AKR 10-Q 06.30.2013



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended June 30, 2013

or
 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number 1-12002

ACADIA REALTY TRUST

(Exact name of registrant in its charter)
MARYLAND
 (State or other jurisdiction of
 incorporation or organization)
 
23-2715194
 (I.R.S. Employer
 Identification No.)
 
 
 
1311 MAMARONECK AVENUE, SUITE 260, WHITE PLAINS, NY
 (Address of principal executive offices)
 10605
 (Zip Code)
(914) 288-8100
(Registrant’s telephone number, including area code)
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 x
 
NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES x
 
NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer  x
 
Accelerated Filer  o
 
 
 
Non-accelerated Filer  o
 
Smaller Reporting Company  o

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes o No x
As of August 7, 2013 there were 55,448,856 common shares of beneficial interest, par value $.001 per share, outstanding.




ACADIA REALTY TRUST AND SUBSIDIARIES

FORM 10-Q

INDEX

 
 
Page
 
 
 
Part I:
Financial Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part II:
Other Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Part I. Financial Information

Item 1. Financial Statements.
 
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
June 30,
2013
 
December 31,
2012
ASSETS
(unaudited)
 
 
Operating real estate
 
 
 
Land
$
329,674

 
$
293,691

Buildings and improvements
1,173,679

 
953,020

Construction in progress
4,269

 
2,429

 
1,507,622

 
1,249,140

Less: accumulated depreciation
232,591

 
187,029

Net operating real estate
1,275,031

 
1,062,111

Real estate under development
308,802

 
246,602

Notes receivable, net
105,484

 
129,278

Investments in and advances to unconsolidated affiliates
188,299

 
221,904

Cash and cash equivalents
100,022

 
91,813

Cash in escrow
21,810

 
18,934

Restricted cash
153,022

 
—

Rents receivable, net
33,035

 
27,744

Deferred charges, net
39,277

 
26,777

Acquired lease intangibles, net
31,742

 
31,975

Prepaid expenses and other assets
40,714

 
29,241

Assets of discontinued operations
13,306

 
22,061

Total assets
$
2,310,544

 
$
1,908,440

 
 
 
 
LIABILITIES
 

 
 

Mortgage and other notes payable
$
1,092,266

 
$
727,048

Convertible notes payable
930

 
930

Distributions in excess of income from, and investments in, unconsolidated affiliates
12,319

 
22,707

Accounts payable and accrued expenses
30,851

 
29,309

Dividends and distributions payable
11,983

 
9,674

Acquired lease and other intangibles, net
17,502

 
14,115

Other liabilities
19,266

 
21,303

Liabilities of discontinued operations
11,540

 
13,098

Total liabilities
1,196,657

 
838,184

 
 
 
 
EQUITY
 

 
 

Shareholders' Equity
 
 
 
Common shares, $.001 par value, authorized 100,000,000 shares; issued and outstanding 55,444,779 and 52,482,598 shares, respectively
55

 
52

Additional paid-in capital
659,994

 
581,925

Accumulated other comprehensive loss
(755
)
 
(4,307
)
Retained earnings
40,454

 
45,127

Total shareholders’ equity
699,748

 
622,797

Noncontrolling interests
414,139

 
447,459

Total equity
1,113,887

 
1,070,256

Total liabilities and equity
$
2,310,544

 
$
1,908,440

See accompanying notes

1

ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

(unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(dollars in thousands, except per share amounts)
2013
 
2012
 
2013
 
2012
Revenues
 
 
 
 
 
 
 
Rental income
$
34,852

 
$
24,099

 
$
67,907

 
$
46,050

Interest income
3,399

 
2,097

 
6,297

 
4,206

Expense reimbursements
7,307

 
5,760

 
15,278

 
11,162

Other
378

 
789

 
3,754

 
1,294

Total revenues
45,936

 
32,745

 
93,236

 
62,712

Operating Expenses
 

 
 

 
 

 
 
Property operating
5,781

 
4,620

 
11,418

 
9,042

Other operating
421

 
1,281

 
1,933

 
2,316

Real estate taxes
5,695

 
4,744

 
10,891

 
8,883

General and administrative
6,301

 
5,205

 
11,927

 
11,130

Depreciation and amortization
10,976

 
8,201

 
21,604

 
15,351

Total operating expenses
29,174

 
24,051

 
57,773

 
46,722

Operating income
16,762

 
8,694

 
35,463

 
15,990

Equity in earnings of unconsolidated affiliates
815

 
4,591

 
3,065

 
4,535

Impairment of asset
(1,500
)
 
—

 
(1,500
)
 
—

Interest and other finance expense
(10,913
)
 
(7,070
)
 
(21,222
)
 
(13,626
)
Income from continuing operations before income taxes
5,164

 
6,215

 
15,806

 
6,899

Income tax (provision) benefit
(7
)
 
(1,039
)
 
133

 
(1,227
)
Income from continuing operations
5,157

 
5,176

 
15,939

 
5,672

Discontinued Operations
 
 
 
 
 
 
 
Operating income from discontinued operations
266

 
3,332

 
663

 
5,659

Gain on sale of property
4,191

 
2,668

 
4,191

 
2,668

Income from discontinued operations
4,457

 
6,000

 
4,854

 
8,327

Net income
9,614

 
11,176

 
20,793

 
13,999

Noncontrolling interests
 

 
 

 
 

 
 
Continuing operations
3,054

 
669

 
1,846

 
3,661

Discontinued operations
(3,911
)
 
(5,006
)
 
(4,259
)
 
(6,811
)
Net income attributable to noncontrolling interests
(857
)
 
(4,337
)
 
(2,413
)
 
(3,150
)
Net income attributable to Common Shareholders
$
8,757

 
$
6,839

 
$
18,380

 
$
10,849

 
 
 
 
 
 
 
 
Basic Earnings per Share
 

 
 

 
 

 
 
Income from continuing operations
$
0.15

 
$
0.13

 
$
0.33

 
$
0.21

Income from discontinued operations
0.01

 
0.02

 
0.01

 
0.04

Basic earnings per share
$
0.16

 
$
0.15

 
$
0.34

 
$
0.25

 
 
 
 
 
 
 
 
Diluted Earnings per Share
 

 
 

 
 

 
 
Income from continuing operations
$
0.15

 
$
0.13

 
$
0.33

 
$
0.21

Income from discontinued operations
0.01

 
0.02

 
0.01

 
0.04

Diluted earnings per share
$
0.16

 
$
0.15

 
0.34

 
0.25

See accompanying notes

2


ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2013
 
2012
 
2013
 
2012
(dollars in thousands)
 
 
 
 
 
 
 
 
Net income
 
$
9,614

 
$
11,176

 
$
20,793

 
$
13,999

Other Comprehensive income (loss)
 

 

 
 
 
 
Unrealized income (loss) on valuation of swap agreements
 
4,196

 
(2,612
)
 
3,104

 
(2,555
)
Reclassification of realized interest on swap agreements
 
745

 
646

 
1,337

 
1,283

Other comprehensive income (loss)
 
4,941

 
(1,966
)
 
4,441

 
(1,272
)
Comprehensive income
 
14,555

 
9,210

 
25,234

 
12,727

Comprehensive income attributable to noncontrolling interests
 
(1,621
)
 
(3,536
)
 
(3,302
)
 
(2,449
)
Comprehensive income attributable to Common Shareholders
 
$
12,934

 
$
5,674

 
$
21,932

 
$
10,278

See accompanying notes


3



ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2013

(unaudited)
 
Common Shares
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
 
Total
Shareholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
(amounts in thousands, except per share amounts)
Shares
 
Amount
 
 
 
 
 
 
Balance at December 31, 2012
52,482

 
$
52

 
$
581,925

 
$
(4,307
)
 
$
45,127

 
$
622,797

 
$
447,459

 
$
1,070,256

Conversion of OP Units to Common Shares by limited partners of the Operating Partnership
92

 
—

 
1,548

 
—

 
—

 
1,548

 
(1,548
)
 
—

Issuance of Common Shares, net of issuance costs
2,822

 
3

 
75,868

 
—

 
—

 
75,871

 
—

 
75,871

Dividends declared ($0.42 per Common Share)
—

 
—

 
—

 
—

 
(23,053
)
 
(23,053
)
 
(681
)
 
(23,734
)
Vesting of employee Restricted Share and LTIP awards
29

 
—

 
120

 
—

 
—

 
120

 
2,460

 
2,580

Common Shares issued under Employee Share Purchase Plan
2

 
—

 
40

 
—

 
—

 
40

 
—

 
40

Issuance of Common Shares to trustees
—

 
—

 
206

 
—

 
—

 
206

 
—

 
206

Exercise of Share options
21

 
—

 
370

 
—

 
—

 
370

 
—

 
370

Employee Restricted Shares canceled
(3
)
 
—

 
(83
)
 
—

 
—

 
(83
)
 
—

 
(83
)
Consolidation of previously unconsolidated investment
—

 
—

 
—

 
—

 
—

 
—

 
(33,949
)
 
(33,949
)
Noncontrolling interest distributions
—

 
—

 
—

 
—

 
—

 
—

 
(18,471
)
 
(18,471
)
Noncontrolling interest contributions
—

 
—

 
—

 
—

 
—

 
—

 
15,567

 
15,567

 
55,445

 
55

 
659,994

 
(4,307
)
 
22,074

 
677,816

 
410,837

 
1,088,653

Comprehensive income:
 

 
 

 
 
 
 

 
 

 
 

 
 

 
 

Net income
—

 
—

 
—

 
—

 
18,380

 
18,380

 
2,413

 
20,793

Unrealized income on valuation of swap agreements
—

 
—

 
—

 
2,707

 
—

 
2,707

 
397

 
3,104

Reclassification of realized interest on swap agreements
—

 
—

 
—

 
845

 
—

 
845

 
492

 
1,337

Total comprehensive income
—

 
—

 
—

 
3,552

 
18,380

 
21,932

 
3,302

 
25,234

Balance at June 30, 2013
55,445

 
$
55

 
$
659,994

 
$
(755
)
 
$
40,454

 
$
699,748

 
$
414,139

 
$
1,113,887





4



ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 
Six Months Ended
 
June 30,
(dollars in thousands)
2013
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
20,793

 
$
13,999

Adjustments to reconcile net income to net cash provided by operating activities
 

 
 
Depreciation and amortization
21,604

 
19,288

Amortization of financing costs
1,512

 
1,502

Gain on sale of property
(4,191
)
 
(2,668
)
Impairment of asset
1,500

 
—

Share compensation expense
2,786

 
1,958

Equity in earnings of unconsolidated affiliates
(3,065
)
 
(4,535
)
Distributions of operating income from unconsolidated affiliates
2,454

 
5,559

Other, net
(2,703
)
 
425

Changes in assets and liabilities
 

 
 
Cash in escrow
(1,767
)
 
1,279

Rents receivable, net
(2,131
)
 
(2,546
)
Prepaid expenses and other assets
(11,298
)
 
(2,860
)
Accounts payable and accrued expenses
(1,292
)
 
692

Other liabilities
658

 
1,018

Net cash provided by operating activities
24,860

 
33,111

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

Acquisition of real estate
(109,100
)
 
(111,115
)
Redevelopment and property improvement costs
(43,567
)

(41,705
)
Deferred leasing costs
(3,099
)
 
(2,591
)
Investments in and advances to unconsolidated affiliates
(51,231
)
 
(3,458
)
Return of capital from unconsolidated affiliates
86,678

 
11,686

Consolidation of previously unconsolidated investment
1,864

 
—

Proceeds from notes receivable
5,529

 
2,004

Issuance of notes receivable
—

 
(34,500
)
Proceeds from sale of property
11,816

 
12,060

Net cash used in investing activities
(101,110
)
 
(167,619
)

5



ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
 
(unaudited)

 
Six Months Ended
 
June 30,
(dollars in thousands)
2013
 
2012
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Principal payments on mortgage notes
(136,907
)
 
(72,477
)
Proceeds received from mortgage notes
333,760

 
79,628

Loan proceeds held as restricted cash
(153,022
)
 
—

Increase in deferred financing and other costs
(11,229
)
 
(3,586
)
Capital contributions from noncontrolling interests
15,567

 
108,081

Distributions to noncontrolling interests
(19,080
)
 
(45,752
)
Dividends paid to Common Shareholders
(20,827
)
 
(15,473
)
Proceeds from issuance of Common Shares, net of issuance costs of $1,324 and $338, respectively
75,871

 
60,717

Other employee and trustee stock compensation, net
326

 
21

Net cash provided by financing activities
84,459

 
111,159

Increase (decrease) in cash and cash equivalents
8,209

 
(23,349
)
Cash and cash equivalents, beginning of period
91,813

 
89,812

Cash and cash equivalents, end of period
$
100,022

 
$
66,463

 
 
 
 
Supplemental disclosure of cash flow information
 

 
 

Cash paid during the period for interest, net of capitalized interest of $3,944 and $1,907, respectively
$
16,668

 
$
15,709

Cash paid for income taxes
$
137

 
$
508

 
 
 
 
Supplemental disclosure of non-cash investing activities:
 
 
 
Acquisition of real estate through assumption of debt
$
—

 
$
59,335

Acquisition of real estate through issuance of OP Units
$
—

 
$
2,279

Acquisition of real estate through conversion of notes receivable
$
18,500

 
$
4,000

 
 
 
 
Consolidation of previously unconsolidated investment
 
 
 
Real estate, net
$
(118,484
)
 
$
—

Mortgage notes payable
166,200

 
—

Distributions in excess of income from, and investments in, unconsolidated affiliates
(10,298
)
 
—

Other assets and liabilities
(1,605
)
 
—

Noncontrolling interest
(33,949
)
 
—

Cash included in consolidation of previously unconsolidated investment
$
1,864

 
$
—


See accompanying notes


6
ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



1.
ORGANIZATION AND BASIS OF PRESENTATION

Business and Organization

Acadia Realty Trust (the "Trust") and subsidiaries (collectively, the "Company"), is a fully-integrated equity real estate investment trust ("REIT") focused on the ownership, acquisition, redevelopment and management of high-quality retail properties and urban/infill mixed-use properties with a strong retail component located primarily in high-barrier-to-entry, supply constrained, densely-populated metropolitan areas in the United States along the East Coast and in Chicago.

