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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2006
| 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 as specified in its charter)
| Maryland | 23-2715194 | |
| (State of incorporation) | (I.R.S. employer identification no.) |
1311 Mamaroneck Avenue, Suite 260
White Plains, NY 10605
(Address of principal executive offices)
White Plains, NY 10605
(Address of principal executive offices)
(914) 288-8100
(Registrant’s telephone number)
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Common Shares of Beneficial Interest, $.001 par value
(Title of Class)
(Title of Class)
New York Stock Exchange
(Name of Exchange on which registered)
(Name of Exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
None
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
YES þ NO o
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or
Section 15 (d) of the Securities Act.
YES o NO þ
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 þ NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer (as defined in Rule 12b-2 of the Act).
Large Accelerated Filer þ Accelerated Filer o Non-accelerated Filer o
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act) YES o NO þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the
registrant as of the last business day of the registrant’s most recently completed second fiscal
quarter was $751.4 million, based on a price of $23.65 per share, the average sales price for the
registrant’s shares of beneficial interest on the New York Stock Exchange on that date.
The number of shares of the registrant’s Common Shares of Beneficial Interest outstanding on March
1, 2007 was 32,132,797.
DOCUMENTS INCORPORATED BY REFERENCE
Part III – Definitive proxy statement for the 2007 Annual Meeting of Shareholders presently
scheduled to be held May 15, 2007 to be filed pursuant to Regulation 14A.
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Form 10-K Report
Form 10-K Report
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K may contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities and Exchange Act of 1934 and as such may involve known and unknown risks, uncertainties
and other factors which may cause our actual results, performance or achievements to be materially
different from future results, performance or achievements expressed or implied by such
forward-looking statements. Forward-looking statements, which are based on certain assumptions and
describe our future plans, strategies and expectations are generally identifiable by use of the
words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project”
or the negative thereof or other variations thereon or comparable terminology. Factors which could
have a material adverse effect on our operations and future prospects include, but are not limited
to those set forth under the heading “Item 1A Risk Factors” in this Form 10-K. These risks and
uncertainties should be considered in evaluating any forward-looking statements contained or
incorporated by reference herein.
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PART I
ITEM 1. BUSINESS:
GENERAL
Acadia Realty Trust (the “Trust”) was formed on March 4, 1993 as a Maryland Real Estate Investment
Trust (“REIT”). All references to “Acadia,” “we,” “us,” ”our,” and “Company” refer to Acadia Realty
Trust and its consolidated subsidiaries. We are a fully integrated, self-managed and
self-administered equity REIT focused primarily on the ownership, acquisition, redevelopment and
management of retail properties, including neighborhood and community shopping centers and
mixed-use properties with retail components. We currently operate 74 properties, which we own or
have an ownership interest in. These assets are located primarily in the Northeast, Mid-Atlantic
and Midwestern regions of the United States which, in total, comprise approximately 10 million
square feet. We also have private equity investments in other retail real estate related opportunities including
investments for which we provide operational support to the operating ventures in which we have a minority equity interest.
All of our investments are held by, and all of our operations are conducted through, Acadia Realty
Limited Partnership (the “Operating Partnership”) and entities in which the Operating Partnership
owns a controlling interest. As of December 31, 2006, the Trust controlled 98% 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 represent entities or individuals which 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”). 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”). This
structure is commonly referred to as an umbrella partnership REIT or “UPREIT”.
BUSINESS OBJECTIVES AND STRATEGIES
Our primary business objective is to acquire, develop and manage commercial retail properties that
will provide cash for distributions to shareholders while also creating the potential for capital
appreciation to enhance investor returns. We focus on the following fundamentals to achieve this
objective:
| – | Own and operate a portfolio of community and neighborhood shopping centers and mixed-use properties with a retail component located in markets with strong demographics | ||
| – | Generate internal growth within the portfolio through aggressive redevelopment, re-anchoring and leasing activities | ||
| – | Generate external growth through an opportunistic yet disciplined acquisition program. The emphasis is on targeting transactions with high inherent opportunity for the creation of additional value through redevelopment and leasing and/or transactions requiring creative capital structuring to facilitate the transactions | ||
| – | Partner with private equity investors for the purpose of making investments in operating retailers with significant embedded value in their real estate assets | ||
| – | Maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth |
Investment Strategy — External Growth through Opportunistic Acquisition Platforms
The requirements that acquisitions be accretive on a long-term basis based on our cost of capital,
as well as increase the overall portfolio quality and value, are core to our acquisition program.
As such, we constantly evaluate the blended cost of equity and debt and adjust the amount of
acquisition activity to align the level of investment activity with capital flows. We may engage in
discussions with public and private entities regarding business combinations. In addition to our
direct investments in real estate assets, we have also capitalized on our expertise in the
acquisition, redevelopment, leasing and management of retail real estate by establishing joint
ventures in which we earn, in addition to a return on our equity interest, fees and priority
distributions for our services. To date, we have launched two acquisition joint ventures, Acadia
Strategic Opportunity Fund, LP (“Fund I”) and Acadia Strategic Opportunity Fund II, LLC (“Fund
II”).
Fund I
In September 2001, we and four of our institutional shareholders formed a joint venture, whereby
the investors committed $70.0 million for the purpose of acquiring real estate assets. The
Operating Partnership committed an additional $20.0 million to Fund I, as the general partner with
a 22% interest. In addition to a pro-rata return on its invested equity, the Operating Partnership
is entitled to a profit participation based upon certain investment return thresholds. Cash flow is
distributed pro-rata to the partners (including the Operating Partnership) until they have received
a 9% cumulative return on, and a return of all capital contributions.
Thereafter, remaining cash flow is distributed 80% to the partners (including the Operating
Partnership) and 20% to the Operating Partnership as a carried interest (“Promote”). The Operating
Partnership also earns fees and/or priority distributions for asset management services equal to
1.5% of the allocated invested equity, as well as for property management, leasing and construction
services. All such fees and priority distributions are reflected as adjustments to minority
interest in the Consolidated Financial Statements included in Item 8 of Form 10-K.
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Our acquisition program was executed exclusively through Fund I through June 2004. Fund I focused
on targeting assets for acquisition that had superior in-fill locations, restricted competition due
to high barriers of entry and in-place below-market anchor leases with the potential to create
significant additional value through re-tenanting, timely capital improvements and property
redevelopment.
On January 4, 2006, Fund I recapitalized a one million square foot retail portfolio located in
Wilmington Delaware (“Brandywine Portfolio”) through a merger of interests with affiliates of GDC
Properties (“GDC”). The Brandywine Portfolio was recapitalized through a “cash-out” merger of the
77.8% interest, which was previously held by the institutional investors in Fund I, to GDC at a
valuation of $164.0 million. The Operating Partnership, through a subsidiary, retained its existing
22.2% interest and continues to operate the Brandywine Portfolio and earn fees for such services.
At the closing of the merger, the Fund I investors received a return of all of their capital
invested in Fund I and their unpaid preferred return, thus triggering the payment to the Operating Partnership
of its additional 20% Promote in all future Fund I distributions. During June 2006, the Fund I
investors received $36.0 million of additional proceeds from this transaction following the
replacement of bridge financing which they provided, with permanent mortgage financing, triggering
$7.2 million in additional Promote due the Operating Partnership, which will be paid from the Fund
I investor’s share of the remaining assets in Fund I.
There are 32 assets comprising approximately two million square feet remaining in Fund I in which
the Operating Partnership’s interest in cash flow and income has increased from 22.2% to 37.8% as a
result of the Promote.
Fund II
Following our success with Fund I, we formed a second, larger acquisition joint venture. During
June of 2004, we launched Fund II, which includes all of the investors from Fund I as well as two
additional institutional investors. With $300.0 million of committed discretionary capital, Fund II
expects to be able to acquire up to $900.0 million of real estate assets on a leveraged basis. The
Operating Partnership is the managing member with a 20% interest in Fund II. The terms and
structure of Fund II are substantially the same as Fund I with the exception that the Preferred
Return is 8%.
As the demand for retail real estate has significantly increased in recent years, there has been a
commensurate increase in selling prices. In an effort to generate superior risk-adjusted returns
for our shareholders and joint venture investors, we have channeled our acquisition efforts through
Fund II in two new opportunistic joint ventures launched during 2004 – the Retailer Controlled
Property Venture and the New York Urban Infill Redevelopment Initiative.
Retailer Controlled Property Venture (the “RCP Venture”)
On January 27, 2004, through Funds I and II, we entered into the RCP Venture with Klaff Realty,
L.P. (“Klaff”) and Klaff’s long time partner Lubert-Adler Management, Inc. (“Lubert-Adler”) for the
purpose of making investments in surplus or underutilized properties owned by retailers. The
initial size of the RCP Venture is expected to be approximately $300 million in equity based on
anticipated investments of approximately $1 billion. Each participant in the RCP Venture has the
right to opt out of any potential investment. Affiliates of Funds I and II have invested $12.3
million and $37.1 million, respectively, in the RCP Venture to date on a non-recourse basis. While we are not required to invest any additional capital into any of these investments, should additional capital be required and we elect not to contribute our share, our proportionate share in the investment will be reduced. Since
Fund I is fully invested, Fund II will provide the remaining portion of the original 20% of the
equity of the RCP Venture. Cash flow is to be distributed to the partners until they have received
a 10% cumulative return and a full return of all contributions. Thereafter, remaining cash flow is
to be distributed 20% to Klaff (“Klaff’s Promote”) and 80% to the partners (including Klaff). The
Operating Partnership may also earn market-rate fees for property management, leasing and
construction services on behalf of the RCP Venture. We seek to invest opportunistically in the RCP
Venture primarily in the following four ways:
| – | Invest in operating retailers through private equity joint ventures | ||
| – | Work with financially healthy retailers to create value from their surplus real estate | ||
| – | Acquire properties, designation rights or other control of real estate or leases associated with retailers in bankruptcy | ||
| – | Complete sale leasebacks with retailers in need of capital |
During 2004, we made our first RCP Venture investment with our participation in the acquisition of
Mervyns. During 2006, we made additional investments with our participation in the acquisition of
Albertsons, Cub, ShopKo and Marsh Supermarkets as further discussed in “PROPERTY ACQUISITIONS” in
this Item 1 of Form 10-K.
New York Urban/Infill Redevelopment Initiative
In September of 2004, through Fund II, we launched our New York Urban Infill Redevelopment
initiative. As retailers continue to recognize that many of the nation’s urban markets are
underserved from a retail standpoint, we are poised to capitalize on this trend by investing in
redevelopment projects in dense urban areas where retail tenant demand has effectively surpassed
the supply of available sites. During 2004, Fund II, together with an unaffiliated partner, P/A
Associates, LLC (“P/A”), formed Acadia-P/A Holding Company, LLC (“Acadia-P/A”) for the purpose of
acquiring, constructing, developing, owning, operating, leasing and managing certain retail real
estate properties in the New York City metropolitan area. P/A agreed to invest 10% of required
capital up to a maximum of $2.2 million and Fund II, the managing member, agreed to invest the
balance to acquire assets in which Acadia-P/A agrees to invest. See Item 7 of Form 10K for further
information on the Acadia P/A Joint Venture as detailed in “Liquidity and Capital Resources”. To
date, Fund II has, in conjunction with P/A, invested in six projects and entered into an
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agreement on a seventh project, subject to certain approvals, as discussed further in “PROPERTY
ACQUISITIONS” in this Item 1 of this Form 10-K.
Other Investments
We may also invest in preferred equity investments, mortgages, other real estate interests and
other investments. The mortgages in which we invest in may be either first mortgages or mezzanine
debt, where we believe the underlying value of the real estate collateral is in excess of its loan
balance. As of December 31, 2006 our investments in first mortgages and mezzanine debt aggregated
$38.3 million.
Capital Strategy — Balance Sheet Focus and Access to Capital
Our primary capital objective is to maintain a strong and flexible balance sheet through
conservative financial practices while ensuring access to sufficient capital to fund future growth.
We intend to continue financing acquisitions and property redevelopment with sources of capital
determined by management to be the most appropriate based on, among other factors, availability,
pricing and other commercial and financial terms. The sources of capital may include the issuance
of public equity, unsecured debt, mortgage and construction loans, and other capital alternatives
such as the issuance of Operating Partnership Units. We manage our interest rate risk primarily
through the use of variable and fixed rate-debt as well as with LIBOR swap agreements as discussed
further in Item 7A of this Form 10-K.
In December 2006, we issued $100.0 million of 3.75% unsecured Convertible Notes (the “Notes”).
Interest on the Notes is payable semi-annually. The Notes have an initial conversion rate of
32.4002 of our Common Shares for each $1,000 principal amount, representing a conversion price of
approximately $30.86 per Common Share, or a conversion premium of approximately 20.0%. The Notes
are redeemable for cash up to their principal amount plus accrued interest and, at our option,
cash, our Common Shares, or a combination thereof with respect to the remainder, if any, of the
conversion value in excess of the principal amount. The Notes mature December 15, 2026, although
the holders of the Notes may require the Company to repurchase their Notes, in whole or in part, on
December 20, 2011, December 15, 2016, and December 15, 2021. After December 20, 2011, we have the
right to redeem the Notes in whole or in part at any time. In January 2007, an option was exercised
to issue an additional $15.0 million of these Notes. The $112.1 million in proceeds, net of
related costs, were used to retire variable rate debt, provide for future Fund capital commitments
and for general working capital purposes.
During January 2007, we filed a shelf registration on Form S-3 providing offerings for up to a
total of $300.0 million of Common Shares, Preferred Shares and debt securities. To date, we have
not issued any securities pursuant to this shelf registration.
Common and Preferred OP Unit Transactions
On January 27, 2004, we issued 4,000 Series B Preferred OP Units to Klaff in connection with the
acquisition from Klaff of its rights to provide asset management, leasing, disposition, development
and construction services for an existing portfolio of retail properties. These units have a stated
value of $1,000 each and are entitled to a quarterly preferred distribution of the greater of (i)
$13.00 (5.2% annually) per Preferred OP Unit or (ii) the quarterly distribution attributable to a
Preferred OP Unit if such unit were converted into a Common OP Unit. The Preferred OP Units are
convertible into Common OP Units based on the stated value of $1,000 divided by 12.82 at any time.
Klaff may redeem them at par for either cash or Common OP Units (at our option) after the earlier
of the third anniversary of their issuance, or the occurrence of certain events including a change
in the control of our Company. Finally, after the fifth anniversary of the issuance, we may redeem
the Preferred OP Units and convert them into Common OP Units at market value as of the redemption
date.
Effective February 15, 2005, we acquired the balance of Klaff’s rights to provide the above
services as well as certain potential future revenue streams. The consideration for this
acquisition was $4.0 million in the form of 250,000 restricted Common OP Units, valued at $16 per
unit, which are convertible into our Common Shares on a one-for-one basis after a five year lock-up
period. As part of this transaction we also assumed all operational and redevelopment
responsibility for the Klaff Properties a year earlier than was contemplated in the January 2004
transaction.
In February 2007, Klaff converted 3,800 Series B Preferred OP Units into 296,412 Common OP Units
and ultimately into Common Shares.
Common Share Transactions
During November 2004, we issued 1,890,000 Common Shares (the “Offering”) pursuant to shelf
registration statements filed under the Securities Act of 1933, as amended, and previously declared
effective by the Securities and Exchange Commission. The $28.3 million in proceeds from the Offering, which were net of related costs, were used
to retire above-market, fixed-rate indebtedness as well as to invest in real estate assets. Yale
University and its affiliates (“Yale”), and Kenneth F. Bernstein, our Chief Executive Officer, also
sold 1,000,000, and 110,000 Common Shares, respectively, in connection with this transaction.
In March of 2004, a secondary public offering was completed for a total of 5,750,000 Common Shares.
The selling shareholders, Yale and Ross Dworman, a former trustee and Chairman, sold 4,191,386 and
1,558,614 Common Shares, respectively. Yale was a major shareholder, owning, at one time,
approximately one-third of all of our outstanding Common Shares. We did not sell any
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Common Shares in this transaction and did not receive any proceeds from this transaction.
Operating Strategy — Experienced Management Team with Proven Track Record
Our senior management team has an average of nine years with us and our predecessors and 26 years
in the real estate industry. Our management team successfully completed a major multi-year
portfolio repositioning initiative culminating in 2002 that significantly improved the quality of
our portfolio and tenant base. We believe our management team has demonstrated the ability to
create value internally through anchor recycling, property redevelopment and strategic non-core
dispositions. Our team has built several successful acquisition platforms including our New York
Urban Infill Redevelopment Initiative and RCP Venture. We have also capitalized on our expertise in
the acquisition, redevelopment, leasing and management of retail real estate by establishing joint
ventures, such as Funds I and II, in which we earn, in addition to a return on our equity interest,
fees and priority distributions for our services.
Operating functions such as leasing, property management, construction, finance and legal
(collectively, the “Operating Departments”) are provided by our personnel, providing for fully
integrated property management and development. By incorporating the Operating Departments in the
acquisition process, acquisitions are appropriately priced giving effect to each asset’s specific
risks and returns. Also, because of the Operating Departments involvement with, and corresponding
understanding of, the acquisition process, transition time is minimized and management can
immediately execute on its strategic plan for each asset.
We typically hold our properties for long-term investment. As such, we continuously review the
existing portfolio and implement programs to renovate and modernize targeted centers to enhance the
property’s market position. This in turn strengthens the competitive position of the leasing
program to attract and retain quality tenants, increasing cash flow and consequently property
value. We also periodically identify certain properties for disposition and redeploy the capital to
existing centers or acquisitions with greater potential for capital appreciation. Our core
portfolio consists primarily of neighborhood and community shopping centers, which are generally
dominant centers in high barrier-to-entry markets. The anchors at these centers typically pay
market or below-market rents and have low rent-to-sales ratios, which are, on average, less than
5%. Furthermore, supermarket and necessity-based retailers anchor the majority of our core
portfolio. These attributes enable our properties to better withstand a weakening economy while
also creating opportunities to increase rental income.
During 2006 and 2005 we sold six non-core properties and redeployed the capital to acquire five
retail properties as further discussed in “ASSET SALES” and CAPITAL/ASSET RECYCLING” in this Item 1
of Form 10-K.
PROPERTY ACQUISITIONS
RCP Venture
In June 2006, the RCP Venture made its second major investment with its participation in the
acquisition of Albertsons. The total price paid by the investment consortium, which included
Cerberus, Schottenstein and Kimco Realty, to Albertsons for the portfolio was $1.9 billion which
was funded with $0.3 billion of equity and $1.6 billion of financing. Albertsons was the nation’s
2nd largest grocery and drug chain which operated over 2,500 stores in 37 states. Albertsons
divided its assets into three independent components and for a total price of $17.4 billion, sold
1,124 stores to Supervalu, 700 stores to CVS and 699 stores along with 26 Cub Food stores to the
investment consortium. Supervalu and CVS are the investment consortium’s strategic operating
partners and, as such, are part of the purchasing group, but fund, own, and operate their
respective portions of the portfolio independently. As with the Mervyns investment (see below), we
anticipate investing in Albertsons add-on real estate opportunities. During the third quarter of
2006, additional investments of $1.0 million were made in, the Camellia Center and Newkirk
portfolio. Camellia Center is an Albertsons-anchored center located in Sacramento, California and
Newkirk is a portfolio of 50 properties currently leased to Albertsons. As of December 31, 2006,
our total invested capital in Albertsons and add-on investments amounted to $23.1 million, of which
the Operating Partnership’s share was $4.6 million.
We also invested $1.1 million in Shopko, a regional multi-department retailer with 358 stores
located throughout the Midwest, Mountain and Pacific Northwest and $0.7 million in Marsh, a
regional supermarket chain operating 271 stores in central Indiana, Illinois and western Ohio. The
Operating Partnership’s share of these investments totaled $0.4 million.
In September 2004, we made our first RCP Venture investment with our participation in the
acquisition of Mervyn’s. Through affiliates of Fund I and Fund II, which were separately organized,
newly formed limited liability companies on a non-recourse basis, we invested in the acquisition of
Mervyn’s through the RCP Venture, which, as part of an investment consortium of Sun Capital and
Cerberus, acquired Mervyn’s from Target Corporation. The total acquisition price was approximately
$1.2 billion subject to debt of approximately $800.0 million. Our share of equity invested
aggregated $24.6 million on a non-recourse basis and was divided equally between affiliates of
Funds I and II. The Operating Partnership’s share was $5.2 million.
As of the date of acquisition, Mervyn’s was a 257-store discount retailer with a very strong West
Coast concentration. During 2005, the consortium sold a portion of the portfolio as well as
refinanced existing mortgage debt and distributed cash to the investors, of which a total of $42.7
million was distributed to us of which the Operating Partnership’s share amounted to $10.2 million.
In February of 2006, the consortium distributed additional cash of which a total of $1.4 million
was distributed to us of which $0.4 million was the Operating Partnership’s share.
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On February 26, 2007 we, through our RCP Venture, received a cash distribution totaling
approximately $42.5 million from our ownership position in Albertsons. The Operating Partnership’s
share of this distribution amounted to approximately $8.5 million. The distribution resulted from
cash proceeds obtained by Albertsons in connection with its disposition of certain operating stores
and a refinancing of the remaining assets held in the entity.
New York Urban/Infill Redevelopment Initiative
The Center at Albee Square – On February 23, 2007, Acadia-P/A and Paul Travis of Washington Square
Partners (collectively, “Acadia P/A–Travis”), entered into an agreement for the purchase of the
leasehold interest in The Gallery at Fulton Street and adjacent parking garage in Downtown
Brooklyn, NY for $120.0 million. The fee position in the property is owned by the City of New York
and the agreement includes an option to purchase this fee position at a later date. Plans for the
property include the demolition of the existing improvements and the development of a 1.6 million
square foot mixed-use complex. This transaction is subject to approval by the Mayor of the City of
New York. There are no assurances that the approval will be granted.
Liberty Avenue — On December 20, 2005, Acadia-P/A acquired the remaining 40-year term of a
leasehold interest in land located at Liberty Avenue and 98th Street in Queens (Ozone
Park). Development of this project is substantially complete and includes approximately 30,000
square feet of retail anchored by a CVS drug store, which is open and operating. The project also
includes a 95,000 square foot self-storage facility which is open and currently operated by Storage
Post. Storage Post is a partner in the self-storage complex, and is anticipated to be a partner in
future retail projects in New York City where self storage will be a potential component of the
redevelopment. The total cost of the redevelopment is expected to be approximately $15 million.
216th Street — On December 1, 2005, Acadia-P/A acquired a 65,000 square foot
parking garage located at 10th Avenue and 216th Street in the Inwood section
of Manhattan for $7.0 million. Construction is underway for a 60,000 square foot office building to
relocate an agency of the City of New York, which is a current tenant at another of our
Urban/Infill Redevelopment projects. Inclusive of acquisition costs, total costs for the project,
which also includes a 100-space rooftop parking deck, are anticipated to be approximately $25
million.
161st Street - On August 5, 2005, Acadia-P/A purchased 244-268
161st Street located in the Bronx for $49.3 million, inclusive of closing costs. The
ultimate redevelopment plan for the property, a 100% occupied, 10-story office building, is to
reconfigure the property so that approximately 50% of the income from the building will eventually
be derived from retail tenants. Additional redevelopment costs are anticipated to be approximately
$16 million.
4650 Broadway - On April 6, 2005, Acadia-P/A acquired 4650 Broadway located in the
Washington Heights/Inwood section of Manhattan. The property, a 140,000 square foot building, which
is currently occupied by an agency of the City of New York and a commercial parking garage, was
acquired for a purchase price of $25.0 million. Following the relocation of the office tenant to
our 216th St. redevelopment during 2007 as discussed above, we plan to commence
redevelopment of the site to include retail, commercial and residential components totaling over
285,000 square feet. Expected costs to complete the retail and commercial component of the project
are estimated at $30.0 million before any potential sale of the residential air rights. In lieu of
directly developing the potential residential portion of the project, the rights to this component
may be sold while retaining ownership of the other portions of the project.
Pelham Manor — On October 1, 2004, Acadia-P/A entered into a 95-year, inclusive of
extension options, ground lease to redevelop a 16-acre site in Pelham Manor, Westchester County,
New York. We have commenced demolition of the existing industrial and warehouse buildings, and will
be replacing them with a multi-anchor community retail center at a total estimated cost of $40
million.
Fordham Road — On September 29, 2004, Acadia-P/A purchased 400 East Fordham Road, Bronx,
New York. Sears, a former tenant that operated on four levels at this property, has signed a new
lease to occupy only the concourse level after redevelopment. We have commenced redevelopment at
this site which is expected to include four levels of retail and office space totaling 276,000
square feet when completed. The total cost of the project, including the acquisition cost of $30
million, is expected to be $115 million.
In addition to the above New York Urban/Infill projects, through Fund II we also acquired the
following:
During November 2005, we acquired a ground lease interest in a 112,000 square foot building
occupied by Neiman Marcus. The property is located at Oakbrook Center, a super-regional Class A
mall located in the Chicago Metro area. The ground lease was acquired for $6.9 million, including
closing and other acquisition costs.
During July 2005, we acquired for $1.0 million, a 50% equity interest from its partner in the RCP
Venture in the entity which has a leasehold interest in a former Levitz Furniture store located in
Rockville, Maryland.
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Fund I
To date, through Fund I we have purchased a total of 35 assets totaling approximately 3.0 million
square feet. During January 2006, we recapitalized the Brandywine Portfolio, representing two
assets totaling approximately 1.0 million square feet, through a merger of interests with GDC as
discussed further in “BUSINESS OBJECTIVES AND STRATEGIES” in this Item 1 of Form 10-K. Following
the recapitalization of the Brandywine Portfolio, there are 33 assets comprising 2.0 million square
feet remaining in Fund I, (in which the Operating Partnership’s interest in cash flow and income
has increased from 22.2% to 37.8% as a result of the Promote) as follows:
| Year | ||||||||||||
| Shopping Center | Location | acquired | GLA | |||||||||
New York Region |
||||||||||||
New York |
||||||||||||
Tarrytown Center |
Westchester | 2004 | 35,291 | |||||||||
Mid-Atlantic Region |
||||||||||||
South Carolina |
||||||||||||
Hitchcock Plaza |
Aiken | 2004 | 232,383 | |||||||||
Pine Log Plaza |
Aiken | 2004 | 35,064 | |||||||||
Virginia |
||||||||||||
Haygood Shopping Center |
Virginia Beach | 2004 | 178,335 | |||||||||
Midwest Region |
||||||||||||
Ohio |
||||||||||||
Amherst Marketplace |
Cleveland | 2002 | 79,945 | |||||||||
Granville Centre |
Columbus | 2002 | 134,997 | |||||||||
Sheffield Crossing |
Cleveland | 2002 | 112,534 | |||||||||
Michigan |
||||||||||||
Sterling Heights Shopping Center |
Detroit | 2004 | 154,835 | |||||||||
Various Regions |
||||||||||||
Kroger/Safeway Portfolio |
Various | 2003 | 1,018,100 | |||||||||
Total |
1,981,484 | |||||||||||
In November 2006, we acquired the remaining 50% interest from its unaffiliated partner in the
Tarrytown Center for $3.5 million.
During February 2006, we finalized an agreement with its unaffiliated partner in the Hitchcock and
Pine Log Plazas whereby we converted our common equity interest in the properties to a preferred
equity position with a 15% preferred return payable currently and a 20% profit interest after all
invested capital and preferred returns are paid. In connection with this agreement, our partner
assumed all operational, redevelopment and leasing responsibilities
Other Investments
In March of 2005, we invested $20 million in a preferred equity position (“Preferred Equity”) in
Levitz SL, L.L.C. (“Levitz SL”), the owner of fee and leasehold interests in 30 locations (the
“Levitz Properties”), totaling 2.5 million square feet, of which the majority are currently leased
to Levitz Furniture Stores. In October 2005, Levitz Furniture filed for bankruptcy under Chapter
11. Klaff is a managing member of Levitz SL. The Preferred Equity investment received a return of
10%, plus a minimum return of capital of $2.0 million per annum. During March 2006, the rate of
return was reset to the six-month LIBOR plus 644 basis points or 11.5%.
On June 1, 2006, we converted the Preferred Equity Investment to a first mortgage loan and advanced
additional proceeds bringing the total outstanding amount to $31.3 million. The loan has a maturity
date of May 31, 2008 and bears interest at a rate of 10.5%. The loan was secured by fee and
leasehold mortgages as well as a pledge of the entities owning 19 of the above remaining locations
totaling 1.8 million square feet. During the third quarter of 2006, Levitz SL sold one of the
Levitz Properties located in Northridge, California and used $20.4 million of the proceeds to pay
down the loan. As of December 31, 2006, the loan balance amounted to $10.9 million. Although
Levitz Furniture is currently operating under Chapter 11 bankruptcy protection, we believe the
underlying value of the real estate is sufficient to recover the principal and interest due under
the mortgage.
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ASSET SALES AND CAPITAL/ASSET RECYCLING
We periodically identify certain properties for disposition and redeploy the capital to existing
centers or acquisitions with greater potential for capital appreciation. Since January 1, 2004, we
have sold the following assets:
| Sales price | ||||||||||||||||
| Shopping Center | Location | Date sold | GLA | (dollars in thousands) | ||||||||||||
Soundview Marketplace |
Long Island, New York | December 2006 | 183,815 | $ | 24,000 | |||||||||||
Bradford Towne Centre |
Northeast Pennsylvania | November 2006 | 257,123 | 16,000 | ||||||||||||
Greenridge Plaza |
Northeast Pennsylvania | November 2006 | 191,767 | 10,600 | ||||||||||||
Pittston Plaza |
Northeast Pennsylvania | November 2006 | 79,498 | 6,000 | ||||||||||||
Luzerne Street Shopping Center |
Northeast Pennsylvania | November 2006 | 58,035 | 3,600 | ||||||||||||
Berlin Shopping Center |
Central New Jersey | July 2005 | 188,688 | 4,000 | ||||||||||||
East End Centre |
Northeast Pennsylvania | November 2004 | 305,858 | 12,400 | ||||||||||||
Total |
1,264,784 | $ | 76,600 | |||||||||||||
Proceeds from these sales in part have been used to fund the following acquisitions:
In September 2006, we purchased 2914 Third Avenue in the Bronx, New York for $18.5 million. The
41,305 square foot property is 100% leased and is located in a densely populated, high
barrier-to-entry, infill area.
In June 2006, we purchased 8400 and 8625 Germantown Road in Philadelphia, Pennsylvania for $16.0
million. Tenants at these “Main Street” locations include Borders bookstore, Talbot’s and Limited
Express.
During January 2006, we closed on a 20,000 square foot retail building in the Lincoln Park district
in Chicago. The property was acquired from an affiliate of Klaff for $9.9 million. Tenants include
Starbucks, Nine West, Vitamin Shoppe and Cold Stone Creamery.
Also during January 2006, we acquired a 60% interest in the A&P Shopping Plaza located in Boonton,
New Jersey. The property, which is 100% occupied and located in northeastern New Jersey, is a
63,000 square foot shopping center anchored by a 49,000 square foot A&P Supermarket. The remaining
40% interest is owned by a principal of P/A. The interest was acquired for $3.2 million.
During July 2005 we purchased 4343 Amboy Road located in Staten Island, New York for $16.6 million
in cash and $0.2 million in Common OP Units. The property, a 60,000 square foot neighborhood
shopping center, is anchored by a Waldbaum’s supermarket and a Duane Reade drug store, and is
subject to a 23-year ground lease.
PROPERTY REDEVELOPMENT AND EXPANSION
Our redevelopment program focuses on selecting well-located neighborhood and community shopping
centers and creating significant value through re-tenanting and property redevelopment.
During 2006, we commenced the redevelopment and re-tenanting of the Bloomfield Town Square, located
in Bloomfield Hills, Michigan. A former out-parcel building was demolished and replaced with a
17,500 square foot building now occupied by Drexel Heritage and Panera Bread. The new tenants
opened and commenced paying rent during the third and fourth quarters of 2006, respectively, and
are paying a combined base rent at a 127% increase over that of the former tenant. In addition,
the Company has leased approximately 26,000 square feet to Circuit City, which is anticipated to
open and commence paying rent in the fourth quarter of 2007 at a 79% increase over that of the
former tenants. Total costs for this project are expected to be $3.3 million.
During 2004, we completed the redevelopment of the New Loudon Center, located in Latham, New York.
A new anchor, The Bon Ton Department Store, opened for business during the fourth quarter of 2003
as part of the redevelopment of this shopping center. Occupying 66,000 square feet formerly
occupied by an Ames department store, Bon Ton is paying base rent at a 15% increase over that of
Ames. During 2004, Marshall’s, an existing tenant at the center, expanded its current 26,000 square
foot store to 37,000 square feet. We also installed a new 49,000 square foot Raymour and Flanigan
Furniture store at this center during 2004. This community shopping center is now 100% occupied.
Costs incurred for this project totaled $0.4 million.
We also completed the redevelopment and re-anchoring of the Town Line Plaza, located in Rocky Hill,
Connecticut during 2004. The former building, occupied by GU Markets, was demolished and replaced
with a 66,000 square foot Super Stop & Shop. The new supermarket anchor is paying gross rent at a
33% increase over that of the former tenant with no interruption in rent payments. Costs for this
project totaled $1.7 million.
COMPETITION
There are numerous entities that compete with us in seeking properties for acquisition and tenants
who will lease space in our properties. Our competitors include other REIT’s, financial
institutions, insurance companies, pension funds, private companies and individuals. Our properties
compete for tenants with similar properties primarily on the basis of location, total occupancy
costs (including base rent and operating expenses), services provided, and the design and condition
of the improvements.
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FINANCIAL INFORMATION ABOUT MARKET SEGMENTS
We have two reportable segments: retail properties and multi-family properties. The accounting
policies of the segments are the same as those described in the notes to the consolidated financial
statements appearing in Item 8 of this Annual Report on Form 10-K. We evaluate property performance
primarily based on net operating income before depreciation, amortization and certain non-recurring
items. The reportable segments are managed separately due to the differing nature of the leases and
property operations associated with retail versus residential tenants. We do not have any foreign
operations. See Note 3 to our consolidated financial statements included in Item 8 of this Annual
Report on Form 10-K for certain information regarding each of our segments.
CORPORATE HEADQUARTERS AND EMPLOYEES
Our executive offices are located at 1311 Mamaroneck Avenue, Suite 260, White Plains, New York
10605, and our telephone number is (914) 288-8100. We have 130 employees, of which 105 are located
at our executive office, six at the Pennsylvania regional office and the remaining property
management personnel are located on-site at our properties.
COMPANY WEBSITE
All of our filings with the Securities and Exchange Commission, including our annual reports on
Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, are available free of charge at our website at www.acadiarealty.com, as soon as reasonably
practicable after we electronically file such material with, or furnish it to, the Securities and
Exchange Commission. These filings can also be accessed through the Securities and Exchange
Commission’s website at www.sec.gov. Alternatively, we will provide paper copies of our filings
free of charge upon request.
CODE OF ETHICS AND WHISTLEBLOWER POLICIES
The Board of Trustees adopted a Code of Ethics for Senior Financial Officers that applies to our
Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Controller, Director of
Financial Reporting, Director of Taxation and Assistant Controllers. The Board also adopted a Code
of Business Conduct and Ethics applicable to all employees, as well as a “Whistleblower Policy”.
Copies of these documents are available in the Investor Information section of our website.
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ITEM 1A. RISK FACTORS:
If any of the following risks actually occur, our business, results of operations and financial
condition would likely suffer. This section includes or refers to certain forward-looking
statements. Refer to the explanation of the qualifications and limitations on such forward-looking
statements discussed in the beginning of this Form 10-K.
We rely on revenues derived from major tenants.
