
3,967
(13,260)
267,188 $ (150,368) $ 116,820 $
216,021 $ (105,972) $ 110,049
5,890
18,169
234,190 $ (118,251) $ 115,939
(12,279)
(160,721) $
(671)
(161,392) $
78,315 $ (82,406) $
(520)
78,466 $ (82,926) $
151
(152,188) $
(671)
(152,859) $
57,721 $ (94,467)
(578)
57,814 $ (95,045)
93
During the year ended December 31, 2019, the Company acquired in-place lease intangible assets of $36.1 million, above-market rents of $0.6
million, and below-market rents of $10.4 million with weighted-average useful lives of 7.9, 6.7, and 21.7 years, respectively. During the year
ended December 31, 2018, the Company acquired in-place lease intangible assets of $24.2 million, above-market rents of $2.5 million, and
below-market rents of $7.9 million with weighted-average useful lives of 5.2, 5.1, and 20.5 years, respectively.
Amortization of in-place lease intangible assets is recorded in depreciation and amortization expense and amortization of above-market rent
and below-market rent is recorded as a reduction to and increase to rental income, respectively, in the consolidated statements of income.
Amortization of above-market ground leases are recorded as a reduction to rent expense in the consolidated statements of income.
The scheduled amortization of acquired lease intangible assets and assumed liabilities as of December 31, 2019 is as follows (in thousands):
Years Ending December 31,
2020
2021
2022
2023
2024
Thereafter
Total
Net Increase
in
Lease
Revenues
Increase to
Amortization
Reduction of
Rent
Expense
Net
(Expense)
Income
$
$
7,177 $
6,717
6,196
6,149
5,706
46,494
78,439 $
(27,827) $
(21,053)
(15,160)
(11,578)
(8,931)
(28,304)
(112,853) $
58 $
58
58
58
58
230
520 $
(20,592)
(14,278)
(8,906)
(5,371)
(3,167)
18,420
(33,894)
81
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Debt
A summary of the Company’s consolidated indebtedness is as follows (dollars in thousands):
Mortgages Payable
Core Fixed Rate
Core Variable Rate - Swapped (a)
Total Core Mortgages Payable
Fund II Fixed Rate
Fund II Variable Rate
Fund II Variable Rate - Swapped (a)
Total Fund II Mortgages Payable
Fund III Variable Rate
Fund IV Fixed Rate
Fund IV Variable Rate
Fund IV Variable Rate - Swapped (a)
Total Fund IV Mortgages Payable
Fund V Variable Rate
Fund V Variable Rate - Swapped (a)
Total Fund V Mortgage Payable
Net unamortized debt issuance costs
Unamortized premium
Total Mortgages Payable
Unsecured Notes Payable
Core Term Loans
Core Variable Rate Unsecured
Term Loans - Swapped (a)
Total Core Unsecured Notes
Payable
Fund II Unsecured Notes Payable
Fund IV Term Loan/Subscription
Facility
Fund V Subscription Facility
Net unamortized debt issuance costs
Total Unsecured Notes Payable
Unsecured Line of Credit
Core Unsecured Line of Credit -
Swapped (a)
Total Debt - Fixed Rate (b)(c)
Total Debt - Variable Rate (d)
Total Debt
Net unamortized debt issuance costs
Unamortized premium
Total Indebtedness
Interest Rate at
December 31,
2018
Maturity Date at
December 31, 2019
Carrying Value at
December 31, December 31,
2019
2018
December 31,
2019
3.88%-6.00%
3.41%-4.54%
4.75%
LIBOR+3.00%
2.88%
3.88%-6.00%
3.41%-5.67%
1.00%-4.75%
—
4.27%
Feb 2024 - Apr 2035
Jan 2023 - Nov 2028
$
May 2020
March 2022
Nov 2021
LIBOR+2.75%-LIBOR+3.10% Prime+0.50%-LIBOR+4.65%
3.40%-4.50%
3.40%-4.50%
Jun 2020 - Jan 2021
Oct 2025 - Jun 2026
LIBOR+1.60%-LIBOR+3.40% LIBOR+1.60%-LIBOR+3.95% Feb 2020 - Aug 2021
Mar 2020 - Dec 2022
3.48%-4.61%
3.67%-4.23%
LIBOR+1.50%-LIBOR+2.20%
2.95%-4.78%
LIBOR+2.25%
4.61%-4.78%
Feb 2021 - Dec 2024
Feb 2021 - Dec 2024
—
LIBOR+1.25%
2.49%-5.02%
2.54%-3.59%
Mar 2023
Mar 2023
$
$
LIBOR+1.65%
LIBOR+1.40%
Sep 2020
LIBOR+1.65%-LIBOR+2.00% LIBOR+1.65%-LIBOR+2.75% Dec 2020 - June 2021
—
LIBOR+1.60%
May 2020
2.49%-5.02%
—
Mar 2022
$
$
$
$
176,176 $
81,559
257,735
200,000
24,225
19,073
243,298
74,554
8,189
157,015
102,699
267,903
1,387
334,626
336,013
(10,078)
651
1,170,076
$
178,271
82,583
260,854
205,262
—
19,325
224,587
90,096
8,189
233,065
71,841
313,095
51,506
86,570
138,076
(10,173)
753
1,017,288
—
$
383
350,000
349,617
350,000
40,000
87,625
—
(305)
477,320
$
350,000
40,000
40,825
102,800
(368)
533,257
60,800
$
—
1,403,324
314,604
1,717,928
(10,383)
651
1,708,196
$
$
1,001,658
558,675
1,560,333
(10,541)
753
1,550,545
(a) At December 31, 2019, the stated rates ranged from LIBOR + 1.50% to LIBOR +1.90% for Core variable-rate debt; LIBOR + 1.39% for Fund II variable-rate debt; LIBOR +
2.75% to LIBOR + 3.10% for Fund III variable-rate debt; LIBOR + 1.75% to LIBOR +2.25%for Fund IV variable-rate debt; LIBOR + 1.50% to LIBOR + 2.20% for Fund V
variable-rate debt; LIBOR + 1.25% for Core variable-rate unsecured term loans; and LIBOR + 1.35% for Core variable-rate unsecured lines of credit.
Includes $948.8 million and $609.9 million, respectively, of variable-rate debt that has been fixed with interest rate swap agreements as of the periods presented.
Fixed-rate debt at December 31, 2019 includes $70.2 million of Core swaps that may be used to hedge debt instruments of the Funds.
Includes $143.3 million and $143.8 million, respectively, of variable-rate debt that is subject to interest cap agreements.
(b)
(c)
(d)
82
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Credit Facility
On February 20, 2018, the Company entered into a $500.0 million senior unsecured credit facility (the “Credit Facility”), comprised of a
$150.0 million senior unsecured revolving credit facility (the “Revolver”) which bears interest at LIBOR + 1.35% (inclusive of a 20 basis-point
facility fee), and a $350.0 million senior unsecured term loan (the “Term Loan”) which bears interest at LIBOR + 1.25%.
On October 8, 2019, the Company modified the Credit Facility, which provided for a $100.0 million increase in the Revolver. This amendment
resulted in borrowing capacity of up to $600.0 million in principal amount, which includes a $250.0 million revolving credit facility maturing
on March 31, 2022, subject to an extension option, and a $350.0 million Term Loan expiring on March 31, 2023. In addition, the amendment
provides for revisions to the accordion feature, which allows for one or more increases in the revolving credit facility or term loan facility, for a
maximum aggregate principal amount not to exceed $750.0 million.
Mortgages Payable
During the year ended December 31, 2019, the Company:
•
•
•
obtained one new Fund II construction loan, three new Fund IV mortgages and five new Fund V mortgages totaling $258.9 million
with a weighted-average interest rate of LIBOR + 1.70% collateralized by nine properties and maturing in 2022 through 2024;
refinanced three mortgages with existing balances totaling $69.0 million at a weighted-average rate of LIBOR + 2.08% and maturities
ranging from May 2019 to January 2021 with new mortgages totaling $71.8 million with a weighted-average rate of LIBOR + 1.86%
and maturities ranging from April 2022 through December 2024;
transferred a Fund III mortgage with a balance of $4.7 million and an interest rate of Prime + 0.5% and assumed by the purchasing
venture in a property sale (Note 2). The Company repaid one Fund III loan in the amount of $9.8 million and two Fund IV loans in the
aggregate amount of $18.4 million in connection with the sale of the properties. The Company also repaid a Fund IV loan in full,
which had a balance of $38.2 million and an interest rate of LIBOR + 2.35%. The Company also made scheduled principal payments
of $5.9 million;
• modified three loans with prior borrowing capacity totaling $135.9 million at a weighted-average rate of LIBOR + 3.65% and
maturities ranging from November 2019 through January 2020 by obtaining new commitments totaling $125.3 million with a
weighted-average rate of LIBOR + 2.96% and maturities ranging from December 2020 through May 2021; and
Entered into interest rate swap contracts to effectively fix the variable portion of the interest rates of all nine new obligations and two
of the refinanced obligations with a notional value of $283.6 million at a weighted-average interest rate of 1.78%.
•
During the year ended December 31, 2018, the Company obtained four new Fund V mortgages totaling $109.5 million with a weighted-
average interest rate of LIBOR + 1.99% collateralized by four properties and maturing in 2021. In addition, the Company obtained a $73.5
million Core mortgage with an interest rate of LIBOR + 1.50% collateralized by one property and maturing in 2028. As of December 31, 2018,
the Company had drawn $50.0 million on this loan. The Company entered into interest rate swap contracts to effectively fix the variable
portion of the interest rates of four of these obligations with a notional value of $136.6 million at an interest rate of 2.86%. In addition, the
Company drew down $24.6 million on a Fund III construction loan. Also during 2018, the Company repaid one Core mortgage in full, which
had a balance of $40.4 million and an interest rate of LIBOR + 1.65%, and three Fund IV mortgages in full, totaling $27.2 million with a
weighted-average interest rate of LIBOR + 2.81%. The Company also made scheduled principal payments of $6.7 million during the year.
At December 31, 2019 and 2018, the Company’s mortgages were collateralized by 44 and 43 properties, respectively, and the related tenant
leases. 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. A portion of the Company’s variable-rate mortgage debt has been effectively
fixed through certain cash flow hedge transactions (Note 8).
The mortgage loan collateralized by the property held by Brandywine Holdings in the Core Portfolio, was in default and subject to litigation at
December 31, 2019 and 2018. This loan was originated in June 2006 and had an original principal amount of $26.3 million and a scheduled
maturity of July 1, 2016. The loan bears interest at a stated rate of approximately 6.00% and is subject to additional default interest of 5%. In
April 2017, the successor to the original lender, Wilmington – 5190 Brandywine Parkway, LLC (the “Successor Lender”), initiated lawsuits
against Brandywine Holdings in Delaware Superior Court and Delaware Chancery Court for, among other things, judgment on the note (the
“Note Complaint”) and foreclosure on the property. In a contemporaneously filed action in Delaware Superior Court (the “Guaranty
Complaint”), the Successor Lender initiated a lawsuit against the Operating Partnership as guarantor of certain guaranteed obligations of
Brandywine Holdings set forth in a non-recourse carve-out guaranty executed by the Operating Partnership. The Guaranty Complaint alleges
that the Operating Partnership is liable for the full balance of the principal, accrued interest, default interest, as well as fees and costs, under the
83
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Brandywine Loan, which the Successor Lender alleges totaled approximately $33.0 million as of November 9, 2017 (exclusive of accruing
interest, default interest, and fees and costs). In August 2019, the Delaware Superior Court heard arguments on the parties’ cross-motions for
summary judgement regarding both the Guaranty Complaint and the Note Complaint. On February 7, 2020, the Delaware Superior Court
granted in part the Successor Lender’s motion, and denied Brandywine Holdings’ and the Operating Partnership’s cross-motion, for summary
judgment, finding that each of Brandywine Holdings and the Operating Partnership have recourse liability for the outstanding balance of the
Brandywine Loan. The Delaware Superior Court’s decision will be appealable when a judgement is formally entered. Brandywine Holdings
and the Operating Partnership intend to appeal the ruling as soon as it becomes appealable and to vigorously contest it.