All of the Company's assets are held by, and all of its operations are conducted through, Acadia Realty Limited Partnership (the "Operating Partnership") and entities in which the Operating Partnership owns an interest. As of June 30, 2013, the Trust controlled approximately 99% of the Operating Partnership as the sole general partner. As the general partner, the Trust is entitled to share, in proportion to its percentage interest, in the cash distributions and profits and losses of the Operating Partnership. The limited partners primarily represent entities or individuals that contributed their interests in certain properties or entities to the Operating Partnership in exchange for common or preferred units of limited partnership interest ("Common OP Units" or "Preferred OP Units") and employees who have been awarded restricted OP units ("LTIP Units") as long-term incentive compensation (Note 13). Limited partners holding Common OP Units are generally entitled to exchange their units on a one-for-one basis for common shares of beneficial interest of the Trust ("Common Shares").

As of June 30, 2013, the Company has ownership interests in 75 properties within its core portfolio, which consist of those properties either 100% owned, or partially owned through joint venture interests, by the Operating Partnership, or subsidiaries thereof, not including those properties owned through its opportunity funds ("Core Portfolio"). The Company also has ownership interests in 33 properties within its four opportunity funds, Acadia Strategic Opportunity Fund, L.P. ("Fund I"), Acadia Strategic Opportunity Fund II, LLC ("Fund II"), Acadia Strategic Opportunity Fund III LLC ("Fund III") and Acadia Strategic Opportunity Fund IV LLC ("Fund IV" and together with Funds I, II and III, the "Opportunity Funds"). The 108 Core Portfolio and Opportunity Fund properties consist of commercial properties, which are primarily high-quality urban and/or street retail properties, community shopping centers and mixed-use properties with a retail component. The Opportunity Funds also include investments in operating companies through Acadia Mervyn Investors I, LLC ("Mervyns I"), Acadia Mervyn Investors II, LLC ("Mervyns II") and Fund II, all on a non-recourse basis. These investments comprise and are referred to as the Company's Retailer Controlled Property Initiative ("RCP Venture").

The Operating Partnership is the sole general partner or managing member of the Opportunity Funds and Mervyns I and II and earns fees or priority distributions for asset management, property management, construction, redevelopment, leasing and legal services. Cash flows from the Opportunity Funds and 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 flow is distributed 20% to the Operating Partnership ("Promote") and 80% to the partners or members (including the Operating Partnership).

Following is a table summarizing the general terms and Operating Partnership's equity interests in the Opportunity Funds and Mervyns I and II:

Entity
Formation Date
Operating Partnership Share of Capital
Committed Capital (2)
 
Capital Called as of June 30, 2013 (2)
Equity Interest Held By Operating Partnership
Preferred Return
Capital Returned as of June 30, 2013 (2)
Fund I and Mervyns I (1)
9/2001
22.22
%
$
90.0

 
$
86.6

37.78
%
9
%
$
86.6

Fund II and Mervyns II
6/2004
20.00
%
300.0

 
300.0

20.00
%
8
%
84.5

Fund III
5/2007
19.90
%
475.0

 
351.4

19.90
%
6
%
182.6

Fund IV
5/2012
23.12
%
540.6

 
74.0

23.12
%
6
%
—

Notes:
(1) Fund I and Mervyns I have returned all capital and preferred return. The Operating Partnership is now entitled to a Promote on all future cash distributions.
(2) Represents the total for the Opportunity Funds, including the Operating Partnership and noncontrolling interests' shares.

7
ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.    ORGANIZATION AND BASIS OF PRESENTATION (continued)

Basis of Presentation

The consolidated financial statements include the consolidated accounts of the Company and its investments in entities in which the Company is presumed to have control in accordance with the consolidation guidance of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC"). Investments in entities for which the Company has the ability to exercise significant influence but does not have financial or operating control are accounted for under the equity method of accounting. Accordingly, the Company's share of the net earnings (or losses) of entities accounted for under the equity method are included in consolidated net income under the caption, Equity in Earnings (Losses) of Unconsolidated Affiliates. Investments in entities for which the Company does not have the ability to exercise any influence are accounted for under the cost method.

The Company owns a 22.22% interest in an approximately one million square foot retail portfolio (the "Brandywine Portfolio") located in Wilmington, Delaware. Effective January 1, 2013, following certain changes in the financial and operating controls of the joint venture, the Company now accounts for this investment on a consolidated basis.

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates. Operating results for the three and six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2013. The information furnished in the accompanying consolidated financial statements reflects all adjustments that, in the opinion of management, are necessary for a fair presentation of the aforementioned consolidated financial statements for the interim period. These consolidated financial statements should be read in conjunction with the Company's 2012 Annual Report on Form 10-K, as filed with the SEC on February 27, 2013.

Reclassifications

Certain reclassifications have been made to the 2012 financial statements to conform to the 2013 presentation.

Real Estate

The Company reviews its long-lived assets for impairment when there is an event or change in circumstances that indicates that the carrying amount may not be recoverable. The Company records impairment losses and reduces the carrying value of properties when indicators of impairment are present and the expected undiscounted cash flows related to those properties are less than their carrying amounts. In cases where the Company does not expect to recover its carrying costs on properties held for use, the Company reduces its carrying cost to fair value, and for properties held-for-sale, the Company reduces its carrying value to the fair value less costs to dispose. During the quarter ended June 30, 2013, the Company determined that the value of the Walnut Hill Plaza, a Core Portfolio property, was impaired as a result of a deterioration in the local economic environment. Accordingly, the Company recorded an impairment charge of $1.5 million. This property is collateral for $23.1 million of non-recourse mortgage debt which matures October 1, 2016. Management does not believe that the values of any of its other properties are impaired as of June 30, 2013.

Recent Accounting Pronouncements

During February 2013, the FASB issued Accounting Standards Update ("ASU") No. 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. ASU 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012. The Company adopted ASU 2013-02 as of January 1, 2013 and the adoption did not have a material impact on the Company's financial condition or results of operations.


8
ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


2.
EARNINGS PER COMMON SHARE

Basic earnings per Common Share is computed by dividing net income attributable to Common Shareholders by the weighted average Common Shares outstanding. At June 30, 2013, the Company has unvested LTIP Units (Note 13) which provide for non-forfeitable rights to dividend equivalent payments. Accordingly, these unvested LTIP Units are considered participating securities and are included in the computation of basic earnings per Common Share pursuant to the two-class method.

Diluted earnings per Common Share reflects the potential dilution of the conversion of obligations and the assumed exercises of securities including the effects of restricted share unit ("Restricted Share Units") and share option awards issued under the Company's Share Incentive Plans (Note 13). The effect of the assumed conversion of 188 Series A Preferred OP Units into 25,067 Common Shares would be anti-dilutive and are therefore not included in the computation of diluted earnings per share for the three and six months ended June 30, 2013 and June 30, 2012.

The effect of the conversion of Common OP Units is not reflected in the computation of basic and diluted earnings per share, as they are exchangeable for Common Shares on a one-for-one basis. The income allocable to such units is allocated on this same basis and reflected as noncontrolling interests in the accompanying consolidated financial statements. As such, the assumed conversion of these units would have no net impact on the determination of diluted earnings per share. The conversion of the convertible notes payable (Note 9) is not included in the computation of basic and diluted earnings per share as such conversion, based on the current market price of the Common Shares, would be settled with cash.

The following table sets forth the computation of basic and diluted earnings per share from continuing operations for the periods indicated:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(dollars in thousands, except per share amounts)
2013
 
2012
 
2013
 
2012
Numerator
 
 
 
 
 
 
 
Income from continuing operations
$
8,211

 
$
5,845

 
$
17,785

 
$
9,333

Less: net income attributable to participating securities
145

 
117

 
317

 
191

Income from continuing operations, net of income attributable to participating securities
8,066

 
5,728

 
17,468

 
9,142

Numerator for diluted earnings per Common Share
$
8,066

 
$
5,728

 
$
17,468

 
$
9,142

 
 
 
 
 
 
 
 
Denominator
 

 
 

 
 
 
 
Weighted average shares for basic earnings per share
55,160

 
44,245

 
54,923

 
43,491

Effect of dilutive securities:
 

 
 

 
 
 
 

Employee Restricted Share Units and share options
424

 
429

 
431

 
419

Dilutive potential Common Shares
424

 
429

 
431

 
419

Denominator for diluted earnings per share
55,584

 
44,674

 
55,354

 
43,910

 
 
 
 
 
 
 
 
Basic earnings per Common Share from continuing operations attributable to Common Shareholders
$
0.15

 
$
0.13

 
$
0.33

 
$
0.21

Diluted earnings per Common Share from continuing operations attributable to Common Shareholders
$
0.15

 
$
0.13

 
$
0.33

 
$
0.21




9
ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

3.
SHAREHOLDERS' EQUITY AND NONCONTROLLING INTERESTS

During the second quarter 2013, the Company completed an at-the-market (“ATM”) equity program with an aggregate offering amount of $125.0 million of gross proceeds from the sale of Common Shares. Under this program, the Company issued a total of 4.9 million Common Shares which generated net proceeds of $123.1 million.

During April 2013, the Company established a new ATM equity program with an additional aggregate offering amount of up to $150.0 million of gross proceeds from the sale of Common Shares. Through June 30, 2013, the Company issued approximately 0.7 million Common Shares under this new ATM which generated gross proceeds of approximately $20.9 million and net proceeds of approximately $20.6 million. The net proceeds from these ATM equity programs have been, and will be, used by the Company primarily to fund acquisitions directly in the Core Portfolio and through its capital contributions to the Opportunity Funds.

For the six months ended June 30, 2013, the Company issued a total of 2.8 million Common Shares under the ATM programs, which generated gross proceeds of $77.1 million and net proceeds of $76.0 million.

Noncontrolling interests represent the portion of equity in entities consolidated in the accompanying financial statements that the Company does not own. Such noncontrolling interests are reported on the Consolidated Balance Sheets within equity, separately from shareholders' equity and include third party interests in the Company’s Opportunity Funds and other entities. It also includes interests in the Operating Partnership which represent (i) the limited partners’ 224,134 and 284,097 Common OP Units at June 30, 2013 and December 31, 2012, respectively; (ii) 188 Series A Preferred OP Units at June 30, 2013 and December 31, 2012; and (iii) 367,522 and 168,357 LTIP Units at June 30, 2013 and December 31, 2012, respectively.

4.
ACQUISITION OF REAL ESTATE AND DISCONTINUED OPERATIONS

Acquisitions

2013 Core Portfolio Acquisitions

During March 2013, the Company acquired 664 North Michigan Avenue, an 18,141 square foot retail condominium in Chicago, Illinois for $86.6 million.

During June 2013, the Company acquired 8-12 East Walton Street, an 8,244 square foot retail property in Chicago, Illinois for $22.5 million.

The Company expensed $1.0 million of acquisition costs for the six months ended June 30, 2013 related to the Core Portfolio.

2013 Fund III Acquisitions

Fund III had previously acquired a $23.0 million note receivable at a discounted price of $18.5 million during April 2012. The note receivable, which was scheduled to mature in May 2012, was collateralized by a 79,526 square foot shopping center located in Brooklyn, New York ("Nostrand Place"). The Company commenced foreclosure proceedings, but ultimately agreed to a settlement with the unaffiliated borrower. Pursuant to the settlement, in February 2013, Fund III and the borrower formed a joint venture whereby Fund III contributed its interest in the note for a 99% controlling interest in the joint venture, and the borrower contributed the deed to Nostrand Place in exchange for a 1% interest in the joint venture. As a result, Fund III consolidates its investment in Nostrand Place.