We derive significant revenues from certain anchor tenants that occupy space in more than one
center. We could be adversely affected in the event of the bankruptcy or insolvency of, or a
downturn in the business of, any of our major tenants, or in the event that any such tenant does
not renew its leases as they expire or renews at lower rental rates. Vacated anchor space not only
would reduce rental revenues if not re-tenanted at the same rental rates but also could adversely
affect the entire shopping center because of the loss of the departed anchor tenant’s customer
drawing power. Loss of customer drawing power also can occur through the exercise of the right that
most anchors have to vacate and prevent re-tenanting by paying rent for the balance of the lease
term, or the departure of an anchor tenant that owns its own property. In addition, in the event
that certain major tenants cease to occupy a property, such an action may result in a significant
number of other tenants having the right to terminate their leases, or pay a reduced rent based on
a percentage of the tenant’s sales, at the affected property, which could adversely affect the
future income from such property.
Tenants may seek the protection of the bankruptcy laws, which could result in the rejection and
termination of their leases and thereby cause a reduction in the cash flow available for
distribution by us. Such reduction could be material if a major tenant files bankruptcy. See the
risk factor titled, “The bankruptcy of, or a downturn in the business of, any of our major tenants
may adversely affect our cash flows and property values” below.
Limited control over joint venture investments.
Our joint venture investments may involve risks not otherwise present for investments made solely
by us, including the possibility that our joint venture partner might have different interests or
goals than we do. Other risks of joint venture investments include impasse on decisions, such as a
sale, because neither we nor a joint venture partner would have full control over the joint
venture. Also, there is no limitation under our organizational documents as to the amount of funds
that may be invested in joint ventures.
Through our investments in joint ventures we have also invested in operating businesses that have
operational risk in addition to the risks associated with real estate investments, including among
other risks, human capital issues, adequate supply of product and material, and merchandising
issues.
During 2006 and 2005, our joint ventures provided Promote income. There can be no assurance that
the joint ventures will continue to operate profitably and thus provide additional Promote income
in the future.
Under the terms of our Fund II joint venture, we are required to first offer to Fund II all of our
opportunities to acquire retail shopping centers. Only if (i) our joint venture partner elects not
to approve Fund II’s pursuit of an acquisition opportunity; (ii) the ownership of the acquisition
opportunity by Fund II would create a material conflict of interest for us; (iii) we require the
acquisition opportunity for a “like-kind” exchange; or (iv) the consideration payable for the
acquisition opportunity is our Common Shares, OP Units or other securities, may we pursue the
opportunity directly. As a result, we may not be able to make attractive acquisitions directly and
may only receive a minority interest in such acquisitions through Fund II.
We operate through a partnership structure, which could have an adverse effect on our ability to
manage our assets.
Our primary property-owning vehicle is the Operating Partnership, of which we are the general
partner. Our acquisition of properties through the Operating Partnership in exchange for interests
in the Operating Partnership may permit certain tax deferral advantages to limited partners who
contribute properties to the Operating Partnership. Since properties contributed to the Operating
Partnership may have unrealized gain attributable to the difference between the fair market value
and adjusted tax basis in such properties prior to contribution, the sale of such properties could
cause adverse tax consequences to the limited partners who contributed such properties. Although
we, as the general partner of the Operating Partnership, generally have no obligation to consider
the tax consequences of our actions to any limited partner, there can be no assurance that the
Operating Partnership will not acquire properties in the future subject to material restrictions
designed to minimize the adverse tax consequences to the limited partners who contribute such
properties. Such restrictions could result in significantly reduced flexibility to manage our
assets.
There are risks relating to investments in real estate.
Real property investments are subject to varying degrees of risk. Real estate values are affected
by a number of factors, including: changes in the general economic climate, local conditions (such
as an oversupply of space or a reduction in demand for real estate in an area), the quality and
philosophy of management, competition from other available space, the ability of the owner to
provide adequate maintenance and insurance and to control variable operating costs. Shopping
centers, in particular, may be affected by changing perceptions of retailers or shoppers regarding
the safety, convenience and attractiveness of the shopping center and by the overall climate for
the retail industry generally. Real estate values are also affected by such factors as government
regulations, interest rate levels, the availability of financing and potential liability under, and
changes in, environmental, zoning, tax and other laws. A significant portion of our income is
derived from rental income from real property, our income and cash flow would be adversely affected
if a significant number of our tenants were unable to meet their obligations, or if we were unable
to lease on
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economically favorable terms a significant amount of space in our properties. In the event of
default by a tenant, we may experience delays in enforcing, and incur substantial costs to enforce,
our rights as a landlord. In addition, certain significant expenditures associated with each equity
investment (such as mortgage payments, real estate taxes and maintenance costs) are generally not
reduced when circumstances cause a reduction in income from the investment.
The bankruptcy of, or a downturn in the business of, any of our major tenants may adversely affect
our cash flows and property values.
The bankruptcy of, or a downturn in the business of, any of our major tenants causing them to
reject their leases, or not renew their leases as they expire, or renew at lower rental rates may
adversely affect our cash flows and property values. Furthermore, the impact of vacated anchor
space and the potential reduction in customer traffic may adversely impact the balance of tenants
at the center.
Certain of our tenants have experienced financial difficulties and have filed for bankruptcy under
Chapter 11 of the United States Bankruptcy Code (“Chapter 11 Bankruptcy”). Pursuant to bankruptcy
law, tenants have the right to reject their leases. In the event the tenant exercises this right,
the landlord generally has the right to file a claim for lost rent equal to the greater of either
one year’s rent (including tenant expense reimbursements) for remaining terms greater than one
year, or 15% of the rent remaining under the balance of the lease term, but not to exceed three
years rent. Actual amounts to be received in satisfaction of those claims will be subject to the
tenant’s final plan of reorganization and the availability of funds to pay its creditors.
Since January 1, 2003, there have been two significant tenant bankruptcies within our portfolio:
On May 30, 2003, The Penn Traffic Company (“Penn Traffic”) filed for protection under Chapter 11
Bankruptcy. Penn Traffic operated in one location in our wholly-owned portfolio in 52,000 square
feet. Rental revenues from this tenant at this location were $0.3 million, $0.4 million and $0.5
million for the years ended December 31, 2006, 2005 and 2004, respectively. As of November 3, 2006
we sold this property. Penn Traffic also operated in a location occupying 55,000 square feet at a
property in which we, through Fund I, hold a 22.2% ownership interest. Penn Traffic rejected the
lease at this location on February 20, 2004. Our pro-rata share of rental revenues from the tenant
at this location was $0.02 million for the year ended December 31, 2004.
On January 14, 2004, KB Toys (“KB”) filed for protection under Chapter 11 Bankruptcy. KB operated
in five locations in our wholly-owned portfolio totaling approximately 41,000 square feet. Rental
revenues from KB at these locations aggregated $0.3 million, $ 0.3 million and $0.8 million for the
years ended December 31, 2006, 2005 and 2004, respectively. KB rejected the lease at three of these
locations and continues to operate in two of our wholly-owned locations but has neither assumed nor
rejected these two leases. KB also operated in a location occupying 20,000 square feet at a
property in which we hold a 22.2% ownership interest. KB rejected the lease at this location during
2004 and our pro-rata share of rental revenues at this location were $0.04 million for the year
ended December 31, 2004.
We could be adversely affected by poor market conditions where properties are geographically
concentrated.
Our performance depends on the economic conditions in markets in which our properties are
concentrated. We have significant exposure to the New York region, from which we derive 33% of the
annual base rents within our wholly-owned portfolio. Our operating results could be adversely
affected if market conditions, such as an oversupply of space or a reduction in demand for real
estate, in this area become more competitive relative to other geographic areas.
Our ability to change our portfolio is limited because real estate investments are illiquid.
Equity investments in real estate are relatively illiquid and, therefore, our ability to change our
portfolio promptly in response to changed conditions will be limited. Our board of trustees may
establish investment criteria or limitations as it deems appropriate, but currently does not limit
the number of properties in which we may seek to invest or on the concentration of investments in
any one geographic region. We could change our investment, disposition and financing policies
without a vote of our shareholders.
Market interest rates could have an adverse effect on our share price.
One of the factors that may influence the trading price of our Common Shares is the annual dividend
rate on our Common Shares as a percentage of its market price. An increase in market interest rates
may lead purchasers of our Common Shares to seek a higher annual dividend rate, which could
adversely affect the market price of our Common Shares and our ability to raise additional equity
in the public markets.
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We could become highly leveraged, resulting in increased risk of default on our obligations and in
an increase in debt service requirements which could adversely affect our financial condition and
results of operations and our ability to pay distributions.
We have incurred, and expect to continue to incur, indebtedness in furtherance of our activities.
Neither our Declaration of Trust nor any policy statement formally adopted by our board of trustees
limits either the total amount of indebtedness or the specified percentage of indebtedness that we
may incur. Accordingly, we could become more highly leveraged, resulting in increased risk of
default on our obligations and in an increase in debt service requirements which could adversely
affect our financial condition and results of operations and our ability to make distributions.
Our loan agreements contain customary representations, covenants and events of default. Certain
loan agreements require us to comply with certain affirmative and negative covenants, including the
maintenance of certain debt service coverage and leverage ratios.
Interest expense on our variable debt as of December 31, 2006 would increase by $0.9 million
annually for a 100 basis point increase in interest rates. We may seek additional variable-rate
financing if and when pricing and other commercial and financial terms warrant. As such, we would
consider hedging against the interest rate risk related to such additional variable-rate debt
through interest rate swaps and protection agreements, or other means.
We enter into interest-rate hedging transactions, including interest rate swaps and cap agreements,
with counterparties. There can be no guarantee that the financial condition of these counterparties
will enable them to fulfill their obligations under these agreements.
We may not be able to renew current leases and the terms of re-letting (including the cost of
concessions to tenants) may be less favorable to us than current lease terms.
Upon the expiration of current leases for space located in our properties, we may not be able to
re-let all or a portion of that space, or the terms of re-letting (including the cost of
concessions to tenants) may be less favorable to us than current lease terms. If we are unable to
re-let promptly all or a substantial portion of the space located in our properties or if the
rental rates we receive upon re-letting are significantly lower than current rates, our net income
and ability to make expected distributions to our shareholders will be adversely affected due to
the resulting reduction in rent receipts. There can be no assurance that we will be able to retain
tenants in any of our properties upon the expiration of their leases. See “Item 2. Properties –
Lease Expirations” in this Annual Report on Form 10-K for additional information as to the
scheduled lease expirations in our portfolio.
Possible liability relating to environmental matters.
Under various federal, state and local environmental laws, statutes, ordinances, rules and
regulations, as an owner of real property, we may be liable for the costs of removal or remediation
of certain hazardous or toxic substances at, on, in or under our property, as well as certain other
potential costs relating to hazardous or toxic substances (including government fines and penalties
and damages for injuries to persons and adjacent property). These laws may impose liability without
regard to whether we knew of, or were responsible for, the presence or disposal of those
substances. This liability may be imposed on us in connection with the activities of an operator
of, or tenant at, the property. The cost of any required remediation, removal, fines or personal or
property damages and our liability therefore could exceed the value of the property and/or our
aggregate assets. In addition, the presence of those substances, or the failure to properly dispose
of or remove those substances, may adversely affect our ability to sell or rent that property or to
borrow using that property as collateral, which, in turn, would reduce our revenues and ability to
make distributions.
A property can also be adversely affected either through physical contamination or by virtue of an
adverse effect upon value attributable to the migration of hazardous or toxic substances, or other
contaminants that have or may have emanated from other properties. Although our tenants are
primarily responsible for any environmental damages and claims related to the leased premises, in
the event of the bankruptcy or inability of any of our tenants to satisfy any obligations with
respect to the property leased to that tenant, we may be required to satisfy such obligations. In
addition, we may be held directly liable for any such damages or claims irrespective of the
provisions of any lease.
From time to time, in connection with the conduct of our business, and prior to the acquisition of
any property from a third party or as required by our financing sources, we authorize the
preparation of Phase I environmental reports and, when necessary, Phase II environmental reports,
with respect to our properties. Based upon these environmental reports and our ongoing review of
our properties, as of the date of this prospectus supplement, we are not aware of any environmental
condition with respect to any of our properties that we believe would be reasonably likely to have
a material adverse effect on us. There can be no assurance, however, that the environmental reports
will reveal all environmental conditions at our properties or that the following will not expose us
to material liability in the future:
| – | The discovery of previously unknown environmental conditions; | ||
| – | Changes in law; | ||
| – | Activities of tenants; and | ||
| – | Activities relating to properties in the vicinity of our properties. |
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Changes in laws increasing the potential liability for environmental conditions existing on
properties or increasing the restrictions on discharges or other conditions may result in
significant unanticipated expenditures or may otherwise adversely affect the operations of our
tenants, which could adversely affect our financial condition or results of operations.
Competition may adversely affect our ability to purchase properties and to attract and retain
tenants.
There are numerous commercial developers, real estate companies, financial institutions and other
investors with greater financial resources than we have that compete with us in seeking properties
for acquisition and tenants who will lease space in our properties. Our competitors include other
REIT’s, financial institutions, insurance companies, pension funds, private companies and
individuals. This competition may result in a higher cost for properties that we wish to purchase.
In addition, retailers at our properties face increasing competition from outlet malls, discount
shopping clubs, internet commerce, direct mail and telemarketing, which could (i) reduce rents
payable to us; (ii) reduce our ability to attract and retain tenants at our properties; and (iii)
lead to increased vacancy rates at our properties.
We have pursued, and may in the future continue to pursue extensive growth opportunities which may
result in significant demands on our operational, administrative and financial resources.
We have pursued extensive growth opportunities. This expansion has placed significant demands on
our operational, administrative and financial resources. The continued growth of our real estate
portfolio can be expected to continue to place a significant strain on its resources. Our future
performance will depend in part on our ability to successfully attract and retain qualified
management personnel to manage the growth and operations of our business and to finance such
acquisitions. In addition, acquired properties may fail to operate at expected levels due to the
numerous factors that may affect the value of real estate. There can be no assurance that we will
have sufficient resources to identify and manage acquired properties or otherwise be able to
maintain our historic rate of growth.
Our inability to carry out our growth strategy could adversely affect our financial condition and
results of operations.
Our earnings growth strategy is based on the acquisition and development of additional properties,
including acquisitions through co-investment programs such as joint ventures. In the context of our
business plan, “development” generally means an expansion or renovation of an existing property.
The consummation of any future acquisitions will be subject to satisfactory completion of our
extensive valuation analysis and due diligence review and to the negotiation of definitive
documentation. We cannot be sure that we will be able to implement our strategy because we may have
difficulty finding new properties, negotiating with new or existing tenants or securing acceptable
financing.
Acquisitions of additional properties entail the risk that investments will fail to perform in
accordance with expectations, including operating and leasing expectations. Redevelopment is
subject to numerous risks, including risks of construction delays, cost overruns or force majeure
that may increase project costs, new project commencement risks such as the receipt of zoning,
occupancy and other required governmental approvals and permits, and the incurrence of development
costs in connection with projects that are not pursued to completion.
A component of our growth strategy is through private-equity type investments made through our RCP Venture. These include investments in operating retailers. The inability of the retailers to operate profitably would have an adverse impact on income realized from these investments.
Our board of trustees may change our investment policy without shareholder approval.
Our board of trustees will determine our investment and financing policies, our growth strategy and
our debt, capitalization, distribution, acquisition, disposition and operating policies. Our board
of trustees may establish investment criteria or limitations as it deems appropriate, but currently
does not limit the number of properties in which we may seek to invest or on the concentration of
investments in any one geographic region. Although our board of trustees has no present intention
to revise or amend our strategies and policies, it may do so at any time without a vote by our
shareholders. Accordingly, our shareholders’ control over changes in our strategies and policies is
limited to the election of trustees, and changes made by our board of trustees may not serve the
interests of all of our shareholders and could adversely affect our financial condition or results
of operations, including our ability to distribute cash to shareholders or qualify as a REIT.
There can be no assurance we have qualified or will remain qualified as a REIT for federal income
tax purposes.
We believe that we have met the requirements for qualification as a REIT for federal income tax
purposes beginning with our taxable year ended December 31, 1993, and we intend to continue to meet
these requirements in the future. However, qualification as a REIT involves the application of
highly technical and complex provisions of the Internal Revenue Code, for which there are only
limited judicial or administrative interpretations. No assurance can be given that we have
qualified or will remain qualified as a REIT. The Internal Revenue Code provisions and income tax
regulations applicable to REIT’s are more complex than those applicable to corporations. The
determination of various factual matters and circumstances not entirely within our control may
affect our ability to continue to qualify as a REIT. In addition, no assurance can be given that
legislation, regulations, administrative interpretations or court decisions will not significantly
change the requirements for qualification as a REIT or the federal income tax consequences of such
qualification. If we do not qualify as a REIT, we would not be allowed a deduction for
distributions to shareholders in computing our net taxable income. In addition, our income would be
subject to tax at the regular corporate rates. We also could be disqualified from treatment as a
REIT for the four taxable years following the year during which qualification was lost. Cash
available for distribution to our shareholders would be significantly reduced for each year in
which we do not qualify as a REIT. In that event, we would not be required to continue to make
distributions. Although we currently intend to continue to qualify as a REIT, it is possible that
future economic, market, legal, tax or other considerations may cause us, without the consent of
the shareholders, to revoke the REIT election or to otherwise take action that would result in
disqualification.
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Distribution requirements imposed by law limit our operating flexibility.
To maintain our status as a REIT for federal income tax purposes, we are generally required to
distribute to our shareholders at least 90% of our taxable income for that calendar year. Our
taxable income is determined without regard to any deduction for dividends paid and by excluding
net capital gains. To the extent that we satisfy the distribution requirement, but distribute less
than 100% of our taxable income, we will be subject to federal corporate income tax on our
undistributed income. In addition, we will incur a 4% nondeductible excise tax on the amount, if
any, by which our distributions in any year are less than the sum of (i) 85% of our ordinary income
for that year; (ii) 95% of our capital gain net income for that year and; (iii) 100% of our
undistributed taxable income from prior years. We intend to continue to make distributions to our
shareholders to comply with the distribution requirements of the Internal Revenue Code and to
reduce exposure to federal income and nondeductible excise taxes. Differences in timing between the
receipt of income and the payment of expenses in determining our income and the effect of required
debt amortization payments could require us to borrow funds on a short-term basis to meet the
distribution requirements that are necessary to achieve the tax benefits associated with qualifying
as a REIT.
Uninsured losses or a loss in excess of insured limits could adversely affect our financial
condition.
We carry comprehensive liability, fire, extended coverage and rent loss insurance on most of our
properties, with policy specifications and insured limits customarily carried for similar
properties. However, with respect to those properties where the leases do not provide for abatement
of rent under any circumstances, we generally do not maintain rent loss insurance. In addition,
there are certain types of losses, such as losses resulting from wars, terrorism or acts of God
that generally are not insured because they are either uninsurable or not economically insurable.
Should an uninsured loss or a loss in excess of insured limits occur, we could lose capital
invested in a property, as well as the anticipated future revenues from a property, while remaining
obligated for any mortgage indebtedness or other financial obligations related to the property.
Any loss of these types would adversely affect our financial condition.
Limits on ownership of our capital shares.
For the Company to qualify as a REIT for federal income tax purposes, among other requirements, not
more than 50% of the value of our capital shares may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Internal Revenue Code to include certain entities) during the
last half of each taxable year after 1993, and such capital shares must be beneficially owned by
100 or more persons during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year (in each case, other than the first such year). Our
Declaration of Trust includes certain restrictions regarding transfers of our capital shares and
ownership limits that are intended to assist us in satisfying these limitations. These restrictions
and limits may not be adequate in all cases, however, to prevent the transfer of our capital shares
in violation of the ownership limitations. The ownership limit discussed above may have the effect
of delaying, deferring or preventing someone from taking control of us.
Actual or constructive ownership of our capital shares in excess of the share ownership limits
contained in our Declaration of Trust would cause the violative transfer or ownership to be null
and void from the beginning and subject to purchase by us at a price equal to the lesser of (i) the
price stipulated in the challenged transaction; and (ii) the fair market value of such shares
(determined in accordance with the rules set forth in our declaration of trust). As a result, if a
violative transfer were made, the recipient of the shares would not acquire any economic or voting
rights attributable to the transferred shares. Additionally, the constructive ownership rules for
these limits are complex and groups of related individuals or entities may be deemed a single owner
and consequently in violation of the share ownership limits.
Adverse legislative or regulatory tax changes could have an adverse effect on us.
There are a number of issues associated with an investment in a REIT that are related to the
federal income tax laws, including, but not limited to, the consequences of failing to continue to
qualify as a REIT. At any time, the federal income tax laws governing REIT’s or the administrative
interpretations of those laws may be amended. Any of those new laws or interpretations may take
effect retroactively and could adversely affect us or our shareholders. Recently enacted
legislation reduces tax rates applicable to certain corporate dividends paid to most domestic
noncorporate shareholders. REIT dividends generally are not eligible for reduced rates because a
REIT’s income generally is not subject to corporate level tax. As a result, investment in non-REIT
corporations may be viewed as relatively more attractive than investment in REIT’s by domestic
noncorporate investors. This could adversely affect the market price of the Company’s shares.
Concentration of ownership by certain investors.
Six shareholders own 5% or more individually, and 42.7% in the aggregate, of our Common Shares. A
significant concentration of ownership may allow an investor to exert a greater influence over our
management and affairs and may have the effect of delaying, deferring or preventing a change in
control of us.
Restrictions on a potential change of control.
Our Board of Trustees is authorized by our Declaration of Trust to establish and issue one or more
series of preferred shares without shareholder approval. We have not established any series of
preferred shares. However, the establishment and issuance of a series of preferred shares could
make more difficult a change of control of us that could be in the best interest of the
shareholders.
16
Table of Contents
In addition, we have entered into an employment agreement with our Chief Executive Officer and
severance agreements are in place with our senior vice presidents which provide that, upon the
occurrence of a change in control of us and either the termination of their employment without
cause (as defined) or their resignation for good reason (as defined), those executive officers
would be entitled to certain termination or severance payments made by us (which may include a lump
sum payment equal to defined percentages of annual salary and prior years’ average bonuses, paid in
accordance with the terms and conditions of the respective agreement), which could deter a change
of control of us that could be in our best interest.
The loss of a key executive officer could have an adverse effect on us.
Our success depends on the contribution of key management members. The loss of the services of
Kenneth F. Bernstein, President and Chief Executive Officer, or other key executive-level employees
could have a material adverse effect on our results of operations. Although we have entered into an
employment agreement with Mr. Kenneth F. Bernstein, the loss of his services could have an adverse
effect on our operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES:
SHOPPING CENTER PROPERTIES
The discussion and tables in this Item 2 include properties held through consolidated and
unconsolidated joint ventures in which we own a partial interest (“Consolidated Joint Venture
Portfolio” and Unconsolidated Joint Venture Portfolio”, respectively). Except where noted, it does not include
our partial interest in 25 anchor-only leases with Kroger and Safeway supermarkets. These are
detailed separately within this Item 2 as the majority of these properties are free-standing and
all are triple-net leases.
As of December 31, 2006, we owned and operated 47 shopping centers as part of our wholly-owned
portfolio and Consolidated and Unconsolidated Joint Venture Portfolios, which included a mixed-use
property (retail and residential), and twelve properties under redevelopment. Our shopping centers,
which total approximately 8.4 million square feet of gross leaseable area (“GLA”), are located in
14 states and are generally well-established, anchored community and neighborhood shopping centers.
The operating properties are diverse in size, ranging from approximately 15,000 to 815,000 square
feet with an average size of 116,000 square feet. As of December 31, 2006, our wholly-owned
portfolio and the Consolidated and Unconsolidated Joint Venture Portfolios (excluding properties
under redevelopment) were 94.0% and 95.1% occupied, respectively. Our shopping centers are
typically anchored by supermarkets or value-oriented retail.
We had approximately 656 leases as of December 31, 2006. A majority of our rental revenues were
from national tenants. A majority of the income from the properties consists of rent received under
long-term leases. Most of these leases provide for the payment of fixed minimum rent monthly in
advance and for the payment by tenants of a pro-rata share of the real estate taxes, insurance,
utilities and common area maintenance of the shopping centers. Minimum rents and expense
reimbursements accounted for approximately 82% of our total revenues for the year ended December
31, 2006.
As of December 31, 2006, approximately 43% of our existing leases also provided for the payment of
percentage rents either in addition to, or in place of, minimum rents. These arrangements generally
provide for payment to us of a certain percentage of a tenant’s gross sales in excess of a
stipulated annual amount. Percentage rents accounted for approximately 1% of the total 2006
revenues of the Company.
Seven of our shopping center properties are subject to long-term ground leases in which a third
party owns and has leased the underlying land to us. We pay rent for the use of the land at seven
locations and are responsible for all costs and expenses associated with the building and
improvements at all seven locations.
17
Table of Contents
No individual property contributed in excess of 10% of our total revenues for the years ended
December 31, 2006, 2005 and 2004. Reference is made to our consolidated financial statements in
Item 8 of this Annual Report on form 10-K for information on the mortgage debt pertaining to our
properties. The following sets forth more specific information with respect to each of our shopping
centers at December 31, 2006:
WHOLLY-OWNED PROPERTIES
| Year | ||||||||||||||||||||||
| Constructed | Occupancy | Anchor Tenants | ||||||||||||||||||||
| (C) | Ownership | (1)% | Current Lease Expiration/ | |||||||||||||||||||
| Shopping Center | Location | Acquired(A) | Interest | GLA | 12/31/06 | Lease Option Expiration | ||||||||||||||||
NEW YORK REGION |
||||||||||||||||||||||
Connecticut |
||||||||||||||||||||||
239 Greenwich Avenue |
Greenwich | 1998 | (A) | Fee | 16,834 | (3) | 100 | % | Restoration Hardware | |||||||||||||
| 2015/2025 | ||||||||||||||||||||||
| Coach 2016/2021 | ||||||||||||||||||||||
New York |
||||||||||||||||||||||
Village Commons Shopping Center |
Smithtown | 1998 | (A) | Fee | 87,169 | 86 | % | Daffy’s 2008/2028 | ||||||||||||||
Branch Shopping Plaza |
Smithtown | 1998 | (A) | LI (4) | 125,751 | 100 | % | Waldbaum’s 2013/2028 CVS 2010/— | ||||||||||||||
Pacesetter Park Shopping
Center |
Pomona | 1999 | (A) | Fee | 96,698 | 98 | % | Stop & Shop 2020/2040 | ||||||||||||||
Amboy Road |
Staten Island | 2005 | (A) | LI (4) | 60,090 | 98 | % | Waldbaum’s 2028/— Duane Reade 2008/2018 | ||||||||||||||
Bartow Avenue |
Bronx | 2005 | (C) | Fee | 14,694 | 51 | % | Sleepy’s 2009/2014 | ||||||||||||||
2914 Third Avenue |
Bronx | 2006 | (A) | Fee | 43,500 | 100 | % | Dr. J’s 2021/— | ||||||||||||||
New Jersey |
||||||||||||||||||||||
Elmwood Park Shopping
Center |
Elmwood Park | 1998 | (A) | Fee | 149,085 | 100 | % | Pathmark 2017/2052 Walgreen’s 2022/2062 | ||||||||||||||
Boonton Shopping Center |
Boonton | 2006 | (A) | Fee | 62,908 | 98 | % | A&P 2024 | ||||||||||||||
NEW ENGLAND REGION |
||||||||||||||||||||||
Connecticut |
||||||||||||||||||||||
Town Line Plaza |
Rocky Hill | 1998 | (A) | Fee | 206,356 | (2) | 100 | % | Stop & Shop 2023/2063 Wal-Mart(2) | |||||||||||||
Massachusetts |
||||||||||||||||||||||
Methuen Shopping Center |
Methuen | 1998 | (A) | LI/Fee (4) | 130,021 | 97 | % | DeMoulas Market 2015/2020 Wal-Mart 2011/2051 | ||||||||||||||
Crescent Plaza |
Brockton | 1984 | (A) | Fee | 218,141 | 99 | % | Shaw’s 2012/2042 Home Depot 2021/2056 | ||||||||||||||
New York |
||||||||||||||||||||||
New Loudon Center |
Latham | 1982 | (A) | Fee | 255,826 | 100 | % | Price Chopper 2015/2035 | ||||||||||||||
| Marshall’s 2014/2029 | ||||||||||||||||||||||
| Bon Ton 2014/2034 | ||||||||||||||||||||||
| Raymour and Flanigan 2019/2034 | ||||||||||||||||||||||
Rhode Island |
||||||||||||||||||||||
Walnut Hill Plaza |
Woonsocket | 1998 | (A) | Fee | 285,418 | 98 | % | Shaw’s 2013/2043 Sears 2008/2033 | ||||||||||||||
Vermont |
||||||||||||||||||||||
The Gateway Shopping
Center |
South Burlington | 1999 | (A) | Fee | 101,784 | 96 | % | Shaw’s 2024/2053 | ||||||||||||||
18
Table of Contents
| Year | ||||||||||||||||||||||
| Constructed | Occupancy | Anchor Tenants | ||||||||||||||||||||
| (C) | Ownership | (1)% | Current Lease Expiration/ | |||||||||||||||||||