During the third quarter of 2019, the company recognized income of $5.0 million related to Fund II’s New Market Tax Credit transaction
(“NMTC”) involving its City Point project. NMTCs were created to encourage economic development in low income communities and
provided for a 39% tax credit on certain qualifying invested equity/loans. In 2012, the NMTCs were transferred to a group of investors
(“Investors”) in exchange for $5.2 million. The NMTCs were subject to recapture under various circumstances, including redemption of the
loan/investment prior to a requisite seven-year hold period, and recognition of income was deferred. Upon the expiration of the seven-year
period and there being no further obligations, the Company recognized the income of $5.0 million, of which the Company’s proportionate
share was $1.4 million, which is included in Other income in the consolidated statements of income.
Unsecured Notes Payable
Unsecured notes payable for which total availability was $152.5 million and $54.8 million at December 31, 2019 and 2018, respectively, are
comprised of the following:
•
•
The outstanding balance of the Core term loan was $350.0 million at each of December 31, 2019 and 2018. During the year ended
December 31, 2019, the Company entered into interest rate swap contracts to effectively fix the variable portion of the interest rate
with a notional value of $156.0 million at a weighted-average interest rate of 2.43%, which may be used to swap the Company’s
unhedged, unsecured, LIBOR-based variable-rate debt. The Company previously entered into swap agreements fixing the rate of the
Core term loan balance.
Fund II has a $40.0 million term loan secured by the real estate assets of City Point Phase II and guaranteed by the Company and the
Operating Partnership. The outstanding balance of the Fund II term loan was $40.0 million at each of December 31, 2019 and 2018.
Total availability was $0.0 at each of December 31, 2019 and 2018.
• At Fund IV there are a $79.2 million bridge facility and a $15.0 million subscription line which were modified from their previous
limits of $40.8 million and $27.0 million, respectively, during 2019. The outstanding balance of the Fund IV bridge facility was $79.2
million and $40.8 million at December 31, 2019 and 2018, respectively. Total availability was $0.0 million at each of December 31,
2019 and 2018. The outstanding balance of the Fund IV subscription line was $8.4 million and $0.0 million at December 31, 2019 and
2018, respectively. Total available credit was $2.5 million and $7.6 million at December 31, 2019 and 2018, reflecting letters of credit
of $4.1 million and $7.4 million, respectively.
Fund V has a $150.0 million subscription line collateralized by Fund V’s unfunded capital commitments and guaranteed in part by the
Operating Partnership. The outstanding balance and total available credit of the Fund V subscription line was $0.0 million and $150.0
million, respectively at December 31, 2019. The outstanding balance and total available credit of the Fund V subscription line was
$102.8 million and $47.2 million, respectively at December 31, 2018.
•
Unsecured Revolving Line of Credit
The Company had a total of $173.6 million and $137.7 million, respectively, available under its $250.0 million Core Revolver, which was
formerly a $150.0 million Revolver as previously discussed, reflecting borrowings of $60.8 and $0.0 million and letters of credit of $15.6
million and $12.3 million at December 31, 2019 and 2018. At each of December 31, 2019 and 2018, all of the Core unsecured revolving line of
credit was swapped to a fixed rate.
84
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Scheduled Debt Principal Payments
The scheduled principal repayments of the Company’s consolidated indebtedness, as of December 31, 2019 are as follows (in thousands):
Year Ending December 31,
2020
2021
2022
2023
2024
Thereafter
Unamortized premium
Net unamortized debt issuance costs
Total indebtedness
$
$
437,329
287,723
167,514
415,476
211,991
197,895
1,717,928
651
(10,383)
1,708,196
See Note 4 for information about liabilities of the Company’s unconsolidated affiliates.
8. Financial Instruments and Fair Value Measurements
The fair value of an asset is defined as the exit price, which is the amount that would either be received when an asset is sold or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. The guidance establishes a three-tier fair value
hierarchy based on the inputs used in measuring fair value. These tiers are: Level 1, for which quoted market prices for identical instruments
are available in active markets, such as money market funds, equity securities, and U.S. Treasury securities; Level 2, for which there are inputs
other than quoted prices included within Level 1 that are observable for the instrument, such as certain derivative instruments including interest
rate caps and interest rate swaps; and Level 3, for financial instruments or other assets/liabilities that do not fall into Level 1 or Level 2 and for
which little or no market data exists, therefore requiring the Company to develop its own assumptions.
Items Measured at Fair Value on a Recurring Basis
The methods and assumptions described below were used to estimate the fair value of each class of financial instrument. For significant Level
3 items, the Company has also provided the unobservable inputs along with their weighted-average ranges.
Money Market Funds — The Company has money market funds, which are included in Cash and cash equivalents in the consolidated financial
statements, comprised of government securities and/or U.S. Treasury bills. These funds were classified as Level 1 as we used quoted prices
from active markets to determine their fair values.
Derivative Assets — The Company has derivative assets, which are included in Other assets, net in the consolidated financial statements, and
comprised of interest rate swaps and caps. The derivative instruments were measured at fair value using readily observable market inputs, such
as quotations on interest rates, and were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank
counterparties that are not traded in an active market. See “Derivative Financial Instruments,” below.
Derivative Liabilities — The Company has derivative liabilities, which are included in Accounts payable and other liabilities in the
consolidated financial statements and comprised of interest rate swaps. These derivative instruments were measured at fair value using readily
observable market inputs, such as quotations on interest rates, and were classified as Level 2 because they are custom, over-the-counter
contracts with various bank counterparties that are not traded in an active market. See “Derivative Financial Instruments,” below.
85
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company did not have any transfers into or out of Level 1, Level 2, and Level 3 measurements during the year ended December 31, 2019
or 2018.
The following table presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis (in
thousands):
Assets
Money market funds
Derivative financial instruments
Liabilities
Derivative financial instruments
December 31, 2019
December 31, 2018
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
$
— $
—
— $
2,583
— $
—
4,504 $
—
— $
7,018
—
39,061
—
—
7,304
—
—
—
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level
in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair
value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its
entirety requires judgment and considers factors specific to the asset or liability.
Items Measured at Fair Value on a Nonrecurring Basis (Including Impairment Charges)
During 2018, the Company began selling the residential units of its 210 Bowery property in Fund IV. As the projected aggregate selling prices
net of selling costs were in line with the carrying amount of the property through the first quarter 2019, no gain or loss had been recognized on
the units sold through that date and no impairment was previously deemed necessary. During the second quarter 2019, the Company revised its
estimate of the expected selling price of the remaining three units. Accordingly, the Company recognized a $1.4 million impairment charge,
inclusive of an amount attributable to a noncontrolling interest of $1.1 million, to adjust the carrying value to the estimated selling price less
estimated costs to sell. During the third quarter 2019, upon execution of a contract for sale (Note 2) the Company recognized an additional $0.3
million impairment charge for the remaining condominium unit, inclusive of an amount attributable to a noncontrolling interest of $0.2 million,
to adjust the carrying value to the estimated selling price less estimated costs to sell.
The Company did not record any impairment charges during the year ended December 31, 2018.
During the year ended December 31, 2017, the Company recognized an impairment charge of $3.8 million, inclusive of an amount attributable
to a noncontrolling interest of $2.7 million, on a property classified as held for sale at September 30, 2017, in order to reduce the carrying value
of the property to its estimated fair value. In addition, the Company recognized an impairment charge of $10.6 million, inclusive of an amount
attributable to a noncontrolling interest of $7.6 million, on a property classified as held for sale at December 31, 2017 in order to reduce the
carrying value of the property to its estimated fair value. This property was sold in April 2018. These fair value measurements approximated
the estimated selling prices less estimated costs to sell.
86
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Derivative Financial Instruments
The Company had the following interest rate swaps and caps for the periods presented (dollars in thousands):
Derivative
Instrument
Aggregate
Notional Amount
Effective
Date
Maturity
Date
Low
High
Balance Sheet
Location
December 31,
2019
December 31,
2018
Strike Rate
Fair Value
423,442 Dec 2012-
July 2020
Nov 2015 -
July 2016
139,118
Mar 2022-
July 2030
July 2020-
June 2021
1.71% —
3.77% Other Liabilities (a)
$
(33,750)
$
(6,332)
1.24% —
1.31% Other Assets
Core
Interest Rate Swaps
Interest Rate Swaps
Fund II
Interest Rate Swap
Interest Rate Swap
Interest Rate Cap
Fund III
Interest Rate Cap
Fund IV
Interest Rate Swaps
Interest Rate Swaps
Interest Rate Caps
Fund V
Interest Rate Swaps
Interest Rate Swaps
$
$
$
$
$
$
$
$
$
334,626
Total asset derivatives
Total liability derivatives
562,560
19,073
—
23,300
42,373
Oct 2014
Nov 2021
2.88% —
2.88% Other Liabilities
—
— —
— —
Mar 2019
Mar 2022
3.50% —
Other Assets
3.50% Other Assets
58,000
Dec 2016
Jan 2020
3.00% —
3.00% Other Assets
14,395
Dec 2019
88,304
90,600
193,299
Mar 2017 -
May 2019
July 2019 -
Dec 2019
Apr 2022 -
Dec 2022
Mar 2020 -
Dec 2022
Dec 2020 -
July 2021
1.48% —
1.52% Other Assets
1.82% —
4.00% Other Liabilities
3.00% —
3.50% Other Assets
177,726
156,900
Oct 2019 -
Nov 2019
Jan 2018-
Mar 2019
Oct 2022 -
Oct 2024
Feb 2021-
Mar 2024
1.25% —
1.47% Other Assets
2.27% —
2.88% Other Liabilities
456
(33,294)
$
(139)
—
1
(138)
$
$
6,022
(310)
—
108
—
108
—
$
8
22
$
(812)
—
(790)
$
2,104
$
(4,360)
(2,256)
$
851
—
8
859
21
(972)
(951)
2,583
(39,061)
$
$
7,018
(7,304)
$
$
$
$
$
$
$
$
$
$
(a)
Includes two swaps with a total fair value of ($11.8) million and ($2.9) million at December 31, 2019 and 2018, respectively, which were acquired during July 2018
and are not effective until July 2020.
All of the Company’s derivative instruments have been designated as cash flow hedges and hedge the future cash outflows on variable-rate
debt (Note 7). It is estimated that approximately $5.2 million included in accumulated other comprehensive (loss) income related to derivatives
will be reclassified to interest expense within the next twelve months. As of December 31, 2019 and 2018, 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 hedges.