2013 Fund IV Acquisitions

During June 2013, Fund IV, in a joint venture with an unaffiliated partner, acquired a 98% initial interest in 2819 Kennedy Boulevard, a 53,680 square foot retail property in North Bergen, New Jersey for $9.0 million.

During June 2013, Fund IV, in a joint venture with an unaffiliated partner, acquired a 99% initial interest in Promenade at Manassas, a 265,442 square foot shopping center in Manassas, Virginia for $38.0 million.

The Company expensed $1.4 million of acquisition costs for the six months ended June 30, 2013 related to Fund IV.


10
ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


4.    ACQUISITION OF REAL ESTATE AND DISCONTINUED OPERATIONS (continued)

Purchase Price Allocations

The above acquisitions have been accounted for as business combinations. The purchase prices were allocated to the acquired assets and liabilities based on the estimated fair value of the acquired assets at the dates of acquisition. The preliminary measurements at fair value reflected below are subject to change. The Company expects to finalize the valuations and complete the purchase price allocations within one year from the dates of acquisition.

The following table summarizes the Company's preliminary allocations of the purchase prices of assets acquired and liabilities assumed during 2013 which have yet to be finalized:


(dollars in thousands)
Preliminary Purchase Price Allocations
Land
$
39,563

Buildings and improvements
136,009

Total consideration
$
175,572


During 2012, the Company acquired properties and recorded the preliminary allocations of the purchase prices to the assets acquired based on provisional measurements of fair value. During 2013, the Company finalized the allocations of the purchase prices and made certain measurement period adjustments. The following table summarizes the preliminary allocations of the purchase prices of these properties as recorded as of December 31, 2012, and the finalized allocations as adjusted as of June 30, 2013:

(dollars in thousands)
Purchase Price Allocations as Originally Reported
Adjustments
Finalized Purchase Price Allocations
Land
$
11,390

$
2,876

$
14,266

Buildings and improvements
38,510

(2,330
)
36,180

Acquisition-related intangible assets (in Acquired lease intangibles, net)
—

2,623

2,623

Acquisition-related intangible liabilities (in Acquired lease and other intangibles, net)
—

(1,852
)
(1,852
)
Below market debt assumed (in Mortgage notes payable)
—

(1,317
)
(1,317
)
Total consideration
$
49,900

$
—

$
49,900



Dispositions

During May 2013, Fund II sold the storage facility located at its Pelham Manor property for $11.9 million. This sale resulted in a $4.2 million gain.


11
ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


4.    ACQUISITION OF REAL ESTATE AND DISCONTINUED OPERATIONS (continued)

Discontinued Operations

The Company reports properties held-for-sale and properties sold during the periods as discontinued operations. The results of operations of discontinued operations are reflected as a separate component within the accompanying Consolidated Statements of Income for all periods presented. As of June 30, 2013, one of the properties within the Opportunity Funds was under contract for sale.

The combined assets and liabilities and the results of operations of the properties classified as discontinued operations, in each period presented, are summarized as follows:

(dollars in thousands)
 
 

 
BALANCE SHEET
 
June 30, 2013
December 31, 2012
ASSETS
 
 

 
Net real estate
 
$
11,850

$
19,400

Rents receivable, net
 
876

917

Deferred charges, net
 
390

612

Prepaid expenses and other assets
 
190

1,132

Total assets of discontinued operations
 
$
13,306

$
22,061

LIABILITIES
 
 

 
Mortgage notes payable
 
$
9,149

$
9,208

Accounts payable and accrued expenses
 
1,794

3,125

Other liabilities
 
597

765

Total liabilities of discontinued operations
 
$
11,540

$
13,098


 
Three Months Ended
Six Months Ended
(dollars in thousands) 
June 30,
June 30,
STATEMENTS OF INCOME
2013
2012
2013
2012
Total revenues
$
906

$
9,943

$
2,075

$
19,656

Total expenses
640

6,611

1,412

13,997

Operating income
266

3,332

663

5,659

Gain on sale of property
4,191

2,668

4,191

2,668

Income from discontinued operations
4,457

6,000

4,854

8,327

Income from discontinued operations attributable to noncontrolling interests
(3,911
)
(5,006
)
(4,259
)
(6,811
)
Income from discontinued operations attributable to Common Shareholders
$
546

$
994

$
595

$
1,516





12
ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


5.
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

Core Portfolio

The Company owns a 49% interest in a 311,000 square foot shopping center located in White Plains, New York ("Crossroads"), a 50% interest in an approximately 28,000 square foot retail portfolio located in Georgetown, Washington D.C. (the "Georgetown Portfolio") and a 22.22% interest in an approximately 20,000 square foot retail property located in Wilmington, Delaware ("Route 202 Shopping Center"). These investments are accounted for under the equity method.

Opportunity Funds

RCP Venture

The Opportunity Funds, together with two unaffiliated partners formed an investment group, the RCP Venture, for the purpose of making investments in surplus or underutilized properties owned by retailers and, in some instances, the retailers' operating company. The RCP Venture is neither a single entity nor a specific investment and the Company has no control or rights with respect to the formation and operation of these investments. The Company has made these investments through its subsidiaries, Mervyns I, Mervyns II and Fund II, (together the "Acadia Investors"), all on a non-recourse basis. Through June 30, 2013, the Acadia Investors have made investments in Mervyns Department Stores ("Mervyns") and Albertsons including additional investments in locations that are separate from these original investments ("Add-On Investments"). Additionally, they have invested in Shopko, Marsh and Rex Stores Corporation (collectively "Other RCP Investments"). The Company accounts for its investments in Mervyns and Albertsons on the equity method as it has the ability to exercise significant influence, but does not have any rights with respect to financial or operating control. The Company accounts for its investments in its Add-On Investments and Other RCP Investments on the cost method as it does not have any influence over such entities' operating and financial policies nor any rights with respect to the control and operation of these entities.

The following table summarizes activity related to the RCP Venture investments from inception through June 30, 2013:
(dollars in thousands)
 
Investment Group Share
 
Operating Partnership Share
Investment
Year Acquired
Invested
Capital
and Advances
 
Distributions
 
Invested
Capital
and Advances
 
Distributions
Mervyns
2004
$
26,058

$
45,966

 
$
4,901

$
11,251

Mervyns Add-On investments
2005/2008
7,547

5,334

 
1,252

1,193

Albertsons
2006
20,717

81,594

 
4,239

16,318

Albertsons Add-On investments
2006/2007
2,416

4,864

 
388

972

Shopko
2006
1,108

1,659

 
222

332

Marsh and Add-On investments
2006/2008
2,667

2,639

 
533

528

Rex Stores
2007
2,701

1,956

 
535

392

 
 
$
63,214

$
144,012

 
$
12,070

$
30,986


Other Opportunity Fund Investments

The unaffiliated partners for Fund III's investments in Lincoln Road, Parkway Crossing, Arundel Plaza and the White City Shopping Center as well as Fund IV's investments in Lincoln Road, 1701 Belmont Avenue, 2819 Kennedy Boulevard (Note 4) and Promenade at Manassas (Note 4) maintain control over these entities. The Company accounts for these investments under the equity method as it has the ability to exercise significant influence, but does not have any rights with respect to financial or operating control.

Self-Storage Management, a Fund III investment, is a variable interest entity. Management has evaluated the applicability of ASC Topic 810 to this joint venture and determined that it is not the primary beneficiary and, therefore, consolidation of this venture is not required. The Company accounts for this investment using the equity method of accounting.

13
ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


5.
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES (continued)

Summary of Investments in 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:

(dollars in thousands)
June 30,
2013
 
December 31,
2012
Combined and Condensed Balance Sheets
 
 
 
Assets
 
 
 
Rental property, net
$
367,096

 
$
441,611

Investment in unconsolidated affiliates
63,746

 
93,923

Other assets
31,830

 
39,035

Total assets
$
462,672

 
$
574,569

Liabilities and partners’ equity
 

 
 

Mortgage notes payable
$
242,449

 
$
326,296

Other liabilities
16,633

 
24,267

Partners’ equity
203,590

 
224,006

Total liabilities and partners’ equity
$
462,672

 
$
574,569

Company’s investment in and advances to unconsolidated affiliates
$
188,299

 
$
221,904

Company's share of distributions in excess of income from and investments in unconsolidated affiliates
$
(12,319
)
 
$
(22,707
)


 
Three Months Ended
 
Six Months Ended
(dollars in thousands)
June 30,
2013
 
June 30,
2012
 
June 30,
2013
 
June 30,
2012
Combined and Condensed Statements of Income
 
 
 
 
 
 
 
Total revenues
$
10,846

 
$
11,922

 
$
21,845

 
$
24,218

Operating and other expenses
(4,698
)
 
(4,362
)
 
(8,979
)
 
(8,816
)
Interest and other finance expense
(2,056
)
 
(4,613
)
 
(4,087
)
 
(9,251
)
Equity in earnings of unconsolidated affiliates
6,581

 
6,469

 
5,870

 
4,846

Depreciation and amortization
(2,608
)
 
(2,371
)
 
(4,688
)
 
(4,643
)
Gain on sale of property
—

 
3,402

 
—

 
3,402

Net income
$
8,065

 
$
10,447

 
$
9,961

 
$
9,756

 
 
 
 
 
 
 
 
Company’s share of net income
$
913

 
$
4,689

 
$
3,261

 
$
4,731

Amortization of excess investment
(98
)
 
(98
)
 
(196
)
 
(196
)
Company’s equity in earnings of unconsolidated affiliates
$
815

 
$
4,591

 
$
3,065

 
$
4,535




14
ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


6.
NOTES RECEIVABLE

As of June 30, 2013, the Company’s notes receivable, net, aggregated $105.5 million, and were collateralized either by the underlying properties or the borrowers' ownership interests in the entities that own the properties and/or by the borrowers' personal guarantee subject, as applicable, to senior liens, as follows:
(dollars in thousands)
 
 
 
 
 
 
Note description
Effective interest rate (1)
First Priority liens
Net Carrying Amounts of Notes Receivable as of June 30, 2013
Net Carrying Amounts of Notes Receivable as of December 31, 2012
Maturity date
Extension Options
First Mortgage Loan
12.0%
$
—

$
12,204

$
12,333

12/1/2013
—

First Mortgage Loan
6.0%
—

10,250

10,250

12/31/2013
—

First Mortgage Loan
8.0%
—

8,000

8,000

12/31/2013
—

Mezzanine Loan 2
10.0%
85,835

9,089

9,089

12/31/2013
—

First Mortgage Loan
11.0%
—

25,000

25,000

1/1/2014
1 x 6 months

Zero Coupon Loan 3
24.0%
166,200

4,196

3,961

1/3/2016
—

Mezzanine Loan
15.0%
—

30,879

30,879

11/9/2020
—

Mezzanine Loan 4
15.0%
13,265

3,834

3,834

Upon Capital Event
—

First Mortgage Loan
5.3%
—

—

18,500

Demand
—

Construction Loan
20.5%
—

—

5,400

12/31/2012
—

Individually less than 3% 5
11.00% to 17.50%
37,623

2,032

2,032

12/31/13 to Capital Event
—

Total
 
 
$
105,484

$
129,278

 


Notes:

(1) The effective interest rate includes origination and exit fees.
(2) Comprised of three cross-collateralized loans from one borrower, which are non-performing
(3) The principal balance for this accrual only loan is increased by the interest accrued
(4) Non-performing loan
(5) Consists of three loans of which two are non-performing with an aggregate face value of $5.7 million, of which $3.9 million has been reserved

During January 2013, Fund III received a payment of $2.5 million, representing the full principal and interest amount on a note that had been previously written off.

During February 2013, Fund III, in conjunction with its acquisition of Nostrand Place (Note 4), received repayment on $13.0 million of its first mortgage loan of $18.5 million and contributed the remaining unliquidated balance to a joint venture.

During March 2013, the Company received a payment of $5.4 million, representing full payment on a construction loan.

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. As of June 30, 2013, the Company held six non-performing notes aggregating $18.6 million for which payment was delinquent. Based primarily on the indicators noted above, the Company has established a reserve of $3.9 million as of June 30, 2013 related to these notes. The following table reconciles the allowance for notes receivable from December 31, 2012 to June 30, 2013:


15
ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


6.
NOTES RECEIVABLE (continued)
(dollars in thousands)
Allowance for Notes Receivable
Balance at December 31, 2012
$
3,681

Additional reserves
208

Recoveries
—

Charge-offs and reclassifications
—

Balance at June 30, 2013
$
3,889


7.
DERIVATIVE FINANCIAL INSTRUMENTS

As of June 30, 2013, the Company's derivative financial instruments consisted of 11 interest rate swaps with an aggregate notional value of $181.4 million, which effectively fix LIBOR at rates ranging from 0.52% to 3.77% and mature between May 2015 and April 2023. The Company also has five derivative financial instruments with a notional value of $183.3 million which cap LIBOR at rates ranging from 3.0% to 4.3% and mature between August 2013 and April 2018. The fair value of these derivative instruments, which is included in other liabilities in the Consolidated Balance Sheets, totaled $0.8 million and $4.4 million at June 30, 2013 and December 31, 2012, respectively. The notional value does not represent exposure to credit, interest rate, or market risks.