| Shopping Center | Location | Acquired(A) | Interest | GLA | 12/31/06 | Lease Option Expiration | ||||||||||||||||
MIDWEST REGION |
||||||||||||||||||||||
Illinois |
||||||||||||||||||||||
Hobson West Plaza |
Naperville | 1998 | (A) | Fee | 98,902 | 99 | % | Bobak’s Market & Restaurant 2007/2032 | ||||||||||||||
Clark Diversey |
Chicago | 2006 | (A) | Fee | 19,265 | 100 | % | Papyrus 2010/2015 | ||||||||||||||
| Starbucks 2010/2015 | ||||||||||||||||||||||
| Nine West 2009/— | ||||||||||||||||||||||
| The Vitamin Shoppe 2014/2024 | ||||||||||||||||||||||
Indiana |
||||||||||||||||||||||
Merrillville Plaza |
Merrillville | 1998 | (A) | Fee | 235,678 | 96 | % | TJ Maxx 2009/2014 | ||||||||||||||
| JC Penney 2008/2018 | ||||||||||||||||||||||
| Office Max 2008/2028 | ||||||||||||||||||||||
Michigan |
||||||||||||||||||||||
Bloomfield Town Square |
Bloomfield Hills | 1998 | (A) | Fee | 232,366 | 87 | % | TJ Maxx 2009/— | ||||||||||||||
| Marshalls 2011/2026 | ||||||||||||||||||||||
| Home Goods 2010/2025 | ||||||||||||||||||||||
Ohio |
||||||||||||||||||||||
Mad River Station |
Dayton | 1999 | (A) | Fee | 155,838 | (6) | 79 | % | Babies ‘R’ Us 2010/2020 | |||||||||||||
| Office Depot 2010/— | ||||||||||||||||||||||
MID-ATLANTIC REGION |
||||||||||||||||||||||
New Jersey |
||||||||||||||||||||||
Marketplace of Absecon |
Absecon | 1998 | (A) | Fee | 105,097 | 95 | % | Acme 2015/2055 | ||||||||||||||
| Eckerd Drug 2020/2040 | ||||||||||||||||||||||
Ledgewood Mall |
Ledgewood | 1983 | (A) | Fee | 518,950 | 88 | % | Wal-Mart 2019/2049 | ||||||||||||||
| Macy’s 2010/2025 | ||||||||||||||||||||||
| The Sport’s Authority 2007/2037 | ||||||||||||||||||||||
| Circuit City 2020/2040 | ||||||||||||||||||||||
| Marshalls 2014/2034 | ||||||||||||||||||||||
Pennsylvania |
||||||||||||||||||||||
Abington Towne Center |
Abington | 1998 | (A) | Fee | 216,355 | (5) | 98 | % | TJ Maxx 2010/2020 | |||||||||||||
| Target (6) | ||||||||||||||||||||||
Blackman Plaza |
Wilkes-Barre | 1968 | (C) | Fee | 125,264 | 93 | % | Kmart 2009/2049 | ||||||||||||||
Mark Plaza |
Edwardsville | 1968 | (C) | LI/Fee (4) | 216,401 | 97 | % | Redner’s Markets 2018/2028 | ||||||||||||||
| Kmart 2009/2049 | ||||||||||||||||||||||
Plaza 422 |
Lebanon | 1972 | (C) | Fee | 154,878 | 69 | % | Home Depot 2028/2058 | ||||||||||||||
Route 6 Mall |
Honesdale | 1994 | (C) | Fee | 175,505 | 99 | % | Kmart 2020/2070 | ||||||||||||||
Chestnut Hill |
Philadelphia | 2006 | (A) | Fee | 40,570 | 100 | % | Borders 2010/- | ||||||||||||||
| Limited Express 2009/-- | ||||||||||||||||||||||
| Wholly-owned portfolio | 4,149,344 | 94 | % | |||||||||||||||||||
19
Table of Contents
PROPERTIES HELD IN CONSOLIDATED JOINT VENTURES
| Year | ||||||||||||||||||||||
| Constructed | Occupancy | Anchor Tenants | ||||||||||||||||||||
| (C) | Ownership | (1)% | Current Lease Expiration/ | |||||||||||||||||||
| Shopping Center | Location | Acquired(A) | Interest | GLA | 12/31/06 | Lease Option Expiration | ||||||||||||||||
NEW YORK REGION |
||||||||||||||||||||||
New York |
||||||||||||||||||||||
Tarrytown
Shopping Center |
Tarrytown | 2004 | (A) | JV (9) | 35,291 | 85 | % | Walgreen’s 2080/-- | ||||||||||||||
MIDWEST REGION |
||||||||||||||||||||||
Illinois |
||||||||||||||||||||||
Oakbrook |
Oakbrook | 2005 | (A) | JV (4) (10) | 112,000 | 100 | % | Neiman Marcus 2011/2029 | ||||||||||||||
Ohio |
||||||||||||||||||||||
Amherst Marketplace |
Cleveland | 2002 | (A) | JV (9) | 79,945 | 100 | % | Giant Eagle 2021/2041 Riser Foods Company/Pharmacy 2012/2027 |
||||||||||||||
Granville Centre |
Columbus | 2002 | (A) | JV (9) | 134,997 | 43 | % | Lifestyle Family Fitness 2017/2027 |
||||||||||||||
Sheffield Crossing |
Cleveland | 2002 | (A) | JV (9) | 112,534 | 94 | % | Giant Eagle 2022/2042 Revco Drug 2012/2027 |
||||||||||||||
VARIOUS REGIONS |
||||||||||||||||||||||
Kroger/Safeway
Portfolio |
Various | 2003 | (A) | JV (9) | 1,018,100 | 100 | % | 25 Kroger/Safeway Supermarkets 2009/2049 |
||||||||||||||
JV REDEVELOPMENTS |
||||||||||||||||||||||
New York |
||||||||||||||||||||||
400 E. Fordham Road |
Bronx | 2004 | (A) | JV (10) | 117,355 | 100 | % | Sears 2021/2031 | ||||||||||||||
Pelham Manor Shopping |
||||||||||||||||||||||
Plaza |
Westchester | 2004 | (A) | JV (4)(10) | 398,775 | 29 | % | |||||||||||||||
161st Street |
Bronx | 2005 | (A) | JV (10) | 223,611 | 100 | % | City of New York 2027/2032 | ||||||||||||||
Sherman Avenue |
New York | 2005 | (A) | JV (10) | 134,773 | 100 | % | |||||||||||||||
Liberty Avenue |
New York | 2005 | (A) | JV (4) (10) | — | (12) | — | (12) | ||||||||||||||
216th Street |
New York | 2005 | (A) | JV (10) | — | (12) | — | (12) | ||||||||||||||
| Consolidated Joint Venture
Portfolio |
2,367,381 | 89 | % | |||||||||||||||||||
20
Table of Contents
PROPERTIES HELD IN UNCONSOLIDATED JOINT VENTURES
| Year | ||||||||||||||||||||||
| Constructed | Occupancy | Anchor Tenants | ||||||||||||||||||||
| (C) | Ownership | (1)% | Current Lease Expiration/ | |||||||||||||||||||
| Shopping Center | Location | Acquired(A) | Interest | GLA | 12/31/06 | Lease Option Expiration | ||||||||||||||||
NEW YORK REGION |
||||||||||||||||||||||
New York |
||||||||||||||||||||||
Crossroads Shopping
Center |
White Plains | 1998 | (A) | JV (7) | 310,644 | 98 | % | Waldbaum’s 2007/2032 | ||||||||||||||
| Kmart 2012/2022 | ||||||||||||||||||||||
| B. Dalton 2012/2017 | ||||||||||||||||||||||
| Modell’s 2009/2019 | ||||||||||||||||||||||
MID-ATLANTIC REGION |
||||||||||||||||||||||
Delaware |
||||||||||||||||||||||
Brandywine Town Center |
Wilmington | 2003 | (A) | JV (11) | 815,215 | 98 | % | Drexel Heritage 2016/2026 | ||||||||||||||
| Michaels 2011/2006 | ||||||||||||||||||||||
| Old Navy (The Gap) 2011/2016 | ||||||||||||||||||||||
| Petsmart 2017/2042 | ||||||||||||||||||||||
| Thomasville Furniture 2011/2021 | ||||||||||||||||||||||
| Access Group 2015/2025 | ||||||||||||||||||||||
| Bed, Bath & Beyond 2014/2029 | ||||||||||||||||||||||
| Dick’s Sporting Goods 2013/2028 | ||||||||||||||||||||||
| Lowe’s Home Centers 2018/2048 | ||||||||||||||||||||||
| Regal Cinemas 2017/2037 | ||||||||||||||||||||||
| Target 2018/2068 | ||||||||||||||||||||||
| Transunion Settlement 2013/2018 | ||||||||||||||||||||||
| The Bombay Company 2015/2025 | ||||||||||||||||||||||
| Lane Home Furnishings 2015/2030 | ||||||||||||||||||||||
| MJM Designer 2015/2035 | ||||||||||||||||||||||
Market Square Shopping
Center |
Wilmington | 2003 | (A) | JV (11) | 102,562 | 79 | % | Trader Joe’s 2013/2028 TJ Maxx 2006/2016 |
||||||||||||||
JV REDEVELOPMENTS |
||||||||||||||||||||||
Michigan |
||||||||||||||||||||||
Sterling Heights Shopping
Center |
Detroit | 2004 | (A) | JV (9) | 154,835 | 64 | % | Burlington Coat Factory 2024/-- | ||||||||||||||
Delaware |
||||||||||||||||||||||
Naamans Road |
Wilmington | 2006 | (C) | JV (11) | 19,932 | 45 | % | Tweeters 2026/2046 | ||||||||||||||
South Carolina |
||||||||||||||||||||||
Hitchcock Plaza |
Aiken | 2004 | (A) | JV (9) | 232,383 | 78 | % | Bed, Bath & Beyond 2008/2017 | ||||||||||||||
| Club Fitness 2004/2014 | ||||||||||||||||||||||
| Old Navy 2006/2021 | ||||||||||||||||||||||
| Stein Mart 2006/2016 | ||||||||||||||||||||||
| Ross Dress for Less 2006/2017 | ||||||||||||||||||||||
| TJ Maxx 2006/2016 | ||||||||||||||||||||||
Pine Log Plaza |
Aiken | 2004 | (A) | JV (9) | 35,064 | 82 | % | |||||||||||||||
Virginia |
||||||||||||||||||||||
Haygood Shopping Center |
Virginia | 2004 | (A) | JV (9) | 178,335 | 75 | % | Eckerd Drug 2009/-- | ||||||||||||||
| Beach | Farm Fresh 2026/-- | |||||||||||||||||||||
| Unconsolidated Joint Venture Portfolio |
1,848,970 | 81 | % | |||||||||||||||||||
Notes:
| (1) | Does not include space leased for which rent has not yet commenced. | |
| (2) | Includes a 92,500 square foot Wal-Mart which is not owned us. | |
| (3) | In addition to the 16,834 square feet of retail GLA, this property also has 21 apartments comprising 14,434 square feet. | |
| (4) | We are a ground lessee under a long-term ground lease. | |
| (5) | Includes a 157,616 square foot Target Store that is not owned by the Company. | |
| (6) | The GLA for this property includes 28,205 square feet of office space. | |
| (7) | We have a 49% investment in this property. | |
| (8) | Does not include 50,000 square feet of new space in Phase II of the Brandywine Town Center, which will be paid for on an Earn-out basis only if, and when, it is leased. | |
| (9) | We have invested in this asset through Fund I. | |
| (10) | We have invested in this asset through Fund II. | |
| (11) | We have invested in this asset with Ginsburg Development Corp. (GDC). | |
| (12) | Under redevelopment. |
21
Table of Contents
MAJOR TENANTS
No individual retail tenant accounted for more than 5.4% of minimum rents for the year ended
December 31, 2006 or 8.8% of total leased GLA as of December 31, 2006. The following table sets
forth certain information for the 20 largest retail tenants based upon minimum rents in place as of
December 31, 2006. The table includes leases related to our partial interest in 25 anchor-only
leases with Kroger and Safeway supermarkets. The amounts below include our pro-rata share of GLA
and annualized base rent for our partial ownership interest in properties (GLA and rent in
thousands):
| Percentage of Total | ||||||||||||||||||||
| Number | Represented by Retail Tenant | |||||||||||||||||||
| of | Annualized | Total | Annualized | |||||||||||||||||
| Stores in | Total | Base | Portfolio GLA | Base | ||||||||||||||||
| Retail Tenant | Portfolio | GLA | Rent (1) | (2) | Rent (2) | |||||||||||||||
Albertsons (Shaw’s, Acme) |
4 | 221 | $ | 3,013 | 4.2 | % | 5.4 | % | ||||||||||||
A&P (Waldbaum’s) |
4 | 168 | 2,813 | 3.3 | % | 5.0 | % | |||||||||||||
T.J. Maxx (T.J. Maxx, Marshalls, A.J. Wrights) |
9 | 266 | 2,018 | 5.1 | % | 3.6 | % | |||||||||||||
Sears (Sears, Kmart) |
6 | 459 | 1,686 | 8.8 | % | 3.0 | % | |||||||||||||
Wal-Mart |
2 | 210 | 1,515 | 4.0 | % | 2.7 | % | |||||||||||||
Ahold (Stop & Shop) |
2 | 118 | 1,289 | 2.3 | % | 2.3 | % | |||||||||||||
Home Depot |
2 | 211 | 1,010 | 4.1 | % | 1.8 | % | |||||||||||||
Pathmark |
1 | 48 | 956 | 0.9 | % | 1.7 | % | |||||||||||||
Price Chopper |
1 | 77 | 804 | 1.5 | % | 1.5 | % | |||||||||||||
Restoration Hardware |
1 | 9 | 697 | 0.2 | % | 1.2 | % | |||||||||||||
Kroger (3) |
12 | 156 | 1,137 | 3.0 | % | 2.0 | % | |||||||||||||
Safeway (4) |
13 | 132 | 1,134 | 2.5 | % | 2.0 | % | |||||||||||||
Federated (Macy’s) |
1 | 73 | 651 | 1.4 | % | 1.2 | % | |||||||||||||
Sleepy’s |
5 | 36 | 621 | 0.7 | % | 1.1 | % | |||||||||||||
JC Penney |
1 | 50 | 495 | 1.0 | % | 0.9 | % | |||||||||||||
CVS |
4 | 33 | 527 | 0.6 | % | 1.0 | % | |||||||||||||
Limited Brands – Express |
1 | 13 | 510 | 0.3 | % | 0.9 | % | |||||||||||||
Payless Shoesource |
9 | 28 | 509 | 0.5 | % | 0.9 | % | |||||||||||||
Borders Books |
1 | 19 | 482 | 0.4 | % | 0.9 | % | |||||||||||||
Circuit City |
1 | 33 | 450 | 0.6 | % | 0.8 | % | |||||||||||||
Total |
80 | 2,360 | $ | 22,317 | 45.4 | % | 39.9 | % | ||||||||||||
Notes:
| (1) | Base rents do not include percentage rents (except where noted), additional rents for property expense reimbursements, and contractual rent escalations due after December 31, 2006. | |
| (2) | Represents total GLA and annualized base rent for our retail properties including our pro-rata share of Joint Venture Properties. | |
| (3) | Kroger has sub-leased four of these locations to supermarket tenants, two locations to a non-supermarket tenant and ceased operations at one other location. Kroger is obligated to pay rent through the full term of these leases which expire in 2009. | |
| (4) | Safeway has sub-leased seven of these locations to supermarket tenants, one location to a non-supermarket tenant and ceased operations at one other location. Safeway is obligated to pay rent through the full term of all these leases which expire in 2009. |
22
Table of Contents
LEASE EXPIRATIONS
The following table shows scheduled lease expirations for retail tenants in place as of December
31, 2006, assuming that none of the tenants exercise renewal options. Leases related to our joint
venture properties are shown separately below before our pro-rata share of annual base rent and GLA
(GLA and rent in thousands):
Wholly-Owned
Portfolio:
| Annualized Base Rent (1) | GLA | |||||||||||||||||||
| Leases | Number of | Current | Percentage of | Percentage | ||||||||||||||||
| maturing in | Leases | Annual Rent | Total | Square Feet | of Total | |||||||||||||||
2007 |
75 | 4,082 | 9 | % | 360 | 10 | % | |||||||||||||
2008 |
55 | 4,720 | 11 | % | 321 | 9 | % | |||||||||||||
2009 |
66 | 4,934 | 11 | % | 500 | 14 | % | |||||||||||||
2010 |
56 | 5,530 | 13 | % | 484 | 13 | % | |||||||||||||
2011 |
38 | 2,675 | 6 | % | 166 | 5 | % | |||||||||||||
2012 |
9 | 1,591 | 4 | % | 166 | 5 | % | |||||||||||||
2013 |
13 | 2,206 | 5 | % | 151 | 4 | % | |||||||||||||
2014 |
17 | 1,926 | 4 | % | 216 | 6 | % | |||||||||||||
2015 |
14 | 3,362 | 8 | % | 190 | 5 | % | |||||||||||||
2016 |
11 | 1,348 | 3 | % | 65 | 2 | % | |||||||||||||
Thereafter |
29 | 11,676 | 26 | % | 1,024 | 27 | % | |||||||||||||
Total |
383 | $ | 44,050 | 100 | % | 3,643 | 100 | % | ||||||||||||
Consolidated
and Unconsolidated Joint Venture Portfolios:
| Annualized Base Rent (1) | GLA | |||||||||||||||||||
| Leases | Number of | Current | Percentage of | Percentage | ||||||||||||||||
| maturing in | Leases | Annual Rent | Total | Square Feet | of Total | |||||||||||||||
2007 |
109 | 4,152 | 9 | % | 396 | 11 | % | |||||||||||||
2008 |
25 | 3,110 | 7 | % | 198 | 5 | % | |||||||||||||
2009 |
44 | 10,182 | 23 | % | 1,150 | 32 | % | |||||||||||||
2010 |
11 | 767 | 2 | % | 47 | 1 | % | |||||||||||||
2011 |
20 | 7,538 | 17 | % | 422 | 12 | % | |||||||||||||
2012 |
6 | 697 | 2 | % | 53 | 1 | % | |||||||||||||
2013 |
7 | 2,067 | 5 | % | 117 | 3 | % | |||||||||||||
2014 |
13 | 2,270 | 5 | % | 124 | 3 | % | |||||||||||||
2015 |
10 | 3,218 | 7 | % | 166 | 5 | % | |||||||||||||
2016 |
3 | 514 | 1 | % | 66 | 2 | % | |||||||||||||
Thereafter |
25 | 9,844 | 22 | % | 892 | 25 | % | |||||||||||||
Total |
273 | $ | 44,359 | 100 | % | 3,631 | 100 | % | ||||||||||||
Note:
| (1) | Base rents do not include percentage rents, additional rents for property expense reimbursements, nor contractual rent escalations due after December 31, 2006. |
23
Table of Contents
GEOGRAPHIC CONCENTRATIONS
The following table summarizes our retail properties by region as of December 31, 2006. (GLA and
rent in thousands):
| Annualized | Percentage of Total | |||||||||||||||||||||||
| Annualized | Base Rent per | Represented by Region | ||||||||||||||||||||||
| Base | Leased Square | Annualized | ||||||||||||||||||||||
| Region | GLA (1) | Occupied % (2) | Rent (2) | Foot | GLA | Base Rent | ||||||||||||||||||
Wholly-Owned Portfolio: |
||||||||||||||||||||||||
New York Region |
657 | 96 | % | $ | 14,512 | $ | 22.92 | 16 | % | 33 | % | |||||||||||||
New England |
1,197 | 98 | % | 10,091 | 9.33 | 29 | % | 23 | % | |||||||||||||||
Midwest |
742 | 90 | % | 8,554 | 12.81 | 18 | % | 19 | % | |||||||||||||||
Mid-Atlantic |
1,553 | 91 | % | 10,892 | 8.64 | 37 | % | 25 | % | |||||||||||||||
Total Wholly-Owned Portfolio |
4,149 | 94 | % | $ | 44,049 | $ | 12.09 | 100 | % | 100 | % | |||||||||||||
| Consolidated and Unconsolidated Joint Venture Portfolios: | ||||||||||||||||||||||||
Operating Properties |
||||||||||||||||||||||||
Midwest (3) |
439 | 81 | % | $ | 3,481 | $ | 9.78 | 26 | % | 14 | % | |||||||||||||
Mid-Atlantic (4) |
918 | 96 | % | 13,707 | 15.58 | 54 | % | 57 | % | |||||||||||||||
New York Region (5) |
346 | 96 | % | 6,923 | 20.79 | 20 | % | 29 | % | |||||||||||||||
Total Operating Properties |
1,703 | 92 | % | 24,111 | 15.37 | 100 | % | 100 | % | |||||||||||||||
Redevelopment Properties: |
||||||||||||||||||||||||
Midwest (6) |
155 | 64 | % | 608 | 6.13 | 11 | % | 5 | % | |||||||||||||||
Mid-Atlantic (7) |
466 | 76 | % | 3,272 | 9.27 | 31 | % | 27 | % | |||||||||||||||
New York Region (8) |
874 | 68 | % | 8,355 | 14.10 | 58 | % | 68 | % | |||||||||||||||
Total Redevelopment
Properties |
1,495 | 70 | % | 12,235 | 11.71 | 100 | % | 100 | % | |||||||||||||||
Total Joint Venture Portfolio |
3,198 | 82 | % | $ | 36,346 | $ | 13.91 | 100 | % | 100 | % | |||||||||||||
Notes:
| (1) | Property GLA includes a total of 255,000 square feet which is not owned us. This square footage has been excluded for calculating annualized base rent per square foot. | |
| (2) | The above occupancy and rent amounts do not include space which is currently leased, but for which rent payment has not yet commenced. | |
| (3) | We have a 37.78% interest in Fund I which owns three properties and a 20% interest in Fund II which owns one property. | |
| (4) | Does not include 50,000 square feet of new space in Phase II of the Brandywine Town Center, which will be paid for by us on an “earn-out basis” only if, and when it is leased. | |
| (5) | We have a 49% interest in two partnerships which, together, own the Crossroads Shopping Center and a 38% interest in Fund I which owns 100% of the Tarrytown Shopping Center. | |
| (6) | We have a 37.78% interest in Fund I which has a 50% interest in a property. | |
| (7) | We have a 22.22% interest in one property and a 38% interest in Fund I which has interests ranging from 20% to 50% in three properties. | |
| (8) | We have a 20% interest in Fund II which has a 96% interest in four properties. |
24
Table of Contents
KROGER/SAFEWAY PORTFOLIO
In January of 2003, Fund I formed a joint venture (the “Kroger/Safeway JV”) with an affiliate of
real estate developer and investor AmCap Incorporated (“AmCap”) for the purpose of acquiring a
portfolio of twenty-five supermarket leases for $48.9 million inclusive of the closing and other
related acquisition costs. The portfolio, which aggregates approximately 1.0 million square feet,
consists of 25 anchor-only leases with Kroger (12 leases) and Safeway supermarkets (13 leases). The
majority of the properties are free-standing and all are triple-net leases. The Kroger/Safeway JV
acquired the portfolio subject to long-term ground leases with terms, including renewal options,
averaging in excess of 80 years, which are master leased to a non-affiliated entity. The rental
options for the supermarket leases at the end of their primary lease term in approximately three
years (“Primary Term”) are at an average of $5.13 per square foot. Although there is no obligation
for the Kroger/Safeway JV to pay ground rent during the Primary Term, to the extent it exercises an
option to renew a ground lease for a property at the end of the Primary Term, it will be obligated
to pay an average ground rent of $1.55 per square foot.
The following table sets forth more specific information with respect to the 25 supermarket leases:
| Gross leasable | Rent upon initial | Lease expiration | ||||||||||||||||||
| area | option | year/ Last option | ||||||||||||||||||
| Location | Tenant | (“GLA”) | Current rent | commencement | expiration year | |||||||||||||||
Great Bend, KS |
Kroger Co. (1) | 48,000 | $ | 3.33 | $ | 2.40 | 2009/2049 | |||||||||||||
Cincinnati, OH |
Kroger Co. | 32,200 | 7.49 | 5.36 | 2009/2049 | |||||||||||||||
Conroe, TX |
Kroger Co. (2) | 75,000 | 6.44 | 4.60 | 2009/2049 | |||||||||||||||
Harahan, LA |
Kroger Co. (2) | 60,000 | 6.41 | 4.61 | 2009/2049 | |||||||||||||||
Indianapolis, IN |
Kroger Co. | 34,000 | 5.42 | 3.87 | 2009/2049 | |||||||||||||||
Irving, TX |
Kroger Co. | 43,900 | 6.05 | 4.32 | 2009/2049 | |||||||||||||||
Pratt, KS |
Kroger Co. (1) | 38,000 | 5.26 | 3.78 | 2009/2049 | |||||||||||||||
Roanoke, VA |
Kroger Co. | 36,700 | 12.06 | 8.62 | 2009/2049 | |||||||||||||||
Shreveport, LA |
Kroger Co. | 45,000 | 9.74 | 6.96 | 2009/2049 | |||||||||||||||
Wichita, KS |
Kroger Co. (1) | 50,000 | 10.40 | 7.48 | 2009/2049 | |||||||||||||||
Wichita, KS |
Kroger Co. (1) | 40,000 | 9.70 | 6.97 | 2009/2049 | |||||||||||||||
Atlanta, TX |
Safeway (3) | 31,000 | 6.79 | 3.98 | 2009/2049 | |||||||||||||||
Batesville, AR |
Safeway (1) | 29,000 | 9.74 | 5.72 | 2009/2049 | |||||||||||||||
Benton, AR |
Safeway (1) | 33,500 | 8.02 | 4.71 | 2009/2049 | |||||||||||||||
Carthage, TX |
Safeway (1) | 27,700 | 7.01 | 4.12 | 2009/2049 | |||||||||||||||
Little Rock, AR |
Safeway (1) | 36,000 | 11.22 | 6.58 | 2009/2049 | |||||||||||||||
Longview, WA |
Safeway | 48,700 | 7.64 | 4.48 | 2009/2049 | |||||||||||||||
Mustang, OK |
Safeway (1) | 30,200 | 7.08 | 4.15 | 2009/2049 | |||||||||||||||
Roswell, NM |
Safeway (2) | 36,300 | 10.12 | 5.94 | 2009/2049 | |||||||||||||||
Ruidoso, NM |
Safeway (1) | 38,600 | 10.17 | 5.97 | 2009/2049 | |||||||||||||||
San Ramon, CA |
Safeway | 54,000 | 8.46 | 4.96 | 2009/2049 | |||||||||||||||
Springerville, AZ |
Safeway | 30,500 | 8.24 | 4.83 | 2009/2049 | |||||||||||||||
Tucson, AZ |
Safeway | 41,800 | 7.98 | 4.68 | 2009/2049 | |||||||||||||||
Tulsa, OK |
Safeway (1) | 30,000 | 8.45 | 4.96 | 2009/2049 | |||||||||||||||
Cary, NC |
Kroger Co. (3) | 48,000 | 6.37 | 4.55 | 2009/2049 | |||||||||||||||
| Total | 1,018,100 | |||||||||||||||||||
Notes:
| (1) | The tenant is obligated to pay rent pursuant to the lease and has sub-leased this location to a supermarket sub-tenant. | |
| (2) | The tenant is obligated to pay rent pursuant to the lease and has sub-leased this location to a non-supermarket sub-tenant. | |
| (3) | The tenant is currently not operating at this location although they continue to pay rent in accordance with the lease. |
25
Table of Contents
MULTI-FAMILY PROPERTIES
We own two multi-family properties located in the Mid-Atlantic and Midwest regions. As of December
31, 2006, the properties had an average occupancy rate of 90%. The following sets forth more
specific information with respect to each of our multi-family properties at December 31, 2006:
| Year | Ownership | |||||||||||||||||||
| Multi-Family Property | Location | Acquired | Interest | Units | % Occupied | |||||||||||||||
Missouri (1) Gate House, Holiday House, Tiger Village and Colony Apartments |
Columbia | 1998 | Fee | 874 | 92 | % | ||||||||||||||
North Carolina Village Apartments |
Winston Salem | 1998 | Fee | 600 | 86 | % | ||||||||||||||
Totals |
1,474 | 90 | % | |||||||||||||||||
Notes:
| (1) | We own four contiguous residential complexes in Columbia, Missouri which, although owned in two separate entities, are managed as a single property and therefore reflected as such |
ITEM 3. LEGAL PROCEEDINGS:
We are involved in other various matters of litigation arising in the normal course of business.
While we are unable to predict with certainty the amounts involved, management is of the opinion
that, when such litigation is resolved, our resulting liability, if any, will not have a
significant effect on our consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
No matter was submitted to a vote of security holders through the solicitation of proxies or
otherwise during the fourth quarter of 2006.
26
Table of Contents
PART II
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCK MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. |
(a) Market Information
The following table shows, for the period indicated, the high and low sales price for the Common
Shares as reported on the New York Stock Exchange, and cash dividends paid during the two years
ended December 31, 2006 and 2005:
| Dividend | ||||||||||||
| Quarter Ended | High | Low | Per Share | |||||||||
2006 |
||||||||||||
March 31, 2006
|
$ | 24.21 | $ | 19.79 | $ | 0.1850 | ||||||
June 30, 2006
|
23.94 | 19.51 | 0.1850 | |||||||||
September 30, 2006
|
26.70 | 22.70 | 0.1850 | |||||||||
December 31, 2006
|
27.13 | 23.81 | 0.2000 | |||||||||
2005 |
||||||||||||
March 31, 2005
|
$ | 16.76 | $ | 15.40 | $ | 0.1725 | ||||||
June 30, 2005
|
18.68 | 15.25 | 0.1725 | |||||||||
September 30, 2005
|
20.13 | 17.38 | 0.1725 | |||||||||
December 31, 2005
|
20.79 | 16.51 | 0.1850 | |||||||||
At March 1, 2007, there were 348 holders of record of the Company’s Common Shares.
(b) Dividends
We have determined that for 2006, 100% of the total dividends distributed to shareholders
represented ordinary income. There was no unrecaptured section 1250 gain or nontaxable return of
capital in 2006. Our cash flow is affected by a number of factors, including the revenues received
from rental properties, our operating expenses, the interest expense on our borrowings, the ability
of lessees to meet their obligations to us and unanticipated capital expenditures. Future dividends
paid by us will be at the discretion of the Trustees and will depend on our actual cash flows, our
financial condition, capital requirements, the annual distribution requirements under the REIT
provisions of the Code and such other factors as the Trustees deem relevant.
(c) Issuer purchases of equity securities
We have an existing share repurchase program that authorizes management, at its discretion, to
repurchase up to $20.0 million of our outstanding Common Shares. Through March 1, 2007, we had
repurchased 2.1 million Common Shares at a total cost of $11.7 million. All of these Common Shares
have been subsequently reissued. The program may be discontinued or extended at any time and there
is no assurance that we will purchase the full amount authorized. There were no Common Shares
repurchased by us during the fiscal year ended December 31, 2006.
(d) Securities authorized for issuance under equity compensation plans
The following table provides information related to our 1999 Share Incentive Plan (the “1999
Plan”), 2003 Share Incentive Plan (the “2003 Plan”) and the 2006 Share Incentive Plan (the “2006
Plan”) as of December 31, 2006:
| Equity Compensation Plan Information | ||||||||||||
| (a) | (b) | (c) | ||||||||||
| Number of securities to | Weighted- average | Number of securities remaining | ||||||||||
| be issued upon exercise | exercise price of | available for future issuance under | ||||||||||
| of outstanding options, | outstanding options, | equity compensation plans (excluding | ||||||||||
| warrants and rights | warrants and rights | securities reflected in column) (a) | ||||||||||
Equity compensation plans
approved by security holders |
550,372 | $ | 10.01 | 729,097 | (1) | |||||||
Equity compensation plans
not approved by security
holders |
— | — | — | |||||||||
Total |
550,372 | $ | 10.01 | 729,097 | (1) | |||||||
Notes:
| (1) | The 1999, 2003 and 2006 Plans authorize the issuance of options equal to up to a total of 12% of the total Common Shares outstanding from time to time on a fully diluted basis. The 2006 Plan authorizes the issuance of a maximum number of 500,000 Common Shares. However, not more than 4,000,000 of the Common Shares in the aggregate may be issued pursuant to the exercise of options and no participant may receive more than 5,000,000 Common Shares during the term of the 1999 and 2003 Plans. No participant may receive more than 500,000 Common Shares during the term of the 2006 Plan. |
27
Table of Contents
Remaining Common Shares available is as follows:
Outstanding Common Shares as of December 31, 2006 |
31,772,952 | |||
Outstanding OP Units as of December 31, 2006 |
642,272 | |||
Total Outstanding Common Shares and OP Units |
32,415,224 | |||
12% of Common Shares pursuant to the 1999 and 2003
Plans |
3,889,827 | |||
Common Shares pursuant to the 2006 Plan |
500,000 | |||
Total Common Shares available under equity
compensations plans |
4,389,827 | |||
Less: Issuance of Restricted Shares Granted |
(880,408 | ) | ||
Issuance of Options Granted |
(2,780,322 | ) | ||
Number of Common Shares remaining available |
729,097 | |||
(e) Share Price Performance Graph
The following graph compares the cumulative total shareholder return for our Common Shares for the
period commencing December 31, 2001 through December 31, 2006 with the cumulative total return on
the Russell 2000 Index (“Russell 2000”), the NAREIT All Equity REIT Index (the “NAREIT”) and the
SNL Shopping Center REITs (the “SNL”) over the same period. Total return values for the Russell
2000, the NAREIT, the SNL and the Common Shares were calculated based upon cumulative total return
assuming the investment of $100.00 in each of the Russell 2000, the NAREIT, the SNL and our Common
Shares on December 31, 2001, and assuming reinvestment of such dividends. The shareholder return as
set forth in the table below is not necessarily indicative of future performance.
Comparison of 5 Year Cumulative Total Return among Acadia Realty Trust, the Russell 2000, the
NAREIT and the SNL:
| Period Ending | ||||||||||||||||||||||||
| Index | 12/31/01 | 12/31/02 | 12/31/03 | 12/31/04 | 12/31/05 | 12/31/06 | ||||||||||||||||||
Acadia Realty Trust |
100.00 | 125.41 | 224.19 | 305.64 | 391.01 | 503.39 | ||||||||||||||||||
Russell 2000 |
100.00 | 79.52 | 117.09 | 138.55 | 144.86 | 171.47 | ||||||||||||||||||
NAREIT All Equity REIT Index |
100.00 | 103.82 | 142.37 | 187.33 | 210.12 | 283.78 | ||||||||||||||||||
SNL Shopping Center REITS Index |
100.00 | 115.58 | 163.87 | 222.64 | 242.95 | 327.02 | ||||||||||||||||||
28
Table of Contents
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth, on a historical basis, our selected financial data. This
information should be read in conjunction with our audited consolidated financial statements and
Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing
elsewhere in this Form 10-K.
| Years ended December 31, | ||||||||||||||||||||
| (dollars in thousands, except per share amounts) | ||||||||||||||||||||
| 2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
OPERATING DATA: |
||||||||||||||||||||
Revenues |
$ | 102,693 | $ | 100,806 | $ | 87,082 | $ | 82,791 | $ | 57,803 | ||||||||||
Operating expenses |
46,101 | 41,642 | 36,135 | 34,530 | 26,677 | |||||||||||||||
Interest expense |
22,451 | 18,804 | 16,687 | 15,573 | 8,679 | |||||||||||||||
Depreciation and amortization |
26,637 | 25,905 | 22,781 | 23,672 | 12,441 | |||||||||||||||
Gain in sale of land |
— | — | 932 | 1,187 | 1,530 | |||||||||||||||
Equity in earnings of unconsolidated partnerships |
2,559 | 21,280 | 513 | 985 | 542 | |||||||||||||||
Minority interest |
5,223 | (13,952 | ) | (1,466 | ) | (4,899 | ) | (1,686 | ) | |||||||||||
Income tax benefit (expense) |
508 | (2,140 | ) | — | — | — | ||||||||||||||
Income from continuing operations |
15,794 | 19,643 | 11,458 | 6,289 | 10,392 | |||||||||||||||
Income from discontinued operations |
23,219 | 983 | 8,127 | 1,564 | 9,007 | |||||||||||||||
Net income |
$ | 39,013 | $ | 20,626 | $ | 19,585 | $ | 7,853 | $ | 19,399 | ||||||||||
Basic earnings per share: |
||||||||||||||||||||
Income from continuing operations |
$ | 0.49 | $ | 0.62 | $ | 0.39 | $ | 0.24 | $ | 0.41 | ||||||||||
Income from discontinued operations |
0.71 | 0.03 | 0.28 | 0.06 | 0.36 | |||||||||||||||
Basic earnings per share |
$ | 1.20 | $ | 0.65 | $ | 0.67 | $ | 0.30 | $ | 0.77 | ||||||||||
Diluted earnings per share: |
||||||||||||||||||||
Income from continuing operations |
$ | 0.48 | $ | 0.61 | $ | 0.38 | $ | 0.23 | $ | 0.41 | ||||||||||
Income from discontinued operations |
0.70 | 0.03 | 0.27 | 0.06 | 0.35 | |||||||||||||||
Diluted earnings per share |
$ | 1.18 | $ | 0.64 | $ | 0.65 | $ | 0.29 | $ | 0.76 | ||||||||||
Weighted average number of Common
Shares outstanding |
||||||||||||||||||||
- basic |
32,502 | 31,949 | 29,341 | 26,640 | 25,321 | |||||||||||||||
- diluted |
33,153 | 32,214 | 29,912 | 27,232 | 25,806 | |||||||||||||||
Cash dividends declared per Common Share |
$ | 0.755 | $ | 0.7025 | $ | 0.6525 | $ | 0.595 | $ | 0.52 | ||||||||||
BALANCE SHEET DATA: |
||||||||||||||||||||
Real estate before accumulated
depreciation |
$ | 677,238 | $ | 709,906 | $ | 599,558 | $ | 541,892 | $ | 375,149 | ||||||||||
Total assets |
851,692 | 841,591 | 636,731 | 556,278 | 442,034 | |||||||||||||||
Total mortgage indebtedness |
347,402 | 386,600 | 271,571 | 277,817 | 173,074 | |||||||||||||||
Total convertible notes payable |
100,000 | 24,400 | — | — | — | |||||||||||||||
Minority interest in Operating Partnership |
8,673 | 9,204 | 6,893 | 7,875 | 22,745 | |||||||||||||||
Minority interests in partially-owned affiliates |
105,064 | 137,086 | 75,244 | 37,681 | 12,611 | |||||||||||||||
Total equity |
241,119 | 220,576 | 216,924 | 169,734 | 161,323 | |||||||||||||||
OTHER: |
||||||||||||||||||||
Funds from Operations (1) |
$ | 39,953 | $ | 35,842 | $ | 30,004 | $ | 27,664 | $ | 30,162 | ||||||||||
Cash flows provided by (used in): |
||||||||||||||||||||
Operating activities |
39,627 | 50,239 | 33,885 | 31,031 | 29,422 | |||||||||||||||
Investing activities |
(58,890 | ) | (135,470 | ) | (72,860 | ) | (76,552 | ) | 31,855 | |||||||||||
Financing activities |
68,359 | 159,425 | 40,050 | 15,454 | (50,215 | ) | ||||||||||||||
Notes:
| (1) | The Company considers funds from operations (“FFO”) as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) to be an appropriate supplemental disclosure of operating performance for an equity REIT due to its widespread acceptance and use within the REIT and analyst communities. FFO is presented to assist investors in analyzing the performance of the Company. It is helpful as it excludes various items included in net income that are not indicative of the operating performance, such as gains (losses) from sales of depreciated property and depreciation and amortization. However, the Company’s method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REIT’s. FFO does not represent cash generated from operations as defined by generally accepted accounting principles (“GAAP”) and is not indicative of cash available to fund all cash needs, including distributions. It should not be considered as an alternative to net income for the purpose of evaluating the Company’s performance or to cash flows as a measure of liquidity. Consistent with the NAREIT definition, the Company defines FFO as net income (computed in accordance with GAAP), excluding gains (losses) from sales of depreciated property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Reconciliation of Net Income to Funds from Operations” for the reconciliation of net income to FFO. |
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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We currently operate 74 properties, which we own or have an ownership interest in, consisting of 72
neighborhood and community shopping centers and two multi-family properties, which are located
primarily in the Northeast, Mid-Atlantic and Midwestern regions of the United States. We receive
income primarily from the rental revenue from tenants at our properties, including recoveries from
tenants, offset by operating and overhead expenses.
Our primary business objective is to acquire and manage commercial retail properties that will
provide cash for distributions to shareholders while also creating the potential for capital
appreciation to enhance investor returns. We focus on the following fundamentals to achieve this
objective:
| – | Own and operate a portfolio of community and neighborhood shopping centers and mixed-use properties with a retail component located in markets with strong demographics. | ||
| – | Generate internal growth within the portfolio through aggressive redevelopment, re-anchoring and leasing activities. | ||
| – | Generate external growth through an opportunistic yet disciplined acquisition program. The emphasis is on targeting transactions with high inherent opportunity for the creation of additional value through redevelopment and leasing and/or transactions requiring creative capital structuring to facilitate the transactions. | ||
| – | Partner with private equity investors for the purpose of making investments in operating retailers with significant embedded value in their real estate assets. | ||
| – | Maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth. |
RESULTS OF OPERATIONS
Comparison of the year ended December 31, 2006 (“2006”) to the year ended December 31, 2005
(“2005”)
The Brandywine Portfolio operations were consolidated as part of Fund I for the year ended December
31, 2005. Subsequent to the recapitalization and conversion of interests from Fund I to GDC in
January 2006, the Brandywine Portfolio is accounted for under the equity method of accounting for
the year ended December 31, 2006. In the following tables, we have excluded the Brandywine
Portfolio operations for the year ended December 31, 2005 for purposes of comparability with the
year ended December 31, 2006.
| Change from | ||||||||||||||||||||||||
| 2005 As | Brandywine | 2005 | 2005 Adjusted | |||||||||||||||||||||
| (dollars in millions) | 2006 | Reported | Portfolio | Adjusted | $ | % | ||||||||||||||||||
Revenues
Minimum rents |
$ | 69.7 | $ | 75.4 | $ | (14.0 | ) | $ | 61.4 | $ | 8.3 | 13 | % | |||||||||||
Percentage rents |
1.2 | 1.3 | (0.6 | ) | 0.7 | 0.5 | 71 | % | ||||||||||||||||
Expense reimbursements |
15.0 | 14.9 | (2.2 | ) | 12.7 | 2.3 | 18 | % | ||||||||||||||||
Other property income |
1.2 | 2.3 | (0.2 | ) | 2.1 | (0.9 | ) | (43 | )% | |||||||||||||||
Management fee income |
5.6 | 3.6 | 0.5 | 4.1 | 1.5 | 37 | % | |||||||||||||||||
Interest income |
8.3 | 3.3 | — | 3.3 | 5.0 | 152 | % | |||||||||||||||||
Other |
1.7 | — | — | — | 1.7 | 100 | % | |||||||||||||||||
Total revenues |
$ | 102.7 | $ | 100.8 | $ | (16.5 | ) | $ | 84.3 | $ | 18.4 | 22 | % | |||||||||||
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The increase in minimum rents was attributable to additional rents following our acquisition of
Chestnut Hill, Clark Diversey, A&P Shopping Plaza, 2914 Third Avenue and Boonton Shopping Center
(60% owned) as well as Fund II acquisitions of Sherman Avenue and 161st Street in New
York and a leasehold interest in Chicago (“2005/2006 Acquisitions”).