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages economic
risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its debt funding and, from
time to time, through the use of derivative financial instruments. The Company enters into derivative financial instruments to manage
exposures that result in the receipt or payment of future known and uncertain cash amounts, the values of which are determined by interest
rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s
known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.
87
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company is exposed to credit risk in the event of non-performance by the counterparties to the swaps if the derivative position has a
positive balance. The Company believes it mitigates its credit risk by entering into swaps with major financial institutions. The Company
continually monitors and actively manages interest costs on its variable-rate debt portfolio and may enter into additional interest rate swap
positions or other derivative interest rate instruments based on market conditions.
Credit Risk-Related Contingent Features
The Company has agreements with each of its swap counterparties that contain a provision whereby if the Company defaults on certain of its
unsecured indebtedness, the Company could also be declared in default on its swaps, resulting in an acceleration of payment under the swaps.
Other Financial Instruments
The Company’s other financial instruments had the following carrying values and fair values as of the dates shown (dollars in thousands,
inclusive of amounts attributable to noncontrolling interests where applicable):
December 31, 2019
December 31, 2018
Notes Receivable (a)
Mortgage and Other Notes Payable (a)
Investment in non-traded equity securities (b)
Unsecured notes payable and Unsecured line of credit (c)
Level
114,943 $
Carrying
Amount
Estimated
Fair Value
Estimated
Fair Value
3 $
109,532
3 1,179,503 1,191,281 1,026,708 1,021,075
56,337
57,964
3
533,954
539,362
2
1,778
538,425
—
533,625
Carrying
Amount
113,422 $
111,775 $
(a) The Company determined the estimated fair value of these financial instruments using a discounted cash flow model with rates that take into account the credit of the
borrower or tenant, where applicable, and interest rate risk. The Company also considered the value of the underlying collateral, taking into account the quality of the
collateral, the credit quality of the borrower, the time until maturity and the current market interest rate environment.
(b) Represents Fund II’s cost-method investment in Albertsons’ supermarkets and the Operating Partnership’s cost-method investment in Fifth Wall (Note 4).
(c) The Company determined the estimated fair value of the unsecured notes payable and unsecured line of credit using quoted market prices in an open market with limited
trading volume where available. In cases where there was no trading volume, the Company determined the estimated fair value using a discounted cash flow model using a
rate that reflects the average yield of similar market participants.
The Company’s cash and cash equivalents, restricted cash, accounts receivable, accounts payable and certain financial instruments included in
other assets and other liabilities had fair values that approximated their carrying values at December 31, 2019 and 2018 due to their short
maturity profiles.
88
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Commitments and Contingencies
The Company is involved in various matters of litigation arising out of, or incident to, its business, including the litigation described in Note 7.
While the Company is unable to predict with certainty the outcome of any particular matter, management does not expect, when such litigation
is resolved, that the Company’s resulting exposure to loss contingencies, if any, will have a material adverse effect on its consolidated financial
position.
Commitments and Guaranties
In conjunction with the development and expansion of various properties, the Company has entered into agreements with general contractors
for the construction or development of properties aggregating approximately $41.1 million and $55.5 million as of December 31, 2019 and
2018, respectively.
At December 31, 2019 and 2018, the Company had letters of credit outstanding of $19.8 million and $19.7 million, respectively. The Company
has not recorded any obligation associated with these letters of credit. The majority of the letters of credit are collateral for existing
indebtedness and other obligations of the Company.
10. Shareholders’ Equity, Noncontrolling Interests and Other Comprehensive Income
Common Shares and Units
In addition to the ATM Program activity discussed below, the Company completed the following transactions in its Common Shares during the
year ended December 31, 2019:
•
•
The Company withheld 2,468 Restricted Shares to pay the employees’ statutory minimum income taxes due on the value of the
portion of their Restricted Shares that vested.
The Company recognized Common Share-based compensation totaling $8.8 million in connection with Restricted Shares and Units
(Note 13).
In addition to the share repurchase activity discussed below, the Company completed the following transactions in its Common Shares during
the year ended December 31, 2018:
•
•
The Company withheld 3,288 Restricted Shares to pay the employees’ statutory minimum income taxes due on the value of the
portion of their Restricted Shares that vested.
The Company recognized Common Share- and Common OP Unit-based compensation totaling $8.4 million in connection with
Restricted Shares and Units (Note 13).
ATM Program
The Company has an at-the-market equity issuance program (“ATM Program”) which provides the Company an efficient and low-cost vehicle
for raising public equity to fund its capital needs. The Company entered into its current $250.0 million ATM Program (which replaced its prior
program) in the second quarter of 2019 and also added an optional “forward purchase” component. The Company has not issued any shares on
a forward basis during the year ended December 31, 2019. During the year ended December 31, 2019, the Company sold 5,164,055 Common
Shares under its ATM Program for gross proceeds of $147.7 million, or $145.5 million net of issuance costs, at a weighted-average gross price
per share of $28.61.
Share Repurchase Program
During 2018, the Company’s Board of Trustees approved a new share repurchase program, which authorizes management, at its discretion, to
repurchase up to $200.0 million of its outstanding Common Shares. The program does not obligate the Company to repurchase any specific
number of Common Shares and may be discontinued or extended at any time. The Company repurchased 2,294,235 Common Shares for $55.1
million, inclusive of $0.1 million of fees, during the year ended December 31, 2018. During the year ended December 31, 2019 the Company
made no repurchases under the share repurchase program, under which $145.0 million currently remains available.
89
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dividends and Distributions
The following table sets forth the dividends declared and/or paid during the years ended December 31, 2019 and 2018:
Date Declared
Amount Per Share
Record Date
Payment Date
November 8, 2017
February 27, 2018
May 11, 2018
August 7, 2018
November 13, 2018
February 28, 2019
May 9, 2019
August 13, 2019
November 5, 2019
$
$
$
$
$
$
$
$
$
0.27
0.27
0.27
0.27
0.28
0.28
0.28
0.28
0.29
Accumulated Other Comprehensive Income
December 29, 2017
March 30, 2018
June 29, 2018
September 28, 2018
December 31, 2018
March 29, 2019
June 28, 2019
September 30, 2019
December 31, 2019
January 13, 2018
April 13, 2018
July 13, 2018
October 15, 2018
January 15, 2019
April 15, 2019
July 15, 2019
October 15, 2019
January 15, 2020
The following tables set forth the activity in accumulated other comprehensive income for the years ended December 31, 2019, 2018 and 2017
(in thousands):
Balance at January 1, 2019
Other comprehensive loss before reclassifications
Reclassification of realized interest on swap agreements
Net current period other comprehensive loss
Net current period other comprehensive loss attributable to noncontrolling
interests
Balance at December 31, 2019
Balance at January 1, 2018
Other comprehensive loss before reclassifications
Reclassification of realized interest on swap agreements
Net current period other comprehensive loss
Net current period other comprehensive loss attributable to noncontrolling
interests
Balance at December 31, 2018
Balance at January 1, 2017
Other comprehensive income before reclassifications
Reclassification of realized interest on swap agreements
Net current period other comprehensive income
Net current period other comprehensive income attributable to noncontrolling
interests
Balance at December 31, 2017
90
Gains or Losses
on Derivative
Instruments
516
(35,674)
(872)
(36,546)
4,855
(31,175)
2,614
(2,659)
71
(2,588)
490
516
(798)
634
3,317
3,951
(539)
2,614
$
$
$
$
$
$
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Noncontrolling Interests
The following tables summarize the change in the noncontrolling interests for the years ended December 31, 2019, 2018 and 2017 (dollars in
thousands):
Noncontrolling
Interests in
Operating
Partnership (a)
Noncontrolling
Interests in
Partially-Owned
Affiliates (b)
Total
Balance at January 1, 2019
Distributions declared of $1.13 per Common OP Unit
Net income (loss) for the year ended December 31, 2019
Conversion of 307,663 Common OP Units to Common Shares by limited partners
of the Operating Partnership
Other comprehensive loss - unrealized loss on valuation of swap agreements
Reclassification of realized interest expense on swap agreements
Noncontrolling interest contributions
Noncontrolling interest distributions
Employee Long-term Incentive Plan Unit Awards
Reallocation of noncontrolling interests (c)
Balance at December 31, 2019
Balance at January 1, 2018
Distributions declared of $1.09 per Common OP Unit
Net income (loss) for the year ended December 31, 2018
Conversion of 117,978 Common OP Units to Common Shares by limited partners
of the Operating Partnership
Other comprehensive income - unrealized gain on valuation of swap agreements
Reclassification of realized interest expense on swap agreements
Noncontrolling interest contributions
Noncontrolling interest distributions
Employee Long-term Incentive Plan Unit Awards
Reallocation of noncontrolling interests (c)
Balance at December 31, 2018
$
$
$
$
Balance at January 1, 2017
Distributions declared of $1.05 per Common OP Unit
Net income (loss) for the year ended December 31, 2017
Conversion of 81,453 Common OP Units to Common Shares by limited partners
of the Operating Partnership
Other comprehensive loss - unrealized loss on valuation of swap agreements
Reclassification of realized interest expense on swap agreements
Noncontrolling interest contributions
Noncontrolling interest distributions
Employee Long-term Incentive Plan Unit Awards
Rebalancing adjustment (c)
Balance at December 31, 2017
$
$
91
104,223 $
(7,124)
3,836
(5,104)
(1,899)
(62)
—
—
10,411
(6,611)
97,670 $
102,921 $
(6,888)
2,572
(2,068)
(129)
(3)
—
—
12,374
(4,556)
104,223 $
95,422 $
(6,453)
4,159
(1,541)
85
141
—
—
10,457
651
102,921 $
518,219 $
—
(35,677)
—
(3,036)
142
161,628
(94,289)
—
—
546,987 $
545,519 $
—
(49,709)
—
(681)
323
47,560
(24,793)
—
—
518,219 $
494,126 $
—
(1,321)
—
(232)
545
85,206
(32,805)
—
—
545,519 $
622,442
(7,124)
(31,841)
(5,104)
(4,935)
80
161,628
(94,289)
10,411
(6,611)
644,657
648,440
(6,888)
(47,137)
(2,068)
(810)
320
47,560
(24,793)
12,374
(4,556)
622,442
589,548
(6,453)
2,838
(1,541)
(147)
686
85,206
(32,805)
10,457
651
648,440
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(a) Noncontrolling interests in the Operating Partnership are comprised of (i) the limited partners’ 3,250,603, 3,329,640 and 3,328,873 Common OP Units at December 31, 2019,
2018 and 2017, respectively; (ii) 188 Series A Preferred OP Units at December 31, 2019, 2018 and 2017; (iii) 136,593 Series C Preferred OP Units at December 31, 2019,
2018 and 2017; and (iv) 2,673,484, 2,569,044 and 2,274,147 LTIP units at December 31, 2019, 2018 and 2017, respectively, as discussed in Share Incentive Plan (Note 13).
Distributions declared for Preferred OP Units are reflected in net income (loss) in the table above.
(b) Noncontrolling interests in partially-owned affiliates comprise third-party interests in Funds II, III, IV and V, and Mervyns II, and six other subsidiaries.
(c) Adjustment reflects the difference between the fair value of the consideration received or paid and the book value of the Common Shares, Common OP Units, Preferred OP
Units, and LTIP Units involving changes in ownership.