These derivative instruments have been designated as cash flow hedges and hedge the future cash outflows of variable-rate interest payments on mortgage debt. Such instruments are reported at the fair value reflected above. As of June 30, 2013 and December 31, 2012, unrealized losses totaling $0.8 million and $4.3 million, respectively, were reflected in accumulated other comprehensive loss on the consolidated balance sheets.

As of June 30, 2013 and December 31, 2012, no derivatives were designated as fair value hedges, hedges of net investments in foreign operations or considered to be ineffective. Additionally, the Company does not use derivatives for trading or speculative purposes.

8.
MORTGAGE AND OTHER NOTES PAYABLE

The Company completed the following transactions related to mortgage and other notes payable and credit facilities during the six months ended June 30, 2013:

During January, the Company closed on a new $150.0 million unsecured credit facility, replacing the $64.5 million secured credit facility that had matured. The new facility bears interest at a spread which varies based on the ratio of total debt to total asset value of the Company ranging from LIBOR plus 155 basis points (<45%) to LIBOR plus 220 basis points (>55%) depending on the level of leverage. There is also an unused fee of 0.35% if the total outstanding principal is less than or equal to 50% of the aggregate commitments and 0.25% if it is more. This facility matures on January 3, 2016 and has a one-year extension option. During the six months ended June 30, 2013, the Company borrowed $45.0 million on this facility, all of which has been repaid. As of June 30, 2013, there was no balance outstanding under this credit facility.

During January, the Company closed on a $16.5 million loan collateralized by a property. The loan bears interest at LIBOR plus 190 basis points and matures on January 23, 2023.

During February, the Company closed on a $13.0 million loan collateralized by a property. The loan bears interest at LIBOR plus 265 basis points and matures on February 1, 2016.

During March, the Company refinanced a $28.9 million loan collateralized by a property, bearing interest at LIBOR plus 600 basis points with a new $29.5 million loan. The new loan bears interest at LIBOR plus 250 basis points and matures on April 1, 2018.


16
ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

8.
MORTGAGE AND OTHER NOTES PAYABLE (continued)

During March, the Company modified a $50.0 million construction loan collateralized by a property. The modification converted the construction loan, on which no previous balance was drawn, into a first mortgage loan of $20.0 million and increased the interest rate from LIBOR plus 330 basis points to LIBOR plus 500 basis points. In addition, the Company modified a separate $20.0 million loan collateralized by this property. The previous loan bore interest at LIBOR plus 250 basis points and was scheduled to mature during August 2013. The modification extended the maturity date to August 23, 2015 and adjusted the interest rate to LIBOR plus 300 basis points until August 2013, LIBOR plus 350 basis points until August 2014 and LIBOR plus 400 basis points thereafter.

During April, the Company closed on a $8.6 million loan collateralized by a property. The loan bears interest at LIBOR plus 175 basis points and matures on April 3, 2023.

During June, the Company closed on a $52.5 million loan collateralized by a property. The loan bears interest at LIBOR plus 165 basis points and matures on June 28, 2018, and has a five-year extension option. As of June 30, 2013, no proceeds have been funded under this loan.

During June, the Company closed on a $4.6 million loan collateralized by a property. The loan bears interest at LIBOR plus 195 basis points and matures on June 1, 2014, and has a one-year extension option.

During 2012, the U.S. Citizenship and Immigration Services ("USCIS") approved the City Point project's application for $200.0 million of construction financing under the U.S.'s Immigrant Investor Program, commonly known as "EB-5." Funds are released into a restricted cash account upon the approval of the USCIS. As of June 30, 2013, $193.0 million of funds have been released into this restricted cash account and $40.0 million have been drawn to fund construction activities, with $153.0 million remaining in the restricted cash account.


9.
CONVERTIBLE NOTES PAYABLE

In December 2006 and January 2007, the Company issued convertible notes totaling $115.0 million with a fixed interest rate of 3.75% due in 2026 (the "Convertible Notes"). The Convertible Notes were issued at par and require interest payments semi-annually in arrears on June 15th and December 15th of each year. The Convertible Notes are unsecured obligations and rank equally with all other unsecured and unsubordinated indebtedness. The Convertible Notes have an effective interest rate of 6.03% after giving effect to the accounting treatment required by ASC Topic 470-20, "Debt with Conversion and Other Options." Holders of the Convertible Notes may require the Company to repurchase the Convertible Notes at par on December 15, 2016 and December 15, 2021. Through June 30, 2013, the Company had purchased $114.1 million in principal amount of its Convertible Notes, none of which were repurchased subsequent to December 31, 2011, and the remaining outstanding balance is $0.9 million.

As of December 31, 2011, all loan costs associated with the issuance have been expensed and there is no remaining net carrying amount of the equity component. The if-converted value of the Convertible Notes does not exceed their aggregate principal amount as of June 30, 2013 and there are no derivative transactions that were entered into in connection with the issuance of the Convertible Notes.



17
ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

10.    FAIR VALUE MEASUREMENTS

The FASB's fair value measurements and disclosure guidance requires the valuation of certain of the Company's financial assets and liabilities, based on a three-level fair value hierarchy. Market value assumptions obtained from sources independent of the Company are observable inputs that are classified within Levels 1 and 2 of the hierarchy, and the Company's own assumptions about market value assumptions are unobservable inputs classified within Level 3 of the hierarchy.

The following table presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of June 30, 2013:
(dollars in thousands)
Level 1
 
Level 2
 
Level 3
Liabilities
 
 
 
 
 
Derivative financial instruments (Note 7)
$
—

 
$
808

 
$
—


In addition to items that are measured at fair value on a recurring basis, the Company also has assets and liabilities on its balance sheet that are measured at fair value on a nonrecurring basis. As these assets and liabilities are not measured at fair value on a recurring basis, they are not included in the table above. Assets and liabilities that are measured at fair value on a nonrecurring basis include assets acquired and liabilities assumed in business combinations (Note 4).

During the quarter ended June 30, 2013, the Company determined that the value of the Walnut Hill Plaza was impaired and recorded an impairment loss of $1.5 million (Note 1). The Company estimated the fair value by using projected future cash flows, which it determined were not sufficient to recover the property's net book value. The inputs used to determine this fair value are classified within Level 3 of the hierarchy.

Financial Instruments

Certain of the Company’s assets and liabilities meet the definition of financial instruments. Except as disclosed below, the carrying amounts of these financial instruments approximate their fair values.

The Company has determined the estimated fair values of the following financial instruments by discounting future cash flows utilizing a discount rate equivalent to the rate at which similar financial instruments would be originated at the reporting date:
(dollars in thousands)
June 30, 2013
 
December 31, 2012
 
Carrying
Amount
 
Estimated Fair Value
 
Carrying
Amount
 
Estimated Fair Value
Mortgage, Convertible Notes and Other Notes Payable
$
1,093,196

 
$
1,113,097

 
$
727,978

 
$
734,807


11.
RELATED PARTY TRANSACTIONS

The Company earned property management fees, legal and leasing fees from its investments in unconsolidated affiliates totaling $0.03 million and $0.2 million for the three months ended June 30, 2013 and 2012, respectively, and $0.04 million and $0.4 million for the six months ended June 30, 2013 and 2012, respectively.

Lee Wielansky, the Lead Trustee of the Company, was paid a consulting fee of $25,000 for the three months ended June 30, 2013 and 2012, respectively and $50,000 for the six months ended June 30, 2013 and 2012, respectively.




18
ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

12.
SEGMENT REPORTING

The Company has three reportable segments: Core Portfolio, Opportunity Funds and Notes Receivable. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates property performance primarily based on net operating income before depreciation, amortization and certain nonrecurring items. Investments in the Core Portfolio are typically held long-term. Given the contemplated finite life of the Opportunity Funds, these investments are typically held for shorter terms. Fees earned by the Company as the general partner/managing member of the Opportunity Funds are eliminated in the Company's consolidated financial statements. The following tables set forth certain segment information for the Company, reclassified for discontinued operations, as of and for the three and six months ended June 30, 2013 and 2012 and does not include unconsolidated affiliates:


Three Months Ended June 30, 2013
(dollars in thousands)
Core Portfolio
Opportunity Funds
Notes Receivable
Total
Revenues
$
28,057

$
14,480

$
3,399

$
45,936

Property operating expenses, other operating and real estate taxes
6,811

5,086

—

11,897

General and administrative
5,872

429

—

6,301

Income before depreciation and amortization and interest and other finance expense
$
15,374

$
8,965

$
3,399

$
27,738

Depreciation and amortization
$
7,142

$
3,834

$
—

$
10,976

Interest and other finance expense
$
6,563

$
4,350

$
—

$
10,913

Real estate at cost
$
1,006,210

$
810,214

$
—

$
1,816,424

Total assets
$
1,100,356

$
1,104,704

$
105,484

$
2,310,544

Expenditures for redevelopment and improvements
$
3,255

$
22,371

$
—

$
25,626

Acquisition of real estate
$
22,500

$
—

$
—

$
22,500

 
 
 
 
 
Reconciliation to net income and net income attributable to Common Shareholders

Net property income before depreciation and amortization and interest and other finance expense
$
27,738

Depreciation and amortization
(10,976
)
Equity in earnings of unconsolidated affiliates
815

Interest and other finance expense
(10,913
)
Income tax provision
(7
)
Impairment of asset
(1,500
)
Income from discontinued operations
266

Gain on sale of property
4,191

Net income
9,614

Net income attributable to noncontrolling interests
(857
)
Net income attributable to Common Shareholders
$
8,757


19
ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

12.
SEGMENT REPORTING (continued)

Three Months Ended June 30, 2012
(dollars in thousands)
Core Portfolio
Opportunity Funds
Notes Receivable
Total
Revenues
$
17,366

$
13,202

$
2,177

$
32,745

Property operating expenses, other operating and real estate taxes
4,468

6,177

—

10,645

General and administrative
4,600

605

—

5,205

Income before depreciation and amortization and interest and other finance expense
$
8,298

$
6,420

$
2,177

$
16,895

Depreciation and amortization
$
4,495

$
3,706

$
—

$
8,201

Interest and other finance expense
$
3,721

$
3,349

$
—

$
7,070

Real estate at cost
$
632,084

$
684,101

$
—

$
1,316,185

Total assets
$
750,634

$
664,419

$
88,712

$
1,503,765

Expenditures for redevelopment and improvements
$
12,778

$
5,978

$
—

$
18,756

Acquisition of real estate
$
50,689

$
11,737

$
—

$
62,426

 
 
 
 
 
Reconciliation to net income and net income attributable to Common Shareholders
 
Net property income before depreciation and amortization and interest and other finance expense
$
16,895

Depreciation and amortization
(8,201
)
Equity in earnings of unconsolidated affiliates
4,591

Interest and other finance expense
(7,070
)
Income tax provision
(1,039
)
Income from discontinued operations
3,332

Gain on sale of property
2,668

Net income
11,176

Net income attributable to noncontrolling interests
(4,337
)
Net income attributable to Common Shareholders
$
6,839



20
ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

12.
SEGMENT REPORTING (continued)

Six Months Ended June 30. 2013
(dollars in thousands)
Core Portfolio
Opportunity Funds
Notes Receivable
Total
Revenues
$
54,471

$
32,006

$
6,759

$
93,236

Property operating expenses, other operating and real estate taxes
13,912

10,330

—

24,242

General and administrative
11,345

582

—

11,927

Income before depreciation and amortization and interest and other finance expense
$
29,214

$
21,094

$
6,759

$
57,067

Depreciation and amortization
$
13,777

$
7,827

$
—

$
21,604

Interest and other finance expense
$
12,712

$
8,510

$
—

$
21,222

Real estate at cost
$
1,006,210

$
810,214

$
—

$
1,816,424

Total assets
$
1,100,356

$
1,104,704

$
105,484

$
2,310,544

Expenditures for redevelopment and improvements
$
3,711

$
39,856

$
—

$
43,567

Acquisition of real estate
$
109,100

$
—

$
—

$
109,100

 
 
 
 
 
Reconciliation to net income and net income attributable to Common Shareholders
 

Net property income before depreciation and amortization and interest and other finance expense
$
57,067

Depreciation and amortization
(21,604
)
Equity in earnings of unconsolidated affiliates
3,065

Interest and other finance expense
(21,222
)
Income tax benefit
133

Impairment of asset
(1,500
)
Income from discontinued operations
663

Gain on sale of property
4,191

Net income
20,793

Net income attributable to noncontrolling interests
(2,413
)
Net income attributable to Common Shareholders
$
18,380



21
ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

12.
SEGMENT REPORTING (continued)

Six Months Ended June 30, 2012
(dollars in thousands)
Core Portfolio
Opportunity Funds
Notes Receivable
Total
Revenues
$
33,070

$
25,436

$
4,206

$
62,712

Property operating expenses, other operating and real estate taxes
9,007

11,234

—

20,241

General and administrative
10,252

878

—

11,130

Income before depreciation and amortization and interest and other finance expense
$
13,811

$
13,324

$
4,206

$
31,341

Depreciation and amortization
$
8,237

$
7,114

$
—

$
15,351

Interest and other finance expense
$
7,074

$
6,552

$
—

$
13,626

Real estate at cost
$
632,084

$
684,101

$
—

$
1,316,185

Total assets
$
750,634

$
664,419

$
88,712

$
1,503,765

Expenditures for redevelopment and improvements
$
19,984

$
18,934

$
—

$
38,918

Acquisition of real estate
$
66,878

$
44,237

$
—

$
111,115

 
 
 
 
 
Reconciliation to net income and net income attributable to Common Shareholders
 

Net property income before depreciation and amortization and interest and other finance expense
$
31,341

Depreciation and amortization
(15,351
)
Equity in earnings of unconsolidated affiliates
4,535

Interest and other finance expense
(13,626
)
Income tax provision
(1,227
)
Income from discontinued operations
5,659

Gain on sale of property
2,668

Net income
13,999

Net income attributable to noncontrolling interests
(3,150
)
Net income attributable to Common Shareholders
$
10,849




13.
LONG-TERM INCENTIVE COMPENSATION

On February 22, 2013, the Company issued a total of 284,447 LTIP Units and 590 Restricted Share Units to officers of the Company and 11,532 Restricted Share Units to other employees of the Company pursuant to its Amended and Restated 2006 Share Incentive Plan (the "Share Incentive Plan"). Vesting with respect to these awards is generally recognized ratably over the five annual anniversaries following the issuance date. Vesting with respect to 16% of the awards issued to officers is also generally subject to achieving certain Company performance measures. Unvested LTIP Units provide for non-forfeitable rights to dividend equivalent payments (Note 2).