Expense reimbursements for both common area maintenance (“CAM”) and real estate taxes increased in
2006. CAM expense reimbursement increased $0.4 million as a result of higher tenant reimbursements
following the 2005/2006 Acquisitions, offset by a decrease in tenant reimbursements as a result of
lower snow removal costs in 2006. Real estate tax reimbursements increased $1.8 million, primarily
as a result of the 2005/2006 Acquisitions, as well as general increases in real estate taxes across
the portfolio.
The decrease in other property income was the result of receipt of a bankruptcy claim settlement
against a former tenant in 2005.
Management fee income increased primarily as a result of fees earned in connection with the
acquisition of the Klaff management contract rights in February 2005 and additional management fees
earned from our investments in unconsolidated affiliates.
The increase in interest income was attributable to interest income on our advances and notes
receivable originated in 2005 and 2006, as well as higher balances in interest earning assets in
2006.
Other income increased as a result of a $1.1 million reimbursement of the Company’s share of
certain fees incurred by the institutional investors of Fund I for the Brandywine Portfolio, as
well as $0.5 million related to termination of an interest rate swap in 2006.
| Change from 2005 | ||||||||||||||||||||||||
| 2005 As | Brandywine | 2005 | Adjusted | |||||||||||||||||||||
| (dollars in millions) | 2006 | Reported | Portfolio | Adjusted | $ | % | ||||||||||||||||||
Operating Expenses
Property operating |
$ | 15.7 | $ | 16.1 | $ | (3.4 | ) | $ | 12.7 | $ | 3.0 | 24 | % | |||||||||||
Real estate taxes |
10.6 | 9.4 | (0.8 | ) | 8.6 | 2.0 | 23 | % | ||||||||||||||||
General and administrative |
19.8 | 16.2 | — | 16.2 | 3.6 | 22 | % | |||||||||||||||||
Depreciation and amortization |
26.6 | 25.9 | (2.6 | ) | 23.3 | 3.3 | 14 | % | ||||||||||||||||
Total operating expenses |
$ | 72.7 | $ | 67.6 | $ | (6.8 | ) | $ | 60.8 | $ | 11.9 | 20 | % | |||||||||||
The increase in property operating expenses was primarily the result of the recovery of
approximately $0.5 million related to the settlement of our insurance claim in connection with the
flood damage incurred at the Mark Plaza in 2005, increased property operating expenses related to
the 2005/2006 Acquisitions and higher bad debt expense in 2006. These increases were offset by
lower snow removal costs during 2006.
The increase in real estate taxes was due to general increases in real estate taxes experienced
across the portfolio, as well as increased real estate tax expense related to the 2005/2006
Acquisitions.
The increase in general and administrative expense was primarily attributable to increased
compensation expense of $2.7 million, including stock-based compensation of $0.9 million, and $0.9
million of other overhead expenses following the expansion of our infrastructure related to
increased investment in development-intensive projects in Fund assets and asset management
services.
Depreciation expense increased $1.4 million in 2006. This was principally a result of increased
depreciation expense related to the 2005/2006 Acquisitions. Amortization expense increased $1.9
million, which was primarily the combination of an increase in amortization related to the
2005/2006 Acquisitions, specifically, amortization of tenant installation costs of $1.0 million,
amortization of leasehold interest of $0.5 million and amortization of loan costs of $0.2 million.
In addition, amortization expense increased $0.2 million related to the write off of certain Klaff
management contracts following the disposition of these assets in 2006.
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| Change from 2005 | ||||||||||||||||||||||||
| 2005 As | Brandywine | 2005 | Adjusted | |||||||||||||||||||||
| (dollars in millions) | 2006 | Reported | Portfolio | Adjusted | $ | % | ||||||||||||||||||
Other: |
||||||||||||||||||||||||
Equity in earnings
of unconsolidated
affiliates |
$ | 2.6 | $ | 21.3 | $ | 0.9 | $ | 22.2 | $ | (19.6 | ) | (88 | )% | |||||||||||
Interest expense |
(22.5 | ) | (18.8 | ) | 3.7 | (15.1 | ) | (7.4 | ) | (49 | )% | |||||||||||||
Minority interest |
5.2 | (14.0 | ) | 5.1 | (8.9 | ) | 14.1 | 158 | % | |||||||||||||||
Income taxes |
0.5 | (2.1 | ) | — | (2.1 | ) | 2.6 | 124 | % | |||||||||||||||
Income from
discontinued
operations |
23.2 | 1.0 | — | 1.0 | 22.2 | (2220 | )% | |||||||||||||||||
Equity in earnings of unconsolidated affiliates decreased during 2006 primarily as a result of the
gains recognized from the sale of Mervyns assets in 2005.
Interest expense increased $7.4 million as a result of higher average outstanding borrowings in
2006.
Minority interest variance is attributable to the minority partner’s share of gains from the sale
of Mervyns assets in 2005.
The variance in income tax expense relates to taxes at the taxable REIT subsidiary (“TRS”) level on
our share of gains from the sale of Mervyns locations during 2005.
Income from discontinued operations represents activity related to properties sold in 2006 and
2005.
Comparison of the year ended December 31, 2005 (“2005”) to the year ended December 31, 2004
(“2004”)
| Change | ||||||||||||||||
| (dollars in millions) | 2005 | 2004 | $ | % | ||||||||||||
Revenues: |
||||||||||||||||
Minimum rents |
$ | 75.4 | $ | 68.9 | $ | 6.5 | 9 | % | ||||||||
Percentage rents |
1.3 | 1.3 | — | — | ||||||||||||
Expense
reimbursements |
14.9 | 13.3 | 1.6 | 12 | % | |||||||||||
Other property income |
2.3 | 0.8 | 1.5 | 188 | % | |||||||||||
Management fee income |
3.6 | 1.3 | 2.3 | 177 | % | |||||||||||
Interest income |
3.3 | 1.3 | 2.0 | 154 | % | |||||||||||
Other |
— | 0.2 | (0.2 | ) | (100 | )% | ||||||||||
Total revenues |
$ | 100.8 | $ | 87.1 | $ | 13.7 | 16 | % | ||||||||
Minimum rents within our Funds I and II (“Funds”) increased $4.6 million primarily a result of
minimum rents from properties we acquired through the Funds during 2004 and 2005 (“2004/2005 Fund
Acquisitions”) as discussed in “LIQUIDITY AND CAPITAL RESOURCES” in Item 7 of this Form 10K. $1.9
million of the increase in minimum rents was attributable to additional rents following our
purchase of Amboy Road shopping center in July 2005, re-tenanting activities as well as increased
occupancy across the remaining balance of our portfolio.
Tenant expense reimbursements within our Funds increased $0.9 million primarily a result of our
2004/2005 Fund Acquisitions. Real estate tax reimbursements within the balance of the portfolio
increased $0.5 million primarily as a result of general increases in real estate taxes as well as
re-tenanting activities. CAM expense reimbursements within the balance of our portfolio increased
$0.5 million as a result of increased tenant reimbursements of higher snow removal costs in 2005.
Management fee income increased primarily as a result of management fees earned related to our
acquisition of certain management contract rights from Klaff in January 2004 and February 2005.
The increase in interest income was a combination of additional interest income earned on our notes
receivable originated in 2004 and 2005 and additional interest income earned following our
preferred equity investment in Levitz SL in 2005.
| Change | ||||||||||||||||
| (dollars in millions) | 2005 | 2004 | $ | % | ||||||||||||
Operating Expenses: |
||||||||||||||||
Property operating |
$ | 16.1 | $ | 17.0 | $ | (0.9 | ) | (5 | )% | |||||||
Real estate taxes |
9.4 | 8.2 | 1.2 | 15 | % | |||||||||||
General and administrative |
16.1 | 10.9 | 5.2 | 48 | % | |||||||||||
Depreciation and
amortization |
25.9 | 22.8 | 3.1 | 14 | % | |||||||||||
Total operating expenses |
$ | 67.5 | $ | 58.9 | $ | 8.6 | 15 | % | ||||||||
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Property operating expenses within our Funds decreased $0.6 million primarily as a result of the
reduction in the allowance for doubtful accounts as a result of the recovery of amounts due from
Penn Traffic following its bankruptcy and the partial recovery of previous years CAM billings
previously disputed by tenants. The decrease in property operating expenses within our remaining
portfolio was primarily a result of our recovery of $0.5 million in 2005 related to the settlement
of our insurance claim in connection with the flood damage incurred at Mark Plaza. A non-recurring
charge of approximately $0.7 million related to this flood damage was recorded in 2004. This
decrease was partially offset by higher snow removal costs in 2005.
Real estate taxes increased $0.8 million within our Funds primarily as a result of our 2004/2005
Fund Acquisitions. General increases in real estate taxes due to increases in assessments and tax
rates were also experienced across our remaining portfolio.
The increase in general and administrative expense was attributable to increased compensation
expense and other overhead expenses following the expansion of our infrastructure related to
increased investment activity in fund assets and asset management services.
The $1.9 million increase in depreciation and amortization expense in 2005 within our Funds was
primarily attributable to our 2004/2005 Fund Acquisitions. Within the balance of our portfolio,
depreciation expense increased $0.3 million primarily related to capitalized tenant installation
costs in 2004 and 2005. Amortization expense increased primarily as a result of the write-off of
acquisition costs totaling $0.5 million allocable to specific Klaff management contracts following
the disposition of the related assets.
| Change | ||||||||||||||||
| (dollars in millions) | 2005 | 2004 | $ | % | ||||||||||||
Other: |
||||||||||||||||
Equity in earnings of unconsolidated
partnerships |
$ | 21.3 | $ | 0.5 | $ | 20.8 | 4160 | % | ||||||||
Interest Expense |
(18.8 | ) | (16.7 | ) | (2.1 | ) | (13 | )% | ||||||||
Gain on Sale |
— | 0.9 | (0.9 | ) | (100 | )% | ||||||||||
Minority Interest |
(14.0 | ) | (1.4 | ) | (12.6 | ) | (900 | )% | ||||||||
Income Taxes |
(2.1 | ) | — | (2.1 | ) | — | ||||||||||
Income from discontinued operations |
1.0 | 8.1 | (7.1 | ) | (88 | )% | ||||||||||
Equity in earnings of unconsolidated partnerships increased primarily as a result of our share of
gain from the sale of certain Mervyn’s locations.
The increase in interest expense was primarily attributable to our Fund Acquisitions and higher
average interest rates on the portfolio mortgage debt in 2005.
The gain on sale of land in 2004 was related to a prior year sale of a contract to purchase land to
the Target Corporation. We received additional sales proceeds of $0.9 million which were being held
in escrow pending the completion of certain site work by the buyer. Of these proceeds, $0.5 million
were distributed to our joint venture partner in the sale and are a component of minority interest
in the accompanying financial statements.
Income taxes in 2005 relate to our share of the income taxes on gain from the sale of certain
Mervyn’s locations during the third and fourth quarters of 2005.
Income (loss) from discontinued operations represents activity related to properties sold during
2004 and 2005 as well as property held for sale subsequent to 2005.
RECONCILIATION OF NET INCOME TO FUNDS FROM OPERATIONS
| For the Years Ended December 31, | ||||||||||||||||||||
| 2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
Net income |
$ | 39,013 | $ | 20,626 | $ | 19,585 | $ | 7,853 | $ | 19,399 | ||||||||||
Depreciation of real estate and amortization of leasing
costs: |
||||||||||||||||||||
Consolidated affiliates, net of minority interests’ share |
20,206 | 16,676 | 16,026 | 18,421 | 15,335 | |||||||||||||||
Unconsolidated affiliates |
1,806 | 746 | 714 | 643 | 632 | |||||||||||||||
Income attributable to minority interest in operating
partnership (1) |
803 | 416 | 375 | 747 | 2,928 | |||||||||||||||
Gain on sale of properties |
(21,875 | ) | (2,622 | ) | (6,696 | ) | — | (8,132 | ) | |||||||||||
Funds from operations |
$ | 39,953 | $ | 35,842 | $ | 30,004 | $ | 27,664 | $ | 30,162 | ||||||||||
| Notes: | ||
| (1) | Represents income attributable to Common Operating Partnership Units and does not include distributions paid to Series A and B Preferred OP Unitholders. |
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LIQUIDITY AND CAPITAL RESOURCES
USES OF LIQUIDITY
Our principal uses of liquidity are expected to be for distributions to our shareholders and OP
unit holders, debt service and loan repayments, and property investment which include the funding
of our joint venture commitments, acquisition, redevelopment, expansion and re-tenanting
activities.
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 first three quarters during 2006, we
paid a quarterly dividend of $0.185 per Common Share and Common OP Unit. In December of 2006, our
Board of Trustees approved and declared an 8.1% increase in our quarterly dividend to $0.20 per
Common Share and Common OP Unit for the fourth quarter of 2006, which was paid January 16, 2007.
Acadia Strategic Opportunity Fund, LP (“Fund I”)
In September 2001, the Operating Partnership committed $20.0 million to a newly formed joint
venture with four of our institutional shareholders, who committed $70.0 million, for the purpose
of acquiring a total of approximately $300.0 million of community and neighborhood shopping centers
on a leveraged basis.
On January 4, 2006, we recapitalized a one million square foot retail portfolio located in
Wilmington, Delaware (“Brandywine Portfolio”) through a merger of interests with affiliates of GDC
Properties (“GDC”). The Brandywine Portfolio was recapitalized through a “cash out” merger of the
77.8% interest, which was previously held by the institutional investors in Fund I (the
“Investors”) to affiliates of GDC at a valuation of $164.0 million. The Operating Partnership,
through a subsidiary, retained our existing 22.2% interest and continue to operate the Brandywine
Portfolio and earn fees for such services. At the closing, the Investors, excluding the Operating
Partnership, received a return of all their capital invested in Fund I and preferred return, thus
triggering the Operating Partnership’s Promote distribution in all future Fund I distributions and
increasing the Operating Partnership’s interest in cash flow and income from 22.2% to 37.8% as a
result of the Promote. In June 2006, the Investors received $36.0 million of additional proceeds
from this transaction following the replacement of bridge financing provided by them with permanent
mortgage financing
As of December 31, 2006, we have a total of 32 properties totaling 2.0 million square feet as
further discussed in “PROPERTY ACQUISITIONS” in Item 1 of this Form 10-K.
Acadia Strategic Opportunity Fund II, LLC (“Fund II”)
On June 15, 2004, we closed our second acquisition fund, Fund II, which includes all of the
investors from Fund I as well as two additional institutional investors. With $300.0 million of
committed discretionary capital, Fund II expects to be able to acquire up to $900.0 million of real
estate assets on a leveraged basis. The Operating Partnership is the managing member with a 20%
interest in the joint venture. The terms and structure of Fund II are substantially the same as
Fund I with the exceptions that the preferred return is 8%. As of December 31, 2006, $122.6 million
has been contributed to Fund II, of which the Operating Partnership’s share is $24.5 million.
Fund II has invested in the RCP Venture and the New York Urban/Infill Redevelopment initiatives and
other investments as further discussed in “PROPERTY ACQUISITIONS” in Item 1 of Form 10-K .
New York Urban/ Infill Redevelopment Initiative
In September 2004, we, through Fund II, launched our New York Urban Infill Redevelopment
initiative. As retailers continue to recognize that many of the nation’s urban markets are
underserved from a retail standpoint, Fund II’s intent is to capitalize on this trend by investing
in redevelopment projects in dense urban areas where retail tenant demand has effectively surpassed
the supply of available sites. During 2004, Fund II, together with an unaffiliated partner, P/A,
formed Acadia-P/A for the purpose of acquiring, constructing, developing, owning, operating,
leasing and managing certain retail real estate properties in the New York City metropolitan area.
P/A has agreed to invest 10% of required capital up to a maximum of $2.2 million and Fund II, the
managing member, has agreed to invest the balance to acquire assets in which Acadia-P/A agrees to
invest. Operating cash flow is generally to be distributed pro-rata to Fund II and P/A until each
has received a 10% cumulative return and then 60% to Fund II and 40% to P/A. Distributions of net
refinancing and net sales proceeds, as defined, follow the distribution of operating cash flow
except that unpaid original capital is returned before the 60%/40% split between Fund II and P/A,
respectively. Upon the liquidation of the last property investment of Acadia-P/A, to the extent
that Fund II has not received an 18% internal rate of return (“IRR”) on all of its capital
contributions, P/A is obligated to return a portion of its previous distributions, as defined,
until Fund II has received an 18% IRR. To date, Fund II has, in conjunction with P/A, invested in
seven projects through Fund II as follows:
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| Redevelopment (dollars in millions) | ||||||||||||||||||||||||
| Anticipated | Square | |||||||||||||||||||||||
| Year | Purchase | additional | Estimated | feet upon | ||||||||||||||||||||
| Property | Location | acquired | price | costs | completion | completion | ||||||||||||||||||
Liberty Avenue (1) |
Queens | 2005 | $ | — | $ | 15.0 | 1st half 2007 | 125,000 | ||||||||||||||||
216th Street |
Manhattan | 2005 | 7.0 | 18.0 | 2nd half 2007 | 60,000 | ||||||||||||||||||
Pelham Manor Shopping Center (1) |
Westchester | 2004 | — | 40.0 | 2nd half 2008 | 320,000 | ||||||||||||||||||
161st Street |
Bronx | 2005 | 49.0 | 16.0 | 2nd half 2008 | 232,000 | ||||||||||||||||||
400 East Fordham Road |
Bronx | 2004 | 30.0 | 85.0 | 1st half 2009 | 276,000 | ||||||||||||||||||
Canarsie Plaza (2) |
Brooklyn | 2007 | — | 60.0 | 1st half 2009 | 323,000 | ||||||||||||||||||
4650 Broadway |
Manhattan | 2005 | 25.0 | 30.0 | 2nd half 2009 | 175,000 | ||||||||||||||||||
Total |
$ | 111.0 | $ | 264.0 | 1,511,000 | |||||||||||||||||||
| Notes: | ||
| (1) | Fund II acquired a leasehold interest at this property. | |
| (2) | Closing is anticipated in 2007, although such closing cannot be assured. |
Other Investments
During 2005 and 2006, we made the following other investments as further discussed in “PROPERTY
ACQUISITIONS” in Item 1 of this Form 10-K:
(i) $16.8 million in Amboy Road
(ii) $4.0 million for Klaff’s management rights
(iii) $9.8 million for Clark/Diversey
(iv) $3.2 million for Boonton Shopping Center
(v) $16.0 million for Chestnut Hill and
(vi) $18.5 million for 2914 Third Avenue.
(ii) $4.0 million for Klaff’s management rights
(iii) $9.8 million for Clark/Diversey
(iv) $3.2 million for Boonton Shopping Center
(v) $16.0 million for Chestnut Hill and
(vi) $18.5 million for 2914 Third Avenue.
Property Development, Redevelopment and Expansion
Our redevelopment program focuses on selecting well-located neighborhood and community shopping
centers and creating significant value through re-tenanting and property redevelopment.
During 2006, the Company commenced the redevelopment and re-tenanting of the Bloomfield Town
Square, located in Bloomfield Hills, Michigan. A former outparcel building, occupied by Chrysler
Dodge, was demolished and replaced with a 17,500 square foot building occupied by Drexel Heritage
and Panera Bread. The new tenants opened and commenced paying rent during the third and fourth
quarters of 2006, and are paying base rent at a 127% increase over that of Chrysler Dodge. In
addition, the Company has re-tenanted approximately 26,000 square feet to Circuit City which is
anticipated to open and commence paying rent in the fourth quarter of 2007 at a 79% increase over
that of the former tenants. Total costs for this project are anticipated to be $3.3 million.
Additionally, for the year ending December 31, 2007, we currently estimate that capital outlays of
approximately $4.8 million to $6.5 million will be required for tenant improvements, related
renovations and other property improvements.
Share Repurchase
Repurchases of our Common Shares is an additional use of liquidity as discussed in Item 5 of this
Form 10-K.
SOURCES OF LIQUIDITY
We intend on using Fund II as the primary vehicle for our future acquisitions, including
investments in the RCP Venture and New York Urban/Infill Redevelopment initiative. Sources of
capital for funding property acquisitions, redevelopment, expansion and re-tenanting, as well as
future repurchases of Common Shares are expected to be obtained primarily from issuance of public
equity or debt instruments, cash on hand, additional debt financings, unrelated member capital
contributions and future sales of existing properties. As of December 31, 2006, we had a total of
approximately $162.2 million of additional capacity under existing debt facilities, cash and cash
equivalents on hand of $139.6 million, and eight properties that are unencumbered and available as
potential collateral for future borrowings. In addition, on February 26, 2007, we through our RCP
Venture, received a cash distribution totaling approximately $42.5 million from our ownership
position in Albertsons. The Operating Partnership’s share of this distribution amounted to
approximately $8.5 million and is subject to income tax considerations. The distribution resulted
from
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cash proceeds obtained by Albertsons in connection with its disposition of certain operating
stores and a refinancing of the remaining assets held in the entity. We anticipate that cash flow
from operating activities will continue to provide adequate capital for all of our debt service
payments, recurring capital expenditures and REIT distribution requirements.
Issuance of Convertible Notes
In December 2006, we issued $100.0 million of 3.75% Convertible Notes. These Notes were issued at
par and are due in 2026. In January 2007, an option was exercised to issue an additional $15.0
million of Convertible Notes. The $112.1 million in proceeds, net of related costs, were used to
retire variable rate debt, fund capital commitments and general company purposes.
Issuance of Equity
During January 2007, we filed a shelf registration on Form S-3 providing offerings for up to a
total of $300.0 million of Common Shares, Preferred Shares and debt securities. To date, we have
not issued any securities pursuant to this shelf registration.
During November 2004, we issued 1,890,000 Common Shares (the “Offering”). The Offering was made
under shelf registration statements filed under the Securities Act of 1933, as amended, and
previously declared effective by the Securities and Exchange Commission. The $28.3 million in
proceeds from the Offering, net of related costs, were used to retire above-market, fixed-rate
indebtedness as well as to invest in real estate assets. Following this transaction, we have $46.7
million of remaining capacity to issue equity under our primary shelf registration statement.
Financing and Debt
At December 31, 2006, mortgage and convertible notes payable aggregated $445.2 million, net of
unamortized premium of $2.2 million, and were collateralized by 52 properties and related tenant
leases. Interest rates on our outstanding indebtedness ranged from 3.75% to 8.5% with maturities
that ranged from July 2007 to November 2032. Taking into consideration $16.0 million of notional
principal under variable to fixed-rate swap agreements currently in effect, $351.0 million of the
portfolio, or 79%, was fixed at a 5.2% weighted average interest rate and $94.2 million, or 21% was
floating at a 6.7% weighted average interest rate. There is $54.9 million of debt maturing in 2007
at weighted average interest rates of 6.3%. We intend to refinance the indebtedness or select
other alternatives based on market conditions at that time.
Reference is made to Note 6 and Note 7 in the Notes to Consolidated Financial Statements that begin
on page F-9 of this Form 10-K for a summary of the financing and refinancing transactions since
December 31, 2005.
Asset Sales
Asset sales are an additional source of liquidity for us. During the fourth quarter of 2006, we
sold the Soundview Marketplace, Bradford Towne Center, Greenridge Plaza, Luzerne Street Shopping
Center and Pittston Plaza. During 2005 and 2004, we sold the Berlin Shopping Center and East End
Centre. These sales are discussed in “ASSET SALES AND CAPITAL/ASSET RECYCLING” in Item 1 of this
Form 10-K.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
At December 31, 2006, maturities on our mortgage notes ranged from July 2007 to November 2032. In
addition, we have non-cancelable ground leases at seven of our shopping centers. We lease space for
its White Plains corporate office for a term expiring in 2010. The following table summarizes our
debt maturities and obligations under non-cancelable operating leases of December 31, 2006:
| Payments due by period | ||||||||||||||||||||
| Less than | 1 to 3 | 3 to 5 | More than | |||||||||||||||||
| (amounts in millions) | Total | 1 year | years | years | 5 years | |||||||||||||||
Contractual obligation |
||||||||||||||||||||
Future debt maturities |
$ | 445.2 | $ | 60.0 | $ | 57.1 | $ | 154.3 | $ | 173.8 | ||||||||||
Interest obligations on debt |
137.6 | 24.0 | 37.9 | 32.8 | 42.9 | |||||||||||||||
Operating lease obligations |
120.8 | 3.6 | 7.6 | 8.6 | 101.0 | |||||||||||||||
Total |
$ | 703.6 | $ | 87.6 | $ | 102.6 | $ | 195.7 | $ | 317.7 | ||||||||||
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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 we have a
non-controlling interest. As such, our financial statements reflect our share of income from but
not the assets and liabilities of these joint ventures.
| – | We own a 49% interest in two partnerships which own the Crossroads Shopping Center (“Crossroads”). Our pro rata share of Crossroads mortgage debt as of December 31, 2006 was $31.4 million. This fixed-rate debt bears interest at 5.4% and matures in December 2014. | ||
| – | We own a 22.2% investment in various entities which own the Brandywine Portfolio. Our pro-rata share of Brandywine debt as of December 31, 2006, was $36.9 million with a fixed interest rate of 5.99%. These loans mature on July 1, 2016. | ||
| – | We have 50% interests in two Fund I investments of which our pro-rata share of mortgage debt (net of the Fund I minority interest share) as of December 31, 2006, was $2.6 million with a weighted average interest rate of 6.97%. Both of these loans mature during August 2010. |
In addition, we have arranged for the provision of five separate letters of credit in connection
with certain leases and investments. As of December 31, 2006, there was no balance outstanding
under any of the letters of credit. If the letters of credit were fully drawn, the combined maximum
amount of exposure would be approximately $3.1 million.
HISTORICAL CASH FLOW
The following discussion of historical cash flow compares our cash flow for the year ended December
31, 2006 with our cash flow for the year ended December 31, 2005.
Cash and cash equivalents were $139.6 million and $90.5 million at December 31, 2006 and 2005,
respectively. The increase of $49.1 million was a result of the following increases and decreases
in cash flows:
| Years Ended December 31, | ||||||||||||
| (amounts in millions) | 2006 | 2005 | Variance | |||||||||
Net cash provided by operating activities |
$ | 39.6 | $ | 50.2 | $ | (10.6 | ) | |||||
Net cash used in investing activities |
(58.9 | ) | (135.5 | ) | 76.6 | |||||||
Net cash provided by financing activities |
68.4 | 159.4 | (91.0 | ) | ||||||||
Totals |
$ | 49.1 | $ | 74.1 | $ | (25.0 | ) | |||||
The variance in net cash provided by operating activities resulted from a decrease of $22.0 million
in operating income before non-cash expenses in 2006, which was primarily due to $20.9 million of
distributions of operating income from unconsolidated affiliates as a result of the distributions
from Mervyns in 2005, as well as those factors discussed within Item 2, Management’s Discussion and
Analysis of Financial Condition and Results of Operations. In addition, a net increase of $11.4
million resulted from changes in operating assets and liabilities, primarily rents receivable,
prepaid expenses and other assets.
The decrease in net cash used in investing activities was primarily the result of a $44.1 million
decrease in cash used for real estate acquisitions, development and tenant installations, $34.5
million of additional proceeds from the sale of properties in 2006, a net decrease of $28.1 million
related to the 2005 Levitz preferred equity investment (Note 4) and the 2006 Levitz note receivable
(Note 4) activity and $5.6 million of additional return of capital from unconsolidated affiliates
in 2006. These net decreases were offset by $26.2 million of additional investments in
unconsolidated partnerships, primarily the Albertsons investment in 2006 and $8.1 million of
additional notes issued in 2006.
The decrease in net cash provided by financing activities resulted primarily from $148.2 million of
additional cash used for the net repayment of debt in 2006 and $36.1 million of additional
distributions to partners and members in 2006, primarily relating to the Mervyns investment. These
net decreases were partially offset by $100.0 million of proceeds from the Convertible Debt
issuance in 2006.
37
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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. We base
our estimates on historical experience and assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about carrying value of
assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions. We believe the following critical
accounting policies affect the significant judgments and estimates used by us in the preparation of
our consolidated financial statements.
Valuation of Property Held for Use and Sale
On a quarterly basis, we review the carrying value of both properties held for use and for sale. We
record impairment losses and reduce the carrying value of properties when indicators of impairment
are present and the expected undiscounted cash flows related to those properties are less than
their carrying amounts. In cases where we do not expect to recover our carrying costs on properties
held for use, we reduce our carrying cost to fair value. For properties held for sale, we reduce
our carrying value to the fair value less costs to sell. For the year ended December 31, 2006, no
impairment loss was recognized. For the year ended December 31, 2005, an impairment loss of $0.8
million was recognized related to a property that was sold in July of 2005. Management does not
believe that the value of any properties in its portfolio was impaired as of December 31, 2006 or
2005.
Bad Debts
We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of
tenants to make payments on arrearages in billed rents, as well as the likelihood that tenants will
not have the ability to make payment on unbilled rents including estimated expense recoveries and
straight-line rent. As of December 31, 2006, we had recorded an allowance for doubtful accounts of
$3.3 million. If the financial condition of our tenants were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be required.
INFLATION
Our long-term leases contain provisions designed to mitigate the adverse impact of inflation on our
net income. Such provisions include clauses enabling us to receive percentage rents based on
tenants’ gross sales, which generally increase as prices rise, and/or, in certain cases, escalation
clauses, which generally increase rental rates during the terms of the leases. Such escalation
clauses are often related to increases in the consumer price index or similar inflation indexes. In
addition, many of our leases are for terms of less than ten years, which permits us to seek to
increase rents upon re-rental at market rates if current rents are below the then existing market
rates. Most of our leases require the tenants to pay their share of operating expenses, including
common area maintenance, real estate taxes, insurance and utilities, thereby reducing our exposure
to increases in costs and operating expenses resulting from inflation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Reference is made to the Notes to Consolidated Financial Statements included in Item 8 of this Form
10-K.
38
Table of Contents
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our primary market risk exposure is to changes in interest rates related to our mortgage debt. See
the consolidated financial statements and notes thereto included in this Annual Report on Form 10-K
for certain quantitative details related to our mortgage debt.
Currently, we manage our exposure to fluctuations in interest rates primarily through the use of
fixed-rate debt and interest rate swap agreements. As of December 31, 2006, we had total mortgage
debt of $445.2 million of which $351.0 million, or 79%, was fixed-rate, inclusive of interest rate
swaps, and $94.2 million, or 21%, was variable-rate based upon LIBOR plus certain spreads. As of
December 31, 2006, we were a party to two interest rate swap transactions to hedge our exposure to
changes in interest rates with respect to $16.0 million of LIBOR-based variable-rate debt. We also
have one forward-starting interest rate swap which commences during 2007 and matures in 2012 that
will hedge our exposure to changes in interest rates with respect to $8.4 million of refinanced
LIBOR-based variable rate debt with the matching maturities.
The following table sets forth information as of December 31, 2006 concerning our long-term debt
obligations, including principal cash flows by scheduled maturity and weighted average interest
rates of maturing amounts (amounts in millions):
Consolidated mortgage debt:
| Weighted | |||||||||||||||||
| Scheduled | average | ||||||||||||||||
| Year | amortization | Maturities | Total | interest rate | |||||||||||||
2007 |
$ | 5.2 | $ | 54.9 | $ | 60.1 | 6.3 | % | |||||||||
2008 |
9.1 | 34.9 | 44.0 | 6.7 | % | ||||||||||||
2009 |
10.6 | 2.5 | 13.1 | 7.0 | % | ||||||||||||
2010 |
3.5 | 14.7 | 18.2 | 7.6 | % | ||||||||||||
2011 |
21.3 | 114.8 | 136.1 | 4.2 | % | ||||||||||||
Thereafter |
24.8 | 148.9 | 173.7 | 5.7 | % | ||||||||||||
| $ | 74.5 | $ | 370.7 | $ | 445.2 | ||||||||||||
Mortgage debt in unconsolidated partnerships (at our pro rata share):
| Weighted | ||||||||||||||||
| Scheduled | average | |||||||||||||||
| Year | amortization | Maturities | Total | interest rate | ||||||||||||
2007 |
$ | 0.4 | $ | — | $ | 0.4 | n/a | |||||||||
2008 |
0.4 | — | 0.4 | n/a | ||||||||||||
2009 |
0.5 | — | 0.5 | n/a | ||||||||||||
2010 |
0.5 | 2.5 | 3.0 | 7.0 | % | |||||||||||
2011 |
0.5 | — | 0.5 | n/a | ||||||||||||
Thereafter |
1.7 | 64.3 | 66.0 | 5.7 | % | |||||||||||
| $ | 4.0 | $ | 66.8 | $ | 70.8 | |||||||||||
Of our total consolidated and our pro-rata share of unconsolidated outstanding debt, $54.9 million
and $34.9 million will become due in 2007 and 2008, 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 $0.9 million annually
if the interest rate on the refinanced debt increased by 100 basis points. Interest expense on our
variable debt of $94.2 million as of December 31, 2006 would increase $0.9 million if LIBOR
increased by 100 basis points. We may seek additional variable-rate financing if and when pricing
and other commercial and financial terms warrant. As such, we would consider hedging against the
interest rate risk related to such additional variable-rate debt through interest rate swaps and
protection agreements, or other means.
Based on our outstanding debt balances as of December 31, 2006, the fair value of our total
outstanding debt would decrease by approximately $16.4 million if interest rates increase by 1%.
Conversely, if interest rates decrease by 1%, the fair value of our total outstanding debt would
increase by approximately $17.7 million.
39
Table of Contents
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements beginning on page F-1 are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE:
None.
ITEM 9A. CONTROLS AND PROCEDURES.
(i) Disclosure Controls and Procedures
We conducted an evaluation, under the supervision and with the participation of management
including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were effective as of
December 31, 2006.
(ii) Internal Control Over Financial Reporting
(a) Management’s Annual Report on Internal Control Over Financial Reporting
Management of Acadia Realty Trust is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in the Securities Exchange Act of 1934
Rule 13a-15(f). Under the supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting as of December 31, 2006 as required
by the Securities Exchange Act of 1934 Rule 13a-15(c). In making this assessment, we used the
criteria set forth in the framework in Internal Control–Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the
framework in Internal Control–Integrated Framework, our management concluded that our internal
control over financial reporting was effective as of December 31, 2006.
BDO Seidman, LLP, an independent registered public accounting firm that audited our Financial
Statements included in this Annual Report, has issued an attestation report on our management’s
assessment of the effectiveness of our internal control over financial reporting as of December 31,
2006 which appears in this item 9A.
Acadia Realty Trust
White Plains, New York
March 1, 2007
March 1, 2007
40
Table of Contents
(b) Attestation report of the independent registered public accounting firm
The Shareholders and Trustees of
Acadia Realty Trust
Acadia Realty Trust
We have audited management’s assessment, included in the accompanying Management’s Report on
Internal Control Over Financial Reporting, that Acadia Realty Trust and subsidiaries maintained
effective internal control over financial reporting as of December 31, 2006, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Acadia Realty Trust and subsidiaries’
management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on management’s assessment and an opinion on the
effectiveness of the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management’s assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Acadia Realty Trust and subsidiaries maintained
effective internal control over financial reporting as of December 31, 2006, is fairly stated, in
all material respects, based on the COSO criteria. Also, in our opinion, Acadia Realty Trust
maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2006, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Acadia Realty Trust and subsidiaries as
of December 31, 2006 and 2005 and the related consolidated statements of income, shareholders’
equity, and cash flows for the years then ended December 31, 2006 and 2005 and our report dated March 1, 2007 expressed an unqualified opinion thereon.