Preferred OP Units
There were no issuances of Preferred OP Units during the year ended December 31, 2019.
In 1999 the Operating Partnership issued 1,580 Series A Preferred OP Units in connection with the acquisition of a property, which have a
stated value of $1,000 per unit, and are entitled to a preferred quarterly distribution of the greater of (i) $22.50 (9% annually) per Series A
Preferred OP Unit or (ii) the quarterly distribution attributable to a Series A Preferred OP Unit if such unit was converted into a Common OP
Unit. Through December 31, 2019, 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.
During 2016, the Operating Partnership issued 442,478 Common OP Units and 141,593 Series C Preferred OP Units to a third party to acquire
Gotham Plaza (Note 4). The Series C Preferred OP Units have a value of $100.00 per unit and are entitled to a preferred quarterly distribution
of $0.9375 per unit and are convertible into Common OP Units at a rate based on the share price at the time of conversion. If the share price is
below $28.80 on the conversion date, each Series C Preferred OP Unit will be convertible into 3.4722 Common OP Units. If the share price is
between $28.80 and $35.20 on the conversion date, each Series C Preferred OP Unit will be convertible into a number of Common OP Units
equal to $100.00 divided by the closing share price. If the share price is above $35.20 on the conversion date, each Series C Preferred OP Unit
will be convertible into 2.8409 Common OP Units. The Series C Preferred OP Units have a mandatory conversion date of December 31, 2025,
at which time all units that have not been converted will automatically be converted into Common OP Units based on the same calculations.
Through December 31, 2019, 5,000 Series C Preferred OP Units were converted into 17,165 Common OP Units and then into Common Shares.
11. Leases
Operating Leases
As Lessor
The Company implemented ASC Topic 842, Leases, effective January 1, 2019 (Note 1). As lessor, there were no accounting adjustments
required, however, the presentation of the Company’s lease revenues in 2019 includes amounts previously reported as reimbursed expenses.
There was no cumulative effect adjustment to retained earnings required upon adoption of the new standard. In addition, the Company began
expensing internal leasing costs, which have historically been capitalized.
The Company is engaged in the operation of shopping centers and other retail properties that are either owned or, with respect to certain
shopping centers, operated under long-term ground leases (see below) that expire at various dates through June 20, 2066, with renewal
options. Space in the shopping centers is leased to tenants pursuant to agreements that provide for terms ranging generally from one month to
sixty years and generally provide for additional rents based on certain operating expenses as well as tenants’ sales volumes. During the year
ended December 31, 2019, the Company earned $56.4 million in variable lease revenues, primarily for real estate taxes and common area
maintenance charges, which are included in lease revenues in the consolidated statements of income.
92
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As Lessee
During the year ended December 31, 2019, the Company:
•
•
•
•
recorded right-of-use assets and corresponding lease liabilities as lessee of $11.9 million and $12.8 million, respectively, for nine
existing operating leases (for ground, office and equipment leases) and $82.6 million and $76.6 million, respectively, for four finance
leases related to ground rentals including an existing capital lease which represented $77.0 million and $71.1 million, respectively,
upon implementation of ASC Topic 842;
recorded three new finance leases effective January 1, 2019 upon the implementation of ASC 842. An assessment of triggering events
whereby the Company’s cumulative leasehold investment made it reasonably certain that the Company would exercise its purchase
options;
entered into a prepaid master lease on December 9, 2019 comprised of an operating lease component related to the land and a finance
lease component related to the building. The property is referred to as “565 Broadway” within the Core Portfolio. The Company
recorded a Right-of-use-asset-operating-lease of $4.9 million and a Right-of-use-asset-finance lease of $19.4 million; and
entered into a ground lease on May 1, 2019 which is an operating lease. The property is referred to as “110 University Place” and is
within the Fund IV portfolio. The Company recorded a Right of use asset–operating lease of $45.3 million and a corresponding Lease
liability–operating-lease of $45.3 million.
The Company recorded the following assets and liabilities in connection with acquisitions of leasehold interests:
Amounts recorded upon acquisition of leasehold interests:
Right of use asset - operating lease
Right of use asset - finance lease
Leasehold improvements
Lease intangibles (Note 6)
Lease liability - operating lease
Acquisition-related intangible liabilities (Note 6)
Cash paid upon acquisition of leasehold interests
Additional disclosures regarding the Company’s leases as lessee are as follows:
Lease Cost
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Subtotal
Operating lease cost
Variable lease cost
Total lease cost
Other Information
Weighted-average remaining lease term - finance leases (years)
Weighted-average remaining lease term - operating leases (years)
Weighted-average discount rate - finance leases
Weighted-average discount rate - operating leases
Year Ended
December 31,
2019
Year Ended
December 31,
2018
(Not applicable)
$
$
50,147
19,422
13,354
1,760
(45,293)
(359)
39,031
2019
Year Ended December 31,
2018
2017
(Not
applicable)
(Not applicable)
$
$
2,168
3,737
5,905
4,430
164
10,499
42.5
34.1
4.5%
5.8%
Right-of-use assets are included in Operating real estate (Note 2) in the consolidated balance sheet. Lease liabilities are included in Accounts
payable and other liabilities in the consolidated balance sheet (Note 5). Operating lease cost comprises amortization of right-of-use assets for
93
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
operating properties (related to ground rents) or amortization of right-of-use assets for office and corporate assets and is included in Property
operating expense or General and administrative expense, respectively, in the consolidated statements of income. Finance lease cost comprises
amortization of right-of-use assets for certain ground leases, which is included in Property operating expense, as well as interest on lease
liabilities, which is included in Interest expense in the consolidated statements of income.
Lease Disclosures Related to Prior Periods
The Company leased land at six of its shopping centers, which were accounted for as operating leases through December 31, 2018 and
generally provided the Company with renewal options. Ground rent expense was $1.7 million and $1.4 million (including capitalized ground
rent at a property under development of $0 and $0.1 million) for the years ended December 31, 2018 and 2017, respectively. The leases
terminate at various dates between 2020 and 2066. These leases provide the Company with options to renew for additional terms aggregating
up to 25 to 71 years. The Company also leases space for its corporate office. Office rent expense under these leases was $1.0 million for each
of the years ended December 31, 2018 and 2017, respectively.
During 2016, the Company entered into a 49-year master lease, which was accounted for as a capital lease through December 31, 2018. During
the years ended December 31, 2018 and 2017, payments for this lease totaled $2.5 million. The property under the capital lease is included in
Note 2.
Lease Obligations
The scheduled future minimum (i) rental revenues from rental properties under the terms of non-cancelable tenant leases greater than one year
(assuming no new or renegotiated leases or option extensions for such premises) and (ii) rental payments under the terms of all non-cancelable
operating and finance leases in which the Company is the lessee, principally for office space, land and equipment, as of December 31, 2019, are
summarized as follows (in thousands):
Year Ending December 31,
2020
2021
2022
2023
2024
Thereafter
Total
Minimum Rental
Revenues
Minimum Rental
Payments (a)
$
$
212,871 $
203,077
181,731
160,237
137,451
563,124
1,458,491 $
7,040
6,823
6,832
6,825
7,008
312,421
346,949
(a) Minimum rental payments include $219.0 million of interest related to leases.
During the years ended December 31, 2019, 2018 and 2017, no single tenant or property collectively comprised more than 10% of the
Company’s consolidated total revenues.
12. Segment Reporting
The Company has three reportable segments: Core Portfolio, Funds and Structured Financing. The Company’s Core Portfolio consists
primarily of high-quality retail properties located primarily in high-barrier-to-entry, densely-populated metropolitan areas with a long-term
investment horizon. The Company’s Funds hold primarily retail real estate in which the Company co-invests with high-quality institutional
investors. The Company’s Structured Financing segment consists of earnings and expenses related to notes and mortgages receivable which are
held within the Core Portfolio or the Funds (Note 3). Fees earned by the Company as the general partner or managing member of the Funds are
eliminated in the Company’s consolidated financial statements and are not presented in the Company’s segments.
94
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables set forth certain segment information for the Company (in thousands):
Core
Portfolio
As of or for the Year Ended December 31, 2019
Structured
Financing Unallocated
Funds
Revenues
Depreciation and amortization
Property operating expenses, other operating and real estate
taxes
General and administrative expenses
Impairment charge
Gain on disposition of properties
Operating income
Interest income
Equity in earnings of unconsolidated affiliates
inclusive of gains on disposition of properties
Interest expense
Other income
Income tax provision
Net income (loss)
Net loss attributable to noncontrolling interests
Net income attributable to Acadia (a)
$
173,177 $
(61,819)
122,150 $
(63,624)
— $
—
— $
—
(47,032)
—
—
16,771
81,097
—
9,020
(28,304)
327
—
62,140
337
62,477 $
(43,436)
—
(1,721)
13,553
26,922
—
(98)
(45,484)
6,620
—
(12,040)
31,504
19,464 $
—
—
—
—
—
7,988
—
—
—
—
7,988
—
7,988 $
—
(35,416)
—
—
(35,416)
—
—
—
—
(1,468)
(36,884)
—
(36,884) $
$
Total
295,327
(125,443)
(90,468)
(35,416)
(1,721)
30,324
72,603
7,988
8,922
(73,788)
6,947
(1,468)
21,204
31,841
53,045
Real estate at cost (b)
Total Assets (b)
Cash paid for acquisition of real estate and leasehold interest
Cash paid for development and property improvement costs
$ 2,264,010 $ 1,835,532 $
$ 2,350,833 $ 1,843,338 $
184,812 $
$
66,546 $
$
173,892 $
22,724 $
— $
114,943 $
— $
— $
— $ 4,099,542
— $ 4,309,114
358,704
— $
89,270
— $
95
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Core
Portfolio
As of or for the Year Ended December 31, 2018
Structured
Financing Unallocated
Funds
Revenues
Depreciation and amortization
Property operating expenses, other operating and real estate
taxes
General and administrative expenses
Gain on disposition of properties
Operating income
Interest income
Equity in earnings of unconsolidated affiliates
inclusive of gains on disposition of properties
Interest expense
Income tax provision
Net income (loss)
Net income attributable to noncontrolling interests
Net income attributable to Acadia (a)
$
166,816 $
(60,903)
92,865 $
(56,646)
— $
—
— $
—
(44,060)
—
—
61,853
—
7,415
(27,575)
—
41,693
752
42,445 $
(36,188)
—
5,140
5,171
—
1,887
(42,403)
—
(35,345)
46,385
11,040 $
—
—
—
-
13,231
—
—
—
13,231
—
13,231 $
—
(34,343)
—
(34,343)
—
—
—
(934)
(35,277)
—
(35,277) $
$
Total
259,681
(117,549)
(80,248)
(34,343)
5,140
32,681
13,231
9,302
(69,978)
(934)
(15,698)
47,137
31,439
Real estate at cost (b)
Total Assets (b)
Cash paid for acquisition of real estate
Cash paid for development and property improvement costs
$ 2,069,439 $ 1,628,366 $
$ 2,232,695 $ 1,616,472 $
146,642 $
$
62,172 $
$
1,343 $
32,662 $
— $
109,613 $
— $
— $
— $ 3,697,805
— $ 3,958,780
147,985
— $
94,834
— $
Revenues
Depreciation and amortization
Property operating expenses, other operating and real estate
taxes
General and administrative expenses
Impairment charge
Gain on disposition of properties
Operating income
Interest income
Equity in earnings of unconsolidated affiliates
inclusive of gains on disposition of properties
Interest expense
Other income
Income tax provision
Net income
Net income attributable to noncontrolling interests
Net income attributable to Acadia (a)
Cash paid for acquisition of real estate
Cash paid for development and property improvement costs
$
$
$
Core
Portfolio
As of or for the Year Ended December 31, 2017
Structured
Financing Unallocated
Funds
$
168,795 $
(61,705)
79,757 $
(43,229)
— $
—
— $
—
(44,169)
—
—
—
62,921
—
3,735
(28,618)
5,571
—
43,609
(1,107)
42,502 $
(33,919)
—
(14,455)
48,886
37,040
—
19,636
(30,360)
—
—
26,316
(1,731)
24,585 $
—
—
—
—
—
29,143
—
—
—
—
29,143
—
29,143 $
—
(33,756)
—
—
(33,756)
—
—
—
—
(1,004)
(34,760)
—
(34,760) $
Total
248,552
(104,934)
(78,088)
(33,756)
(14,455)
48,886
66,205
29,143
23,371
(58,978)
5,571
(1,004)
64,308
(2,838)
61,470
— $
42,026 $
200,429 $
66,116 $
— $
— $
— $
— $
200,429
108,142
96
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(a) Net income attributable to Acadia for the Core segment includes $4.7 million, $4.1 million and $0.9 million associated with one property, Town Center, for the years
ended December 31, 2019, 2018 and 2017, respectively. These amounts include the results of three entities, including the unconsolidated Town Center venture and the
consolidated Brandywine Holdings (Note 4) and Brandywine Maintenance Corp., which on a combined basis constitute the operating results of the shopping center.