These awards were measured at their fair value as if they were vested on the grant date. Fair value was established as the market price of the Company's Common Shares as of the close of trading on the day preceding the grant date. The total value of the above Restricted Share Units and LTIP Units as of the grant date was $7.9 million. Compensation expense of $0.4 million and $0.8 million has been recognized in the accompanying consolidated statements of income related to these awards for the three and six months ended June 30, 2013, respectively.

Total long-term incentive compensation expense, including the expense related to the above-mentioned plans, was $1.3 million and $0.9 million for the three months ended June 30, 2013 and 2012, respectively and $2.6 million and $1.8 million for the six months ended June 30, 2013 and 2012, respectively.


22
ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

13.
LONG-TERM INCENTIVE COMPENSATION (continued)

In 2009, the Company adopted the Long Term Investment Alignment Program (the "Program") pursuant to which the Company may award units primarily to senior executives which would entitle them to receive up to 25% of any future Fund III Promote when and if such Promote is ultimately realized. The Company has awarded all of the units under the Program and these units were determined to have no value at issuance or as of June 30, 2013. In accordance with ASC Topic 718, "Compensation - Stock Compensation," compensation relating to these awards will be recorded based on the change in the estimated fair value at each reporting period.

14.    SUBSEQUENT EVENTS

During July 2013, the Company completed the acquisition of 3200-3204 M Street in Georgetown, Washington, D.C., a Core Portfolio property for a purchase price of $11.8 million.

As of June 30, 2013, one of the properties within the Opportunity Funds was under contract for sale (Note 4). During July, the contract expired. The property continues to be marketed for sale.

23

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion is based on our consolidated financial statements as of June 30, 2013 and 2012 and for each of the three and six months then ended. This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto ("Notes to Consolidated Financial Statements").

FORWARD-LOOKING STATEMENTS

Certain statements contained in this report constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results performance or achievements expressed or implied by such forward-looking statements. Such factors are set forth under the heading "Item 1A. Risk Factors" in our Form 10-K for the year ended December 31, 2012 (our "2012 Form 10-K") and include, among others, the following: general economic and business conditions, including the current post-recessionary period, which will, among other things, affect demand for rental space, the availability and creditworthiness of prospective tenants, lease rents and the availability of financing; adverse changes in our real estate markets, including, among other things, competition with other companies; risks of real estate development, acquisition and investment; risks related to our use of leverage; demands placed on our resources due to the growth of our business; risks related to operating through a partnership structure; our limited control over joint venture investments; the risk of loss of key members of management; uninsured losses; REIT distribution requirements and ownership limitations; concentration of ownership by certain institutional investors; governmental actions and initiatives; and environmental/safety requirements. Except as required by law, we do not undertake any obligation to update or revise any forward-looking statements contained in this Form 10-Q.

OVERVIEW

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, supply constrained, densely-populated metropolitan areas and create value through accretive redevelopment and re-anchoring activities coupled with the acquisition of high-quality assets that have the long-term potential to outperform the industry asset class.

•
Generate additional external growth through an opportunistic yet disciplined acquisition program through our Opportunity Funds. We target transactions with high inherent opportunity for the creation of additional value through:

◦
value-add investments in high-quality urban and/or street retail properties with re-tenanting or repositioning opportunities,
◦
opportunistic acquisitions of well-located real estate anchored by distressed retailers or by motivated sellers and
◦
opportunistic purchases of debt which may include restructuring.

These may also include joint ventures with private equity investors for the purpose of making investments in operating retailers with significant embedded value in their real estate assets.

•
Maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth.

As of June 30, 2013, we operated 108 properties, which we own or have an ownership interest in, within our Core Portfolio and Opportunity Funds. These properties primarily consist of urban/street retail, dense suburban neighborhood and community shopping centers and mixed-use properties with a strong retail component. The properties we operate are located primarily along the East Coast and in Chicago.

•
Core Portfolio

◦
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

24

our Opportunity Funds. There are 75 properties in our Core Portfolio totaling 5.3 million square feet. As of June 30, 2013, the Core Portfolio physical occupancy was 93.7% and leased occupancy, which includes executed leases for which rent has not yet commenced was 95.0%.

•
Opportunity Funds

◦
Fund I has three properties totaling 0.1 million square feet.
◦
Fund II has six properties totaling 0.8 million square feet, four of which are operating, one of which is under construction, and one of which is in the design phase.
◦
Fund III has 17 properties totaling 1.7 million square feet, 12 of which are operating and five of which are in various stages of redevelopment.
◦
Fund IV has seven properties totaling 0.4 million square feet, six of which are operating and one of which is in the design phase.

The majority of our operating income is derived from rental revenues from properties, including recoveries of operating expenses from tenants, offset by operating and overhead expenses. As our RCP Venture invests in operating companies, we consider these investments to be private-equity style, as opposed to solely real estate, investments. Since these are not generally traditional investments in operating rental real estate but investments in operating businesses, the Operating Partnership principally invests in these through a taxable REIT subsidiary ("TRS").

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 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. Management bases its 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 the 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 there have been no material changes to the items that we disclosed as our critical accounting policies under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our 2012 Form 10-K.

RESULTS OF OPERATIONS
A discussion of the significant variances and primary factors contributing thereto within the results of operations are addressed below. Where there were no significant variances from period to period, the information in the following tables is presented without further discussion:

Comparison of the three months ended June 30, 2013 ("2013") to the three months ended June 30, 2012 ("2012")

(dollars in millions)
2013
 
2012
Revenues
Core
Portfolio
 
Opportunity Funds
 
Notes
Receivable
 
Core
Portfolio
 
Opportunity Funds
 
Notes
Receivable
Rental income
$
23.2

 
$
11.6

 
$
—

 
$
14.0

 
$
10.1

 
$
—

Interest income
—

 
—

 
3.4

 
—

 
—

 
2.1

Expense reimbursements
4.6

 
2.7

 
—

 
3.0

 
2.8

 
—

Other
0.2

 
0.2

 
—

 
0.4

 
0.3

 
—

Total revenues
$
28.0

 
$
14.5

 
$
3.4

 
$
17.4

 
$
13.2

 
$
2.1


Rental income in the Core Portfolio increased $9.2 million primarily as a result of additional rents of (i) $1.3 million following the acquisitions of 664 North Michigan and 8-12 East Walton ("2013 Core Acquisitions"), (ii) $3.3 million following the acquisitions of 330 River Street, 340 River Street, 28 Jericho Turnpike, a portfolio of Chicago street retail properties, 930 Rush Street, 83 Spring Street, Rhode Island Place, 181 Main Street, 1739-53 Connecticut Avenue, 1801-03 Connecticut Avenue, and 639 West Diversey ("2012 Core Acquisitions"), (iii) $4.2 million following the consolidation of our Brandywine investment formerly presented under the equity method ("Brandywine") and (iv) $0.3 million as a result of re-anchoring and leasing activities at Branch Plaza ("Core Re-anchoring"). Rental income in the Opportunity Funds increased $1.5 million primarily as a result of additional rents of (i) $0.5 million following the acquisitions of 3780-3858 Nostrand Avenue ("2013 Fund Acquisition") and (ii) $0.9 million

25

from leases that commenced during 2012 and 2013 at Fordham Place, 640 Broadway and 161st Street ("Fund Redevelopment Properties").

The increase in interest income was primarily due to the origination of two notes during December 2012 partially offset by the repayment of three notes during 2012.

Expense Reimbursements in the Core Portfolio increased $1.6 million primarily as a result of $0.6 million from the 2013 and 2012 Core Acquisitions, and $0.7 million from Brandywine.

(dollars in millions)
2013
 
2012
Operating Expenses 
Core
Portfolio
 
Opportunity Funds
 
Notes
Receivable
 
Core
Portfolio
 
Opportunity Funds
 
Notes
Receivable
Property operating
$
3.2

 
$
2.6

 
$
—

 
$
1.8

 
$
2.9

 
$
—

Other operating
0.3

 
0.1

 
—

 
0.3

 
0.9

 
—

Real estate taxes
3.3

 
2.4

 
—

 
2.4

 
2.4

 
—

General and administrative
5.9

 
0.4

 
—

 
4.6

 
0.6

 
—

Depreciation and amortization
7.2

 
3.8

 
—

 
4.5

 
3.7

 
—

Total operating expenses
$
19.9

 
$
9.3

 
$
—

 
$
13.6

 
$
10.5

 
$
—


Property operating expenses in the Core Portfolio increased $1.4 million primarily as a result of $0.8 million from Brandywine and $0.3 million from the 2013 and 2012 Core Acquisitions.

Real estate taxes in the Core Portfolio increased $0.9 million primarily as a result of $0.4 million from the 2013 and 2012 Core Acquisitions and $0.3 million from Brandywine.

General and administrative in the Core Portfolio increased $1.3 million primarily as a result of increased compensation due to additional staffing and increased stock compensation.

Depreciation and amortization in the Core Portfolio increased $2.7 million primarily as a result of $1.7 million from the 2013 and 2012 Core Acquisitions and $0.9 million from Brandywine.

(dollars in millions)
2013
 
2012
Other
Core
Portfolio
 
Opportunity Funds
 
Notes
Receivable
 
Core
Portfolio
 
Opportunity Funds
 
Notes
Receivable
Equity in earnings (losses) of unconsolidated affiliates
$
—

 
$
0.8

 
$
—

 
$
(0.1
)
 
$
4.7

 
$
—

Impairment of asset
(1.5
)
 
—

 
—

 
—

 
—

 
—

Interest and other finance expense
(6.6
)
 
(4.3
)
 
—

 
(3.8
)
 
(3.3
)
 
—

Income tax benefit (provision)
0.1

 
(0.1
)
 
—

 
(1.2
)
 
0.2

 
—

Income from discontinued operations
—

 
4.5

 
—

 
—

 
6.0

 
—

Net (income) loss attributable to noncontrolling interests -
 
 
 
 
 
 
 
 
 
 
 
  - Continuing operations
(0.5
)
 
3.6

 
—

 
—

 
0.7

 
—

  - Discontinued operations
—

 
(3.9
)
 
—

 
—

 
(5.0
)
 
—


Equity in earnings (losses) of unconsolidated affiliates in the Opportunity Funds decreased primarily as a result of our share of a $3.4 million gain on the sale of an unconsolidated Opportunity Fund investment during 2012 ("2012 Fund Unconsolidated Dispositions") and $2.1 million of distributions in excess of basis from our Albertson's investment during 2012. These decreases

26

were offset by a $1.2 million increase in our share of earnings from our investment in the Self- Storage Management company during 2013.

Impairment of asset in the Core Portfolio represents an impairment charge on Walnut Hill Plaza. See Note 1 in the Notes to Consolidated Financial Statements for a discussion of the impairment charge.

Interest expense in the Core Portfolio increased $2.8 million primarily due to Brandywine. Interest expense in the Opportunity Funds increased $1.0 million in 2013, primarily due to higher average outstanding borrowings.

Income from discontinued operations represents activity related to properties held for sale in 2013 and properties sold during 2013 and 2012. See Note 4 in the Notes to Consolidated Financial Statements for a discussion of our 2013 dispositions.