/s/ BDO Seidman, LLP
New York, New York
March 1, 2007
March 1, 2007
(c) Changes in internal control over financial reporting.
There was no change in our internal control over financial reporting during our fourth fiscal
quarter ended December 31, 2006 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None
41
Table of Contents
PART III
ITEM 10. DIRECTORS; EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
This item is incorporated by reference from the definitive proxy statement for the 2007 Annual
Meeting of Shareholders presently scheduled to be held May 15, 2007, to be filed pursuant to
Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION.
This item is incorporated by reference from the definitive proxy statement for the 2007 Annual
Meeting of Shareholders presently scheduled to be held May 15, 2007, to be filed pursuant to
Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
This item is incorporated by reference from the definitive proxy statement for the 2007 Annual
Meeting of Shareholders presently scheduled to be held May 15, 2007, to be filed pursuant to
Regulation 14A.
The information under Item 5 under the heading “(d) Securities authorized for issuance under equity
compensation plans” is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE:
This item is incorporated by reference from the definitive proxy statement for the 2007 Annual
Meeting of Shareholders presently scheduled to be held May 15, 2007, to be filed pursuant to
Regulation 14A.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
This item is incorporated by reference from the definitive proxy statement for the 2007 Annual
Meeting of Shareholders presently scheduled to be held May 15, 2007, to be filed pursuant to
Regulation 14A.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
1. Financial Statements: See “Index to Financial Statements” at page F-1 below.
2. Financial Statement Schedule: See “Schedule III—Real Estate and Accumulated Depreciation” at
page F-41 below.
3. Exhibits:
42
Table of Contents
| Exhibit No. | Description | |
3.1
|
Declaration of Trust of the Company, as amended (1) | |
3.2
|
Fourth Amendment to Declaration of Trust (4) | |
3.3
|
Amended and Restated By-Laws of the Company (22) | |
4.1
|
Voting Trust Agreement between the Company and Yale University dated February 27, 2002 (14) | |
10.1
|
1999 Share Option Plan (8) (20) | |
10.2
|
2003 Share Option Plan (16) (20) | |
10.3
|
Form of Share Award Agreement (17) (21) | |
10.4
|
Form of Registration Rights Agreement and Lock-Up Agreement (18) | |
10.5
|
Registration Rights and Lock-Up Agreement (RD Capital Transaction) (11) | |
10.6
|
Registration Rights and Lock-Up Agreement (Pacesetter Transaction) (11) | |
10.7
|
Contribution and Share Purchase Agreement dated as of April 15, 1998 among Mark Centers Trust, Mark Centers Limited Partnership, the Contributing Owners and Contributing Entities named therein, RD Properties, L.P. VI, RD Properties, L.P. VIA and RD Properties, L.P. VIB (9) | |
10.8
|
Agreement of Contribution among Acadia Realty Limited Partnership, Acadia Realty Trust and Klaff Realty, LP and Klaff Realty, Limited (18) | |
10.9
|
Employment agreement between the Company and Kenneth F. Bernstein dated October 1998 (6) (21) | |
10.11
|
Amendment to employment agreement between the Company and Kenneth F. Bernstein dated January 19, 2007 (26) (21) | |
10.12
|
First Amendment to Employment Agreement between the Company and Kenneth Bernstein dated as of January 1, 2001 (12) (21) | |
10.14
|
Letter of employment offer between the Company and Michael Nelsen, Sr. Vice President and Chief Financial Officer dated February 19, 2003 (15) (21) | |
10.15
|
Severance Agreement between the Company and Joel Braun, Sr. Vice President, dated April 6, 2001 (13) (21) | |
10.16
|
Severance Agreement between the Company and Joseph Hogan, Sr. Vice President, dated April 6, 2001 (13) (21) | |
10.17
|
Severance Agreement between the Company and Joseph Napolitano, Sr. Vice President dated April 6, 2001 (18) (21) | |
10.18
|
Severance Agreement between the Company and Robert Masters, Sr. Vice President and General Counsel dated January 2001 (18) (21) | |
10.19
|
Severance Agreement between the Company and Michael Nelsen, Sr. Vice President and Chief Financial Officer dated February 19, 2003 (15) (21) | |
10.20
|
Secured Promissory Note between RD Absecon Associates, L.P. and Fleet Bank, N.A. dated February 8, 2000 (7) | |
10.21
|
Promissory Note between 239 Greenwich Associates, L.P. and Greenwich Capital Financial Products, Inc. dated May 30, 2003 (18) | |
10.22
|
Open-End Mortgage, Assignment of Leases and Rents, and Security Agreement between 239 Greenwich Associates, L.P. and Greenwich Capital Financial Products, Inc. dated May 30, 2003 (18) | |
10.23
|
Promissory Note between Merrillville Realty, L.P. and Sun America Life Insurance Company dated July 7, 1999 (7) | |
10.24
|
Secured Promissory Note between Acadia Town Line, LLC and Fleet Bank, N.A. dated March 21, 1999 (7) | |
10.25
|
Promissory Note between RD Village Associates Limited Partnership and Sun America Life Insurance Company Dated September 21, 1999 (7) | |
10.26
|
First Amendment to Severance Agreements between the Company and Joel Braun Executive Vice President and Chief Investment Officer, Michael Nelsen, Senior Vice President and Chief Financial Officer, Robert Masters, Senior Vice President, General Counsel, Chief Compliance Officer and Secretary and Joseph Hogan, Senior Vice President and Director of Construction dated January 19, 2007 (21) (26) | |
10.33
|
Term Loan Agreement between Acadia Realty L.P. and The Dime Savings Bank of New York, dated March 30, 2000 (10) | |
10.34
|
Mortgage Agreement between Acadia Realty L.P. and The Dime Savings Bank of New York, dated March 30, 2000 (10) | |
10.35
|
Promissory Note between RD Whitegate Associates, L.P. and Bank of America, N.A. dated December 22, 2000 (10) | |
10.36
|
Promissory Note between RD Columbia Associates, L.P. and Bank of America, N.A. dated December 22, 2000 (10) | |
10.44
|
Prospectus Supplement Regarding Options Issued under the Acadia Realty Trust 1999 Share Incentive Plan and 2003 Share Incentive Plan (19) (21) | |
10.45
|
Acadia Realty Trust 1999 Share Incentive Plan and 2003 Share Incentive Plan Deferral and Distribution Election Form (19) (21) | |
10.46
|
Amended, Restated And Consolidated Promissory Note between Acadia New Loudon, LLC and Greenwich Capital Financial Products, Inc. dated August 13, 2004 (19) |
Table of Contents
| Exhibit No. | Description | |
10.47
|
Amended, Restated And Consolidated Mortgage, Assignment Of Leases And Rents And Security Agreement between Acadia New Loudon, LLC and Greenwich Capital Financial Products, Inc. dated August 13, 2004 (19) | |
10.51
|
Mortgage, Assignment of Leases and Rents and Security Agreement between Acadia Crescent Plaza, LLC and Greenwich Capital Financial Products, Inc. dated August 31, 2005 (22) | |
10.52
|
Mortgage, Assignment of Leases and Rents and Security Agreement between Pacesetter/Ramapo Associates and Greenwich Capital Financial Products, Inc. dated October 17, 2005 (22) | |
10.53
|
Loan Agreement between RD Elmwood Associates, L.P. and Bear Stearns Commercial Finance Mortgage, Inc. dated December 9, 2005 (22) | |
10.54
|
Mortgage and Security Agreement between RD Elmwood Associates, L.P. and Bear Stearns Commercial Finance Mortgage, Inc. dated December 9, 2005 (22) | |
10.55
|
Agreement and Plan Of Merger Dated as of December 22, 2005 by and among Acadia Realty Acquisition I, LLC, Ara Btc LLC, ARA MS LLC, ARA BS LLC, ARA BC LLC and ARA BH LLC, Acadia Investors, Inc., AII BTC LLC, AII MS LLC, AII BS LLC, AII BC LLC And AII BH LLC, Samuel Ginsburg 2000 Trust Agreement #1, Martin Ginsburg 2000 Trust Agreement #1, Martin Ginsburg, Samuel Ginsburg and Adam Ginsburg, and GDC SMG, LLC, GDC Beechwood, LLC, Aspen Cove Apartments, LLC and SMG Celebration, LLC (23) | |
10.56
|
Amended and Restated Loan Agreement between Acadia Realty Limited Partnership, as lender, and Levitz SL Woodbridge, L.L.C., Levitz SL St. Paul, L.L.C., Levitz SL La Puente, L.L.C., Levitz SL Oxnard, L.L.C., Levitz SL Willowbrook, L.L.C., Levitz SL Northridge, L.L.C., Levitz SL San Leandro, L.L.C., Levitz SL Sacramento, L.L.C., HL Brea, L.L.C., HL Deptford, L.L.C., HL Hayward, L.L.C., HL San Jose, L.L.C., HL Scottsdale, L.L.C., HL Torrance, L.L.C., HL Irvine 1, L.L.C., HL West Covina, L.L.C., HL Glendale, L.L.C. and HL Northridge, L.L.C., each a Delaware limited liability company, Levitz SL Langhorne, L.P. and HL Fairless Hills, L.P., each a Delaware limited partnership (each, together with its permitted successors and assigns, a “Borrower” , and collectively, together with their respective permitted successors and assigns, “ Borrowers ”), dated June 1, 2006 (24) | |
10.57
|
Consent and Assumption Agreement between Thor Chestnut Hill, LP, Thor Chestnut Hill II, LP, Acadia Chestnut, LLC, Acadia Realty Limited Partnership and Wells Fargo Bank, N.A. dated June 9, 2006, original Mortgage and Security Agreement between Thor Chestnut Hill, LP and Thor Chestnut Hill II, LP and Column Financial, Inc. dated June 5, 2003 and original Assignment of Leases and Rents from Thor Chestnut Hill, LP and Thor Chestnut Hill II, LP to Column Financial, Inc. dated June 2003. (24) | |
10.58
|
Loan Agreement and Promissory Note between RD Woonsocket Associates, L.P. and Merrill Lynch Mortgage Lending, Inc. dated September 8, 2006 (25) | |
10.59
|
Amended and Restated Revolving Loan Agreement dated as of December 19, 2006 by and among RD Abington Associates LP, Acadia Town Line, LLC, RD Methuen Associates LP, RD Absecon Associates, LP, RD Bloomfield Associates, LP, RD Hobson Associates, LP, and RD Village Associates LP, and Bank of America, N.A. and the First Amendment to Amended and Restated Revolving Loan Agreement dated February, 2007. (26) | |
10.60
|
Loan Agreement between Bank of America, N.A. and RD Branch Associates, LP dated December 19, 2006. (26) | |
21
|
List of Subsidiaries of Acadia Realty Trust (27) | |
23.1
|
Consent of Registered Public Accounting Firm to Form S-3 and Form S-8 (27) | |
23.2
|
Consent of former Registered Public Accounting Firm to Form S-3 and Form S-8 (27) | |
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 (26) | |
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 (26) | |
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 (26) | |
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 (26) | |
99.1
|
Amended and Restated Agreement of Limited Partnership of the Operating Partnership (11) | |
99.2
|
First and Second Amendments to the Amended and Restated Agreement of Limited Partnership of the Operating Partnership (11) | |
99.3
|
Third Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership (18) | |
99.4
|
Fourth Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership (18) | |
99.5
|
Certificate of Designation of Series A Preferred Operating Partnership Units of Limited Partnership Interest of Acadia Realty Limited Partnership (2) | |
99.6
|
Certificate of Designation of Series B Preferred Operating Partnership Units of Limited Partnership Interest of Acadia Realty Limited Partnership (18) |
Table of Contents
| Notes: | ||
| (1) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal Year ended December 31, 1994 | |
| (2) | Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended June 30, 1997 | |
| (3) | Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 1998 | |
| (4) | Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 1998 | |
| (5) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Registration Statement on Form S-11 (File No.33-60008) | |
| (6) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form10-K filed for the fiscal year ended December 31, 1998 | |
| (7) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form10-K filed for the fiscal year ended December 31, 1999 | |
| (8) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Registration Statement on Form S-8 filed September 28, 1999 | |
| (9) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Form 8-K filed on April 20, 1998 | |
| (10) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Form 10-K filed for the fiscal year ended December 31, 2000 | |
| (11) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Registration Statement on Form S-3 filed on March 3, 2000 | |
| (12) | Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 2001 | |
| (13) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2001 | |
| (14) | Incorporated by reference to the copy thereof filed as an Exhibit to Yale University’s Schedule 13D filed on September 25, 2002 | |
| (15) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2002 | |
| (16) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Definitive Proxy Statement on Schedule 14A filed April 29, 2003. | |
| (17) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Current Report on Form 8-K filed on July 2, 2003 | |
| (18) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2003 | |
| (19) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2004. | |
| (20) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2004. | |
| (21) | Management contract or compensatory plan or arrangement. | |
| (22) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2005. | |
| (23) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Current Report on Form 8-K filed on January 4, 2006 | |
| (24) | Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended June 30, 2006 | |
| (25) | Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 2006 | |
| (26) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Current Report on Form 8-K filed on January 19, 2007 | |
| (27) | Filed herewith. |
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly
authorized.
| ACADIA REALTY TRUST | ||||||
| (Registrant) | ||||||
| By: | /s/ Kenneth F. Bernstein | |||||
| Kenneth F. Bernstein | ||||||
| Chief Executive Officer, | ||||||
| President and Trustee | ||||||
| By: | /s/ Michael Nelsen | |||||
| Michael Nelsen | ||||||
| Sr. Vice President and | ||||||
| Chief Financial Officer | ||||||
| By: | /s/ Jonathan W. Grisham | |||||
| Jonathan W. Grisham | ||||||
| Vice President and | ||||||
| Chief Accounting Officer |
Dated: March 1, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
| Signature | Title | Date | ||
/s/ Kenneth F. Bernstein (Kenneth F. Bernstein) |
Chief Executive Officer, President and Trustee (Principal Executive Officer) |
March 1, 2007 | ||
/s/ Michael Nelsen (Michael Nelsen) |
Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
March 1, 2007 | ||
/s/ Jonathan W. Grisham (Jonathan W. Grisham) |
Vice President and Chief Accounting Officer (Principal Accounting Officer) |
March 1, 2007 | ||
/s/ Douglas Crocker II Douglas Crocker II |
Trustee | March 1, 2007 | ||
/s/ Alan S. Forman (Alan S. Forman) |
Trustee | March 1, 2007 | ||
/s/ Suzanne Hopgood (Suzanne Hopgood) |
Trustee | March 1, 2007 | ||
/s/ Lorrence T. Kellar Lorrence T. Kellar |
Trustee | March 1, 2007 | ||
/s/ Wendy Luscombe (Wendy Luscombe) |
Trustee | March 1, 2007 | ||
/s/ Lee S. Wielansky (Lee S. Wielansky) |
Trustee | March 1, 2007 |
Table of Contents
EXHIBIT INDEX
The following is an index to all exhibits filed with the Annual Report on Form 10-K other than
those incorporated by reference herein:
| Exhibit No. | Description | |
10.59
|
Amended and Restated Revolving Loan Agreement dated as of December 19, 2006 by and among RD Abington Associates LP, Acadia Town Line, LLC, RD Methuen Associates LP, RD Absecon Associates, LP, RD Bloomfield Associates, LP, RD Hobson Associates, LP, and RD Village Associates LP, and Bank of America, N.A. and the First Amendment to Amended and Restated Revolving Loan Agreement dated February, 2007. | |
10.60
|
Loan Agreement between Bank of America, N.A. and RD Branch Associates, LP dated December 19, 2006. | |
21
|
List of Subsidiaries of Acadia Realty Trust | |
23.1
|
Consent of Registered Public Accounting Firm to Form S-3 and Form S-8 | |
23.2
|
Consent of former Registered Public Accounting Firm to Form S-3 and Form S-8 | |
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 | |
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 | |
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 | |
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 | |
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
| F-2 | ||||
| F-3 | ||||
| F-4 | ||||
| F-5 | ||||
| F-6 | ||||
| F-7 | ||||
| F-9 | ||||
| F-41 |
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
The Shareholders and Trustees of
Acadia Realty Trust
Acadia Realty Trust
We have audited the accompanying consolidated balance sheets of Acadia Realty Trust and subsidiaries
(the “Company”) as of December 31, 2006 and 2005 and the related consolidated statements of income,
stockholders’ equity, and cash flows for the years then ended. Our audits also included the
financial statement schedule listed on page F-1. These financial statements and
schedule are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Acadia Realty Trust and subsidiaries at December
31, 2006 and 2005 and the consolidated results of their operations and their cash flows for years then ended, in conformity with generally accepted
accounting principles in the United States of America. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as a whole, present
fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of Acadia Realty Trust and subsidiaries’ internal control
over financial reporting as of December 31, 2006, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 1, 2007 expressed an unqualified opinion thereon.
As explained in Note 1 to the financial statements, effective January 1, 2006, Acadia Realty Trust
and subsidiaries adopted the provisions of Staff Accounting Bulletin 108, Considering the Effects
of Prior Year Misstatements when Qualifying Misstatements in Current Year Financial Statements.
/s/ BDO Seidman, LLP
New York, New York
March 1, 2007
March 1, 2007
F-2
Table of Contents
Report of Independent Registered Public Accounting Firm
The Shareholders and Trustees of
Acadia Realty Trust
Acadia Realty Trust
We have audited the accompanying consolidated statements of income, shareholders’ equity, and cash
flows of Acadia Realty Trust and subsidiaries (the “Company”) for the year ended December 31, 2004.
These financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated results of Acadia Realty Trust and subsidiaries’ operations and their
cash flows for the year ended December 31, 2004, in conformity with U.S. generally accepted
accounting principles.
/s/ Ernst & Young LLP
New York, New York
November 30, 2006
November 30, 2006
F-3
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| December 31, | ||||||||
| 2006 | 2005 | |||||||
| (dollars in thousands) | ||||||||
ASSETS |
||||||||
Real estate: |
||||||||
Land |
$ | 152,930 | $ | 141,319 | ||||
Buildings and improvements |
497,638 | 564,779 | ||||||
Construction in progress |
26,670 | 3,808 | ||||||
| 677,238 | 709,906 | |||||||
Less: accumulated depreciation |
142,071 | 127,819 | ||||||
Net real estate |
535,167 | 582,087 | ||||||
Cash and cash equivalents |
139,571 | 90,475 | ||||||
Restricted cash |
549 | 548 | ||||||
Cash in escrow |
7,639 | 7,789 | ||||||
Investment in management contracts, net of accumulated amortization
of $3,277 and $1,938, respectively |
1,839 | 3,178 | ||||||
Investments in and advances to unconsolidated affiliates |
31,049 | 17,863 | ||||||
Rents receivable, net |
12,949 | 13,000 | ||||||
Notes receivable and preferred equity investment |
38,322 | 34,733 | ||||||
Prepaid expenses |
1,865 | 4,980 | ||||||
Deferred charges, net |
33,255 | 23,739 | ||||||
Acquired lease intangibles |
11,653 | 8,119 | ||||||
Other assets |
37,834 | 15,354 | ||||||
Assets of discontinued operations |
— | 39,726 | ||||||
| $ | 851,692 | $ | 841,591 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
Mortgage and other notes payable |
$ | 347,402 | $ | 411,000 | ||||
Convertible notes payable |
100,000 | — | ||||||
Acquired leases and other intangibles |
4,919 | 6,812 | ||||||
Accounts payable and accrued expenses |
10,548 | 18,302 | ||||||
Dividends and distributions payable |
6,661 | 6,088 | ||||||
Share of distributions in excess of share of income and investment
in unconsolidated affiliates |
21,728 | 10,315 | ||||||
Other liabilities |
5,578 | 7,144 | ||||||
Liabilities of discontinued operations |
— | 15,064 | ||||||
Total liabilities |
496,836 | 474,725 | ||||||
Minority interest in Operating Partnership |
8,673 | 9,204 | ||||||
Minority interests in partially-owned affiliates |
105,064 | 137,086 | ||||||
Total minority interests |
113,737 | 146,290 | ||||||
Shareholders’ equity: |
||||||||
Common shares, $.001 par value, authorized 100,000,000 shares,
issued and outstanding 31,772,952 and 31,542,942 shares,
respectively |
31 | 31 | ||||||
Additional paid-in capital |
227,555 | 223,199 | ||||||
Accumulated other comprehensive loss |
(234 | ) | (12 | ) | ||||
Retained earnings (deficit ) |
13,767 | (2,642 | ) | |||||
Total shareholders’ equity |
241,119 | 220,576 | ||||||
| $ | 851,692 | $ | 841,591 | |||||
The accompanying notes are an integral part of these consolidated financial statements
F-4
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
| Years ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| (dollars in thousands except per share amounts) | ||||||||||||
Revenues |
||||||||||||
Minimum rents |
$ | 69,663 | $ | 75,441 | $ | 68,899 | ||||||
Percentage rents |
1,192 | 1,272 | 1,348 | |||||||||
Expense reimbursements |
15,048 | 14,944 | 13,336 | |||||||||
Other property income |
1,206 | 2,269 | 785 | |||||||||
Management fee income from related parties, net |
5,625 | 3,564 | 1,259 | |||||||||
Interest income |
8,311 | 3,316 | 1,245 | |||||||||
Other income |
1,648 | — | 210 | |||||||||
Total revenues |
102,693 | 100,806 | 87,082 | |||||||||
Operating Expenses
Property operating |
15,672 | 16,087 | 17,007 | |||||||||
Real estate taxes |
10,647 | 9,402 | 8,187 | |||||||||
General and administrative |
19,782 | 16,153 | 10,941 | |||||||||
Depreciation and amortization |
26,637 | 25,905 | 22,781 | |||||||||
Total operating expenses |
72,738 | 67,547 | 58,916 | |||||||||
Operating income |
29,955 | 33,259 | 28,166 | |||||||||
Equity in earnings of unconsolidated affiliates |
2,559 | 21,280 | 513 | |||||||||
Interest expense |
(22,451 | ) | (18,804 | ) | (16,687 | ) | ||||||
Gain on sale of land |
— | — | 932 | |||||||||
Minority interest |
5,223 | (13,952 | ) | (1,466 | ) | |||||||
Income from continuing operations before income taxes |
15,286 | 21,783 | 11,458 | |||||||||
Income tax benefit (expense) |
508 | (2,140 | ) | — | ||||||||
Income from continuing operations |
15,794 | 19,643 | 11,458 | |||||||||
Discontinued operations: |
||||||||||||
Operating income from discontinued operations |
2,703 | 1,823 | 1,596 | |||||||||
Impairment of real estate |
— | (770 | ) | — | ||||||||
Gain (loss) on sale of properties |
20,974 | (50 | ) | 6,696 | ||||||||
Minority interest |
(458 | ) | (20 | ) | (165 | ) | ||||||
Income from discontinued operations |
23,219 | 983 | 8,127 | |||||||||
Net income |
$ | 39,013 | $ | 20,626 | $ | 19,585 | ||||||
Basic earnings per share
Income from continuing operations |
$ | 0.49 | $ | 0.62 | $ | 0.39 | ||||||
Income from discontinued operations |
0.71 | 0.03 | 0.28 | |||||||||
Basic earnings per share |
$ | 1.20 | $ | 0.65 | $ | 0.67 | ||||||
Diluted earnings per share
Income from continuing operations |
$ | 0.48 | $ | 0.61 | $ | 0.38 | ||||||
Income from discontinued operations |
0.70 | 0.03 | 0.27 | |||||||||
Diluted earnings per share |
$ | 1.18 | $ | 0.64 | $ | 0.65 | ||||||
The accompanying notes are an integral part of these consolidated financial statements
F-5
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | Retained | Total | |||||||||||||||||||||
| Common Stock | Paid-in | Comprehensive | Earnings | Shareholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Loss | (Deficit) | Equity | |||||||||||||||||||
Balance at December 31, 2003 |
27,409 | $ | 27 | $ | 177,891 | $ | (5,505 | ) | $ | (2,679 | ) | $ | 169,734 | |||||||||||
Conversion of 746,762 OP Units to Common
Shares by limited partners of the
Operating
Partnership |
747 | 1 | 6,395 | — | — | 6,396 | ||||||||||||||||||
Shares issued to trustees and employees |
5 | — | 443 | — | — | 443 | ||||||||||||||||||
Employee restricted share award |
22 | — | 394 | — | — | 394 | ||||||||||||||||||
Settlement of vested options |
— | — | (67 | ) | — | — | (67 | ) | ||||||||||||||||
Dividends declared ($0.6525 per Common
Share) |
— | — | — | — | (19,548 | ) | (19,548 | ) | ||||||||||||||||
Employee and trustee exercise of 1,262,000
options |
1,262 | 1 | 9,265 | — | — | 9,266 | ||||||||||||||||||
Common Shares issued under Employee Stock
Purchase Plan |
6 | — | 84 | — | — | 84 | ||||||||||||||||||
Issuance of 1,890,000 Common Shares,
net of issuance costs |
1,890 | 2 | 28,310 | — | — | 28,312 | ||||||||||||||||||
Unrealized gain on valuation of swap
agreements |
— | — | — | 2,325 | — | 2,325 | ||||||||||||||||||
Net income |
— | — | — | — | 19,585 | 19,585 | ||||||||||||||||||
Total comprehensive income |
21,910 | |||||||||||||||||||||||
Balance at December 31, 2004 |
31,341 | 31 | 222,715 | (3,180 | ) | (2,642 | ) | 216,924 | ||||||||||||||||
Conversion of 796 Series A Preferred OP
Units to Common Shares by limited partners
of the Operating Partnership |
92 | — | 696 | — | — | 696 | ||||||||||||||||||
Employee restricted share awards |
52 | — | 1,030 | — | — | 1,030 | ||||||||||||||||||
Dividends declared ($0.69 per Common Share) |
— | — | (1,691 | ) | — | (20,626 | ) | (22,317 | ) | |||||||||||||||
Employee and trustee exercise of 51,200
options |
51 | — | 345 | — | — | 345 | ||||||||||||||||||
Common Shares issued under Employee Stock
Purchase Plan |
7 | — | 104 | — | — | 104 | ||||||||||||||||||
Unrealized gain on valuation of swap
agreements |
— | — | — | 3,168 | — | 3,168 | ||||||||||||||||||
Net income |
— | — | — | — | 20,626 | 20,626 | ||||||||||||||||||
Total comprehensive income |
23,794 | |||||||||||||||||||||||
Balance at December 31, 2005 |
31,543 | 31 | 223,199 | (12 | ) | (2,642 | ) | 220,576 | ||||||||||||||||
Cumulative effect of straight-line rent
adjustment |
— | — | — | — | 1,796 | 1,796 | ||||||||||||||||||
Conversion of 696 Series A Preferred OP
Units to Common Shares by limited partners
of the Operating Partnership |
93 | — | 696 | — | — | 696 | ||||||||||||||||||
Employee restricted share awards |
122 | — | 3,530 | — | — | 3,530 | ||||||||||||||||||
Dividends declared ($0.755 per Common
Share) |
— | — | — | — | (24,400 | ) | (24,400 | ) | ||||||||||||||||
Employee exercise of 7,500 options |
8 | — | 43 | — | — | 43 | ||||||||||||||||||
Common Shares issued under Employee Stock
Purchase Plan |
4 | — | 112 | — | — | 112 | ||||||||||||||||||
Redemption of 11,105 restricted Common OP
Units |
— | — | (101 | ) | — | — | (101 | ) | ||||||||||||||||
Issuance of Common Stock to Trustees |
3 | — | 76 | — | — | 76 | ||||||||||||||||||
Unrealized loss on valuation of swap
agreements |
— | — | — | (222 | ) | — | (222 | ) | ||||||||||||||||
Net income |
— | — | — | — | 39,013 | 39,013 | ||||||||||||||||||
Total comprehensive income |
38,791 | |||||||||||||||||||||||
Balance at December 31, 2006 |
31,773 | $ | 31 | $ | 227,555 | $ | (234 | ) | $ | 13,767 | $ | 241,119 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Years ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| (dollars in thousands) | ||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
Net income |
$ | 39,013 | $ | 20,626 | $ | 19,585 | ||||||
Adjustments to reconcile net income to net cash provided by
operating activities: |
||||||||||||
Depreciation and amortization |
27,178 | 27,747 | 25,030 | |||||||||
Gain on sale of land |
— | — | (932 | ) | ||||||||
(Gain) loss on sale of property |
(20,974 | ) | 50 | (6,696 | ) | |||||||
Impairment of real estate |
— | 770 | — | |||||||||
Minority interests |
(4,765 | ) | 13,972 | 1,631 | ||||||||
Amortization of lease intangibles |
1,080 | 980 | (519 | ) | ||||||||
Amortization of mortgage note premium |
(144 | ) | (530 | ) | (524 | ) | ||||||
Equity in earnings of unconsolidated affiliates |
(2,559 | ) | (21,280 | ) | (513 | ) | ||||||
Elimination of fees received from unconsolidated partnerships |
467 | — | — | |||||||||
Distributions recognized as income from unconsolidated affiliates |
2,810 | 21,498 | 720 | |||||||||
Amortization of derivative settlement included in interest expense |
440 | 460 | 125 | |||||||||
Provision for bad debts |
41 | 305 | 1,254 | |||||||||
Changes in assets and liabilities: |
||||||||||||
Restricted cash |
(1 | ) | 701 | (709 | ) | |||||||
Funding of escrows, net |
(1,389 | ) | (1,827 | ) | (2,063 | ) | ||||||
Rents receivable |
219 | (3,309 | ) | (1,998 | ) | |||||||
Prepaid expenses |
2,769 | (783 | ) | (442 | ) | |||||||
Other assets |
(1,801 | ) | (8,785 | ) | (3,204 | ) | ||||||
Accounts payable and accrued expenses |
(1,669 | ) | (2,826 | ) | 3,546 | |||||||
Due to/from related parties |
— | — | (344 | ) | ||||||||
Other liabilities |
(1,088 | ) | 2,470 | (62 | ) | |||||||
Net cash provided by operating activities |
39,627 | 50,239 | 33,885 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||
Expenditures for real estate and improvements |
(87,009 | ) | (131,077 | ) | (48,611 | ) | ||||||
Deferred acquisition and leasing costs |
(6,941 | ) | (5,670 | ) | (3,014 | ) | ||||||
Investments in and advances to unconsolidated affiliates |
(26,697 | ) | (455 | ) | (30,803 | ) | ||||||
Return of capital from unconsolidated affiliates |
28,423 | 22,847 | 15,136 | |||||||||
Collections of notes receivable |
20,948 | 1,868 | 3,929 | |||||||||
Advances of notes receivable |
(45,091 | ) | (7,914 | ) | (10,429 | ) | ||||||
Preferred equity investment |
19,000 | (19,000 | ) | — | ||||||||
Proceeds from sale of property and land |
38,477 | 3,931 | 932 | |||||||||
Net cash used in investing activities |
(58,890 | ) | (135,470 | ) | (72,860 | ) | ||||||
F-7
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Years ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| (dollars in thousands) | ||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
Principal payments on mortgage notes payable |
(168,082 | ) | (44,784 | ) | (106,639 | ) | ||||||
Proceeds received on mortgage notes payable |
159,617 | 184,466 | 94,251 | |||||||||
Proceeds from issuance of convertible debt |
100,000 | — | — | |||||||||
Payment of deferred financing and other costs |
(7,026 | ) | (2,801 | ) | (2,338 | ) | ||||||
Capital contributions from partners and members |
44,481 | 44,122 | 40,302 | |||||||||
Distributions to partners and members |
(36,120 | ) | — | (3,238 | ) | |||||||
Dividends paid |
(23,823 | ) | (21,869 | ) | (18,507 | ) | ||||||
Distributions to minority interests in Operating Partnership |
(487 | ) | (380 | ) | (416 | ) | ||||||
Distributions on preferred Operating Partnership Units |
(254 | ) | (342 | ) | (283 | ) | ||||||
Distributions to minority interests in partially-owned affiliates |
(232 | ) | (436 | ) | (1,031 | ) | ||||||
Contributions from minority interests in partially-owned affiliates |
300 | 1,000 | 1,587 | |||||||||
Redemption of Operating Partnership Units |
(246 | ) | — | — | ||||||||
Common Shares issued under Employee Stock Purchase Plan |
188 | 104 | 84 | |||||||||
Settlement of options to purchase Common Shares |
— | — | (67 | ) | ||||||||
Exercise of options to purchase Common Shares |
43 | 345 | 9,340 | |||||||||
Termination of derivative instrument |
— | — | (1,307 | ) | ||||||||
Issuance of Common Shares |
— | — | 28,312 | |||||||||
Net cash provided by financing activities |
68,359 | 159,425 | 40,050 | |||||||||
Increase in cash and cash equivalents |
49,096 | 74,194 | 1,075 | |||||||||
Cash and cash equivalents, beginning of period |
90,475 | 16,281 | 15,206 | |||||||||
Cash and cash equivalents, end of period |
$ | 139,571 | $ | 90,475 | $ | 16,281 | ||||||
Supplemental disclosure of cash flow information: |
||||||||||||
Cash paid during the period for interest, including capitalized interest of
$79, $260, and $304, respectively |
$ | 22,843 | $ | 18,799 | $ | 19,167 | ||||||
Cash paid for income taxes |
$ | 1,039 | $ | 1,512 | $ | — | ||||||
Supplemental disclosure of non-cash investing and financing activities: |
||||||||||||
Acquisition of management contract rights through issuance of Common and
Preferred Operating Partnership Units |
$ | — | $ | 4,000 | $ | 4,000 | ||||||
Accrued earn-out liability on acquired real estate |
$ | — | $ | — | $ | 12,241 | ||||||
Acquisition of real estate through assumption of debt |
$ | 22,583 | $ | — | $ | — | ||||||
Acquisition of property through issuance of Preferred Operating Partnership
Units |
$ | — | $ | 200 | $ | — | ||||||
Conversion of common equity interest into preferred equity interest in
in the Hitchcock and Pine Log investments |
$ | — | $ | 3,255 | $ | — | ||||||
Deconsolidation of the Brandywine Portfolio: |
||||||||||||
Real estate, net |
$ | 124,962 | $ | — | $ | — | ||||||
Other assets and liabilities |
(11,413 | ) | — | — | ||||||||
Mortgage debt |
(66,984 | ) | — | — | ||||||||
Minority interests |
(36,504 | ) | — | — | ||||||||
Investment in unconsolidated affiliates |
(10,428 | ) | — | — | ||||||||
Cash included in investments and advances to unconsolidated affiliates |
$ | (367 | ) | $ | — | $ | — | |||||
Acquisition of remaining interest in Tarrytown |
||||||||||||
Real estate, net |
$ | (9,260 | ) | $ | — | $ | — | |||||
Other assets and liabilities |
5,901 | — | — | |||||||||
Investment in unconsolidated affiliates |
3,469 | — | — | |||||||||
Cash included in expenditures for real estate and improvements |
$ | 110 | $ | — | $ | — | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Basis of Presentation and Summary of Significant Accounting Policies
Acadia Realty Trust (the “Trust”) and subsidiaries (collectively, the “Company”) is a fully
integrated, self-managed and self-administered equity real estate investment trust (“REIT”) focused
primarily on the ownership, acquisition, redevelopment and management of retail properties,
including neighborhood and community shopping centers and mixed-use properties with retail
components.
As of December 31, 2006, the Company operated 74 properties, which it owns or has an ownership
interest in, principally located in the Northeast, Mid-Atlantic and Midwest regions of the United
States.
All of the Company’s assets are held by, and all of its operations are conducted through, Acadia
Realty Limited Partnership (the “Operating Partnership”) and entities in which the Operating
Partnership owns a controlling interest. As of December 31, 2006, the Trust controlled 98% 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 represent entities or individuals who
contributed their interests in certain properties or entities to the Operating Partnership in
exchange for common or preferred units of limited partnership interest (“Common or Preferred OP
Units”). 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”). This
structure is commonly referred to as an umbrella partnership REIT or “UPREIT”.