(b) Real estate at cost and total assets for the Funds segment include $603.3 million and $576.1 million, or $174.7 million and $167.2 million net of non-controlling
interests, related to Fund II’s City Point property for the years ended December 31, 2019 and 2018, respectively.
13. Share Incentive and Other Compensation
Share Incentive Plan
The Second Amended and Restated 2006 Incentive Plan (the “Share Incentive Plan”) authorizes the Company to issue options, Restricted
Shares, LTIP Units and other securities (collectively “Awards”) to, among others, the Company’s officers, trustees and employees. At
December 31, 2019 a total of 708,632 shares remained available to be issued under the Share Incentive Plan.
Restricted Shares and LTIP Units
During the year ended December 31, 2019, the Company issued 330,718 LTIP Units and 8,041 Restricted Share Units to employees of the
Company pursuant to the Share Incentive Plan. Certain of these equity awards were granted in performance-based Restricted Share Units or
LTIP Units with market conditions as described below (“2019 Performance Shares”). These awards were measured at their fair value on the
grant date, incorporating the following factors:
• A portion of these annual equity awards is granted in performance-based Restricted Share Units or LTIP Units that may be earned
•
•
•
based on the Company’s attainment of specified relative total shareholder returns (“Relative TSR”) hurdles.
In the event the Relative TSR percentile falls between the 25th percentile and the 50th percentile, the Relative TSR vesting percentage
is determined using a straight-line linear interpolation between 50% and 100% and in the event that the Relative TSR percentile falls
between the 50th percentile and 75th percentile, the Relative TSR vesting percentage is determined using a straight-line linear
interpolation between 100% and 200%.
Two-thirds (2/3) of the performance-based LTIP Units will vest based on the Company’s total shareholder return (“TSR”) for the
three -year forward-looking performance period ending December 31, 2021 relative to the constituents of the SNL U.S. REIT Retail
Shopping Center Index and one-third (1/3) on the Company’s TSR for the three-year forward-looking performance period as
compared to the constituents of the SNL U.S. REIT Retail Index (both on a non-weighted basis).
If the Company’s performance fails to achieve the aforementioned hurdles at the culmination of the three-year performance period, all
performance-based shares will be forfeited. Any earned performance-based shares vest 60% at the end of the performance period, with
the remaining 40% of shares vesting ratably over the next two years.
For valuation of the 2019 Performance Shares, a Monte Carlo simulation was used to estimate the fair values based on probability of satisfying
the market conditions and the projected share prices at the time of payments, discounted to the valuation dates over the three-year performance
periods. The assumptions include volatility (19.6%) and risk-free interest rates (2.5%). The total value of the 2019 Performance Shares will be
expensed over the vesting period regardless of the Company’s performance.
The total value of the above Restricted Share Units and LTIP Units as of the grant date was $11.1 million. Total long-term incentive
compensation expense, including the expense related to the Share Incentive Plan, was $8.8 million the year ended December 31, 2019 and $8.4
million for each of the years ended December 31, 2018, and 2017 and is recorded in General and Administrative in the Consolidated
Statements of Income.
During the quarter ended December 31, 2018, in connection with the retirement of an executive, an additional 26,632 LTIP Units were issued.
The value of these LTIP Units was $0.6 million and was recognized as compensation expense in 2018. Also, in connection with this retirement,
the Company recognized $1.7 million as compensation expense relating to the acceleration of previously granted LTIP Units.
In addition, members of the Board of Trustees have been issued shares and units under the Share Incentive Plan. During 2019, the Company
issued 18,009 LTIP Units and 17,318 Restricted Shares to Trustees of the Company in connection with Trustee fees. Vesting with respect to
6,463 of the LTIP Units and 3,996 of the Restricted Shares will be on the first anniversary of the date of issuance and 11,546 of the LTIP Units
and 13,322 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. Total trustee fee expense, including the
expense related to the Share Incentive Plan, was $1.4 million and $1.3 million for the years ended December 31, 2019 and 2018, respectively.
97
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 2009, the Company adopted the Long-Term Investment Alignment Program (the “Program”) pursuant to which the Company may grant
awards to employees, entitling them to receive up to 25% of any potential future payments of Promote to the Operating Partnership from Funds
III, IV and V. The Company has granted such awards to employees representing 25% of the potential Promote payments from Fund III to the
Operating Partnership and 22.8% of the potential Promote payments from Fund IV to the Operating Partnership and 2.2% of the potential
Promote payments from Fund V to the Operating Partnership. Payments to senior executives under the Program require further Board approval
at the time any potential payments are due pursuant to these grants. Compensation relating to these awards will be recognized in each reporting
period in which Board approval is granted.
As payments to other employees are not subject to further Board approval, compensation relating to these awards will be recorded based on the
estimated fair value at each reporting period in accordance with ASC Topic 718, Compensation– Stock Compensation. The awards in
connection with Funds IV and V were determined to have no intrinsic value as of December 31, 2019.
Compensation expense of $0, $0 and $0.6 million was recognized for the years ended December 31, 2019, 2018, and 2017, related to the
Program in connection with Funds III, IV and V.
A summary of the status of the Company’s unvested Restricted Shares and LTIP Units is presented below:
Unvested Restricted Shares and LTIP Units
Unvested at January 1, 2017
Granted
Vested
Forfeited
Unvested at December 31, 2017
Granted
Vested
Forfeited
Unvested at December 31, 2018
Granted
Vested
Forfeited
Unvested at December 31, 2019
Common
Restricted
Shares
Weighted
Grant-Date
Fair Value LTIP Units
46,499
19,442
(23,430)
(1,184)
41,327
22,817
(25,261)
(428)
38,455
25,359
(21,424)
—
42,390
$
$
$
27.58
29.85
30.47
32.65
26.92
23.65
30.79
27.25
22.44
28.56
27.12
—
23.73
856,877
310,551
(257,124)
(205)
910,099
425,880
(431,827)
(12,266)
891,886
348,726
(290,753)
(15,679)
934,180
Weighted
Grant-Date
Fair Value
26.99
31.80
28.27
32.49
28.28
26.80
29.72
28.57
26.87
32.78
29.30
31.49
28.24
$
$
$
The weighted-average grant date fair value for Restricted Shares and LTIP Units granted for the years ended December 31, 2019 and 2018
were $32.50 and $26.64, respectively. As of December 31, 2019, there was $14.6 million of total unrecognized compensation cost related to
unvested share-based compensation arrangements granted under the Share Incentive Plan. That cost is expected to be recognized over a
weighted-average period of 1.5 years. The total fair value of Restricted Shares that vested for the years ended December 31, 2019 and 2018,
was $0.6 million and $0.8 million, respectively. The total fair value of LTIP Units that vested (LTIP units vest primarily in the first quarter)
during the years ended December 31, 2019 and 2018, was $8.5 million and $12.8 million, respectively.
98
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other Plans
On a combined basis, the Company incurred a total of $0.3 million, $0.3 million and $0.2 million related to the following employee benefit
plans for each of the years ended December 31, 2019, 2018 and 2017, respectively:
Employee Share Purchase 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. A total of 2,320 and 3,495
Common Shares were purchased by employees under the Purchase Plan for the year ended December 31, 2019 and 2018, respectively.
Deferred Share Plan
During 2006, the Company adopted a Trustee Deferral and Distribution Election, under which the participating Trustees earn deferred
compensation.
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 $19,000, for
the year ended December 31, 2019.
14. Federal Income Taxes
The Company has elected to qualify as a REIT in accordance with Sections 856 through 860 of 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, 2019, 2018 and
2017, 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 TRS’s is subject to Federal, state and local income taxes. No more than
20% of the value of our total assets may consist of the securities of one or more TRS.
In the normal course of business, the Company or one or more of its subsidiaries is subject to examination by Federal, state and local
jurisdictions, in which it operates, where applicable. The Company expects to recognize interest and penalties related to uncertain tax positions,
if any, as income tax expense. For the three years ended December 31, 2019, the Company recognized no material adjustments regarding its tax
accounting treatment for uncertain tax provisions. As of December 31, 2019, the tax years that remain subject to examination by the major tax
jurisdictions under applicable statutes of limitations are generally the year 2016 and forward.
99
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reconciliation of Net Income to Taxable Income
Reconciliation of GAAP net income attributable to Acadia to taxable income is as follows:
(in thousands)
Net income attributable to Acadia
Deferred cancellation of indebtedness income
Deferred rental and other income (a)
Book/tax difference - depreciation and amortization (a)
Straight-line rent and above- and below-market rent adjustments (a)
Book/tax differences - equity-based compensation
Joint venture equity in earnings, net (a)
Acquisition costs (a)
Gain (loss) on disposition of properties
Book/tax differences - miscellaneous
Taxable income
Distributions declared
Year Ended December 31,
2018
2019
2017
53,045 $
—
1,203
21,688
(10,949)
7,177
15,571
63
2,375
(1,473)
88,700 $
96,310 $
31,439 $
2,050
1,222
23,166
(12,129)
6,042
13,905
326
—
(2,821)
63,200 $
89,122 $
61,470
2,050
(934)
21,334
(10,559)
5,325
9,114
1,135
(5,181)
930
84,684
87,848
$
$
$
(a) Adjustments from certain subsidiaries and affiliates, which are consolidated for financial reporting but not for tax reporting, are included in the reconciliation item “Joint
venture equity in earnings, net.”