Net (income) loss attributable to noncontrolling interests - Continuing operations and Discontinued operations primarily represents the noncontrolling interests' share of all the Opportunity Funds variances discussed above.

Comparison of the six months ended June 30, 2013 ("2013") to the six months ended June 30, 2012 ("2012")

(dollars in millions)
2013
 
2012
Revenues
Core
Portfolio
 
Opportunity Funds
 
Notes
Receivable
 
Core
Portfolio
 
Opportunity Funds
 
Notes
Receivable
Rental income
$
44.4

 
$
23.5

 
$
—

 
$
26.6

 
$
19.4

 
$
—

Interest income
—

 
—

 
6.3

 
—

 
—

 
4.2

Expense reimbursements
9.7

 
5.6

 
—

 
5.7

 
5.5

 
—

Other
0.8

 
2.9

 
—

 
0.9

 
0.4

 
—

Total revenues
$
54.9

 
$
32.0

 
$
6.3

 
$
33.2

 
$
25.3

 
$
4.2


Rental income in the Core Portfolio increased $17.8 million primarily as a result of additional rents of (i) $8.7 million from 2013 and 2012 Core Acquisitions, (ii) $8.3 million from Brandywine and (iii) $0.7 million from Core Re-anchoring. Rental income in the Opportunity Funds increased $4.1 million primarily as a result of additional rents of (i) $0.7 million from 2013 Fund Acquisitions, (ii) $0.6 million from acquisitions of 210 Bowery 3104 M Street and Lincoln Park Center ("2012 Fund Acquisitions") and (iii) $2.1 million from Fund Redevelopment Properties.

The increase in interest income was primarily due to the origination of three notes during December 2012 partially offset by the repayment of three notes during 2012.

Expense Reimbursements in the Core Portfolio increased $4.0 million primarily as a result of $1.2 million from the 2013 and 2012 Core Acquisitions, and $1.4 million from Brandywine as well as an increase in snow related reimbursements.

Other income in the Opportunity Funds increased $2.5 million primarily as a result of the collection of a note receivable originated in 2010, which had been written off prior to 2013.

(dollars in millions)
2013
 
2012
Operating Expenses 
Core
Portfolio
 
Opportunity Funds
 
Notes
Receivable
 
Core
Portfolio
 
Opportunity Funds
 
Notes
Receivable
Property operating
$
6.4

 
$
5.1

 
$
—

 
$
3.5

 
$
5.5

 
$
—

Other operating
1.0

 
0.9

 
—

 
0.8

 
1.5

 
—

Real estate taxes
6.6

 
4.3

 
—

 
4.6

 
4.3

 
—

General and administrative
11.4

 
0.5

 
—

 
10.3

 
0.9

 
—

Depreciation and amortization
13.8

 
7.8

 
—

 
8.2

 
7.1

 
—

Total operating expenses
$
39.2

 
$
18.6

 
$
—

 
$
27.4

 
$
19.3

 
$
—



27

Property operating expenses in the Core Portfolio increased $2.9 million primarily as a result of $0.6 million from the 2013 and 2012 Core Acquisitions, $1.2 million from Brandywine and $0.5 million from additional snow related expenses.

Real estate taxes in the Core Portfolio increased $2.0 million primarily as a result of $1.0 million from the 2013 and 2012 Core Acquisitions and $0.7 million from Brandywine.

General and administrative in the Core Portfolio increased $1.1 million primarily as a result of increased compensation due to additional staffing and increased stock compensation, offset by higher internal capitalized leasing salaries during 2013.

Depreciation and amortization in the Core Portfolio increased $5.6 million primarily as a result of $3.3 million from the 2012 Core Acquisitions and $1.7 million from Brandywine.

(dollars in millions)
2013
 
2012
Other
Core
Portfolio
 
Opportunity Funds
 
Notes
Receivable
 
Core
Portfolio
 
Opportunity Funds
 
Notes
Receivable
Equity in earnings (losses) of unconsolidated affiliates
$
—

 
$
3.1

 
$
—

 
$
0.2

 
$
4.3

 
$
—

Impairment of asset
(1.5
)
 
—

 
—

 
—

 
—

 
—

Interest and other finance expense
(12.7
)
 
(8.5
)
 
—

 
(7.1
)
 
(6.5
)
 
—

Income tax benefit (provision)
0.2

 
(0.1
)
 
—

 
(1.8
)
 
0.6

 
—

Income from discontinued operations
—

 
4.9

 
—

 
—

 
8.3

 
—

Net (income) loss attributable to noncontrolling interests -
 
 
 
 
 
 
 
 
 
 
 
  - Continuing operations
(0.8
)
 
2.6

 
—

 
—

 
3.7

 
—

  - Discontinued operations
—

 
(4.3
)
 
—

 
—

 
(6.8
)
 
—


Equity in earnings (losses) of unconsolidated affiliates in the Opportunity Funds decreased primarily as a result of our share of a $3.4 million gain on sale from 2012 Fund Unconsolidated Dispositions and $2.1 million of distributions in excess of basis from our Albertson's investment during 2012. These decreases were offset by a $2.0 million increase in our share of earnings from our investment in the Self- Storage Management company and $1.1 million of additional income from the acquisition of Fund IV's Lincoln Road Portfolio during 2013.

Impairment of asset in the Core Portfolio represents an impairment charge on Walnut Hill Plaza as previously discussed.

Interest expense in the Core Portfolio increased $5.6 million primarily due to Brandywine. Interest expense in the Opportunity Funds increased $2.0 million in 2013, primarily due to higher average outstanding borrowings.

The variance in the income tax provision in the Core Portfolio of $2.0 million relates to the re-characterization of fee income to a priority distribution at the TRS level in 2013.

Income from discontinued operations represents activity related to properties held for sale in 2013 and properties sold during 2013 and 2012. See Note 4 in the Notes to Consolidated Financial Statements for a discussion of our 2013 disposition.

Net (income) loss attributable to noncontrolling interests - Continuing operations and Discontinued operations primarily represents the noncontrolling interests' share of all the Opportunity Funds variances discussed above.

CORE PORTFOLIO PERFORMANCE

The following discussion of net property operating income ("NOI"), same-store NOI and rent spreads on new and renewal leases includes both our consolidated and pro-rata share of unconsolidated properties within our Core Portfolio. In contrast, our Opportunity Funds invest primarily in properties that typically require significant leasing and redevelopment. Given that our

28

Opportunity Funds are finite-life investment vehicles, these assets are typically sold following the completion of these activities. Accordingly, we believe these measures are not meaningful for our Opportunity Fund investments.

NOI represents property-related revenues less expenses. We consider NOI, same-store NOI and rent spreads on new and renewal leases for our Core Portfolio to be appropriate supplemental disclosures of portfolio operating performance due to their widespread acceptance and use within the REIT investor and analyst communities. NOI, same-store 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.
NOI for our Core Portfolio is determined as follows:

(dollars in millions)
 
 
 
 
 
 
 
 
Reconciliation of Consolidated Operating Income to NOI - Core Portfolio
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2013
 
2012
 
2013
 
2012
Consolidated Operating Income
 
$
16.8

 
$
8.7

 
$
35.5

 
$
16.0

Add back:
 
 
 
 
 
 
 
 
  General and administrative
 
6.3

 
5.2

 
11.9

 
11.1

  Depreciation and amortization
 
11.0

 
8.2

 
21.6

 
15.4

Less:
 
 
 
 
 
 
 
 
  Management fee income
 
—

 
(0.4
)
 
—

 
(0.9
)
  Interest income
 
(3.4
)
 
(2.1
)
 
(6.3
)
 
(4.2
)
  Straight-line rent and other adjustments
 
(1.9
)
 
—

 
(2.6
)
 
0.5

Consolidated NOI
 
28.8

 
19.6

 
60.1

 
37.9

Noncontrolling interest in consolidated NOI
 
(10.8
)
 
(6.2
)
 
(23.8
)
 
(12.7
)
Pro-rata share of consolidated NOI
 
18.0

 
13.4

 
36.3

 
25.2

Less: Operating Partnership's interest in Opportunity Fund NOI included above
 
(1.8
)
 
(1.4
)
 
(4.2
)
 
(2.9
)
Add: Operating Partnership's share of unconsolidated joint ventures NOI 1
 
0.8

 
1.5

 
1.5

 
3.2

Core Portfolio NOI
 
$
17.0

 
$
13.5

 
$
33.6

 
$
25.5


Note:

(1) Does not include the Operating Partnership's share of NOI from unconsolidated joint ventures within the Opportunity Funds

Same-store NOI includes properties that we owned for both the current and prior periods presented, but excludes those properties which we acquired, redeveloped or classified as discontinued operations during these periods. We define a redevelopment property as an asset that is being repositioned in its market or undergoing significant renovation. Redevelopment activities involve taking a substantial portion of leasable space temporarily out of service and typically include structural work, demising of existing space and/or facade renovation. The following table summarizes same-store NOI for our Core Portfolio for the three and six months ended June 30, 2013 and 2012:


29

Reconciliation of Core Portfolio NOI to Same-Store NOI
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(dollars in millions)
 
2013
 
2012
 
2013
 
2012
Core Portfolio NOI - Continuing Operations
 
$
17.0

 
$
13.5

 
$
33.6

 
$
25.5

Less properties excluded from Same-Store NOI
 
(4.2
)
 
(1.5
)
 
(9.2
)
 
(3.2
)
Same-Store NOI
 
$
12.8

 
$
12.0

 
$
24.4

 
$
22.3

 
 
 
 
 
 
 
 
 
Percent change from historic period
 
7.4
%
 
 
 
9.3
%
 
 
 
 
 
 
 
 
 
 
 
Components of Same-Store NOI
 
 
 
 
 
 
 
 
Same-Store Revenues
 
$
17.3

 
$
16.0

 
$
33.3

 
$
30.3

Same-Store Operating Expenses
 
4.5

 
4.0

 
8.9

 
8.0

Same-Store NOI
 
$
12.8

 
$
12.0

 
$
24.4

 
$
22.3



Following is a summary of the net change in base rent as compared to that of the former leases on new and renewal leases ("Rent Spreads") executed within our Core Portfolio during the three and six months ended June 30, 2013:
Rent Spreads on New and Renewal Leases - Core Portfolio
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
June 30, 2013
 
June 30, 2013
Core Portfolio New and Renewal Leases
Cash Basis
 
Straight-Line Basis (GAAP) (1)
 
Cash Basis
 
Straight-Line Basis (GAAP) (1)
Number of new and renewal leases executed
7

 
7

 
10

 
10

Gross leasable area
38,800

 
38,800

 
50,476

 
50,476

New base rent
$
25.41

 
$
26.60

 
$
38.63

 
$
45.73

Expiring base rent
$
21.56

 
$
20.58

 
$
33.30

 
$
32.53

Percent growth in base rent
17.9
%
 
29.3
%
 
16.0
%
 
40.6
%
Average cost per square foot (2)
$
28.78

 
$
28.78

 
$
31.39

 
$
31.39

Weighted average lease term (years)
7.4

 
7.4

 
8.4

 
8.4

Notes:
(1) Includes contractual rental escalations, abated rent and lease incentives.
(2) The average cost per square foot includes tenant improvement costs, leasing commissions and tenant allowances.

FUNDS FROM OPERATIONS

Consistent with the National Association of Real Estate Investment Trusts ("NAREIT") definition, we define funds from operations ("FFO") as net income attributable to common shareholders (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciated property, plus depreciation and amortization, impairment of depreciable assets and after adjustments for unconsolidated partnerships and joint ventures.

We consider FFO 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. However, our method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. FFO does not represent cash generated from operations as defined by GAAP and is not indicative of cash

30

available to fund all cash needs, including distributions. FFO 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.

The reconciliation of net income to FFO for the three and six months ended June 30, 2013 and 2012 is as follows:

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(amounts in millions, except per share amounts) 
2013
 
2012
 
2013
 
2012
Funds From Operations
 
 
 
 
 
 
 
Net income attributable to Common Shareholders
$
8.8

 
$
6.8

 
$
18.4

 
$
10.8

Depreciation of real estate and amortization of leasing costs (net of noncontrolling interests’ share)


 
 

 
 
 
 
Consolidated affiliates
7.0

 
5.5

 
13.6

 
10.1

Unconsolidated affiliates
0.7

 
0.6

 
1.2

 
1.2

Gain on sale (net of noncontrolling interests’ share)
 
 
 
 
 
 
 
Consolidated affiliates
(0.8
)
 
(0.2
)
 
(0.8
)
 
(0.2
)
Unconsolidated affiliates
—

 
(0.6
)
 
—

 
(0.6
)
Impairment of asset
1.5

 
—

 
1.5

 
—

Income attributable to noncontrolling interests’ in Operating Partnership
0.1

 
0.1

 
0.2

 
0.2

Funds from operations
$
17.3

 
$
12.2

 
$
34.1

 
$
21.5

Funds From Operations per Share - Diluted
 

 
 

 
 
 
 
Weighted average number of Common Shares and OP Units
56.2

 
45.3

 
55.4

 
44.6

Diluted funds from operations, per share
$
0.31

 
$
0.27

 
$
0.62

 
$
0.48


USES OF LIQUIDITY

Our principal uses of liquidity are:

•
Core Portfolio acquisitions, redevelopment and re-tenanting activities;
•
Investments in notes receivable and other real estate related investments;
•
Investments through our Opportunity Funds, which include the funding of our share of committed capital;
•
Distributions to our Common Shareholders, OP and LTIP Unit holders, and noncontrolling interests; and
•
Payment of principal and interest on our mortgage loans and credit facilities.