In 2001, the Company formed a partnership, Acadia Strategic Opportunity Fund I, LP (“Fund I”), and
in 2004 formed a limited liability company, Acadia Mervyn I, LLC (“Mervyns I”), with four
institutional investors. The Operating Partnership committed a total of $20.0 million to Fund I and
Mervyns I, and the four institutional shareholders committed $70.0 million, for the purpose of
acquiring a total of approximately $300.0 million in investments. As of December 31, 2006, the
Operating Partnership has contributed $16.2 million to Fund I and $2.7 million to Mervyns I.
The Operating Partnership is the sole general partner of Fund I and managing member of Mervyns I,
with a 22.2% interest in both Fund I and Mervyns I and is also entitled to a profit participation
in excess of its invested capital based on certain investment return thresholds. Decisions made by
the general partner, as it relates to purchasing, financing, and disposition of properties, are
subject to the unanimous disapproval of the Advisory Committee of Fund I, which is comprised of
representatives from each of the four institutional investors. Cash flow is distributed pro-rata to
the partners (including the Operating Partnership) until they receive a 9% cumulative return, and
the return of all capital contributions. Thereafter, remaining cash flow (which is net of
distributions and fees to the Operating Partnership for management, asset management, leasing and
construction services) was to be distributed 80% to the partners (including the Operating
Partnership) and 20% to the Operating Partnership as a carried interest (“Promote”). Following the
recapitalization of the Brandywine Portfolio in January 2006, all capital contributions and the
required 9% cumulative preferred return were distributed to the institutional investors.
Accordingly, the Operating Partnership is now entitled to a Promote on all future earnings and
distributions.
In June 2004, the Company formed a limited liability company, Acadia Strategic Opportunity Fund II,
LLC (“Fund II”), and in August 2004 formed another limited liability company, Mervyn II, LLC
(“Mervyns II”), with the investors from Fund I as well as two additional institutional investors.
With $300.0 million of committed discretionary capital, Fund II and Mervyns II expect to be able to
acquire up to $900.0 million of investments on a leveraged basis. The Operating Partnership’s share
of committed capital is $60.0 million. The Operating Partnership is the sole managing member with a
20% interest in both Fund II and Mervyns II and is also entitled to a profit participation in
excess of its invested capital based on certain investment return thresholds. The terms and
structure of Fund II are substantially the same as Fund I with the exception that the preferred
return is 8%. As of December 31, 2006, the Operating Partnership has contributed $17.1 million to
Fund II and $7.4 million to Mervyns II.
Principles of Consolidation
The consolidated financial statements include the consolidated accounts of the Company and its
controlling investments in partnerships and limited liability companies in which the Company is
presumed to have control in accordance with Emerging Issues Task Force Issue No. 04-5. The
ownership interests of other investors in these entities are recorded as minority interests. All
significant intercompany balances and transactions have been eliminated in consolidation.
Investments in entities for which the Company has the ability to exercise significant influence
over, but does not have financial or operating control, are accounted for using the equity method
of accounting. Accordingly, the Company’s share of the earnings (or loss) of these entities are
included in consolidated net income.
F-9
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Basis of Presentation and Summary of Significant Accounting Policies, continued
Principles of Consolidation, continued
Variable interest entities within the scope of Financial Accounting Statements Board (“FASB”)
Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46-R”) are required to
be consolidated by their primary beneficiary. The primary beneficiary of a variable interest entity
is determined to be the party that absorbs a majority of the entity’s expected losses, receives a
majority of its expected returns, or both. Management has evaluated the applicability of FIN 46-R
to its investments in certain joint ventures and determined that these joint ventures do not meet
the requirements of a variable interest entity and, therefore, consolidation of these ventures is
not required. Accordingly, these investments are accounted for using the equity method.
On January 4, 2006, Fund I recapitalized its investment in a one million square foot shopping
center portfolio located in Wilmington, Delaware (“Brandywine Portfolio”). The recapitalization
was effected through the conversion of the 77.8% interest which was previously held by the
institutional investors in Fund I to affiliates of GDC Properties (“GDC”) through a merger of
interests in exchange for cash. The Operating Partnership has retained its existing 22.2% interest
in the Brandywine Portfolio in partnership with GDC and continues to operate the portfolio and earn
fees for such services. Following the January 2006 recapitalization of the Brandywine Portfolio,
the Company no longer has a controlling interest in this investment and, accordingly, currently
accounts for this investment under the equity method of accounting.
Investments in and Advances to Unconsolidated Joint Ventures
The Company accounts for its investments in unconsolidated joint ventures using the equity method
as it does not exercise control over significant asset decisions such as buying, selling or
financing nor is it the primary beneficiary under FIN 46R, as discussed above. Under the equity
method, the Company increases its investment for its proportionate share of net income and
contributions to the joint venture and decreases its investment balance by recording its
proportionate share of net loss and distributions. The Company recognizes income for distributions
in excess of its investment where there is no recourse to the Company. For investments in which
there is recourse to the Company, distributions in excess the investment are recorded as a
liability.
The Company periodically reviews its investment in unconsolidated joint ventures for other
temporary declines in market value. Any decline that is not expected to be recovered in the next
twelve months is considered other than temporary and an impairment charge is recorded as a
reduction in the carrying value of the investment. No impairment charges were recognized in the
years ended December 31, 2006, 2005 and 2004.
Use of Estimates
Accounting principles generally accepted in the United States of America (“GAAP”) require the
Company’s management to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. The most significant assumptions and estimates relate
to the valuation of real estate, depreciable lives, revenue recognition and the collectability of
trade accounts receivable. Application of these assumptions requires the exercise of judgment as to
future uncertainties and, as a result, actual results could differ from these estimates.
Real Estate
Real estate assets are stated at cost less accumulated depreciation. Expenditures for acquisition,
development, construction and improvement of properties, as well as significant renovations are
capitalized. Interest costs are capitalized until construction is substantially complete.
Construction in progress includes costs for significant shopping center expansion and
redevelopment. Depreciation is computed on the straight-line basis over estimated useful lives of
30 to 40 years for buildings and the shorter of the useful life or lease term for improvements,
furniture, fixtures and equipment. Expenditures for maintenance and repairs are charged to
operations as incurred.
Upon acquisitions of real estate, the Company assesses the fair value of acquired assets (including
land, buildings and improvements, and identified intangibles such as above and below market leases
and acquired in-place leases and customer relationships) and acquired liabilities in accordance
with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” and SFAS
No. 142,” Goodwill and Other Intangible Assets”, and allocates purchase price based on these
assessments. The Company assesses fair value based on estimated cash flow projections that utilize
appropriate discount and capitalization rates and available market information. Estimates of future
cash flows are based on a number of factors including the historical operating results, known
trends, and market/economic conditions that may affect the property.
F-10
Table of Contents
The Company reviews its long-lived assets used in operations for impairment when there is an event,
or change in circumstances that indicates impairment in value. 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 sell. During the year
ended December 31, 2005, an impairment loss of $0.8 million was recognized related to a property
that was sold in July of 2005. Management does not believe that the values of its properties within
the portfolio are impaired as of December 31, 2006.
Sale of Real Estate Assets
The Company recognizes property sales in accordance with SFAS No. 66, “Accounting for Sales of Real
Estate.” The Company generally records the sales of operating properties and outparcels using the
full accrual method at closing when the warnings process is deemed to be complete. Sales not
qualifying for full recognition at the time of sale are accounted for under other appropriate
deferral methods.
Investment in Real Estate –Held-for Sale
The Company evaluates the held-for-sale classification of its real estate each quarter. Assets that
are classified as held-for-sale are recorded at the lower of their carrying amount or fair value
less cost to sell. Assets are generally classified as held-for-sale once management commits to a
plan to sell the properties and has initiated an active program to market them for sale. The
results of operations of these real estate properties are reflected as discontinued operations in
all periods reported.
On occasion, the Company will receive unsolicited offers from third parties to buy individual
Company properties. Under these circumstances, the Company will classify the properties as
held-for-sale when a sales contract is executed with no contingencies and the prospective buyer has
funds at risk to ensure performance.
Deferred Costs
Fees and costs paid in the successful negotiation of leases have been deferred and are being
amortized on a straight-line basis over the terms of the respective leases. Fees and costs incurred
in connection with obtaining financing have been deferred and are being amortized over the term of
the related debt obligation.
Management Contracts
Income from management contracts, net of sub-management fees of $0.3 million and $1.6 million for
the years ended December 31, 2005 and 2004 respectively, is recognized on an accrual basis as such
fees are earned. The initial acquisition cost of the management contracts is being amortized over
the estimated lives of the contracts acquired.
F-11
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Basis of Presentation and Summary of Significant Accounting Policies, continued
Revenue Recognition and Accounts Receivable
Leases with tenants are accounted for as operating leases. Minimum rents are recognized on a
straight-line basis over the term of the respective leases. As of December 31, 2006 and 2005
unbilled rents receivable relating to straight-lining of rents were $6.2 million and $8.8 million,
respectively and deferred rents related to the straight lining of rents were $2.9 million and $2.5
million, respectively. Certain of these leases also provide for percentage rents based upon the
level of sales achieved by the tenant. Percentage rents are recognized in the period when the
tenants’ sales breakpoint is met. In addition, leases typically provide for the reimbursement to
the Company of real estate taxes, insurance and other property operating expenses. These
reimbursements are recognized as revenue in the period the expenses are incurred.
The Company makes estimates of the uncollectability of its accounts receivable related to base
rents, expense reimbursements and other revenues. An allowance for doubtful accounts has been
provided against certain tenant accounts receivable that are estimated to be uncollectible. Once
the amount is ultimately deemed to be uncollectible, it is written off. Rents receivable at
December 31, 2006 and 2005 are shown net of an allowance for doubtful accounts of $3.3 million and
$3.2 million, respectively. Interest income from notes receivable is recognized on an accrual basis
based on the contractual terms of the notes.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or
less when purchased to be cash equivalents.
Restricted Cash and Cash in Escrow
Restricted cash and cash in escrow consists principally of cash held for real estate taxes,
property maintenance, insurance, minimum occupancy and property operating income requirements at
specific properties as required by certain loan agreements.
Income Taxes
The Company has made an election to be taxed, and believes it qualifies as a REIT under Sections
856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). To maintain REIT
status for Federal income tax purposes, the Company is generally required to distribute to its
stockholders at least 90% of its REIT taxable income as well as comply with certain other
requirements as defined by the Code. Accordingly, the Company is not subject to federal corporate
income tax to the extent that it distributes 100% of its REIT taxable income each year.
Although it may qualify for REIT status for Federal income tax purposes, the Company is subject to
state income or franchise taxes in certain states in which some of its properties are located. In
addition, taxable income from non-REIT activities managed through the Company’s taxable REIT
subsidiaries (“TRS”) are subject to Federal, state and local income taxes.
TRS income taxes are accounted for under the asset and liability method as required SFAS No. 109,
“Accounting for Income Taxes”. Under the asset and liability method, deferred income taxes are
recognized for the temporary differences between the financial reporting basis and the tax basis of
the TRS assets and liabilities.
F-12
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Basis of Presentation and Summary of Significant Accounting Policies, continued
Stock-based Compensation
Prior to 2002, the Company accounted for stock options under Accounting Principles Board Opinion
No. 25, “Accounting for Stock Issued to Employees” and related interpretations. Effective January
1, 2002, the Company adopted the fair value method of recording stock-based compensation contained
in SFAS No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 123R effective June 30,
2005. As such, all stock options granted after December 31, 2001 are reflected as compensation
expense in the Company’s consolidated financial statements over their vesting period based on the
fair value at the date the stock-based compensation was granted. As provided for in SFAS No. 123,
the Company elected the “prospective method” for the adoption of the fair value basis method of
accounting for employee stock options. Under this method, the recognition provisions have been
applied to all employee awards granted, modified or settled after January 1, 2002. The following
table illustrates the effect on net income and earnings per share if the Company had applied the
fair value based method of accounting for stock-based employee compensation for vested stock
options granted prior to January 1, 2002.
| Year ended | ||||
| December 31, | ||||
| (dollars in thousands) | 2004 | |||
Net income: |
||||
As reported |
$ | 19,585 | ||
Pro forma |
$ | 19,561 | ||
Basic earnings per share: |
||||
As reported |
$ | 0.67 | ||
Pro forma |
$ | 0.67 | ||
Diluted earnings per share: |
||||
As reported |
$ | 0.65 | ||
Pro forma |
$ | 0.65 | ||
Recent Accounting Pronouncements
In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial
Instruments — an amendment of FASB Statements No. 133 and No. 140”. This Statement amends SFAS No.
133, “Accounting for Derivative Instruments and Hedging Activities”, and SFAS No. 140, “Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” and resolves
issues addressed in SFAS No. 133 Implementation Issue No. D1, “Application of SFAS No. 133 to
Beneficial Interests in Securitized Financial Assets.” This Statement (a) permits fair value
remeasurement for any hybrid financial instrument that contains an embedded derivative that
otherwise would require bifurcation, (b) clarifies which interest-only strips and principal-only
strips are not subject to the requirements of SFAS No. 133, (c) establishes a requirement to
evaluate interests in securitized financial assets to identify interests that are freestanding
derivatives or that are hybrid financial instruments that contain an embedded derivative requiring
bifurcation, (d) clarifies that concentrations of credit risk in the form of subordination are not
embedded derivatives and (e) amends SFAS No. 140 to eliminate the prohibition on a qualifying
special-purpose entity from holding a derivative financial instrument that pertains to a beneficial
interest other than another derivative financial instrument. This Statement is effective for all
financial instruments acquired or issued after the beginning of an entity’s first fiscal year that
begins after September 15, 2006. The Company is currently evaluating the effect of the adoption of
SFAS No. 155.
In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes -
an interpretation of SFAS No. 109.” (“Interpretation No. 48”), Interpretation No. 48 defines a
recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. Interpretation No. 48
also provides guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. Interpretation No. 48 is effective for fiscal years
beginning after December 15, 2006. The adoption of Interpretation No. 48 on its effective date will
not have an effect on the Company’s consolidated financial statements.
F-13
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Basis of Presentation and Summary of Significant Accounting Policies, continued
In September 2006, the SEC issued Staff Accounting Bulletin (SAB) No. 108 “Considering the Effects
of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.”
This Bulletin provides guidance on the consideration of the effects of prior year misstatements in
quantifying current year misstatements for the purpose of a materiality assessment. The guidance in
this Bulletin must be applied to financial reports covering the first fiscal year ending after
November 15, 2006. As a result of the adoption of SAB No. 108, the Company recorded a $1.8 million
cumulative effect of straight-line rent adjustment for prior years effective January 1, 2006. This
adjustment was the result of changing the calculation of tenants straight-line rent from rent
commencement date to the date the tenant took possession of the space. This adjustment is reflected
in the Company’s balance sheet as an increase to both rents receivable, net and retained earnings.
In September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements.” This SFAS defines fair
value, establishes a framework for measuring fair value in generally accepted accounting principles
(“GAAP”), and expands disclosures about fair value measurements. This Statement applies to
accounting pronouncements that require or permit fair value measurements, except for share-based
payments transactions under SFAS No. 123. This Statement is effective for financial statements
issued for fiscal years beginning after November 15, 2007. As SFAS No. 157 does not require any new
fair value measurements or remeasurements of previously computed fair values, the Company does not
believe adoption of SFAS No. 157 will have a material effect on its financial statements.
On February 15, 2007, the FASB issued SFAS Statement No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities”. This Statement permits companies and not-for-profit
organizations to make a one-time election to carry eligible types of financial assets and
liabilities at fair value, even if fair value measurement is not required under GAAP.
SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is
currently evaluating the effect of the adoption of SFAS No. 159.
Comprehensive income
The following table sets forth comprehensive income for the years ended December 31, 2006, 2005 and
2004:
| Years ended December 31, | ||||||||||||
| (dollars in thousands) | 2006 | 2005 | 2004 | |||||||||
Net income |
$ | 39,013 | $ | 20,626 | $ | 19,585 | ||||||
Other comprehensive income (loss) |
(222 | ) | 3,168 | 2,325 | ||||||||
Comprehensive income |
$ | 38,791 | $ | 23,794 | $ | 21,910 | ||||||
Notes: |
Other Comprehensive income relates to the changes in the fair value of
derivative instruments accounted for as cash flow hedges. |
The following table sets forth the change in accumulated other comprehensive loss for the years
ended December 31, 2006, 2005 and 2004:
Accumulated other comprehensive income (loss)
| Years ended December 31, | ||||||||||||
| (dollars in thousands) | 2006 | 2005 | 2004 | |||||||||
Beginning balance |
$ | (12 | ) | $ | (3,180 | ) | $ | (5,505 | ) | |||
Unrealized gain (loss)
on valuation of
derivative instruments |
(222 | ) | 3,168 | 2,325 | ||||||||
Ending balance |
$ | (234 | ) | $ | (12 | ) | $ | (3,180 | ) | |||
F-14
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Acquisition and Disposition of Properties and Discontinued Operations
A. Acquisition and Disposition of Properties
Currently the primary vehicles for the Company’s acquisitions are Funds I and II (Note 1).
Dispositions relate to the sale of shopping centers and land. Gains from these sales are recognized
in accordance with the provisions of SFAS No. 66, “Accounting for Sales of Real Estate”.
Acquisitions
On January 12, 2006, the Company closed on a 19,265 square foot retail building in the Lincoln Park
district in Chicago. The property was acquired from an affiliate of Klaff (Note 4) for a purchase
price of $9.9 million, including the assumption of existing mortgage debt in the principal amount
of $3.8 million.
On January 24, 2006, the Company acquired a 60% interest in the A&P Shopping Plaza located in
Boonton, New Jersey. The property, which is 100% occupied and located in northeastern New Jersey,
is a 63,000 square foot shopping center anchored by a 49,000 square foot A&P Supermarket. A
portion of the remaining 40% interest is owned by a principal of P/A Associates, LLC (“P/A”). The
interest was acquired for $3.2 million. There is an existing first mortgage debt of $8.6 million
encumbering the property.
On June 16, 2006, the Company purchased 8400 and 8625 Germantown Road in Philadelphia, Pennsylvania
for $16.0 million. The Company assumed a $10.1 million first mortgage loan which has a maturity
date of June 11, 2013. The 40,570 square foot property is 100% occupied.
On September 21, 2006, the Company purchased 2914 Third Avenue in the Bronx, New York for $18.5
million. The 41,305 square foot property is 100% occupied.
F-15
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Acquisition and Disposition of Properties and Discontinued Operations, continued
Acquisitions, continued
On April 6, 2005, in conjunction with an investment partner, P/A Associates, LLC (“P/A”), Fund II,
through Acadia-P/A Holding Company, LLC (“Acadia-P/A”) purchased a 140,000 square foot building
located in the Washington Heights section of Manhattan, New York for a purchase price of $25.0
million. In September 2005, Acadia-P/A obtained a mortgage loan of $19.0 million secured by this
property which requires monthly payments of interest only at a fixed interest rate of 5.26% and
matures September 2007.
During July 2005, Fund II, in conjunction with its partners in the Retailer Controlled Property
Venture, invested $1.0 million for a 50% interest in a leasehold located in Rockville, Maryland.
During July of 2005, the Company purchased 4343 Amboy Road located in Staten Island, New York for
$16.6 million in cash and $0.2 million in Common OP Units.
On August 5, 2005, Acadia-P/A purchased 260 East 161st Street in the Bronx, New York for $49.4
million, inclusive of closing and other related acquisition costs. Concurrent with the closing,
Acadia-P/A obtained a short term loan of $12.1 million which bears interest at LIBOR plus 150 basis
points and matured March 2006. In March 2006, the Company obtained a construction loan of $30
million which bears interest at LIBOR plus 140 basis points and matures on April 2008.
On November 3, 2005, Fund II acquired a 36-year ground lease interest for a 112,000 square foot
building located at Oakbrook Center in the Chicago Metro Area for $6.9 million, including closing
and other acquisition costs. The ground lease expires in July 2017 and has three 10-year-options.
The current tenant’s lease expires in October 2011 with four 5-year-options at the current rent
plus one 15-year option at fair market value.
In December 2005, Acadia-P/A acquired a 65,000 square foot parking garage located at 10th Avenue in
Manhattan, New York for $7.0 million, including closing and other acquisition costs. Concurrent
with the closing, Acadia-P/A obtained a $4.9 million short term loan which matured on March 31,
2006 and bore interest at LIBOR plus 125 basis points. In July 2006, the Company obtained a
construction loan of $19.2 million which bears interest at LIBOR plus 125 basis points and matures
on December 31, 2008. As of December 31, 2006, the amount outstanding on this loan was $6.4
million.
Also in December 2005, Acadia-P/A acquired the remaining 40-year term of a leasehold interest on
land located at Liberty Avenue in Queens, New York for $0.3 million.
In March, 2004, the Company, through a newly-formed joint venture with an unaffiliated third-party
10% investor, acquired a $9.6 million first mortgage loan secured by a shopping center in Aiken,
South Carolina, which was in default, for $5.5 million and subsequently acquired the fee interest
in this property through a deed in lieu of foreclosure. In September, 2004 this joint venture
acquired an adjacent property for a cash price of $1.5 million. In the fourth quarter of 2005, the
Company exchanged its common equity interest in these properties for a 15% preferred equity
position. As a result of the afore-mentioned exchange, as of December 31, 2005, the Company
accounts for this investment under the equity method (Note 4).
On September 29, 2004, Acadia-P/A purchased 400 East Fordham Road in the Bronx, New York for $30.2
million, inclusive of closing and other related acquisition costs for cash. Subsequent to the
closing, Acadia P/A financed this acquisition with an $18.0 million mortgage loan from a bank which
bears interest at LIBOR plus 175 basis points and matures November 2007. On February 25, 2005,
Acadia-P/A purchased a parcel of land adjacent to 400 E. Fordham Road for $0.9 million, inclusive
of closing and related acquisition costs.
On October 1, 2004, Acadia-P/A entered into a 95-year ground lease to redevelop a 16-acre site in
Pelham Manor, Westchester County, New York.
F-16
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Acquisition and Disposition of Properties and Discontinued Operations, continued
Dispositions
On November 3, 2006, the Company sold Bradford Town Centre, a 257,123 square foot shopping center
in Towanda, Pennsylvania, for $16.0 million which resulted in a $5.6 million gain on the sale.
On November 28, 2006, the Company sold three properties, Greenridge Plaza, a 191,767 square foot
shopping center in Scranton, Pennsylvania, for $10.6 million which resulted in a $4.7 million gain
on the sale, Luzerne Street Center, a 58,035 square foot shopping center in Scranton, Pennsylvania,
for $3.6 million which resulted in a $2.5 million gain on the sale and Pittston Plaza, a 79,498
square foot shopping center in Pittston, Pennsylvania, for $6.0 million which resulted in a $0.5
million gain on the sale.
On December 14, 2006, the Company sold Soundview Marketplace, a 183,815 square foot shopping center
in Port Washington, New York, for $24.0 million which resulted in a $7.9 million gain on the sale.
On July 7, 2005, the Company sold Berlin Shopping Center for $4.0 million. An impairment loss of
$0.8 million was recognized for the year ended December 31, 2005, to reduce the carrying value of
this asset to fair value less costs to sell.
On November 22, 2004, the Company sold East End Centre, a 308,000 square foot shopping center in
Wilkes-Barre, Pennsylvania, for approximately $12.4 million which resulted in a $6.7 million gain
on the sale.
B. Discontinued Operations
SFAS No. 144 requires discontinued operations presentation for disposals of a “component” of an
entity. In accordance with SFAS No. 144, for all periods presented, the Company reclassified its
consolidated statements of income to reflect income and expenses for properties which became held
for sale subsequent to December 31, 2001, as discontinued operations and reclassified its
consolidated balance sheets to reflect assets and liabilities related to such properties as assets
and liabilities related to discontinued operations.
The combined results of operations of sold properties are reported separately as discontinued
operations for the year ended December 31, 2006. These are related to the dispositions listed
above.
The combined assets and liabilities and results of operations of the properties classified as
discontinued operations are summarized as follows:
| December 31, | ||||
| (dollars in thousands) | 2005 | |||
ASSETS |
||||
Net real estate |
$ | 35,538 | ||
Rent receivable, net |
2,214 | |||
Other assets |
1,974 | |||
Total assets |
$ | 39,726 | ||
LIABILITIES AND DEFICIT |
||||
Mortgage notes payable |
$ | 13,800 | ||
Accounts payable and accrued expenses |
653 | |||
Other liabilities |
611 | |||
Total liabilities |
15,064 | |||
Surplus |
24,662 | |||
Total liabilities and surplus |
$ | 39,726 | ||
F-17
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Acquisition and Disposition of Properties and Discontinued Operations, continued
B. Discontinued Operations, continued
| Years ended December 31, | ||||||||||||
| (dollars in thousands) | 2006 | 2005 | 2004 | |||||||||
Total revenues |
$ | 8,466 | $ | 9,437 | $ | 11,113 | ||||||
Total expenses |
5,763 | 7,614 | 9,517 | |||||||||
| 2,703 | 1,823 | 1,596 | ||||||||||
Impairment of real estate |
— | (770 | ) | — | ||||||||
(Loss) gain on sale of properties |
20,974 | (50 | ) | 6,696 | ||||||||
Minority interest |
(458 | ) | (20 | ) | (165 | ) | ||||||
Income from discontinued operations |
$ | 23,219 | $ | 983 | $ | 8,127 | ||||||
3. Segment Reporting
The Company has two reportable segments: retail properties and multi-family properties. 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. The reportable segments
are managed separately due to the differing nature of the leases and property operations associated
with the retail versus residential tenants. The following table sets forth certain segment
information for the Company, reclassified for discontinued operations, as of and for the years
ended December 31, 2006, 2005, and 2004 (does not include unconsolidated affiliates):
2006
| Retail | Multi-Family | All | ||||||||||||||
| (dollars in thousands) | Properties | Properties | Other | Total | ||||||||||||
Revenues |
$ | 79,399 | $ | 7,710 | $ | 15,584 | $ | 102,693 | ||||||||
Property operating expenses and real estate taxes |
22,011 | 4,308 | — | 26,319 | ||||||||||||
Other Expenses |
15,298 | 1,482 | 3,002 | 19,782 | ||||||||||||
Net property income before depreciation and amortization |
$ | 42,090 | $ | 1,920 | $ | 12,582 | $ | 56,592 | ||||||||
Depreciation and amortization |
$ | 24,659 | $ | 1,510 | $ | 468 | $ | 26,637 | ||||||||
Interest expense |
$ | 21,000 | $ | 1,451 | $ | — | $ | 22,451 | ||||||||
Real estate at cost |
$ | 634,815 | $ | 42,423 | $ | — | $ | 677,238 | ||||||||
Total assets |
$ | 774,905 | $ | 36,626 | $ | 40,161 | $ | 851,692 | ||||||||
Expenditures for real estate and improvements |
$ | 86,219 | $ | 790 | $ | — | $ | 87,009 | ||||||||
Reconciliation to net income |
||||||||||||||||
Net property income before depreciation and amortization |
$ | 56,592 | ||||||||||||||
Depreciation and amortization |
(26,637 | ) | ||||||||||||||
Equity in earnings of unconsolidated partnerships |
2,559 | |||||||||||||||
Interest expense |
(22,451 | ) | ||||||||||||||
Income from discontinued operations |
23,219 | |||||||||||||||
Income taxes |
508 | |||||||||||||||
Minority interest |
5,223 | |||||||||||||||
Net income |
$ | 39,013 | ||||||||||||||
F-18
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Segment Reporting, continued
2005
| Retail | Multi-Family | All | ||||||||||||||
| (dollars in thousands) | Properties | Properties | Other | Total | ||||||||||||
Revenues |
$ | 86,070 | $ | 7,688 | $ | 7,048 | $ | 100,806 | ||||||||
Property operating expenses and real estate taxes |
21,236 | 4,253 | — | 25,489 | ||||||||||||
Other Expenses |
9,396 | 267 | 6,490 | 16,153 | ||||||||||||
Net property income before depreciation and amortization |
$ | 55,438 | $ | 3,168 | $ | 558 | $ | 59,164 | ||||||||
Depreciation and amortization |
$ | 23,989 | $ | 1,465 | $ | 451 | $ | 25,905 | ||||||||
Interest expense |
$ | 17,449 | $ | 1,355 | $ | — | $ | 18,804 | ||||||||
Real estate at cost |
$ | 668,273 | $ | 41,633 | $ | — | $ | 709,906 | ||||||||
Total assets |
$ | 755,691 | $ | 37,295 | $ | 48,605 | $ | 841,591 | ||||||||
Expenditures for real estate and improvements |
$ | 130,059 | $ | 1,018 | $ | — | $ | 131,077 | ||||||||
Reconciliation to net income |
||||||||||||||||
Net property income before depreciation and amortization |
$ | 59,164 | ||||||||||||||
Depreciation and amortization |
(25,905 | ) | ||||||||||||||
Equity in earnings of unconsolidated partnerships |
21,280 | |||||||||||||||
Interest expense |
(18,804 | ) | ||||||||||||||
Income from discontinued operations |
983 | |||||||||||||||
Income taxes |
(2,140 | ) | ||||||||||||||
Minority interest |
(13,952 | ) | ||||||||||||||
Net income |
$ | 20,626 | ||||||||||||||
2004
| Retail | Multi-Family | All | ||||||||||||||
| (dollars in thousands) | Properties | Properties | Other | Total | ||||||||||||
Revenues |
$ | 76,529 | $ | 7,596 | $ | 2,957 | $ | 87,082 | ||||||||
Property operating expenses and real estate taxes |
21,060 | 4,134 | — | 25,194 | ||||||||||||
Other expenses |
7,593 | 490 | 2,858 | 10,941 | ||||||||||||
Net property income before depreciation and amortization |
$ | 47,876 | $ | 2,972 | $ | 99 | $ | 50,947 | ||||||||
Depreciation and amortization |
$ | 21,020 | $ | 1,433 | $ | 328 | $ | 22,781 | ||||||||
Interest expense |
$ | 15,169 | $ | 1,518 | $ | — | $ | 16,687 | ||||||||
Real estate at cost |
$ | 558,943 | $ | 40,615 | $ | — | $ | 599,558 | ||||||||
Total assets |
$ | 579,110 | $ | 36,872 | $ | 20,749 | $ | 636,731 | ||||||||
Expenditures for real estate and improvements |
$ | 47,769 | $ | 842 | $ | — | $ | 48,611 | ||||||||
Reconciliation to net income |
||||||||||||||||
Net property income before depreciation and amortization |
$ | 50,947 | ||||||||||||||
Depreciation and amortization |
(22,781 | ) | ||||||||||||||
Equity in earnings of unconsolidated partnerships |
513 | |||||||||||||||
Interest expense |
(16,687 | ) | ||||||||||||||
Gain on sale of land |
932 | |||||||||||||||
Income from discontinued operations |
8,127 | |||||||||||||||
Minority interest |
(1,466 | ) | ||||||||||||||
Net income |
$ | 19,585 | ||||||||||||||
F-19
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Investments
A. Investments In and Advances to Unconsolidated Affiliates
Retailer Controlled Property Venture
On January 27, 2004, the Company entered into the Retailer Controlled Property Venture (“RCP
Venture”) with Klaff Realty, L.P. (“Klaff”) and Klaff’s long-time capital partner Lubert-Adler
Management, Inc. (“Lubert-Adler”) for the purpose of making investments in surplus or underutilized
properties owned by retailers. On September 2, 2004, affiliates of Fund I and Fund II, through
separately organized, newly formed limited liability companies on a non-recourse basis, invested in
the acquisition of Mervyns through the RCP Venture, which, as part of an investment consortium of
Sun Capital and Cerberus, acquired Mervyns from Target Corporation. The total acquisition price was
$1.2 billion, with such affiliates’ combined $24.6 million share of the investment divided equally
between them. The Operating Partnership’s share of the Mervyns investment totaled $5.2 million.
Since inception, Mervyns I and II received distributions totaling $50.8 million and recognized
income of $23.1 million. For the year ended December 31, 2006, Mervyns I and II received
distributions of $4.6 million and recognized $2.2 million of income representing the excess
distribution over its remaining capital.
During 2006, the RCP Venture made its second investment with its participation in the acquisition
of Albertsons. Affiliates of Fund II, through the same limited liability companies which were
formed for the investment in Mervyns, invested $20.7 million in the acquisition of Albertsons
through the RCP Venture, along with others as part of an investment consortium. The Operating
Partnership’s share of the invested capital was $4.2 million.
During 2006, Fund II made additional investments of $4.1 million, through the RCP Venture, in two
Albertsons investments, Camellia and Newkirk, and in Shopko and Marsh. The Operating Partnership’s
share of the additional investments totaled $0.7 million. Consequently, the Company accounts for
these investments using the cost method due to the minor ownership percent interest and the
inability to exert influence over the partnership’s operating and financial policies.
Brandywine Portfolio
On January 4, 2006, the institutional investors of Fund I transferred their 77.8% interest in the
Brandywine Portfolio into affiliates of GDC in exchange for cash. The Operating Partnership
transferred its 22.2% share of the Brandywine Portfolio into affiliates of GDC in exchange for a
22.2% interest in such affiliates. Prior to the closing of this transaction, the Operating
Partnership provided $17.6 million of mortgage financing secured by certain properties within the
Brandywine Portfolio. This financing was repaid in June 2006.
Other Investments
Fund I Investments
Fund I has joint ventures with third party investors in the ownership and operation of Hitchcock
Plaza, Pine Log Plaza, Sterling Heights Shopping Center, and Haygood Shopping Center. The Hitchcock
Plaza is a 234,000 square foot shopping center located in Aiken, South Carolina. Adjacent to the
Hitchcock Plaza is the 35,000 square foot Pine Log Plaza. Sterling Heights Shopping Center is a
155,000 square foot community shopping center located in Detroit, Michigan. Lastly, Haygood
Shopping Center is a 178,000 square foot center located in Virginia Beach, Virginia. The
investments in these properties are accounted for using the equity method of accounting.
In the fourth quarter 2006, Fund I completed the purchase of the remaining 50% interest in the
Tarrytown Centre, a 35,000 square foot center located in Westchester, New York, from its
unaffiliated partner. This investment, which had previously been accounted for using the equity
method, is now consolidated.
Fund II Investments
Fund II acquired for $1.0 million, a 50% equity interest from its partner in the RCP Venture in the
entity which has a leasehold interest in a former Levitz Furniture store located in Rockville,
Maryland. The investment in this property is accounted for using the equity method of accounting.
Crossroads
The Company owns a 49% interest in the Crossroads Joint Venture and Crossroads II Joint Venture
(collectively, “Crossroads”), which collectively own a 311,000 square foot shopping center in White
Plains, New York. The Company accounts for its investment in Crossroads using the equity method.
The unamortized excess of the Company’s investment over its share of the net equity in Crossroads
at the date of acquisition was $19.6 million. The portion of this excess attributable to buildings
and improvements are being amortized over the life of the related property.