Characterization of Distributions
The Company has determined that the cash distributed to the shareholders for the periods presented is characterized as follows for Federal
income tax purposes:
Ordinary income - Non-Section 199A
Ordinary income - Section 199A
Qualified dividend
Capital gain
Total (b)
2019
Per Share
$
—
0.820
—
0.240
1.060
$
%
Year Ended December 31,
2018
Per Share %
—
0.870
—
—
0.870
—% $
100%
—%
—%
100% $
—%
77%
—%
23%
100%
2017
Per Share %
0.820
—
—
0.230
1.050
78%
—%
—%
22%
100%
(b) The fourth quarter 2019 regular dividend was $0.29 per common share, all of which is allocable to 2020. The fourth quarter 2018 regular dividend was $0.28 per common
share of which approximately $0.06 was allocable to 2018 and approximately $0.22 is allocable to 2019.
Taxable REIT Subsidiaries
Income taxes have been provided for using the liability method as required by ASC Topic 740, “Income Taxes.” The Company’s TRS income
and provision for income taxes associated with the TRS for the periods presented are summarized as follows (in thousands):
TRS loss before income taxes
(Provision) benefit for income taxes:
Federal
State and local
TRS net loss before noncontrolling interests
Noncontrolling interests
TRS net loss
2019
Year Ended December 31,
2018
2017
$
(3,117) $
(2,609) $
(3,604)
754
317
(2,046)
(369)
(2,415) $
(377)
26
(2,960)
4
(2,956) $
(982)
423
(4,163)
8
(4,155)
$
100
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The income tax provision for the Company differs from the amount computed by applying the statutory Federal income tax rate to income
before income taxes as follows. Amounts are not adjusted for temporary book/tax differences (in thousands):
Federal tax benefit at statutory tax rate
TRS state and local taxes, net of Federal benefit
Tax effect of:
Permanent differences, net
Prior year over-accrual, net
Effect of Tax Cuts and Jobs Act
Adjustment to deferred tax reserve
Other
REIT state and local income and franchise taxes
Total provision (benefit) for income taxes
Year Ended December 31,
2018
2019
2017
(655) $
(197)
239
—
—
1,748
(112)
445
1,468 $
(548) $
(165)
951
—
—
(1,530)
1,702
524
934 $
(1,225)
(190)
1,131
(1,541)
1,982
—
404
443
1,004
$
$
As of December 31, 2019, and 2018, the Company’s deferred tax assets were $0.9 million and $2.0 million net of applicable reserves of $1.7
million and $0, respectively and were comprised of capital loss carryovers of $0.1 and $0.1 million and net operating loss carryovers of $2.5
million and $1.9 million, respectively.
Under GAAP a reduction of the carrying amounts of deferred tax assets by a valuation allowance is required, if, based on the evidence
available, it is more likely than not (a likelihood of more than 50 percent) that some portion or all of the deferred tax assets will not be realized.
The valuation allowance should be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized. During
2019, the Company determined that the realization of its deferred tax assets was not likely and as such, the Company recorded a valuation
allowance against its deferred tax assets.
101
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. 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 (Note 10). During the periods presented, the Company had unvested LTIP Units 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 units (“Restricted Share Units”) issued under the Company’s Share Incentive Plans (Note 13). The
effect of such shares is excluded from the calculation of earnings per share when anti-dilutive as indicated in the table below.
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.
(dollars in thousands)
Numerator:
Net income attributable to Acadia
Less: net income attributable to participating securities
Income from continuing operations net of income attributable to participating
securities
$
$
Year Ended December 31,
2018
2017
2019
53,045 $
(413)
31,439
(267)
$
61,470
(642)
52,632 $
31,172
$
60,828
Denominator:
Weighted average shares for basic earnings per share
Effect of dilutive securities:
Employee unvested restricted shares
Denominator for diluted earnings per share
84,435,826
82,080,159
83,682,789
—
84,435,826
—
82,080,159
2,682
83,685,471
Basic and diluted earnings per Common Share from continuing operations attributable
$
to Acadia
0.62 $
0.38
$
0.73
Anti-Dilutive Shares Excluded from Denominator:
Series A Preferred OP Units
Series A Preferred OP Units - Common share equivalent
Series C Preferred OP Units
Series C Preferred OP Units - Common share equivalent
Restricted shares
188
25,067
136,593
474,278
40,821
188
25,067
136,593
474,278
36,879
188
25,067
136,593
479,978
41,299
102
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Summary of Quarterly Financial Information (Unaudited)
The quarterly results of operations of the Company for the years ended December 31, 2019 and 2018 are as follows (in thousands, except per
share amounts):
Revenues
Net income (loss)
Net loss attributable to
noncontrolling interests
Net income attributable to Acadia
Earnings per share attributable to Acadia:
Basic
Diluted
Weighted average number of shares:
Basic
Diluted
Three Months Ended (a, b, c, d, e)
June 30, 2019
September 30,
2019
December 31,
2019
March 31, 2019
$
73,985 $
2,936
70,229 $
(5,237)
73,327 $
8,840
9,261
12,197
14,317
9,080
1,618
10,458
77,786
14,665
6,645
21,310
$
0.15 $
0.15
0.11 $
0.11
0.12 $
0.12
0.24
0.24
82,037
82,037
83,704
83,704
84,888
84,888
87,058
87,058
Cash dividends declared per Common Share
$
0.28 $
0.28 $
0.28 $
0.29
(a) The quarter ended June 30, 2019 includes an impairment charge of $1.4 million and the quarter ended September 30, 2019 includes an impairment charge of $0.3 million, of
which the Company’s aggregate share was $0.4 million (Note 8)
(b) The quarter ended September 30, 2019 includes an aggregate gain on disposition of two consolidated properties and one condominium unit at Fund IV and one consolidated
property at Fund III of $12.1 million, of which the Company’s share was $2.8 million (Note 2).
(c) The quarter ended December 31, 2019 includes a net gain on disposition of a consolidated Core property of $16.3 million, of which the Company’s share was $16.7 million
(Note 2).
(d) The quarter ended September 30, 2019 includes a deferred gain on tax credits at Fund II of which the Company’s share was $1.4 million (Note 7).
(e) Revenues for the quarters ended March 31, 2019 and June 30, 2019 have each been revised to reflect the reclassifications of credit losses of $0.8 million (Note 1).
Revenues
Net income
Net (income) loss attributable to
noncontrolling interests
Net income attributable to Acadia
Earnings per share attributable to Acadia:
Basic
Diluted
Weighted average number of shares:
Basic
Diluted
Three Months Ended (a, b)
June 30, 2018
September 30,
2018
December 31,
2018
March 31, 2018
$
62,226 $
(4,160)
62,201 $
(2,270)
65,527 $
(2,597)
11,579
7,419
9,935
7,665
11,822
9,225
69,727
(6,671)
13,801
7,130
$
0.09 $
0.09
0.09 $
0.09
0.11 $
0.11
0.09
0.09
83,434
83,438
81,756
81,756
81,566
81,566
81,591
81,591
Cash dividends declared per Common Share
$
0.27 $
0.27 $
0.27 $
0.28
(a) Credit losses aggregating $2.5 million have been reclassified from property operating expense to revenues in each of the quarters in the year ended December 31, 2018 to conform
to the current period presentation (Note 1).
(b) The three months ended September 30, 2018 includes an aggregate $5.1 million gain on the sales of two consolidated Fund IV properties (Note 2), of which $3.9 million was
attributable to noncontrolling interests
103
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Subsequent Events
Acquisitions
In January 2020, the Company acquired two properties in its Core Portfolio as follows:
•
•
37 Greene Street – On January 9, the Company acquired a retail condominium in the Soho section of New York City for
approximately $15.4 million.
917 West Armitage Avenue – On February 13, the Company acquired a mixed-use property in Chicago Illinois for approximately $3.5
million.
It is not practicable to disclose the preliminary purchase price allocations for these transactions given the short period of time between the
acquisition date and the filing of this Report.
Structured Financing Transactions
On January 17, 2020 the Company made a preferred equity investment in the amount of $54.0 million collateralized by the interests in a
property in Sunset Park, Brooklyn, NY.
On February 7, 2020 the Company made a mezzanine loan in the amount of $5.0 million to a joint venture partner collateralized by the venture
partner’s interest in the Georgetown Portfolio (Note 4) venture
104
ACADIA REALTY TRUST
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Year Ended December 31, 2019:
Allowance for deferred tax asset
Allowance for uncollectible accounts
Allowance for notes receivable
Year Ended December 31, 2018:
Allowance for deferred tax asset
Allowance for uncollectible accounts
Allowance for notes receivable
Year Ended December 31, 2017:
Allowance for deferred tax asset
Allowance for uncollectible accounts
Allowance for notes receivable
Balance at
Beginning
of
Year
Charged to
Expenses
Adjustments
to Valuation
Accounts
Deductions
Balance at
End of
Year
$
$
$
— $
7,921
—
1,530 $
5,920
—
859 $
5,720
—
— $
4,402
—
— $
2,532
—
— $
200
—
1,748 $
(915)
—
(1,530)
(531)
—
671 $
—
—
— $
—
—
— $
—
—
— $
—
—
1,748
11,408
—
—
7,921
—
1,530
5,920
—
105
ACADIA REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
Initial Cost
to Company
Amount at Which
Carried at December 31, 2019
Description and
Location
Encumbrances Land
Buildings &
Improvements
Increase
(Decrease)
in Net
Investments Land
Buildings &
Improvements
Total
Accumulated
Depreciation
Date of
Acquisition (a)
Construction (c)
Life on
which
Depreciation
in Latest
Statement of
Income is
Compared
Core Portfolio:
Crescent Plaza
Brockton, MA
New Loudon Center
Latham, NY
Mark Plaza
Edwardsville, PA
Plaza 422
Lebanon, PA
Route 6 Mall
Honesdale, PA
Abington Towne Center
Abington, PA
Bloomfield Town Square
Bloomfield Hills, MI
Elmwood Park Shopping Center
Elmwood Park, NJ
Merrillville Plaza
Hobart, IN
Marketplace of Absecon
Absecon, NJ
239 Greenwich Avenue
Greenwich, CT
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
Mad River Station
Dayton, OH
Brandywine Holdings
Wilmington, DE
Bartow Avenue
Bronx, NY
Amboy Road
Staten Island, NY
Chestnut Hill
Philadelphia, PA
2914 Third Avenue
Bronx, NY
West Shore Expressway
Staten Island, NY
West 54th Street
Manhattan, NY
5-7 East 17th Street
Manhattan, NY
651-671 W Diversey
Chicago, IL
15 Mercer Street
Manhattan, NY
—
1,147
7,425
3,301
1,147
10,726
11,873
8,455
1993(a)
40 years
—
505
4,161
14,119
505
18,280
18,785
15,352
1993(a)
40 years
—
—
3,396
—
—
3,396
3,396
3,028
1993(c)
40 years
—
190
3,004
2,809
190
5,813
6,003
5,262
1993(c)
40 years
—
1,664
—
12,490
1,664
12,490
14,154
10,235
1994(c)
40 years
—
799
3,197
3,872
799
7,069
7,868
4,222
1998(a)
40 years
—
3,207
13,774
25,803
3,207
39,577
42,784
24,739
1998(a)
40 years
—
3,248
12,992
16,314
3,798
28,756
32,554
20,402
1998(a)
40 years
—
4,288
17,152
6,058
4,288
23,210
27,498
13,910
1998(a)
40 years
—
2,573
10,294
5,072
2,577
15,362
17,939
9,096
1998(a)
40 years
26,572
1,817
15,846
1,086
1,817
16,932
18,749
8,738
1998(a)
40 years
—
1,793
7,172
4,604
1,793
11,776
13,569
5,871
1998(a)
40 years
—
3,229
12,917
5,228
3,229
18,145
21,374
10,479
1998(a)
40 years
—
878
3,510
7,736
907
11,217
12,124
9,348
1998(a)
40 years
—
3,156
12,545
16,414
3,401
28,714
32,115
14,322
1998(a)
40 years
—
956
3,826
1,695
961
5,516
6,477
2,866
1998(a)
40 years
—
1,273
5,091
12,471
1,273
17,562
18,835
10,712
1999(a)
40 years
—
2,350
9,404
2,251
2,350
11,655
14,005
6,310
1999(a)
40 years
26,250
5,063
15,252
2,495
5,201
17,609
22,810
7,601
2003(a)
40 years
—
1,691
5,803
1,196
1,691
6,999
8,690
3,458
2005(c)
40 years
—
—
11,909
3,175
—
15,084
15,084
8,094
2005(a)
40 years
—
8,289
5,691
4,509
8,289
10,200
18,489
4,910
2006(a)
40 years
— 11,108
8,038
5,175 11,855
12,466
24,321
3,420
2006(a)
40 years
—
3,380
13,499
28
3,380
13,527
16,907
4,878
2007(a)
40 years
— 16,699
18,704
1,264 16,699
19,968
36,667
6,730
2007(a)
40 years
—
3,048
7,281
6,133
3,048
13,414
16,462
3,386
2008(a)
40 years
—
8,576
17,256
8
8,576
17,264
25,840
3,704
2011(a)
40 years
—
1,887
2,483
1
1,887
2,484
4,371
528
2011(a)
40 years
ACADIA REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
Initial Cost
to Company
Amount at Which
Carried at December 31, 2019
Description and
Location
Encumbrances Land
Buildings &
Improvements
Increase
(Decrease)
in Net
Investments Land
Buildings &
Improvements
Total
Accumulated
Depreciation
Date of
Acquisition (a)
Construction (c)
Life on
which
Depreciation
in Latest
Statement of
Income is
Compared
4401 White Plains
Bronx, NY
56 E. Walton
Chicago, IL
841 W. Armitage
Chicago, IL
2731 N. Clark
Chicago, IL
2140 N. Clybourn
Chicago, IL
853 W. Armitage
Chicago, IL
2299 N. Clybourn Avenue
Chicago, IL
843-45 W. Armitage
Chicago, IL
1525 W. Belmont Avenue
Chicago, IL
2206-08 N. Halsted
Chicago, IL
2633 N. Halsted
Chicago, IL
50-54 E. Walton
Chicago, IL
662 W. Diversey
Chicago, IL
837 W. Armitage
Chicago, IL
823 W. Armitage
Chicago, IL
851 W. Armitage
Chicago, IL
1240 W. Belmont Avenue
Chicago, IL
21 E. Chestnut
Chicago, IL
819 W. Armitage
Chicago, IL
1520 Milwaukee Avenue
Chicago, IL
330-340 River St
Cambridge, MA
Rhode Island Place Shopping
Center Washington, D.C.