Investments

Core Portfolio

Through July 31, 2013, we acquired three properties for $120.9 million. See Note 4 and Note 14 to the Notes to Consolidated Financial Statements for a discussion of these investments.

During 2011, we initiated the key re-anchoring of three properties. During 2012 we completed two of these projects. Leases for prospective tenants at the third project, the Crossroads Shopping Center, are in various stages of negotiation. Costs associated with re-tenanting activity at this center are expected to range between $8.0 million and $11.0 million and completion is expected to occur during 2014.

Notes Receivable

We made no investments in notes receivable during the six months ended June 30, 2013. See Note 6 to the Notes to Consolidated Financial Statements for an overview of our notes receivable.


31

Opportunity Funds

During February 2013, Fund III entered into a joint venture agreement with an unaffiliated partner to acquire a 99% controlling interest in Nostrand Place. The consideration paid by us was the contribution of the unliquidated balance of our note receivable collateralized by Nostrand Place and required no cash contribution as further described in Note 4 to the Notes to Consolidated Financial Statements.

During June 2013, Fund IV, acquired a 98% initial interest in 2819 Kennedy Boulevard and a 99% initial interest in Promenade at Manassas as further described in Note 4 to the Notes to Consolidated Financial Statements. Fund IV's cash contribution to these two investments totaled $47.3 million.

As part of our Opportunity Fund strategy, we invest in real estate assets that require significant redevelopment. As of June 30, 2013, we had eight redevelopment projects, one of which is under construction and seven are in various stages of development as follows:

(dollars in millions)
 
 
 
 
 
 
Property
 
Owner
 
Costs
to date
 
Anticipated
additional
costs (1)
Square
feet upon
completion
Anticipated completion dates
City Point
 
Fund II
 
$
190.3

 
$59.7 - $149.7
675,000

2015
Sherman Plaza
 
Fund II
 
34.7

 
TBD
TBD

TBD
Sheepshead Bay
 
Fund III
 
22.9

 
TBD
TBD

TBD
723 N. Lincoln Lane
 
Fund III
 
6.7

 
TBD
TBD

TBD
Cortlandt Crossing
 
Fund III
 
11.5

 
35.5 - 44.5
150,000 - 170,000

2016
3104 M Street NW
 
Fund III
 
3.0

 
4.0 - 5.5
10,000

TBD
Broad Hollow Commons
 
Fund III
 
13.0

 
37.0 - 47.0
180,000 - 200,000

2016
210 Bowery
 
Fund IV
 
7.7

 
3.8 - 4.3
10,000

2015
Total
 
 
 
$
289.8

 
 
 
 

Notes:

TBD - To be determined

(1) Anticipated additional costs are estimated ranges for completing the projects and include costs for tenant improvements and leasing commissions.

Distributions

In order to qualify as a REIT for Federal income tax purposes, we must currently distribute at least 90% of our taxable income to our shareholders. For the three and six months ended June 30, 2013, we paid dividends and distributions on our Common Shares, Common OP Units and LTIP Unit holders totaling $11.8 million and $21.4 million, respectively, which were funded from the Operating Partnership's share of operating cash flow.

In addition, distributions of $15.8 million were made to noncontrolling interests in Fund III during the six months ended June 30, 2013. Of this, $6.4 million was made from operating cash flows and $9.4 million resulted from financing proceeds.

Share Repurchase

We have an existing share repurchase program that authorizes management, at its discretion, to repurchase up to $20.0 million of our outstanding Common Shares. The program may be discontinued or extended at any time and there is no assurance that we will purchase the full amount authorized. Under this program we have repurchased 2.1 million Common Shares, none of which were repurchased after December 2001. As of June 30, 2013, management has remaining authority to repurchase up to approximately $7.5 million of our outstanding Common Shares under this program.

32


SOURCES OF LIQUIDITY

Our principal sources of liquidity are:

•
The issuance of public equity, OP Units or debt instruments;
•
Cash on hand of $100.0 million as of June 30, 2013 and cash flows from operating activities;
•
Unfunded capital commitments from noncontrolling interests;
•
Future sales of existing properties; and
•
Debt financings

Issuance of Equity

During April 2012, we filed a shelf registration on Form S-3 providing for offerings of up to a total of $500.0 million of Common Shares, Preferred Shares, debt securities and other securities. We have remaining capacity under this registration statement to issue up to approximately $81.3 million of these securities.

During 2013 we have issued 2.8 million Common Shares under our an at-the-market ("ATM") equity program for net proceeds of $76.0 million. See Note 3 in the Notes to Consolidated Financial Statements for additional information related to our ATM equity program.

Opportunity Fund Capital

During the first six months of 2013, capital contributions received from noncontrolling interests in our Opportunity Funds totaled $15.6 million. As of June 30, 2013, unfunded capital commitments from noncontrolling interests in our Opportunity Funds totaled $457.6 million. See Note 1 in the Notes to Consolidated Financial Statements for additional information related to our Opportunity Fund capital activity.

Asset Sales

During May 2013, we closed on the sale of our self-storage facility located in Pelham, NY for $11.9 million, which generated net proceeds of $5.2 million after the repayment of $6.7 million of debt.

Debt Financings

During the six months ended June 30, 2013, we received loan proceeds of $68.5 million, net of repayments on loans that were refinanced, on five debt financings. In addition, we received $193.0 million of loan proceeds which have been deposited in a restricted cash account available to fund future project construction activities. See Note 8 in the Notes to Consolidated Financial Statements for additional information on the transactions related to mortgage loans, bond financing and credit facilities completed during the six months ended June 30, 2013.

As of June 30, 2013, mortgages, convertible notes and other notes payable aggregated $1,091.2 million, net of unamortized premium of $2.0 million, and the mortgages were collateralized by 38 properties and related tenant leases. Interest rates on our outstanding mortgage indebtedness convertible notes and other notes payable ranged from 1.00% to 7.25% with maturities that ranged from December 2013 to April 2023. Taking into consideration $181.4 million of notional principal under variable to fixed-rate swap agreements currently in effect, $841.0 million of the mortgages, convertible notes and other notes payable, or 77.1%, was fixed at a 5.15% weighted average interest rate and $250.2 million, or 22.9% was floating at a 2.91% weighted average interest rate as of June 30, 2013. There is $49.9 million of debt maturing in 2013 at a weighted average interest rate of 4.15%. Of this amount, $4.1 million represents scheduled annual amortization. As it relates to the remaining maturities in 2013, we may not have sufficient cash 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.


33

The following table sets forth certain information pertaining to our secured and unsecured credit facilities:

(dollars in millions)
Borrower
 
Total
amount of
credit
facility
 
Amount
borrowed as of
December 31,
2012

 
Net borrowings (repayments)
during the six months ended June 30, 2013

 
Amount
borrowed
as of
June 30, 2013

 
Letters of credit outstanding as of June 30, 2013
 
Amount
available
under credit
facilities
as of
June 30, 2013

Acadia Realty, LP (1)
 
$
150.0

 
$
—

 
$
—

 
$
—

 
$
12.5

 
$
137.5

Fund IV (2)
 
150.0

 
93.1

 
(46.2
)
 
46.9

 
—

 
103.1

Total
 
$
300.0

 
$
93.1

 
$
(46.2
)
 
$
46.9

 
$
12.5

 
$
240.6


Notes:

(1) This is an unsecured revolving credit facility.
(2) The Fund IV revolving subscription line of credit is secured by unfunded investor capital commitments.


34

The following table summarizes our mortgage and other indebtedness as of June 30, 2013 and December 31, 2012:

(dollars in millions)
 
 
 
 
 
 
Description of Debt and Collateral
6/30/13
12/31/12
Interest Rate at 6/30/13
Maturity
Payment
Terms
Mortgage notes payable – variable-rate
 
 
 
 
 
161st Street
$
—

$
28.9

6.20% (LIBOR+6.00%)
4/1/2013
Interest only monthly
Pelham Manor
26.9

33.8

2.94% (LIBOR+2.75%)
12/1/2013
Monthly principal and interest
210 Bowery
4.6

—

2.14% (LIBOR+1.95%)
6/1/2014
Interest only monthly
Branch Shopping Plaza
12.4

12.6

2.44% (LIBOR+2.25%)
9/30/2014
Monthly principal and interest
640 Broadway
22.8

22.8

3.14% (LIBOR+2.95%)
7/1/2015
Interest only monthly until 7/14; monthly principal and interest thereafter
Heritage Shops
21.0

21.0

2.44% (LIBOR+2.25%)
8/10/2015
Interest only monthly until 9/13; monthly principal and interest thereafter
City Point
20.7

20.7

2.69% (LIBOR+2.50%)
8/12/2015
Interest only monthly
City Point
20.0

—

5.19% (LIBOR+5.00%)
8/23/2015
Interest only monthly
Fordham Place
79.0

82.2

3.19% (LIBOR+3.00%)
9/25/2015
Monthly principal and interest
Cortlandt Towne Center
73.1

73.5

2.22% (LIBOR+2.03%)
10/26/2015
Interest only monthly
New Hyde Park Shopping Center
6.4

6.5

2.44% (LIBOR+2.25%)
11/10/2015
Monthly principal and interest
Nostrand Avenue
12.8

—

2.84% (LIBOR+2.65%)
2/15/2016
Monthly principal and interest
161st Street
29.5

—

2.69% (LIBOR+2.50%)
4/1/2018
Interest only monthly
Village Commons Shopping Center
9.1

9.2

1.59% (LIBOR+1.40%)
6/30/2018
Monthly principal and interest
West Diversey
15.1

15.3

2.09% (LIBOR+1.90%)
4/27/2019
Monthly principal and interest
4401 White Plains Rd
6.3

6.4

2.09% (LIBOR+1.90%)
8/1/2022
Monthly principal and interest
28 Jericho Turnpike
16.4

—

2.09% (LIBOR+1.90%)
1/23/2023
Monthly principal and interest
60 Orange Street
8.6

—

1.94% (LIBOR+1.75%)
4/3/2023
Monthly principal and interest
Sub-total mortgage notes payable
384.7

332.9

 
 
 
Secured credit facilities - variable rate:
 

 

 
 
 
Unsecured line of credit
—

—

1.74% (LIBOR+1.55%)
1/3/2016
Interest only monthly
Fund IV revolving subscription line of credit
46.9

93.1

1.84% (LIBOR+1.65%)
11/20/2015
Interest only monthly
Sub-total secured credit facilities
46.9

93.1

 
 
 
Interest rate swaps (1)
(181.4
)
(132.8
)
 
 
 
Total variable-rate debt
250.2

293.2

 
 
 
 
 
 
 
 
 

35

(dollars in millions)
 
 
 
 
 
 
Description of Debt and Collateral
6/30/13
12/31/12
Interest Rate at 6/30/13
Maturity
Payment
Terms
Mortgage notes payable – fixed-rate
 

 

 
 
 
Lincoln Park Centre
$
19.3

$
19.5

5.85
%
 
12/1/2013
Monthly principal and interest
Clark Diversey
4.3

4.3

6.35
%
 
7/1/2014
Monthly principal and interest
New Loudon Center
13.5

13.6

5.64
%
 
9/6/2014
Monthly principal and interest
City Point
20.0

20.0

7.25
%
 
11/1/2014
Interest only quarterly
Crescent Plaza
16.9

17.0

4.98
%
 
9/6/2015
Monthly principal and interest
Pacesetter Park Shopping Center
11.6

11.7

5.12
%
 
11/6/2015
Monthly principal and interest
Elmwood Park Shopping Center
33.0

33.3

5.53
%
 
1/1/2016
Monthly principal and interest
Chicago Portfolio
14.2

14.3

5.62
%
 
2/1/2016
Monthly principal and interest
Chicago Portfolio
1.5

1.5

5.55
%
 
2/1/2016
Monthly principal and interest
The Gateway Shopping Center
19.9

20.0

5.44
%
 
3/1/2016
Monthly principal and interest
340 River Street
6.9

6.9

6.26
%
 
5/1/2016
Monthly principal and interest
330 River Street
4.1

4.2

3.68
%
 
5/1/2016
Monthly principal and interest
Brandywine
166.2

—

5.99
%
 
7/1/2016
Interest only monthly
Walnut Hill Plaza
23.1

23.2

6.06
%
 
10/1/2016
Monthly principal and interest
Brentwood Shopping Center
16.3

16.4

6.35
%
 
12/1/2016
Monthly principal and interest
239 Greenwich Avenue
26.0

26.0

5.42
%
 
2/11/2017
Interest only monthly
639 W Diversey
4.3

4.4

6.65
%
 
3/1/2017
Monthly principal and interest
Merrillville Plaza
26.0

26.2

5.88
%
 
8/1/2017
Monthly principal and interest
216th Street
25.5

25.5

5.80
%
 
10/1/2017
Interest only monthly
City Point
193.0

—

4.75
%
 
2018
Interest only monthly (2)
City Point
5.2

5.2

1.00
%
 
8/23/2019
Interest only monthly
A&P Shopping Plaza
7.9

7.9

4.20
%
 
9/6/2022
Monthly principal and interest
Interest rate swaps (1)
181.4

132.8

3.91
%
 
 
 
Total fixed-rate debt
840.1

433.9

 
 
 
 
Unamortized premium (discount)
2.0

(0.1
)
 
 
 
 
Total
$
1,092.3

$
727.0

 
 
 
 

Notes:

(1) Represents the amount of our variable-rate debt that has been fixed through certain cash flow hedge transactions. See Note 7 to the Notes to Consolidated Financial Statements for a discussion of these transactions.