F-20
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Investments, continued
A. Investments In and Advances to Unconsolidated Affiliates, continued
The following tables summarize the Company’s investment in unconsolidated subsidiaries as of
December 31, 2006, December 31, 2005 and December 31, 2004. The Investment in Mervyns represents
the Company’s share of the investment through the RCP Venture.
| December 31, 2006 | ||||||||||||||||||||
| Brandywine | Other | |||||||||||||||||||
| (dollars in thousands) | Mervyns | Portfolio | Crossroads | Investments | Total | |||||||||||||||
Balance Sheets |
||||||||||||||||||||
Assets |
||||||||||||||||||||
Rental property, net |
$ | — | $ | 127,146 | $ | 6,017 | $ | 43,660 | $ | 176,823 | ||||||||||
Investment in unconsolidated affiliates |
385,444 | — | — | — | 385,444 | |||||||||||||||
Other assets |
— | 6,747 | 4,511 | 6,632 | 17,890 | |||||||||||||||
Total assets |
$ | 385,444 | $ | 133,893 | $ | 10,528 | $ | 50,292 | $ | 580,157 | ||||||||||
Liabilities and partners’ equity |
||||||||||||||||||||
Mortgage note payable |
$ | — | $ | 166,200 | $ | 64,000 | $ | 28,558 | $ | 258,758 | ||||||||||
Other liabilities |
— | 12,709 | 1,858 | 8,862 | 23,429 | |||||||||||||||
Partners equity (deficit) |
385,444 | (45,016 | ) | (55,330 | ) | 12,872 | 297,970 | |||||||||||||
Total liabilities and partners’ equity |
$ | 385,444 | $ | 133,893 | $ | 10,528 | $ | 50,292 | $ | 580,157 | ||||||||||
Company’s investment in unconsolidated
affiliates |
$ | 23,539 | $ | — | $ | — | $ | 7,510 | $ | 31,049 | ||||||||||
Share of distributions in excess of
share of income and investment in
unconsolidated affiliates |
$ | — | $ | (10,541 | ) | $ | (11,187 | ) | $ | — | $ | (21,728 | ) | |||||||
| Year ended December 31, 2006 | ||||||||||||||||||||
| Brandywine | Other | |||||||||||||||||||
| (dollars in thousands) | Mervyns | Portfolio | Crossroads | Investments | Total | |||||||||||||||
Statements of Operations |
||||||||||||||||||||
Total revenue |
$ | — | $ | 18,324 | $ | 9,208 | $ | 3,707 | $ | 31,239 | ||||||||||
Operating and other expenses |
— | 4,800 | 3,121 | 2,295 | 10,216 | |||||||||||||||
Interest expense |
— | 12,066 | 3,485 | 1,448 | 16,999 | |||||||||||||||
Equity in earnings (loss) of affiliates |
(4,554 | ) | — | — | — | (4,554 | ) | |||||||||||||
Depreciation and amortization |
— | 2,947 | 580 | 1,416 | 4,943 | |||||||||||||||
Net income (loss) |
$ | (4,554 | ) | $ | (1,489 | ) | $ | 2,022 | $ | (1,452 | ) | $ | (5,473 | ) | ||||||
Company’s share of net income |
2,212 | (31 | ) | 991 | (221 | ) | 2,951 | |||||||||||||
Amortization of excess investment |
— | — | 392 | — | 392 | |||||||||||||||
Company’s share of net income (loss) |
$ | 2,212 | $ | (31 | ) | $ | 599 | $ | (221 | ) | $ | 2,559 | ||||||||
F-21
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Investments, continued
A. Investments In and Advances to Unconsolidated Affiliates, continued
| December 31, 2005 | ||||||||||||||||
| Other | ||||||||||||||||
| (dollars in thousands) | Mervyns | Crossroads | Investments | Total | ||||||||||||
Balance Sheets |
||||||||||||||||
Assets |
||||||||||||||||
Rental property, net |
$ | — | $ | 6,458 | $ | 31,093 | $ | 37,551 | ||||||||
Investment in unconsolidated affiliates |
9,401 | — | — | 9,401 | ||||||||||||
Other assets |
— | 5,543 | 8,708 | 14,251 | ||||||||||||
Total assets |
$ | 9,401 | $ | 12,001 | $ | 39,801 | $ | 61,203 | ||||||||
Liabilities and partners’ equity |
||||||||||||||||
Mortgage note payable |
$ | — | $ | 64,000 | $ | 16,340 | $ | 80,340 | ||||||||
Other liabilities |
— | 2,359 | 5,265 | 7,624 | ||||||||||||
Partners equity (deficit) |
9,401 | (54,358 | ) | 18,196 | (26,761 | ) | ||||||||||
Total liabilities and partners’ equity |
$ | 9,401 | $ | 12,001 | $ | 39,801 | $ | 61,203 | ||||||||
Company’s investment in unconsolidated affiliates |
$ | 2,722 | $ | — | $ | 15,141 | $ | 17,863 | ||||||||
Share of distributions in excess of share of
income and investment in unconsolidated
affiliates |
$ | — | $ | (10,315 | ) | $ | — | $ | (10,315 | ) | ||||||
| Year ended December 31, 2005 | ||||||||||||||||
| Other | ||||||||||||||||
| (dollars in thousands) | Mervyns | Crossroads | Investments | Total | ||||||||||||
Statements of Operations |
||||||||||||||||
Total revenue |
$ | — | $ | 8,772 | $ | 3,778 | $ | 12,550 | ||||||||
Operating and other expenses |
— | 2,581 | 2,206 | 4,787 | ||||||||||||
Interest expense |
— | 3,632 | 906 | 4,538 | ||||||||||||
Equity in earnings of affiliates |
181,543 | — | — | 181,543 | ||||||||||||
Depreciation and amortization |
— | 654 | 927 | 1,581 | ||||||||||||
Net income (loss) |
$ | 181,543 | $ | 1,905 | $ | (261 | ) | $ | 183,187 | |||||||
Company’s share of net income |
20,902 | 988 | (218 | ) | 21,672 | |||||||||||
Amortization of excess investment |
— | 392 | — | 392 | ||||||||||||
Company’s share of net income (loss) |
$ | 20,902 | $ | 596 | $ | (218 | ) | $ | 21,280 | |||||||
F-22
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Investments, continued
A. Investments In and Advances to Unconsolidated Affiliates, continued
| Year ended December 31, 2004 | ||||||||||||
| Other | ||||||||||||
| (dollars in thousands) | Crossroads | Investments | Total | |||||||||
Statements of Operations |
||||||||||||
Total revenue |
$ | 8,160 | $ | 380 | $ | 8,540 | ||||||
Operating and other expenses |
2,707 | — | 2,707 | |||||||||
Interest expense |
2,740 | 384 | 3,124 | |||||||||
Depreciation and amortization |
778 | 416 | 1,194 | |||||||||
Net income (loss) |
$ | 1,935 | $ | (420 | ) | $ | 1,515 | |||||
Company’s share of net income |
1,112 | (207 | ) | 905 | ||||||||
Amortization of excess investment |
392 | — | 392 | |||||||||
Company’s share of net income (loss) |
$ | 720 | $ | (207 | ) | $ | 513 | |||||
B. Notes Receivable and Preferred Equity Investment
In March 2005, the Company invested $20.0 million in a preferred equity position (“Preferred Equity
Investment”) with Levitz SL, L.L.C. (“Levitz SL”), the owner of fee and leasehold interests in 30
locations (the “Levitz Properties”) totaling 2.5 million square feet, of which the majority are
currently leased to Levitz Furniture Stores (which filed for bankruptcy protection under Chapter 11
in October 2005). Klaff Realty L.P. (“Klaff”) is a managing member of Levitz SL. The Preferred
Equity Investment received a return of 10%, plus a minimum return of capital of $2.0 million per
annum. During March 2006, the rate of return was reset to the six-month LIBOR plus 644 basis points
or 11.5%.
In June 2006, the Company converted the Preferred Equity Investment to a first mortgage loan in the
amount of $31.3 million. The loan has a maturity date of May 31, 2008 and has an interest rate of
10.5%. The loan was secured by fee and leasehold mortgages as well as a pledge of the entities
owning 19 of the Levitz Properties totaling 1.8 million square feet. During the third quarter of
2006, Levitz SL sold one of the Levitz Properties located in Northridge, California and used $20.4
million of the proceeds to partially pay down the loan. As of December 31, 2006, the loan balance
amounted to $10.9 million and is included in Notes Receivable and Preferred Equity Investment on
the consolidated balance sheet. Management believes that the underlying value of the real estate
is sufficient to recover the mortgage and accordingly, no reserve is required at December 31, 2006.
5. Deferred Charges
Deferred charges consist of the following as of December 31, 2006 and 2005:
| December 31, | ||||||||
| 2006 | 2005 | |||||||
| (dollars in thousands) | ||||||||
Deferred financing costs |
$ | 15,684 | $ | 9,631 | ||||
Deferred leasing and other costs |
31,848 | 25,855 | ||||||
| 47,532 | 35,486 | |||||||
Accumulated amortization |
(14,277 | ) | (11,747 | ) | ||||
| $ | 33,255 | $ | 23,739 | |||||
F-23
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Mortgage and Other Notes Payable
At December 31, 2006, mortgage and other notes payable were
collateralized by 52 properties and related tenant leases. Interest rates on our outstanding
mortgage indebtedness ranged from 5.0% to 8.5% with maturities that ranged from July 2007 to
November 2032. Certain loans are cross-collateralized and cross-defaulted. The loan agreements
contain customary representations, covenants and events of default. Certain loan agreements require
the Company to comply with certain affirmative and negative covenants, including the maintenance of
certain debt service coverage and leverage ratios.
On January 12, 2006, in conjunction with the purchase of a property, the Company assumed a loan of
$3.8 million which bears interest at a fixed rate of 8.5% and matures on April 11, 2028.
On January 24, 2006, in conjunction with the purchase of a partnership interest, the Company
assumed a loan of $8.6 million which bears interest at a fixed rate of 6.4% and matures on November
1, 2032.
On February 22, 2006, the Company refinanced a property within its existing portfolio for $20.5
million. This loan bears interest at a fixed rate of 5.4% and matures on March 1, 2016.
On March 27, 2006, the Company refinanced a property for $30.0 million. This loan bears interest
at LIBOR plus 140 basis points and matures on April 1, 2008. A portion of the proceeds were used
to pay down the existing $12.1 million of debt on this property.
On May 18, 2006, the Company closed on a construction loan for a property up to $12.0 million.
This loan bears interest at LIBOR plus 165 basis points and matures on May 18, 2009. Proceeds from
this loan will be drawn down as needed and will be used to fund construction work. As of December
31, 2006, the amount outstanding on this loan was $5.4 million.
On June 16, 2006, in conjunction with the purchase of a property, the Company assumed a loan of
$10.1 million which bears interest at a fixed rate of 5.45% and matures on June 11, 2013.
On July 12, 2006, the Company closed on a construction loan for a property for $19.2 million. This
loan bears interest at LIBOR plus 125 basis points and matures on December 31, 2008. Proceeds from
this loan will be drawn down as needed and will be used to fund construction work. As of December
31, 2006, the amount outstanding on this loan was $6.4 million.
On September 8, 2006, the Company financed a property for $23.5 million. This loan bears interest
at a fixed rate of 6.06% and matures on August 29, 2016.
On November 3, 2006, in conjunction with the sale of a property, the Company paid off $5.3 million
of debt. This loan was cross-collateralized with another property. As part of the payoff, the
other property mortgage balance was reduced by $1.5 million.
On December 14, 2006, in conjunction with the sale of a property, the Company paid off $8.2 million
of debt.
On December 18, 2006, the Company paid off $2.5 million on an existing loan. The remaining balance
on this loan is $2.9 million.
On December 19, 2006, the Company modified two existing facilities with the Bank of America which
were collateralized by eight of the Company’s properties into a new $75.0 million revolving credit
facility collateralized by seven of the properties and a new $16.0 million term loan on the
remaining property. Utilizing the proceeds from the issuance of convertible debt (Note 7) the
Company paid off the existing facilities balances in December 2006. The new $75.0 million revolving
credit facility, which can be increased up to $88.0 million based on collateral performance, bears
interest at LIBOR plus 125 basis points and matures on December 1, 2010. As of December 31, 2006,
there was no outstanding balance on this facility. The new $16.0 million term loan bears interest
at LIBOR plus 130 basis points and matures on December 1, 2011. The above transactions were
reflected as a modification of debt in accordance with Emerging Issues Task Force No. 96-19,
“Debtors Accounting for Modifications or Exchange of Debt Instruments”.
During March 2005, the Company obtained a secured revolving line of credit with a bank for $70.0
million. The revolving line of credit bears interest rate either at Prime plus 0% or LIBOR plus
0.75% at borrower’s option. The loan matures at the earlier of three years or the date on which
capital commitments have been fully drawn. As of December 31, 2005, the outstanding balance on
this facility was $24.4 million. On January 18, 2006, the Company drew an additional $1.8 million
on this facility. On April 21, 2006, the Company paid down $15.0 million on this facility. On
June 1, 2006, the Company drew an additional $19.2 million on this facility. On June 22, 2006, the
entire existing balance of $30.4 million was paid off by the Company.
F-24
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Mortgage and Other Notes Payable, continued
The following table summarizes our mortgage indebtedness as of December 31, 2006 and December
31, 2005:
| December 31, | December | Interest Rate at | Properties | Payment | ||||||||||||||||||
| (dollars in thousands) | 2006 | 31, 2005 | December 31, 2006 | Maturity | Encumbered | Terms | ||||||||||||||||
Mortgage notes
payable–variable-rate |
||||||||||||||||||||||
Washington Mutual Bank, FA |
$ | 21,524 | $ | 23,669 | 6.83% (LIBOR + 1.50%) | 4/1/2011 | (1 | ) | (31 | ) | ||||||||||||
Bank of America, N.A. |
9,925 | 10,082 | 6.73% (LIBOR + 1.40%) | 6/29/2012 | (2 | ) | (31 | ) | ||||||||||||||
RBS Greenwich Capital |
30,000 | — | 6.73% (LIBOR + 1.40%) | 4/1/2008 | (3 | ) | (32 | ) | ||||||||||||||
Bank of America, N.A. |
6,424 | 4,900 | 6.58% (LIBOR + 1.25%) | 12/31/2008 | (4 | ) | (32 | ) | ||||||||||||||
PNC Bank, National Association |
5,363 | — | 6.98% (LIBOR + 1.65%) | 5/18/2009 | (5 | ) | (39 | ) | ||||||||||||||
JP Morgan Chase |
2,939 | 5,570 | 7.33% (LIBOR + 2.00%) | 10/5/2007 | (6 | ) | (31 | ) | ||||||||||||||
Bank of China, New York Branch |
18,000 | 18,000 | 7.08% (LIBOR + 1.75%) | 11/1/2007 | (7 | ) | (32 | ) | ||||||||||||||
Bank of America, N.A. |
16,000 | — | 6.63% (LIBOR + 1.30%) | 12/1/2011 | (8 | ) | (31 | ) | ||||||||||||||
Bank of America, N.A. |
— | — | 6.58% (LIBOR + 1.25%) | 12/1/2010 | (9 | ) | (33 | ) | ||||||||||||||
Bank of America, N.A. |
— | 22,000 | 6.63% (LIBOR + 1.30%) | 6/1/2010 | (10 | ) | (32 | ) | ||||||||||||||
Bank of America, N.A. |
— | 44,485 | 6.73% (LIBOR + 1.40%) | 6/29/2012 | (11 | ) | (33 | ) | ||||||||||||||
Bank of America, N.A. |
— | 12,066 | 6.83% (LIBOR + 1.50%) | 2/1/2006 | (3 | ) | (32 | ) | ||||||||||||||
Bank of America, N.A. |
— | 24,400 | ||||||||||||||||||||
Interest rate swaps |
(16,002 | ) | (92,376 | ) | ||||||||||||||||||
Total variable-rate debt |
94,173 | 72,796 | ||||||||||||||||||||
F-25
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Mortgage and Other Notes Payable, continued
| Interest Rate at | ||||||||||||||||||||||||
| December 31, | December 31, | December 31, | Properties | Payment | ||||||||||||||||||||
| (dollars in thousands) | 2006 | 2005 | 2006 | Maturity | Encumbered | Terms | ||||||||||||||||||
Mortgage notes payable – fixed-rate |
||||||||||||||||||||||||
Sun America Life Insurance Company |
$ | 12,665 | $ | 12,936 | 6.46 | % | 7/1/2007 | (12 | ) | (31 | ) | |||||||||||||
Bank of America, N.A. |
15,686 | 15,882 | 7.55 | % | 1/1/2011 | (13 | ) | (31 | ) | |||||||||||||||
RBS Greenwich Capital |
15,672 | 15,894 | 5.19 | % | 6/1/2013 | (14 | ) | (31 | ) | |||||||||||||||
RBS Greenwich Capital |
14,940 | 15,000 | 5.64 | % | 9/6/2014 | (15 | ) | (31 | ) | |||||||||||||||
RBS Greenwich Capital |
17,600 | 17,600 | 4.98 | % | 9/6/2015 | (16 | ) | (34 | ) | |||||||||||||||
RBS Greenwich Capital |
12,500 | 12,500 | 5.12 | % | 11/6/2015 | (17 | ) | (35 | ) | |||||||||||||||
Bear Stearns Commercial |
34,600 | 34,600 | 5.53 | % | 1/1/2016 | (18 | ) | (36 | ) | |||||||||||||||
Bear Stearns Commercial |
20,500 | — | 5.44 | % | 3/1/2016 | (19 | ) | (32 | ) | |||||||||||||||
LaSalle Bank, N.A. |
3,782 | — | 8.50 | % | 4/11/2028 | (20 | ) | (31 | ) | |||||||||||||||
GMAC Commercial |
8,565 | — | 6.40 | % | 11/1/2032 | (21 | ) | (31 | ) | |||||||||||||||
Column Financial, Inc. |
9,997 | — | 5.45 | % | 6/11/2013 | (22 | ) | (31 | ) | |||||||||||||||
Merrill Lynch Mortgage Lending, Inc. |
23,500 | — | 6.06 | % | 8/29/2016 | (23 | ) | (37 | ) | |||||||||||||||
Bank of China |
19,000 | 19,000 | 5.26 | % | 9/1/2007 | (24 | ) | (32 | ) | |||||||||||||||
Cortlandt Deposit Corp |
7,425 | 9,900 | 6.62 | % | 2/1/2009 | (25 | ) | (38 | ) | |||||||||||||||
Cortlandt Deposit Corp |
7,339 | 9,785 | 6.51 | % | 1/15/2009 | (26 | ) | (38 | ) | |||||||||||||||
The Ohio National Life Insurance Co. |
4,526 | 4,667 | 8.20 | % | 6/1/2022 | (27 | ) | (31 | ) | |||||||||||||||
Canada Life Insurance Company |
6,743 | 6,945 | 8.00 | % | 1/1/2023 | (28 | ) | (31 | ) | |||||||||||||||
UBS Warburg Real Estate |
— | 30,000 | 4.69 | % | 2/11/2008 | (29 | ) | (32 | ) | |||||||||||||||
UBS Warburg Real Estate |
— | 21,018 | 7.01 | % | 7/11/2012 | (29 | ) | (31 | ) | |||||||||||||||
UBS Warburg Real Estate |
— | 15,964 | 7.32 | % | 6/11/2012 | (30 | ) | (31 | ) | |||||||||||||||
Interest rate swaps |
16,002 | 92,376 | 6.28 | % | (40 | ) | ||||||||||||||||||
Total fixed-rate debt |
251,042 | 334,067 | ||||||||||||||||||||||
Total fixed and variable debt |
345,215 | 406,863 | ||||||||||||||||||||||
Valuation premium on assumption of
debt net of amortization |
2,187 | 4,137 | ||||||||||||||||||||||
Total |
$ | 347,402 | $ | 411,000 | ||||||||||||||||||||
| Notes: | ||
(1)
|
Ledgewood Mall | (15 | ) | New Loudon Center | ||||
(2)
|
Smithtown Shopping Center | (16 | ) | Crescent Plaza | ||||
(3)
|
244-268 161 st Street | (17 | ) | Pacesetter Park Shopping Center | ||||
(4)
|
216 th Street | (18 | ) | Elmwood Park Shopping Center | ||||
(5)
|
Liberty Avenue | (19 | ) | Gateway Shopping Center | ||||
(6)
|
Granville Center | (20 | ) | Clark-Diversey | ||||
(7)
|
400 East Fordham Road | (21 | ) | Boonton | ||||
(8)
|
Branch Shopping Center | (22 | ) | Chestnut Hill | ||||
(9)
|
Marketplace of Absecon | (23 | ) | Walnut Hill | ||||
| Bloomfield Town Square | (24 | ) | Sherman Avenue | |||||
| Hobson West Plaza | (25 | ) | Kroger Portfolio | |||||
| Village Apartments | (26 | ) | Safeway Portfolio | |||||
| Town Line Plaza | (27 | ) | Amherst Marketplace | |||||
| Methuen Shopping Center | (28 | ) | Sheffield Crossing | |||||
| Abington Towne Center | (29 | ) | Brandywine Town Center | |||||
(10)
|
Bloomfield Town Square | (30 | ) | Market Square Shopping Center | ||||
| Hobson West Plaza | (31 | ) | Monthly principal and interest. | |||||
| Marketplace of Absecon | (32 | ) | Interest only monthly. | |||||
| Village Apartments | (33 | ) | Annual principal and monthly interest. | |||||
(11)
|
Abington Towne Center | (34 | ) | Interest only monthly until 9/10; monthly principal and interest thereafter. | ||||
| Branch Shopping Center | (35 | ) | Interest only monthly until 11/08; monthly principal and interest thereafter. |
F-26
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Mortgage Loans, continued
| Methuen Shopping Center | (36 | ) | Interest only monthly until 1/10; monthly principal and interest thereafter. | |||||
| Town Line Plaza | (37 | ) | Interest only monthly until 11/11; monthly principal and interest thereafter. | |||||
(12)
|
Merrillville Plaza | (38 | ) | Annual principal and semi-annual interest payments. | ||||
(13)
|
GHT Apartments/Colony Apartments | (39 | ) | Interest only upon draw down on construction loan. | ||||
(14)
|
239 Greenwich Avenue | (40 | ) | Maturing between 1/1/10 and 10/1/11. |
In connection with the assumption of debt in accordance with the requirements of SFAS No.
141, the Company has recorded a valuation premium which is being amortized to interest expense over
the remaining terms of the underlying mortgage loans.
7. Convertible Notes Payable
In December 2006, the Company issued $100.0 million of convertible notes due 2026 (the “Convertible
Notes”). The Convertible Notes were issued at par and pay interest in cash semi-annually in
arrears on June 15 and December 15 of each year, beginning on June 15, 2007. The Convertible Notes
are unsecured unsubordinated obligations and rank equally with all other unsecured and
unsubordinated indebtedness. There was an option to increase the issuance of the Convertible Notes
by an additional $15.0 million, which was exercised on January 8, 2007, resulting in additional
proceeds of $14.7 million. The Convertible Notes have an initial conversion price of $30.86 per
share. Upon conversion of the Convertible Notes, the Company will deliver cash and, in some
circumstances, Common Shares, as specified in the indenture relating to the Convertible Notes. The
Convertible Notes may only be converted prior to maturity: (i) during any calendar quarter
beginning after December 31, 2006 (and only during such calendar quarter), if, and only if, the
closing sale price of the Company’s Common Shares for at least 20 trading days (whether consecutive
or not) in the period of 30 consecutive trading days ending on the last trading day of the
preceding calendar quarter is greater than 130% of the conversion price per common share in effect
on the applicable trading day; or (ii) during the five consecutive trading-day period following
any five consecutive trading-day period in which the trading price of the notes was less than 98%
of the product of the closing sale price of the Company’s Common Shares multiplied by the
applicable conversion rate; or (iii) if those notes have been called for redemption, at any time
prior to the close of business on the second business day prior to the redemption date; or (iv) if
the Company’s Common Shares are not listed on a United States national or regional securities
exchange for 30 consecutive trading days. Prior to December 20, 2011, the Company will not have the
right to redeem Convertible Notes, except to preserve its status as a REIT. After December 20,
2011, the Company will have the right to redeem the notes, in whole or in part, at any time and
from time to time, for cash equal to 100% of the principal amount of the notes plus any accrued and
unpaid interest to, but not including, the redemption date. The Holders of notes may require us to
repurchase their notes, in whole or in part, on December 20, 2011, December 15, 2016, and December
15, 2021 for cash equal to 100% of the principal amount of the notes to be repurchased plus any
accrued and unpaid interest to, but not including, the repurchase date.
F-27
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Convertible Notes Payable, continued
If certain change of control transactions occur prior to December 20, 2011 and a holder elects to
the Convertible Notes in connection with any such transaction, the Company will increase the
conversion rate in connection with such conversion by a number of additional common shares based on
the date such transaction becomes effective and the price paid per common share in such
transaction. The conversion rate may also be adjusted under certain other circumstances, including
the payment of cash dividends in excess of our current regular quarterly cash dividend of $0.20 per
Common Share, but will be not adjusted for accrued and unpaid interest on the notes.
Upon a conversion of notes, the Company will deliver cash and, at the Company’s election, its
Common Shares, with an aggregate value, which the Company refers to as the “conversion value”,
equal to the conversion rate multiplied by the average price of the Company’s Common Shares as
follows: (i) an amount in cash which the Company refers to as the “principal return”, equal to the
lesser of (a) the principal amount of the converted notes and (b) the conversion value; and (ii) if
the conversion value is greater than the principal return, an amount with a value equal to the
difference between the conversion value and the principal return, which the Company refers to as
the “new amount”. The net amount may be paid, at the Company’s option, in cash, its Common Shares
or a combination of cash and its Common Shares.
The scheduled principal repayments of all indebtedness as of December 31, 2006 are as follows:
2007 |
$ | 60,033 | ||
2008 |
43,951 | |||
2009 |
13,172 | |||
2010 |
18,235 | |||
2011 |
136,054 | |||
Thereafter |
173,770 | |||
| $ | 445,215 | |||
8. Shareholders’ Equity and Minority Interests
Common Shares
In March of 2004, a secondary public offering was completed for a total of 5,750,000 Common Shares.
The selling shareholders, Yale University and its affiliates (“Yale”) and Ross Dworman, a former
trustee, sold 4,191,386 and 1,558,614 Common Shares, respectively. The Company did not sell any
Common Shares in the offering and did not receive any proceeds from the offering.
During November 2004, the Company issued 1,890,000 Common Shares (the “Offering”). The $28.3
million in proceeds from the Offering, net of related costs, was used to retire above-market,
fixed-rate indebtedness as well as to invest in real estate assets. Yale and Kenneth F. Bernstein,
the Company’s Chief Executive Officer, also sold 1,000,000, and 110,000 Common Shares,
respectively, in connection with this transaction. Mr. Bernstein sold 110,000 Common Shares in
connection with his exercise of options to purchase 150,000 Common Shares. In October 2005, the
Board of Trustees approved a resolution permitting one of its institutional shareholders, which at
the time owned approximately 3.8% of the Company’s outstanding Common Shares, to acquire additional
shares through open market purchases. This waiver of the Company’s share ownership limitation
permitted this shareholder to acquire up to an additional 6% of the Company’s shares through
December 31, 2005, or an aggregate of up to 9.8% of the Company’s Common Shares.
Through December 31, 2006, the Company had repurchased 2,051,605 Common Shares at a total cost of
$11.7 million (all of these Common Shares have been subsequently reissued) under its share
repurchase program that allows for the repurchase of up to $20.0 million of its outstanding Common
Shares. The repurchased shares are reflected as a reduction of par value and additional paid-in
capital.
F- 28
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Shareholders’ Equity and Minority Interests, continued
Minority Interests
The following table summarizes the change in the minority interests since December 31, 2005:
| Minority | ||||||||
| Minority | Interest in | |||||||
| Interest in | partially- | |||||||
| Operating | owned | |||||||
| Partnership | Affiliates | |||||||
| (dollars in thousands) | ||||||||
Balance at December 31, 2005 |
$ | 9,204 | $ | 137,086 | ||||
Dividends and distributions declared of $0.755 per Common Share and Common
OP Unit |
(487 | ) | — | |||||
Net income (loss) for the period January 1 through December 31, 2006 |
804 | (5,569 | ) | |||||
Distributions paid |
— | (73,242 | ) | |||||
Conversion of Series A Preferred OP Units |
(696 | ) | — | |||||
Acquisition of partnership interest |
— | 2,246 | ||||||
Other comprehensive income – unrealized loss on valuation of swap agreements |
(6 | ) | — | |||||
Redemption of 11,105 Restricted Common OP Units |
(146 | ) | — | |||||
Minority Interest contributions |
— | 44,543 | ||||||
Balance at December 31, 2006 |
8,673 | 105,064 | ||||||
Notes:
Minority interest in the Operating Partnership represents (i) the limited partners’ interest of
642,272 and 653,360 Common OP Units at December 31, 2006 and 2005, respectively, (ii) 188 and 884
Series A Preferred OP Units at December 31, 2006 and 2005, respectively, with a nominal value of
$1,000 per unit, which are entitled to a preferred quarterly distribution of the greater of (a)
$22.50 per unit (9% annually) per Series A Preferred OP Unit or (b) the quarterly distribution
attributable to a Series A Preferred OP Unit if such unit were converted into a Common OP Unit, and
(iii) 4,000 Series B Preferred OP Units at both December 31, 2006 and 2005 with a nominal value of
$1,000 per unit, which are entitled to a preferred quarterly distribution of the greater of (a)
$13.00 (5.2% annually) per unit or (b) the quarterly distribution attributable to a Series B
Preferred OP Unit if such unit were converted into a Common OP Unit.
During July 2005, the Company issued to a third party 11,105 Restricted Common OP Units valued at
$18.01 per unit in connection with the purchase of 4343 Amboy Road. The holder of the Common OP
Units was restricted from selling these for six months from the date of the transaction. During
June 2006, the Company redeemed for cash the 11,105 Restricted Common OP Units.
Minority interests in partially-owned affiliates include third-party interests in three
partnerships in which the Company has a majority ownership position. In addition, the accompanying
financial statements include the limited partners’ and non-managing members’ interests in Funds I
and II, and Mervyns I and II as additional minority interests in partially-owned affiliates.
During January 2006, the Company acquired a 60% interest in the A&P Shopping Plaza located in
Boonton, New Jersey, (Note 6). The remaining 40% interest is owned by a third party and is
reflected as minority interest in the accompanying Consolidated Balance Sheet as of December 31,
2006. Also during January 2006, Fund I recapitalized the Brandywine Portfolio, and as a result,
$36.5 million was distributed to the institutional investors in Fund I.
The following table summarizes the minority interest contributions and distributions in 2006:
| Contributions | Distributions | |||||||
(dollars in thousands) |
||||||||
Minority interest in two
partnerships(1) |
$ | — | $ | (232 | ) | |||
Fund I (2) |
— | (37,223 | ) | |||||
Mervyns I |
— | (16,864 | ) | |||||
Fund II |
24,664 | — | ||||||
Mervyns II |
19,879 | (18,923 | ) | |||||
| $ | 44,543 | $ | (73,242 | ) | ||||
| (1) | Represents 239 Greenwich Avenue and The Boonton Shopping Center. | |
| (2) | Includes Brandywine Portfolio distribution of $36,454. |
F- 29
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Shareholders’ Equity and Minority Interests, continued
Minority Interests, continued
In February 2005, the Company issued $4.0 million (250,000 Restricted Common OP Units valued at
$16.00 each) of Restricted Common OP Units to Klaff in consideration for the 25% balance of certain
management contract rights as well as the rights to certain potential future revenue streams. This
followed the acquisition of 75% of the management contract rights from Klaff in January 2004 as
reflected below. The Restricted Common OP Units are convertible into the Company’s Common Shares on
a one-for-one basis after a five-year lock-up period. $1.1 million of the purchase price was
allocated to investment in management contracts in the consolidated balance sheet and is being
amortized over the estimated remaining life of the contracts. For both years 2006 and 2005, $0.2
million of these Klaff management contracts were written off following the disposition of these
assets. The remainder of the $2.9 million purchase price has been allocated to deferred charges in
the consolidated balance sheet. $1.1 million of these allocated costs have been identified to
future revenue streams and are being amortized over the estimated life of each deal. The remaining
$1.8 million will be allocated over future acquisitions as they occur.
During 2005 and 2004, various limited partners converted a total of 746,762 and 2,058,804 Common OP
Units into Common Shares on a one-for-one basis, respectively. Mr. Dworman, a trustee of the
Company, received 34,841 of Common OP Units through various affiliated entities during 2003 (Note
9).
The Series A Preferred OP Units were issued on November 16, 1999 in connection with the acquisition
of all the partnership interests of the limited partnership which owns the Pacesetter Park Shopping
Center. Certain Series A Preferred OP Unit holders converted 696 Series A Preferred OP Units into
92,800 Common OP Units and then into Common Shares in both 2006 and 2005. The Series A Preferred OP
Units are currently convertible into Common OP Units based on the stated value divided by $7.50.
After the seventh anniversary following their issuance, either the Company or the holders can call
for the conversion of the Series A Preferred OP Units at the lesser of $7.50 or the market price of
the Common Shares as of the conversion date.
4,000 Series B Preferred OP Units were issued to Klaff in January 2004 in consideration for the
acquisition of 75% of certain management contract rights. The Preferred OP Units are convertible
into Common OP Units based on the stated value of $1,000 divided by $12.82 at any time.
Additionally, Klaff may redeem them at par for either cash or Common OP Units after the earlier of
the third anniversary of their issuance, or the occurrence of certain events including a change in
the control of the Company. Finally, after the fifth anniversary of the issuance, the Company may
redeem the Preferred OP Units and convert them into Common OP Units at market value as of the
redemption date. The $4.0 million purchase price is reflected in the investment in management
contracts in the consolidated balance sheet and is being amortized over the estimated life of the
contracts. For both years 2006 and 2005, $0.5 million of these Klaff management contracts were
written off following the disposition of these assets. Subsequent to December 31, 2006,, Klaff
converted 3,800 Series B Preferred Units into 296,412 Common OP Units and ultimately into Common
Shares (Note 21).
F- 30
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Related Party Transactions
In February 2005, the Operating Partnership issued $4.0 million of Restricted Common OP Units to
Klaff for the balance of certain management contract rights as well as the rights to certain
potential future revenue streams (Note 8).
In March 2005, the Company completed a $20.0 million Preferred Equity Investment with Levitz SL, of
which Klaff, a common and preferred OP unit holder, is the managing member. In June 2006, the
Company converted its Preferred Equity Investment with Levitz SL, into a mortgage loan (Note 4).
The Company managed one property in which a major shareholder of the Company had an ownership
interest and earned a management fee of 3% of tenant collections. Management fees earned by the
Company under this contract aggregated $0.1 million for the year ended December 31, 2004. In
addition, the Company earned leasing commission of $0.2 million related to this property for the
year ended December 31, 2004. In connection with the sale of the property on July 12, 2004, the
management contract was terminated and the Company earned a $0.08 million disposition fee.
Lee Wielansky, the Lead Trustee of the Company, was paid a consulting fee of $0.1 million for each
of the years ended December 31, 2006, 2005 and 2004.
On March 19, 2004, Ross Dworman, a former trustee of the Company, and certain entities controlled
by Mr. Dworman converted 1,000,000 share options and 548,614 OP Units held by them to Common Shares in connection with a secondary public offering.
During the year ended December 31, 2004, Kenneth F. Bernstein, President and Chief Executive
Officer, and certain trustees of the Company exercised 400,000 and 20,000 options to purchase
Common Shares, respectively.
10. Tenant Leases
Space in the shopping centers and other retail properties is leased to various tenants under
operating leases that usually grant tenants renewal options and generally provide for additional
rents based on certain operating expenses as well as tenants’ sales volume.
Minimum future rentals to be received under non-cancelable leases for shopping centers and other
retail properties as of December 31, 2006 are summarized as follows:
| (dollars in thousands) | ||||
2007 |
$ | 77,415 | ||
2008 |
73,801 | |||
2009 |
70,464 | |||
2010 |
61,526 | |||
2011 |
49,610 | |||
Thereafter |
326,043 | |||
| $ | 658,859 | |||
Minimum future rentals above include a total of $0.3 million for two tenants (with three leases),
which have filed for bankruptcy protection. None of these leases have been rejected nor affirmed.
During the years ended December 31, 2006, 2005 and 2004, no single tenant collectively accounted
for more than 10% of the Company’s total revenues.