930 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
664 North Michigan
Chicago, IL
—
1,581
5,054
—
1,581
5,054
6,635
1,053
2011(a)
40 years
—
994
6,126
2,558
994
8,684
9,678
—
728
1,989
422
728
2,411
3,139
—
557
1,839
32
557
1,871
2,428
—
306
788
—
306
788
1,094
—
557
1,946
439
557
2,385
2,942
—
177
484
—
177
484
661
—
731
2,730
228
731
2,958
3,689
—
1,480
3,338
710
1,480
4,048
5,528
—
1,183
3,540
351
1,183
3,891
5,074
—
960
4,096
359
998
4,417
5,415
177
517
402
168
557
102
590
735
961
837
2011(a)
40 years
2011(a)
40 years
2011(a)
40 years
2011(a)
40 years
2011(a)
40 years
2011(a)
40 years
2012(a)
40 years
2012(a)
40 years
2012(a)
40 years
2012(a)
40 years
—
2,848
12,694
570
2,848
13,264
16,112
2,613
2012(a)
40 years
—
1,713
1,603
10
1,713
1,613
3,326
—
780
1,758
237
780
1,995
2,775
—
717
1,149
95
717
1,244
1,961
—
545
209
139
545
348
893
—
2,137
1,589
583
2,137
2,172
4,309
284
393
223
107
456
2012(a)
40 years
2012(a)
40 years
2012(a)
40 years
2012(a)
40 years
2012(a)
40 years
—
1,318
8,468
34
1,318
8,502
9,820
1,503
2012(a)
40 years
—
790
1,266
140
790
1,406
2,196
—
2,110
1,306
290
2,110
1,596
3,706
336
304
2012(a)
40 years
2012(a)
40 years
11,140
8,404
14,235
—
8,404
14,235
22,639
2,914
2012(a)
40 years
—
7,458
15,968
1,902
7,458
17,870
25,328
3,995
2012(a)
40 years
—
4,933
14,587
—
4,933
14,587
19,520
2,826
2012(a)
40 years
13,416
6,220
24,416
12
6,220
24,428
30,648
4,856
2012(a)
40 years
—
1,908
12,158
409
1,908
12,567
14,475
2,279
2012(a)
40 years
—
1,754
9,200
—
1,754
9,200
10,954
1,725
2012(a)
40 years
7,001
3,609
10,790
—
3,609
10,790
14,399
2,157
2012(a)
40 years
— 11,690
10,135
1,088 11,690
11,223
22,913
2,205
2012(a)
40 years
—
4,429
6,102
1,034
4,429
7,136
11,565
1,503
2012(a)
40 years
— 15,240
65,331
— 15,240
65,331
80,571
11,229
2013(a)
40 years
107
ACADIA REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
Initial Cost
to Company
Amount at Which
Carried at December 31, 2019
Encumbrances Land
Buildings &
Improvements
Increase
(Decrease)
in Net
Investments Land
Buildings &
Improvements
Total
Accumulated
Depreciation
Date of
Acquisition (a)
Construction (c)
Life on
which
Depreciation
in Latest
Statement of
Income is
Compared
—
5,398
15,601
978
5,398
16,579
21,977
2,910
2013(a)
40 years
—
6,899
4,249
168
6,899
4,417
11,316
839
2013(a)
40 years
—
3,519
9,247
5
3,519
9,252
12,771
1,405
2013(a)
40 years
—
—
5,516
—
—
5,516
5,516
1,339
2013(a)
40 years
—
—
32,819
1,124
—
33,943
33,943
3,403
2013(a)
40 years
— 16,744
28,346
195 16,744
28,541
45,285
4,373
2014(a)
40 years
—
4,578
2,645
789
4,578
3,434
8,012
436
2014(a)
40 years
—
1,893
11,594
41
1,893
11,635
13,528
1,688
2014(a)
40 years
—
8,544
27,001
180
8,544
27,181
35,725
3,878
2014(a)
40 years
—
6,613
10,419
303
6,613
10,722
17,335
1,575
2014(a)
40 years
— 10,175
12,641
544 10,175
13,185
23,360
2,008
2014(a)
40 years
— 12,425
32,730
4,370 13,763
35,762
49,525
5,263
2014(a)
40 years
—
—
57,536
625
—
58,161
58,161
14,554
2014(a)
40 years
— 20,264
33,131
1,715 20,264
34,846
55,110
4,615
2014(a)
40 years
—
4,550
4,459
105
4,550
4,564
9,114
652
2014(a)
40 years
— 36,063
109,098
(24,600) 26,386
94,175
120,561
13,356
2015(a)
40 years
8,582 12,679
11,213
43 12,679
11,256
23,935
1,486
2015(a)
40 years
—
4,838
14,574
61
4,838
14,635
19,473
1,590
2015(a)
40 years
—
—
6,346
501
—
6,847
6,847
1,297
2015(a)
40 years
—
—
76,965
1,691
—
78,656
78,656
6,160
2016(a)
40 years
—
1,918
3,980
—
1,918
3,980
5,898
2,650
2,739
2,746
246
2,739
2,992
5,731
365
278
2016(a)
40 years
2016(a)
40 years
23,881
3,907
70,943
5,436
3,907
76,379
80,286
6,205
2016(a)
40 years
13,574
1,941
25,529
—
1,941
25,529
27,470
2,181
2016(a)
40 years
12,164 18,731
16,292
192 18,731
16,484
35,215
1,420
2016(a)
40 years
50,000 13,443
137,327
536 13,443
137,863
151,306
11,837
2016(a)
40 years
2,506
6,770
2,292
2
6,770
2,294
9,064
211
2016(a)
40 years
60,000 75,591
73,268
82 75,591
73,350
148,941
5,848
2016(a)
40 years
—
8,100
31,221
313
8,100
31,534
39,634
1,807
2017(a)
40 years
— 10,061
2,773
11,101 10,061
13,874
23,935
3,408
2018(c)
40 years
108
Description and
Location
8-12 E. Walton
Chicago, IL
3200-3204 M Street
Washington, DC
868 Broadway
Manhattan, NY
313-315 Bowery
Manhattan, NY
120 West Broadway
Manhattan, NY
11 E. Walton
Chicago, IL
61 Main Street
Westport, CT
865 W. North Avenue
Chicago, IL
152-154 Spring St.