(2) Maturity date for this loan is 5 years from the approval of the final funds from USCIS which is currently anticipated to be during 2013. See Note 8 to the Notes to Consolidated Financial Statements for more information relating to this loan.



36

CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS

At June 30, 2013, maturities on our mortgages, convertible notes and other notes payable ranged from December 2013 to April 2023. In addition, we have non-cancelable ground leases at eight of our shopping centers. We also lease space for our corporate headquarters for a term expiring in 2015. The following table summarizes our debt maturities, obligations under non-cancelable operating leases and construction contracts as of June 30, 2013:

(dollars in millions)
Payments due by period
 Contractual obligations
Total
 
Less than
 1 year
 
1 to 3
 years
 
3 to 5
 years
 
More than
 5 years
Future debt maturities
$
1,091.2

 
$
58.4

 
$
460.6

 
$
326.6

 
$
245.6

Interest obligations on debt
191.4

 
48.8

 
83.1

 
35.0

 
24.5

Operating lease obligations
102.2

 
4.2

 
8.9

 
6.9

 
82.2

Construction commitments
91.5

 
91.5

 
—

 
—

 
—

Total
$
1,476.3

 
$
202.9

 
$
552.6

 
$
368.5

 
$
352.3



OFF BALANCE SHEET ARRANGEMENTS

We have investments in the following joint ventures for the purpose of investing in operating properties. We account for these investments using the equity method of accounting. As such, our financial statements reflect our investment in, and our share of income and loss from but not the individual assets and liabilities of these joint ventures.

See Note 5 to the Notes to Consolidated Financial Statements for a discussion of our unconsolidated investments. Our pro-rata share of debt related to these unconsolidated investments is as follows:
(dollars in millions)
Operating
Partnership
 
 
Investment
Pro-rata share of
mortgage debt
Interest rate at June 30, 2013
Maturity Date
Lincoln Road (Fund III)
$
3.7

6.14%
August 2014
Crossroads
28.8

5.37%
December 2014
Parkway Crossing
2.4

2.20%
January 2015
Arundel Plaza
1.6

5.60%
April 2015
White City Shopping Center
6.4

2.60%
December 2017
Miami Beach Lincoln Road
18.4

1.79%
June 2018
Georgetown Portfolio
9.2

4.72%
December 2027
Total
$
70.5

 
 

In addition, we have arranged for the provision of two separate letters of credit in connection with certain leases and investments. As of June 30, 2013, there was no outstanding balance under the letters of credit. If the letters of credit were fully drawn, the maximum amount of our exposure would be $12.5 million.

In addition to our derivative financial instruments, one of our unconsolidated affiliates is a party to two separate interest rate LIBOR swaps with a notional value of $28.9 million, which effectively fix the interest rate at 5.54% and expire in December 2017. Our pro-rata share of the fair value of such affiliates' derivative liabilities totaled $0.3 million at June 30, 2013.



37

HISTORICAL CASH FLOW

The following table compares the historical cash flow for the six months ended June 30, 2013 ("2013") with the cash flow for the six months ended June 30, 2012 ("2012"):
 
Six Months Ended June 30,
(dollars in millions)
2013
 
2012
 
Change
Net cash provided by operating activities
$
24.9

 
$
33.1

 
$
(8.2
)
Net cash used in investing activities
(101.1
)
 
(167.6
)
 
66.5

Net cash provided by financing activities
84.4

 
111.2

 
(26.8
)
Total
$
8.2

 
$
(23.3
)
 
$
31.5


A discussion of the significant changes in cash flow for 2013 compared to 2012 is as follows:

Operating Activities

The decrease of $8.2 million in net cash provided by operating activities primarily resulted from the following:

Items which contributed to a decrease in cash from operating activities:

•
Additional cash of $17.2 million used to fund prepaid ground rent for Fund II's City Point project during 2013

Items which contributed to an increase in cash from operating activities:

•
Additional net operating income from Core and Fund Property Acquisitions and Redevelopment Properties

Investing Activities

The decrease of $66.5 million in net cash used in investing activities primarily resulted from the following:

Items which contributed to a decrease in cash used in investing activities:

•
An increase of $76.9 million in 2013 in return of capital from unconsolidated affiliates
•
A decrease of $34.5 million related to advances of notes receivable during 2013
•
An increase of $3.5 million in 2013 in collections of notes receivable

Items which contributed to an increase in cash used in investing activities:

•
An increase of $47.8 million used in investments in and advances to unconsolidated affiliates during 2013 related to our investments in 2819 Kennedy Boulevard and Promenade at Manassas

Financing Activities

The $26.8 million decrease in net cash provided by financing activities resulted primarily from the following:

Items which contributed to a decrease in cash from financing activities:

•
A decrease of $92.5 million in contributions from noncontrolling interests during 2013
•
An increase of $7.6 million in deferred financing costs related to new financings during 2013

Items which contributed to an increase in cash from financing activities:

•
An additional $36.7 million in mortgage debt proceeds, net of principal payments and funding of a restricted cash account during 2013
•
A decrease of $26.7 million in distributions to noncontrolling interests during 2013
•
An additional $15.2 million of net proceeds from the issuance of Common Shares, net of costs during 2013

38

•
An additional $5.4 million in dividends paid to Common Shareholders during 2013

INFLATION

Our long-term leases contain provisions designed to mitigate the adverse impact of inflation on our net income. Such provisions include clauses enabling us to receive percentage rents based on tenants' gross sales, which generally increase as prices rise, and/or, in certain cases, escalation clauses, which generally increase rental rates during the terms of the leases. Such escalation clauses are often related to increases in the consumer price index or similar inflation indexes. In addition, many of our leases are for terms of less than ten years, which permits us to seek to increase rents upon re-rental at market rates if current rents are below the then existing market rates. Most of our leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes, insurance and utilities, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation.


Item 3.    Quantitative and Qualitative Disclosures About Market Risk.

Our primary market risk exposure is to changes in interest rates related to our mortgage, convertible notes and other debt. See the discussion under Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations for certain quantitative details related to our mortgage, convertible notes 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 June 30, 2013, we had total mortgage debt, convertible notes and other notes payable of $1,093.2 million, of which $843.0 million or 77.1% was fixed-rate, inclusive of interest rate swaps, and $250.2 million or 22.9% was variable-rate based upon LIBOR plus certain spreads. As of June 30, 2013, we were a party to 11 interest rate swap transactions and five interest rate caps to hedge our exposure to changes in interest rates with respect to $181.4 million and $183.3 million of LIBOR-based variable-rate debt, respectively.

Of our total consolidated outstanding debt, $49.9 million and $61.9 million will become due in 2013 and 2014, respectively. 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 $1.1 million annually if the interest rate on the refinanced debt increased by 100 basis points. After giving effect to noncontrolling interests, our share of this increase would be $0.5 million.

Interest expense on our consolidated variable-rate debt, net of variable to fixed-rate swap agreements currently in effect, as of June 30, 2013 would increase by $2.5 million annually if LIBOR increased by 100 basis points. After giving effect to noncontrolling interests, our share of this increase would be $0.8 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.


Item 4.    Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures. In accordance with paragraph (b) of Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures were effective.

(b) Internal Control over Financial Reporting. There has not been any change in our internal control over financial reporting during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


39

Part II.    Other Information

Item 1.    Legal Proceedings.

During the first quarter 2013, the Company and certain affiliates, together with Michael Bloomberg, as mayor of the City of New York, certain public corporations and others were named in an Article 78 Proceeding (the “Proceeding”) brought by certain construction unions, Families United For Racial and Economic Equality and others in the Supreme Court of New York regarding the Company's City Point project. The Proceeding seeks an injunction to halt construction and financing activities until certain alleged environmental requirements are satisfied. The issue has been joined and submitted to the Court for a determination. The Company believes that the Proceeding is without merit.

During July 2013, a lawsuit was brought against the Company relating to the 2011 flood at Mark Plaza by Kmart Corporation. The lawsuit alleges a breach of contract and negligence relating to landlord responsibility for damages incurred by the tenant as a result of the flood. The tenant is seeking damages in excess of $9.0 million. The Company believes that this lawsuit is without merit.

Item 1A. Risk Factors.

The most significant risk factors applicable to us are described in Item 1A. of our 2012 Form 10-K. There have been no material changes to those previously-disclosed risk factors.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3.    Defaults Upon Senior Securities.

None

Item 4.    Mine Safety Disclosures.

Not applicable.

Item 5.    Other Information.

None

Item 6.    Exhibits.

The information under the heading "Exhibit Index" below is incorporated herein by reference.



40

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has fully caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ACADIA REALTY TRUST

August 7, 2013
/s/ Kenneth F. Bernstein
 Kenneth F. Bernstein
 President and Chief Executive Officer
 (Principal Executive Officer)
 
 
August 7, 2013
/s/ Jonathan W. Grisham
 Jonathan W. Grisham
 Senior Vice President and Chief Financial Officer
 (Principal Financial Officer)


41

Exhibit Index
Exhibit No.
Description
3.1
Declaration of Trust of the Company (incorporated by reference to the copy thereof filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2012.)
3.2
First Amendment to Declaration of Trust of the Company (incorporated by reference to the copy thereof filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2012.)
3.3
Second Amendment to Declaration of Trust of the Company (incorporated by reference to the copy thereof filed as Exhibit 3.3 to the Company's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2012.)
3.4
Third Amendment to Declaration of Trust of the Company (incorporated by reference to the copy thereof filed as Exhibit 3.4 to the Company's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2012.)
3.5
Fourth Amendment to Declaration of Trust (incorporated by reference to the copy thereof filed as Exhibit 3.1 (a) to the Company's Quarterly Report on Form 10-Q filed for the quarter ended September 30, 1998.)
3.6
Fifth Amendment to Declaration of Trust (incorporated by reference to the copy thereof filed as Exhibit 3.4 to the Company's Quarterly Report on Form 10-Q filed for the quarter ended March 31, 2009.)
3.7
Amended and Restated By-Laws of the Company (incorporated by reference to the copy thereof filed as Exhibit 3.3 to the Company's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2005.)
3.8
First Amendment to the Amended and Restated By-Laws of the Company (incorporated by reference to the copy thereof filed as Exhibit 3.5 to the Company's Quarterly Report on Form 10-Q filed for the quarter ended March 31, 2009.)
4.1
Voting Trust Agreement between the Company and Yale University dated February 27, 2002 (incorporated by reference to the copy thereof filed as Exhibit 99.1 to Yale University's Schedule 13D filed on September 25, 2002.)
31.1
Certification of Chief Executive Officer pursuant to rule 13a–14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1)
31.2
Certification of Chief Financial Officer pursuant to rule 13a–14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1)
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)
99.1
Certificate of Designation of Series A Preferred Operating Partnership Units of Limited Partnership Interest of Acadia Realty Limited Partnership (incorporated by reference to the copy thereof filed as Exhibit 99.5 to the Company's Quarterly Report on Form 10-Q filed for the quarter ended June 30, 1997.)
99.2
Certificate of Designation of Series B Preferred Operating Partnership Units of Limited Partnership Interest of Acadia Realty Limited Partnership (incorporated by reference to the copy thereof filed as Exhibit 99.6 to the Company's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2003.)
 
 
101.INS
XBRL Instance Document*
101.SCH
XBRL Taxonomy Extension Schema Document*
101.CAL
XBRL Taxonomy Extension Calculation Document*
101.DEF
XBRL Taxonomy Extension Definitions Document*
101.LAB
XBRL Taxonomy Extension Labels Document*
101.PRE
XBRL Taxonomy Extension Presentation Document*
*
Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.
Notes:
 
(1)
Filed herewith.


42