Manhattan, NY
2520 Flatbush Ave
Brooklyn, NY
252-256 Greenwich Avenue
Greenwich, CT
Bedford Green
Bedford Hills, NY
131-135 Prince Street
Manhattan, NY
Shops at Grand Ave
Queens, NY
201 Needham Street
Newton, MA
City Center
San Francisco, CA
163 Highland Avenue
Needham, MA
Roosevelt Galleria
Chicago, IL
Route 202 Shopping Center
Wilmington, DE
991 Madison Avenue
Manhattan, NY
165 Newbury Street
Boston, MA
Concord & Milwaukee
Chicago, IL
State & Washington
Chicago, IL
151 N. State Street
Chicago, IL
North & Kingsbury
Chicago, IL
Sullivan Center
Chicago, IL
California & Armitage
Chicago, IL
555 9th Street
San Francisco, CA
Market Square
Wilmington, DE
613-623 W. Diversey
Chicago, IL
ACADIA REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
Initial Cost
to Company
Amount at Which
Carried at December 31, 2019
Encumbrances Land
Buildings &
Improvements
Increase
(Decrease)
in Net
Investments Land
Buildings &
Improvements
Total
Accumulated
Depreciation
Date of
Acquisition (a)
Construction (c)
Life on
which
Depreciation
in Latest
Statement of
Income is
Compared
—
4,488
8,992
—
4,488
8,992
13,480
—
3,605
12,177
—
3,605
12,177
15,782
—
6,276
9,582
—
6,276
9,582
15,858
—
6,265
16,758
—
6,265
16,758
23,023
—
837
2,731
—
837
2,731
3,568
—
982
2,868
—
982
2,868
3,850
187
228
140
175
24
25
2019(a)
40 years
2019(a)
40 years
2019(a)
40 years
2019(a)
40 years
2019(a)
40 years
2019(a)
40 years
— 20,490
26,788
— 20,490
26,788
47,278
112
2019(a)
40 years
—
2,903
8,487
—
2,903
8,487
11,390
—
—
22,491
—
—
22,491
22,491
—
700
2,081
—
700
2,081
2,781
—
100
—
—
100
—
100
39
—
5
—
2019(a)
40 years
2019(a)
40 years
2019(a)
40 years
243,298
—
100,316
491,335
—
591,651
591,651
48,096
2007(c)
40 years
—
9,040
3,654
4,177
9,040
7,831
16,871
1,549
2011(a)
40 years
39,470 12,503
19,960
15,225 12,503
35,185
47,688
6,970
2012(a)
40 years
28,818
11,000
—
59,277
10,473
59,804
70,277
2,005
2012(c)
40 years
—
1,875
5,625
(3,950)
1,875
1,675
3,550
57
2012(c)
40 years
18,900 11,052
7,037
12,901 11,052
19,938
30,990
4,304
2013(a)
40 years
—
4,813
14,438
7,241
4,813
21,679
26,492
1,311
2014(c)
40 years
18,833
7,391
20,176
306
7,391
20,482
27,873
2,987
2014(a)
40 years
— 12,759
37,431
5,541 14,099
41,632
55,731
6,070
2015(a)
40 years
—
4,178
28,470
5,844
4,178
34,314
38,492
2,085
2015(c)
40 years
5,606
3,027
6,376
57
3,027
6,433
9,460
1,120
1,498
1,735
118
1,498
1,853
3,351
1,463
563
1,688
1,867
563
3,555
4,118
734
213
230
2015(a)
40 years
2015(a)
40 years
2016(c)
40 years
6,070
1,041
10,905
182
1,041
11,087
12,128
1,200
2016(a)
40 years
23,337
7,570
24,829
472
7,570
25,301
32,871
2,846
2016(a)
40 years
5,334
2,294
7,067
1,882
2,294
8,949
11,243
868
2016(a)
40 years
11,713
2,852
9,619
273
2,852
9,892
12,744
1,021
2016(a)
40 years
12,718
5,290
9,464
3,056
5,290
12,520
17,810
1,557
2016(a)
40 years
109
Description and
Location
51 Greene Street
Manhattan, NY
53 Greene Street
Manhattan, NY
41 Greene Street
Manhattan, NY
47 Greene Street
Manhattan, NY
849 W Armitage
Chicago, IL
912 W Armitage
Chicago, IL
Melrose Place Collection
Los Angeles, CA
45 Greene Street
Manhattan, NY
565 Broadway
Manhattan, NY
907 W Armitage
Chicago, IL
Undeveloped Land
Fund II:
City Point
Brooklyn, NY
Fund III:
654 Broadway
Manhattan, NY
640 Broadway
Manhattan, NY
Cortlandt Crossing
Mohegan Lake, NY
Fund IV:
210 Bowery
Manhattan, NY
Paramus Plaza
Paramus, NJ
27 E. 61st Street
Manhattan, NY
17 E. 71st Street
Manhattan, NY
1035 Third Avenue
Manhattan, NY
801 Madison Avenue
Manhattan, NY
2208-2216 Fillmore Street
San Francisco, CA
2207 Fillmore Street
San Francisco, CA
1964 Union Street
San Francisco, CA
Restaurants at Fort Point
Boston, MA
Wakeforest Crossing
Wake Forest, NC
Airport Mall
Bangor, ME
Colonie Plaza
Albany, NY
Dauphin Plaza
Harrisburg, PA
ACADIA REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
Initial Cost
to Company
Amount at Which
Carried at December 31, 2019
Encumbrances Land
Buildings &
Improvements
Increase
(Decrease)
in Net
Investments Land
Buildings &
Improvements
Total
Accumulated
Depreciation
Date of
Acquisition (a)
Construction (c)
Life on
which
Depreciation
in Latest
Statement of
Income is
Compared
11,895
6,178
9,266
1,132
6,178
10,398
16,576
1,061
2016(a)
40 years
7,636
828
11,814
272
828
12,086
12,914
1,162
2016(a)
40 years
5,700
1,892
2,585
505
1,892
3,090
4,982
16,148 20,674
10,093
— 20,674
10,093
30,767
5,702
1,876
6,696
1
1,876
6,697
8,573
424
843
509
2016(a)
40 years
2016(c)
40 years
2017(a)
40 years
23,100
7,149
22,201
2,035
7,149
24,236
31,385
2,215
2017(a)
40 years
2,032
609
1,513
—
609
1,513
2,122
1,258
588
937
—
588
937
1,525
3,302
1,324
2,459
319
1,324
2,778
4,102
8,809
2,343
6,560
—
2,343
6,560
8,903
590
547
439
45
547
484
1,031
3,674
1,160
2,736
17
1,160
2,753
3,913
2,416
619
1,799
—
619
1,799
2,418
924
465
688
—
465
688
1,153
2,551
660
1,900
—
660
1,900
2,560
3,619
1,160
2,695
—
1,160
2,695
3,855
—
—
1,370
—
—
1,370
1,370
51
32
109
223
15
94
61
24
64
91
25
2018(a)
40 years
2018(a)
40 years
2018(a)
40 years
2018(a)
40 years
2018(a)
40 years
2018(a)
40 years
2018(a)
40 years
2018(a)
40 years
2018(a)
40 years
2018(a)
40 years
2019(a)
40 years
22,893
—
28,214
360
—
28,574
28,574
2,047
2017(a)
40 years
30,000
7,852
29,998
1,350
7,852
31,348
39,200
2,120
2017(a)
40 years
16,900
5,040
17,391
59
5,040
17,450
22,490
1,210
2017(a)
40 years
40,300 18,121
37,143
256 18,121
37,399
55,520
2,059
2017(a)
40 years
29,370
7,587
34,285
36
7,587
34,321
41,908
1,713
2018(a)
40 years
41,500
6,204
48,008
70
6,204
48,078
54,282
1,786
2018(a)
40 years
Description and
Location
Mayfair Shopping Center
Philadelphia, PA
Shaw's Plaza
Waterville, ME
Wells Plaza
Wells, ME
717 N. Michigan
Chicago, IL
Shaw's Plaza
North Windham, ME
Lincoln Place
Fairview Heights, IL
18 E. Broughton St.
Savannah, GA
20 E. Broughton St.
Savannah, GA
25 E. Broughton St.
Savannah, GA
109 W. Broughton St.
Savannah, GA
204-206 W. Broughton St.
Savannah, GA
216-218 W. Broughton St.
Savannah, GA
220 W. Broughton St.
Savannah, GA
223 W. Broughton St.
Savannah, GA
226-228 W. Broughton St.
Savannah, GA
309/311 W. Broughton St.
Savannah, GA
110 University
Manhattan, NY
Fund V:
Plaza Santa Fe
Santa Fe, NM
Hickory Ridge
Hickory, NC
New Towne Plaza
Canton, MI
Fairlane Green
Allen Park, MI
Trussville Promenade
Birmingham, AL
Elk Grove Commons
Elk Grove, CA
Hiram Pavilion
Hiram, GA
Palm Coast Landing
Palm Coast, FL
Lincoln Commons
Lincoln, RI
Landstown Commons
Virginia Beach, VA
28,830 13,029
25,446
56 13,029
25,502
38,531
26,500
7,066
27,299
—
7,066
27,299
34,365
38,820 14,429
34,417
170 14,429
34,587
49,016
60,900 10,221
69,005
166 10,221
69,171
79,392
Real Estate Under Development
Right-of-use assets - operating
lease
69,718 82,969
53,847
116,586 94,923
158,479
253,402
— 56,961
5,058
(2,013) 55,764
4,242
60,006
110
2018(a)
40 years
2019(a)
40 years
2019(a)
40 years
2019(a)
40 years
964
554
517
766
—
—
ACADIA REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
Initial Cost
to Company
Amount at Which
Carried at December 31, 2019
Description and
Location
Unamortized Loan Costs
Unamortized Premium
Encumbrances Land
Buildings &
Improvements
Increase
(Decrease)
in Net
Investments Land
Buildings &
Improvements
Total
Accumulated
Depreciation
Date of
Acquisition (a)
Construction (c)
(10,078)
—
—
—
—
—
—
—
Life on
which
Depreciation
in Latest
Statement of
Income is
Compared
Total
$
651
—
1,170,076 $901,997 $ 2,286,624 $ 910,921 $906,984 $ 3,192,558 $4,099,542 $
—
—
—
—
—
—
490,227
Notes:
1.
2.
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
at 40 years and improvements at the shorter of lease term or useful life.
The aggregate gross cost of property included above for Federal income tax purposes was approximately $4.0 billion as of December 31, 2019.
The following table reconciles the activity for real estate properties from January 1, 2017 to December 31, 2019 (in thousands):
Balance at beginning of year
Improvements and other
Property acquisitions
Property dispositions or held for sale assets
Right-of-use assets - operating leases obtained
Right-of-use assets - finance leases obtained and reclassified
Capital lease reclassified as Right-of-use assets - finance lease
Right-of-use assets - operating lease amortization
Consolidation of previously unconsolidated investments
Balance at end of year
$
$
2019
3,697,805 $
97,000
303,884
(84,243)
62,020
102,055
(76,965)
(2,014)
—
Year Ended December 31,
2018
3,466,482 $
99,594
134,559
(34,666)
—
—
—
—
31,836
3,697,805 $
4,099,542 $
2017
3,382,000
55,763
179,292
(189,895)
—
—
—
—
39,322
3,466,482
The following table reconciles accumulated depreciation from January 1, 2017 to December 31, 2019 (in thousands):
Balance at beginning of year
Depreciation related to real estate
Property dispositions
Balance at end of year
2019
Year Ended December 31,
2018
2017
$
$
416,657 $
85,317
(11,747)
490,227 $
339,862 $
78,453
(1,658)
416,657 $
287,066
73,268
(20,472)
339,862
111
ACADIA REALTY TRUST
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 2019
(in thousands)
Description
First Mortgage Loan
First Mortgage Loan
Zero Coupon Loan
Mezzanine Loan
First Mortgage Loan
Other
Other
Total
Effective
Interest Rate
6.0%
8.1%
2.5%
18.0%
5.1%
4.65%
4.82%
Net
Carrying
Amount of
Notes
Receivable
as of
December
31,
2019
Face
Amount
of Notes
Receivable
17,810 $
153,400
29,793
5,306
13,530
6,000
462
226,301 $
17,802
38,673
33,170
5,306
13,530
6,000
462
114,943
$
Final
Maturity
Date
4/30/2020
6/20/2020
5/31/2020
7/1/2020
10/28/2021
4/12/2026
4/10/2021
$
The Company monitors the credit quality of its notes receivable on an ongoing basis and considers indicators of credit quality such as loan
payment activity, the estimated fair value of the underlying collateral, the seniority of the Company's loan in relation to other debt secured by
the collateral, the personal guarantees of the borrower and the prospects of the borrower.
The following table reconciles the activity for loans on real estate from January 1, 2017 to December 31, 2019 (in thousands):
Reconciliation of Loans on Real Estate
Year Ended December 31,
2018
2019
2017
Balance at beginning of year
Additions
Repayments
Conversion to real estate through receipt of deed
Balance at end of year
$
$
111,775 $
18,418
(15,250)
—
114,943 $
160,991 $
3,805
(31,000)
(22,021)
111,775 $
283,125
11,571
(32,000)
(101,705)
160,991
112
BR004239-0320-COMBO