11. Lease Obligations
The Company leases land at seven of its shopping centers, which are accounted for as operating
leases and generally provide the Company with renewal options. Ground rent expense was $4.5
million, $3.5 million, and $1.5 million (including capitalized ground rent at properties under
development of $3.4 million, $2.7 million and $0.7 million) for the years ended December 31, 2006,
2005 and 2004, respectively. The leases terminate at various dates between 2008 and 2066. Four of
these leases provide the Company with options to renew for additional terms aggregating from 20 to
60 years. The Company leases space for its White Plains corporate office for a term expiring in
2010. Office rent expense under this lease was $0.6 million, $0.4 million and $0.2 million for the
years ended December 31, 2006, 2005 and 2004, respectively. Future minimum rental payments required
for leases having remaining non-cancelable lease terms are as follows:
| (dollars in thousands) | ||||
2007 |
$ | 3,628 | ||
2008 |
3,664 | |||
2009 |
3,966 | |||
2010 |
4,567 | |||
2011 |
3,998 | |||
Thereafter |
100,971 | |||
| $ | 120,794 | |||
F- 31
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Share Incentive Plan
During 1999, the Company adopted the 1999 Share Incentive Plan (the “1999 Plan”), which replaced
both the 1994 Share Option Plan and the 1994 Non-Employee Trustees’ Share Option Plan. The 1999
Plan authorizes the issuance of options equal to up to 8% of the total Common Shares outstanding
from time to time on a fully diluted basis. However, not more than 4,000,000 of the Common Shares
in the aggregate may be issued pursuant to the exercise of options and no participant may receive
more than 5,000,000 Common Shares during the term of the 1999 Plan. Options are granted by the
Share Option Plan Committee (the “Committee”), which currently consists of two non-employee
Trustees, and will not have an exercise price less than 100% of the fair market value of the Common
Shares and a term of greater than ten years at the grant date. Vesting of options is at the
discretion of the Committee with the exception of options granted to non-employee Trustees, which
vest in five equal annual installments beginning on the date of grant.
The 1999 Plan also provides for the granting of share appreciation rights, restricted shares and
performance units/shares. Share appreciation rights provide for the participant to receive, upon
exercise, cash and/or Common Shares, at the discretion of the committee, equal to the excess of the
market value of the Common Shares at the exercise date over the market value of the Common Shares
at the grant date. The Committee will determine the award and restrictions placed on restricted
shares, including the dividends thereon and the term of such restrictions. The Committee also
determines the award and vesting of performance units and performance shares based on the
attainment of specified performance objectives of the Company within a specified performance
period. Through December 31, 2006, no share appreciation rights or performance units/shares have
been awarded.
During 2003, the Company adopted the 2003 Share Incentive Plan (the “2003 Plan”) because no Common
Shares remained available for future grants under the 1999 Plan. The 2003 Plan provides for the
granting of options, share appreciation rights, restricted shares and performance units
(collectively, “Awards”) to officers, employees and trustees of the Company and consultants to the
Company. The 2003 Plan is generally identical to the 1999 Plan, except that the maximum number of
Common Shares that the Company may issue pursuant to the 2003 Plan is four percent of the Common
Shares outstanding from time to time on a fully diluted basis. However, no participant may receive
more than 1,000,000 Common Shares during the term of the 2003 Plan with respect to Awards. Pursuant
to the 2003 Plan, non-employee Trustees receive an automatic grant of 3,000 options following each
Annual Meeting of Shareholders.
During 2006, the Company adopted the 2006 Share Incentive Plan (the “2006 Plan”) because relatively
few Common Shares remained available for future grants under the 1999 and 2003 plans. The 2006 Plan
provides for the granting of Awards to officers, employees and trustees of the Company and
consultants to the Company. The 2006 Plan is substantially similar to the 2003 Plan, except that
the maximum number of Common Shares that the Company may issue pursuant to the 2006 Plan is 500,000
Common Shares. No participant may receive more than 500,000 Common Shares during the term of the
2006 Plan with respect to Awards.
On January 6, 2006, the Company issued 62,630 options to Officers (“Officers”) and Employees
(“Employees”) of the Company.
On May 16, 2006, the Company issued 18,000 options, 3,461 unrestricted shares and the equivalent of
1,340 Common Shares through a deferred compensation plan to Trustees of the Company in connection
with Trustee fees. The options vest immediately.
As of December 31, 2006, the Company has 492,372 options outstanding to officers and employees of
which 433,839 are vested. These options are for ten-year terms from the grant date and vest in
three equal annual installments which begin on the grant date. In addition, 58,000 options have
been issued to non-employee Trustees of which 57,400 options were vested as of December 31, 2006.
On January 6, 2006, (the “Grant Date”), the Company also issued a total of 121,233 Restricted
Common Shares (“Restricted Shares”) to Officers and 13,136 Restricted shares (net of subsequent
forfeitures) to certain Employees of the Company. In general, the Restricted Shares carry all the
rights of Common Shares including voting and dividend rights, but may not be transferred, assigned
or pledged until the recipients have a vested non-forfeitable right to such shares. Vesting with
respect to the Restricted Shares issued to Officers, which is subject to the recipients’ continued
employment with the Company through the applicable vesting dates, is over five years commencing
with 30% on the Grant Date and 17.5% on each of the next four anniversaries thereafter. In
addition, vesting on 50% of the unvested Restricted Shares is also subject to certain total
shareholder returns on the Company’s Common Shares. Vesting with respect to the Restricted Shares
issued to Employees, which is subject to the recipients’ continued employment with the Company
through the applicable vesting dates, is over five years commencing with 30% on the Grant Date and
17.5% on each of the next four anniversaries thereafter. In addition, vesting on 25% of the
unvested Restricted Shares is also subject to certain total shareholder returns on the Company’s
Common Shares.
F- 32
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Share Incentive Plan, continued
The total value of the above restricted share awards on the date of grant was $2.7 million, of
which $2.0 million will be recognized in compensation expense
over the vesting period.
On the Grant Date, the Company also issued a total of 224,901 Restricted Shares to Officers and
28,706 Restricted Shares to Employees in connection with a special, one-time performance bonus
recognizing management’s outstanding achievements in enhancing shareholder values over the previous
five years, including, but not limited to, total shareholder return and the recent recapitalization
of the Brandywine Portfolio. The Restricted Shares vest over a period of five years. 50% will
vest on the third anniversary and 25% will vest on the following two anniversaries of the Grant
Date. The total value of this special bonus was $5.2 million which will be recognized in
compensation expense over the vesting period. For the year ended December 31, 2005, 133,468
Restricted Shares (net of forfeitures) were issued pursuant to the 2003 Plan. The total value of
the Restricted Share awards on the date of grant was $2.2 million which will be recognized in
expense over the vesting period. No awards of share appreciation rights or performance units/shares
were granted for the years ended December 31, 2006, 2005 and 2004.
For the years ended December 31, 2006, 2005 and 2004, $2.7 million, $1.0 million, and $0.8 million,
respectively, were recognized in compensation expense related to Restricted Share grants.
The Company has used the Binomial method for 2006 and 2005 and the Black-Scholes option-pricing
model for 2004 for purposes of estimating the fair value in determining compensation expense for
options granted for the years ended December 31, 2006, 2005 and 2004. The Company has also used
this model for the pro forma information regarding net income and earnings per share as required by
SFAS No. 123 for options issued for the year ended December 31, 2001 as if the Company had also
accounted for these employee stock options under the fair value method. The fair value for the
options issued by the Company was estimated at the date of the grant using the following
weighted-average assumptions resulting in:
| Years ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
Weighted-average volatility |
18.0 | % | 18.0 | % | 18.0 | % | ||||||
Expected dividends |
3.6 | % | 4.2 | % | 4.2 | % | ||||||
Expected life (in years) |
7.5 | 7.5 | 7.5 | |||||||||
Risk-free interest rate |
4.4 | % | 4.0 | % | 4.0 | % | ||||||
Fair value
at date of grant (per option) |
$ | 3.03 | $ | 2.57 | $ | 2.17 | ||||||
A summary of option activity under all option arrangements as of December 31, 2006, and changes
during the year then ended is presented below:
| Weighted | Weighted Average | Aggregate Intrinsic | ||||||||||||||
| Average | Remaining | Value | ||||||||||||||
| Options | Shares | Exercise Price | Contractual Term | (dollars in thousands) | ||||||||||||
Outstanding at January 1, 2006 |
477,242 | $ | 8.08 | |||||||||||||
Granted |
80,630 | 21.04 | ||||||||||||||
Exercised |
(7,500 | ) | 5.75 | |||||||||||||
Forfeited or Expired |
— | — | ||||||||||||||
Outstanding at December 31,
2006 |
550,372 | $ | 10.01 | 4.9 | $ | 8,260 | ||||||||||
Exercisable at December 31,
2006 |
491,239 | $ | 8.89 | 4.4 | $ | 7,923 | ||||||||||
The weighted average grant date fair value of options granted during the years 2006, 2005 and 2004
was $3.03, $2.57 and $2.17, respectively. The total intrinsic value of options exercised during the
years ended December 31, 2006, 2005 and 2004 was $0.1 million, $0.6 million and $12.9 million,
respectively.
F- 33
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Share Incentive Plan, continued
A summary of the status of the Entity’s nonvested Restricted Shares as of December 31, 2006 and changes during
the year ended December 31, 2006, is presented below:
| Restricted | Weighted | |||||||
| Shares | Grant-Date | |||||||
| Nonvested Shares | (in thousands) | Fair Value | ||||||
Nonvested at January 1, 2006 |
283 | $ | 12.90 | |||||
Granted |
388 | 20.46 | ||||||
Vested |
(121 | ) | 20.28 | |||||
Forfeited |
— | — | ||||||
Nonvested at December 31,
2006 |
550 | $ | 17.27 | |||||
As of December 31, 2006, there was $7.0 million of total unrecognized compensation cost related to
nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be
recognized over a weighted-average period of 3.6 years. The total fair value of shares vested
during the years ended December 31, 2006, 2005 and 2004, was $2.5 million, $1.0 million and $0.5
million, respectively.
13. Employee Stock Purchase and Deferred Share Plan
In 2003, the Company adopted the Acadia Realty Trust Employee Stock Purchase Plan (the “Purchase
Plan”), which allows eligible employees of the Company to purchase Common Shares through payroll
deductions. The Purchase Plan provides for employees to purchase Common Shares on a quarterly basis
at a 15% discount to the closing price of the Company’s Common Shares on either the first day or
the last day of the quarter, whichever is lower. The amount of the payroll deductions will not
exceed a percentage of the participant’s annual compensation that the Committee establishes from
time to time, and a participant may not purchase more than 1,000 Common Shares per quarter.
Compensation expense will be recognized by the Company to the extent of the above discount to the
average closing price of the Common Shares with respect to the applicable quarter. During 2006,
2005 and 2004, 5,307, 6,412 and 6,397 Common Shares, respectively, were purchased by Employees
under the Purchase Plan. Associated compensation expense of $0.02 million was recorded in each
year.
In August of 2004, the Company adopted a Deferral and Distribution Election pursuant to the 1999
Share Incentive Plan and 2003 Share Incentive Plan, whereby the participants elected to defer
receipt of 190,487 Common Shares (“Share Units”) that would otherwise be issued upon the exercise
of certain options. The payment of the option exercise price was made by tendering Common Shares
that the participants owned for at least six months prior to the option exercise date. The Share
Units are equivalent to a Common Share on a one-for-one basis and carry a dividend equivalent right
equal to the dividend rate for the Company’s Common shares. The deferral period is determined by
each of the participants and generally terminates after the cessation of the participants
continuous service with the Company, as defined in the agreement. In December 2004, optionees
exercised 346,000 options pursuant to the Deferred Share Election and tendered 155,513 Common
Shares in consideration of the option exercise price. In 2004 the Company issued 155,513 Common
Shares to optionees and 190,487 Share Units. During 2006 and 2005 there were no additional Share
Units contributed to the plan.
14. Employee 401(k) Plan
The Company maintains a 401(k) plan for employees under which the Company currently matches 50% of
a plan participant’s contribution up to 6% of the employee’s annual salary. A plan participant may
contribute up to a maximum of 15% of their compensation but not in excess of $0.02 million for the
year ended December 31, 2006. The Company contributed $0.2 million, $0.1 million and $0.1 million
for the years ended December 31, 2006, 2005 and 2004, respectively.
15. Dividends and Distributions Payable
On December 4, 2006, the Company declared a cash dividend for the quarter ended December 31, 2006
of $0.20 per Common Share. The dividend was paid on January 15, 2007 to shareholders of record as
of December 29, 2006.
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Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Federal Income Taxes
The Company has elected to qualify as a REIT in accordance with the Internal Revenue Code (the
“Code”) and intends at all times to qualify as a REIT under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended. To qualify as a REIT, the Company must meet a number of
organizational and operational requirements, including a requirement that it currently distribute
at least 90% of its annual REIT taxable income to its shareholders. As a REIT, the Company
generally will not be subject to corporate Federal income tax, provided that distributions to its
shareholders equal at least the amount of its REIT taxable income as defined under the Code. As the
Company distributed sufficient taxable income for the years ended December 31, 2006, 2005 and 2004,
no U.S. Federal income or excise taxes were incurred. If the Company fails to qualify as a REIT in
any taxable year, it will be subject to Federal income taxes at the regular corporate rates
(including any applicable alternative minimum tax) and may not be able to qualify as a REIT for the
four subsequent taxable years. Even though the Company qualifies for taxation as a REIT, the
Company is subject to certain state and local taxes on its income and property and Federal income
and excise taxes on any undistributed taxable income. In addition, taxable income from non-REIT
activities managed through the Company’s TRS are subject to Federal, state and local income taxes.
The primary difference between the GAAP and tax reported amounts of the Company’s assets and
liabilities are a higher GAAP basis in its real estate properties. This is primarily the result of
assets acquired as a result of property contributions in exchange for OP Units.
Reconciliation between GAAP net income and Federal taxable income
The following unaudited table reconciles GAAP net income to taxable income for the years ended
December 31, 2006, 2005 and 2004:
| 2006 | 2005 | 2004 | ||||||||||
| (dollars in thousands) | (Estimated) | (Actual) | (Actual) | |||||||||
GAAP net income |
$ | 39,013 | $ | 20,626 | $ | 19,585 | ||||||
GAAP net (loss) income of TRS |
(405 | ) | 1,349 | — | ||||||||
GAAP net income from REIT operations (1) |
39,418 | 19,277 | 19,585 | |||||||||
Book/tax difference in depreciation and amortization |
5,472 | 2,817 | 3,438 | |||||||||
Book/tax difference on exercise of options to
purchase Common Shares |
(224 | ) | (405 | ) | (8,970 | ) | ||||||
Book/tax difference on capital transactions (2) |
(20,974 | ) | (465 | ) | (1,354 | ) | ||||||
Other book/tax differences, net |
2,492 | (2,065 | ) | 1,953 | ||||||||
REIT taxable income before dividends paid deduction |
$ | 26,184 | $ | 19,159 | $ | 14,652 | ||||||
| (1) | All adjustments to GAAP net income from REIT operations are net of amounts attributable to minority interest and TRS. | |
| (2) | Principally the result of the deferral of gain on sale of properties pursuant to Code Section 1031 Like-Kind Exchanges |
F- 35
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Federal Income Taxes, continued
Characterization of Distributions:
The Company has determined that the cash distributed to the shareholders is characterized as
follows for Federal income tax purposes:
| For the years ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
Ordinary income |
100 | % | 95 | % | 59 | % | ||||||
Section 1250 gain |
— | 3 | % | 32 | % | |||||||
Return of capital |
— | 2 | % | 9 | % | |||||||
| 100 | % | 100 | % | 100 | % | |||||||
Taxable REIT Subsidiaries (“TRS”)
Income taxes have been provided for using the asset and liability method as required by SFAS No.
109. The Company’s combined TRS (loss) income and (benefit) provision for income taxes for the
years ended December 31, 2006 and 2005 are summarized as follows:
| 2006 | 2005 | |||||||
| (dollars in thousands) | (Estimated) | (Actual) | ||||||
TRS (loss) income before income taxes |
$ | (296 | ) | $ | 3,458 | |||
Benefit (provision) for income taxes: |
— | — | ||||||
Federal |
590 | (1,601 | ) | |||||
State and local |
111 | (508 | ) | |||||
TRS net income |
$ | 405 | $ | 1,349 | ||||
The income tax benefit (provision) differs from the amount computed by applying the statutory
federal income tax rate to taxable (loss) income before income taxes as follows:
| (dollars in thousands) | 2006 | 2005 | ||||||
Federal benefit (provision) at statutory tax rate |
$ | 100 | $ | (1,210 | ) | |||
State and local taxes, net of federal benefit |
15 | (330 | ) | |||||
Tax effect of: |
||||||||
Valuation allowance against deferred tax liability asset |
— | (208 | ) | |||||
Utilization of loss and deduction carry forwards |
— | 115 | ||||||
Change in estimate |
586 | — | ||||||
REIT State, Local and Franchise taxes |
(193 | ) | (507 | ) | ||||
Total benefit (provision) for income taxes |
$ | 508 | $ | (2,140 | ) | |||
F- 36
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Financial Instruments
Fair Value of Financial Instruments:
SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” requires disclosure on
the fair value of financial instruments. Certain of the Company’s assets and liabilities are
considered financial instruments. Fair value estimates, methods and assumptions are set forth
below.
Cash and Cash Equivalents, Restricted Cash, Cash in Escrow, Rents Receivable, Notes Receivable,
Prepaid Expenses, Other Assets, Accounts Payable and Accrued Expenses, Dividends and
Distributions Payable, Due to Related Parties and Other Liabilities. The carrying amount of
these assets and liabilities approximates fair value due to the short-term nature of such
accounts.
Derivative Instruments — The fair value of these instruments is based upon the estimated
amounts the Company would receive or pay to terminate the contracts as of December 31, 2006 and
2005 and is determined using interest rate market pricing models.
Mortgage Notes Payable and Notes Payable — As of December 31, 2006 and 2005, the Company has
determined the estimated fair value of its mortgage notes payable, including those relating to
discontinued operations, are $439.1 million and $422.1 million, respectively, by discounting
future cash payments utilizing a discount rate equivalent to the rate at which similar mortgage
notes payable would be originated under conditions then existing.
Derivative Financial Instruments:
SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended and
interpreted, establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for hedging
activities. As required by SFAS 133, the Company records all derivatives on the balance sheet
at fair value. The accounting for changes in the fair value of derivatives depends on the
intended use of the derivative and the resulting designation. Derivatives used to hedge the
exposure to changes in the fair value of an asset, liability, or firm commitment attributable
to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives
used to hedge the exposure to variability in expected future cash flows, or other types of
forecasted transactions, are considered cash flow hedges.
For derivatives designated as fair value hedges, changes in the fair value of the derivative
and the hedged item related to the hedged risk are recognized in earnings. For derivatives
designated as cash flow hedges, the effective portion of changes in the fair value of the
derivative is initially reported in other comprehensive income (outside of earnings) and
subsequently reclassified to earnings when the hedged transaction affects earnings, and the
ineffective portion of changes in the fair value of the derivative is recognized directly in
earnings. The Company assesses the effectiveness of each hedging relationship by comparing the
changes in fair value or cash flows of the derivative hedging instrument with the changes in
fair value or cash flows of the designated hedged item or transaction. For derivatives not
designated as hedges, changes in fair value are recognized in earnings.
As of December 31, 2006 and 2005, no derivatives were designated as fair value hedges or hedges
of net investments in foreign operations. Additionally, the Company does not use derivatives
for trading or speculative purposes and currently does not have any derivatives that are not
designated as hedges.
The following table summarizes the notional values and fair values of the Company’s derivative
financial instruments as of December 31, 2006. The notional value does not represent exposure
to credit, interest rate or market risks:
| Notional | Forward Start | Interest | ||||||||||||||||||
| Hedge Type | Value | Rate | Date | maturity | Fair Value | |||||||||||||||
(dollars in thousands) |
||||||||||||||||||||
Current Interest Rate Swaps |
||||||||||||||||||||
LIBOR Swap |
$ | 4,627 | 4.71 | % | n/a | 01/01/10 | $ | 27 | ||||||||||||
LIBOR Swap |
11,375 | 4.90 | % | n/a | 10/01/11 | 33 | ||||||||||||||
Interest rate swap receivable |
$ | 16,002 | $ | 60 | ||||||||||||||||
Forward –Starting Interest Rate Swaps |
||||||||||||||||||||
LIBOR Swap |
$ | 8,434 | 5.14 | % | 6/1/07 | 3/1/12 | $ | (72 | ) | |||||||||||
| $ | 8,434 | |||||||||||||||||||
Interest Rate Caps |
||||||||||||||||||||
LIBOR Cap |
$ | 30,000 | 6.00 | % | n/a | 4/1/08 | 2 | |||||||||||||
Net Interest rate swap liability |
$ | (10 | ) | |||||||||||||||||
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Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Financial Instruments, continued
Derivative Financial Instruments, continued:
Derivative instruments are reported at fair value as reflected above. The fair value of the derivative instruments is included in Other Assets in the Consolidated Balance Sheets as of December 31, 2006. As of December 31, 2005,
the derivative instruments were reported at fair value as a derivative instrument asset of $0.8
million and derivative instrument liability of $0.2 million. As of December 31, 2006 and 2005,
unrealized losses totaling $0.2 and $0.01 million, respectively, represented the fair value of the
aforementioned derivatives, of which $(0.2) million and $(0.01) million, respectively, were
reflected in accumulated other comprehensive loss.
The Company’s interest rate hedges are designated as cash flow hedges and hedge the future cash
outflows on mortgage debt. Interest rate swaps that convert variable payments to fixed payments,
such as those held by the Company, as well as interest rate caps, floors, collars, and forwards are
cash flow hedges. The unrealized gains and losses in the fair value of these hedges are reported on
the balance sheet with a corresponding adjustment to either accumulated other comprehensive income
or earnings depending on the type of hedging relationship. For cash flow hedges, offsetting gains
and losses are reported in accumulated other comprehensive income. Over time, the unrealized gains
and losses held in accumulated other comprehensive income will be reclassified to earnings. This
reclassification occurs over the same time period in which the hedged items affect earnings. At December 31, 2006, approximately $0.4 million is expected to be reclassified to earnings.
18. Earnings Per Common Share
Basic earnings per share was determined by dividing the applicable net income to common
shareholders for the year by the weighted average number of Common Shares outstanding during each
year consistent with SFAS No. 128. Diluted earnings per share reflects the potential dilution that
could occur if securities or other contracts to issue Common Shares were exercised or converted
into Common Shares or resulted in the issuance of Common Shares that then shared in the earnings of
the Company. The following table sets forth the computation of basic and diluted earnings per share
from continuing operations for the periods indicated:
| Years ended December 31, | ||||||||||||
| (dollars in thousands, except per share amounts) | 2006 | 2005 | 2004 | |||||||||
Numerator: |
||||||||||||
Income from continuing operations – basic earnings
per share |
$ | 15,794 | $ | 19,643 | $ | 11,458 | ||||||
Effect of dilutive securities: |
||||||||||||
Preferred OP Unit distributions |
254 | — | — | |||||||||
Numerator for diluted earnings per share |
$ | 16,048 | $ | 19,643 | $ | 11,458 | ||||||
Denominator: |
||||||||||||
Weighted average shares – basic earnings per share |
32,502 | 31,949 | 29,341 | |||||||||
Effect of dilutive securities: |
||||||||||||
Employee stock options |
314 | 265 | 571 | |||||||||
Convertible Preferred OP Units |
337 | — | — | |||||||||
Dilutive potential Common Shares |
651 | 265 | 571 | |||||||||
Denominator for diluted earnings per share |
33,153 | 32,214 | 29,912 | |||||||||
Basic earnings per share from continuing operations |
$ | 0.49 | $ | 0.62 | $ | 0.39 | ||||||
Diluted earnings per share from continuing operations |
$ | 0.48 | $ | 0.61 | $ | 0.38 | ||||||
The weighted average shares used in the computation of basic earnings per share include unvested
restricted shares (Note 12) and Share Units (Note 13) that are entitled to receive dividend
equivalent payments. The effect of the conversion of Common OP Units is not reflected in the above
table as they are exchangeable for Common Shares on a one-for-one basis. The income allocable to
such units is allocated on this same basis and reflected as minority interest 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.
F- 38
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. Summary of Quarterly Financial Information (unaudited)
The quarterly results of operations of the Company for the years ended December 31, 2006 and 2005
are as follows:
| March 31, | June 30, | September 30, | December 31, | Total for | ||||||||||||||||
| (dollars in thousands, except per share amount | 2006 | 2006 | 2006 | 2006 | Year | |||||||||||||||
Revenue |
$ | 25,646 | $ | 23,944 | $ | 26,116 | $ | 26,987 | $ | 102,693 | ||||||||||
Income from continuing operations |
$ | 3,803 | $ | 4,338 | $ | 3,748 | $ | 3,905 | $ | 15,794 | ||||||||||
Income (loss) from discontinued operations |
$ | 550 | $ | 510 | $ | 374 | $ | 21,785 | $ | 23,219 | ||||||||||
Net income |
$ | 4,353 | $ | 4,848 | $ | 4,122 | $ | 25,690 | $ | 39,013 | ||||||||||
Net income per Common Share – basic: |
||||||||||||||||||||
Income from continuing operations |
$ | 0.12 | $ | 0.14 | $ | 0.12 | $ | 0.12 | $ | 0.49 | ||||||||||
Income (loss) from discontinued
operations |
0.01 | 0.01 | 0.01 | 0.67 | 0.71 | |||||||||||||||
Net income |
$ | 0.13 | $ | 0.15 | $ | 0.13 | $ | 0.79 | $ | 1.20 | ||||||||||
Net income per Common Share –
diluted: |
||||||||||||||||||||
Income from continuing operations |
$ | 0.12 | $ | 0.14 | $ | 0.12 | $ | 0.12 | $ | 0.48 | ||||||||||
Income (loss) from discontinued
operations |
0.01 | 0.01 | 0.01 | 0.65 | 0.70 | |||||||||||||||
Net income |
$ | 0.13 | $ | 0.15 | $ | 0.13 | $ | 0.77 | $ | 1.18 | ||||||||||
Cash dividends declared per Common
Share |
$ | 0.185 | $ | 0.185 | $ | 0.185 | $ | 0.20 | $ | 0.755 | ||||||||||
Weighted average Common Shares
outstanding: |
||||||||||||||||||||
Basic |
32,468,204 | 32,509,360 | 32,513,398 | 32,514,803 | 32,501,602 | |||||||||||||||
Diluted |
32,766,119 | 32,810,794 | 32,836,473 | 33,186,718 | 33,152,996 | |||||||||||||||
| March 31, | June 30, | September 30, | December 31, | Total for | ||||||||||||||||
| (dollars in thousands, except per share amounts) | 2005 | 2005 | 2005 | 2005 | Year | |||||||||||||||
Revenue |
$ | 23,776 | $ | 24,298 | $ | 27,818 | $ | 24,914 | $ | 100,806 | ||||||||||
Income from continuing operations |
$ | 4,013 | $ | 4,485 | $ | 6,714 | $ | 4,431 | $ | 19,643 | ||||||||||
Income (loss) from discontinued operations |
$ | 432 | $ | (140 | ) | $ | 511 | $ | 180 | $ | 983 | |||||||||
Net income |
$ | 4,445 | $ | 4,345 | $ | 7,225 | $ | 4,611 | $ | 20,626 | ||||||||||
Net income per Common Share – basic: |
||||||||||||||||||||
Income from continuing operations |
$ | 0.13 | $ | 0.14 | $ | 0.21 | $ | 0.14 | $ | 0.62 | ||||||||||
Income (loss) from discontinued
operations |
0.01 | 0.00 | 0.02 | 0.00 | 0.03 | |||||||||||||||
Net income |
$ | 0.14 | $ | 0.14 | $ | 0.23 | $ | 0.14 | $ | 0.65 | ||||||||||
Net income per Common Share –
diluted: |
||||||||||||||||||||
Income from continuing operations |
$ | 0.13 | $ | 0.14 | $ | 0.20 | $ | 0.14 | $ | 0.61 | ||||||||||
Income (loss) from discontinued
operations |
0.01 | 0.00 | 0.02 | 0.00 | 0.03 | |||||||||||||||
Net income |
$ | 0.14 | $ | 0.14 | $ | 0.22 | $ | 0.14 | $ | 0.64 | ||||||||||
Cash dividends declared per Common
Share |
$ | 0.1725 | $ | 0.1725 | $ | 0.1725 | $ | 0.185 | $ | 0.7025 | ||||||||||
Weighted average Common Shares
outstanding: |
||||||||||||||||||||
Basic |
31,867,185 | 31,898,644 | 32,008,982 | 32,017,316 | 31,948,610 | |||||||||||||||
Diluted |
32,139,833 | 32,144,529 | 32,706,201 | 32,293,926 | 32,214,231 | |||||||||||||||
F- 39
Table of Contents
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. Commitments and Contingencies
Under various Federal, state and local laws, ordinances and regulations relating to the protection
of the environment, a current or previous owner or operator of real estate may be liable for the
cost of removal or remediation of certain hazardous or toxic substances disposed, stored,
generated, released, manufactured or discharged from, on, at, under, or in a property. As such, the
Company may be potentially liable for costs associated with any potential environmental remediation
at any of its formerly or currently owned properties.
The Company conducts Phase I environmental reviews with respect to properties it acquires. These
reviews include an investigation for the presence of asbestos, underground storage tanks and
polychlorinated biphenyls (PCBs). Although such reviews are intended to evaluate the environmental
condition of the subject property as well as surrounding properties, there can be no assurance that
the review conducted by the Company will be adequate to identify environmental or other problems
that may exist. Where a Phase II assessment is so recommended, a Phase II assessment was conducted
to further determine the extent of possible environmental contamination. In all instances where a
Phase I or II assessment has resulted in specific recommendations for remedial actions, the Company
has either taken or scheduled the recommended remedial action. To mitigate unknown risks, the
Company has obtained environmental insurance for most of its properties, which covers only unknown
environmental risks.
The Company believes that it is in compliance in all material respects with all Federal, state and
local ordinances and regulations regarding hazardous or toxic substances. Management is not aware
of any environmental liability that it believes would have a material adverse impact on the
Company’s financial position or results of operations. Management is unaware of any instances in
which the Company would incur significant environmental costs if any or all properties were sold,
disposed of or abandoned. However, there can be no assurance that any such non-compliance,
liability, claim or expenditure will not arise in the future.
For the year ended December 31, 2004, the Company accrued a reserve for $0.7 million related to
flood damage incurred at one of its properties. Under the terms of the Company’s insurance policy,
a maximum deductible of approximately $0.7 million would apply in the event the flood damage was
the direct result of a “named” storm. During the first quarter of 2005, the Company reduced the
reserve by $0.5 million due to the settlement of the insurance claim.
The Company is involved in various matters of litigation arising in the normal course of business.
While the Company is unable to predict with certainty the amounts involved, the Company’s
management and counsel are of the opinion that, when such litigation is resolved, the Company’s
resulting liability, if any, will not have a significant effect on the Company’s consolidated
financial position or results of operations.
21. Subsequent Events
In February 2007, Klaff converted 3,800 Series B Preferred Units into 296,412 Common OP Units and
ultimately into Common Shares.
On January 8, 2007, the Initial Purchasers exercised their option pursuant to the Purchase
Agreement to purchase an additional $15.0 million aggregate principal amount of the Notes. The net
proceeds from the sale of the additional Notes, after deducting the Initial Purchasers’ discount
and estimated offering expenses, were approximately $14.7 million.
On February 26, 2007 the Company, through its RCP Venture, received a cash distribution totaling
approximately $42.5 million from its ownership position in Albertsons. The Operating Partnership’s
share of this distribution amounted to approximately $8.5 million. The distribution resulted from
cash proceeds obtained by Albertsons in connection with its disposition of certain operating stores
and a refinancing of the remaining assets held in the entity.
F- 40
Table of Contents
ACADIA
REALTY TRUST
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2006
December 31, 2006
| Costs capitalized | Date of | |||||||||||||||||||||||||||||||||||
| Buildings & | Subsequent to | Buildings & | Accumulated | Acquisition (a) | ||||||||||||||||||||||||||||||||
| Description | Encumbrances | Land | Improvements | Acquisition | Land | Improvements | Total | Depreciation | Construction(c) | |||||||||||||||||||||||||||
Shopping Centers |
||||||||||||||||||||||||||||||||||||
Crescent Plaza |
$ | 17,600 | $ | 1,147 | $ | 7,425 | $ | 823 | $ | 1,147 | $ | 8,248 | $ | 9,395 | $ | 4,612 | 1984 | (a) | ||||||||||||||||||
Brockton, MA |
||||||||||||||||||||||||||||||||||||
New Loudon Center |
14,940 | 505 | 4,161 | 10,839 | 505 | 15,000 | 15,505 | 8,594 | 1982 | (a) | ||||||||||||||||||||||||||
Latham, NY |
||||||||||||||||||||||||||||||||||||
Ledgewood Mall |
21,524 | 619 | 5,434 | 33,199 | 619 | 38,633 | 39,252 | 27,003 | 1983 | (a) | ||||||||||||||||||||||||||
Ledgewood, NJ |
||||||||||||||||||||||||||||||||||||
Mark Plaza |
— | — | 4,268 | 4,690 | — | 8,958 | 8,958 | 5,942 | 1968 | (c) | ||||||||||||||||||||||||||
Edwardsville, PA |
||||||||||||||||||||||||||||||||||||
Blackman Plaza |
— | 120 | — | 1,599 | 120 | 1,599 | 1,719 | 637 | 1968 | (c) | ||||||||||||||||||||||||||
Wilkes-Barre, PA |
||||||||||||||||||||||||||||||||||||
Plaza 422 |
— | 190 | 3,004 | 720 | 190 | 3,724 | 3,914 | 2,826 | 1972 | (c) | ||||||||||||||||||||||||||
Lebanon, PA |
||||||||||||||||||||||||||||||||||||
Route 6 Mall |
— | — | — | 12,695 | 1,664 | 11,031 | 12,695 | 4,613 | 1995 | (c) | ||||||||||||||||||||||||||
Honesdale, PA |
||||||||||||||||||||||||||||||||||||
Bartow Avenue |
— | 1,691 | 5,803 | 330 | 1,691 | 6,133 | 7,824 | 380 | 2002 | (c) | ||||||||||||||||||||||||||
Bronx, NY |
||||||||||||||||||||||||||||||||||||
Amboy Rd. Shopping Ctr. |
— | — | 11,909 | 1,435 | — | 13,344 | 13,344 | 496 | 2005 | (a) | ||||||||||||||||||||||||||
Staten Island, NY |
||||||||||||||||||||||||||||||||||||
Abington Towne Center |
— | 799 | 3,197 | 1,994 | 799 | 5,191 | 5,990 | 1,420 | 1998 | (a) | ||||||||||||||||||||||||||
Abington, PA |
||||||||||||||||||||||||||||||||||||
Bloomfield Town Square |
— | 3,443 | 13,774 | 6,414 | 3,443 | 20,188 | 23,631 | 4,286 | 1998 | (a) | ||||||||||||||||||||||||||
Bloomfield Hills, MI |
||||||||||||||||||||||||||||||||||||
Walnut Hill Plaza |
23,500 | 3,122 | 12,488 | 1,242 | 3,122 | 13,730 | 16,852 | 3,339 | 1998 | (a) | ||||||||||||||||||||||||||
Woonsocket, RI |
||||||||||||||||||||||||||||||||||||
Elmwood Park Plaza |
34,600 | 3,248 | 12,992 | 14,764 | 3,798 | 27,206 | 31,004 | 6,371 | 1998 | (a) | ||||||||||||||||||||||||||
Elmwood Park, NJ |
||||||||||||||||||||||||||||||||||||
Merrillville Plaza |
12,665 | 4,288 | 17,152 | 1,473 | 4,288 | 18,625 | 22,913 | 4,270 | 1998 | (a) | ||||||||||||||||||||||||||
Hobart, IN |
||||||||||||||||||||||||||||||||||||
Marketplace of Absecon |
— | 2,573 | 10,294 | 2,465 | 2,577 | 12,755 | 15,332 | 2,863 | 1998 | (a) | ||||||||||||||||||||||||||
Absecon, NJ |
||||||||||||||||||||||||||||||||||||
Clark Diversey |
3,781 | 11,303 | 2,903 | — | 11,303 | 2,903 | 14,206 | 71 | ||||||||||||||||||||||||||||
Boonton |
8,565 | 3,297 | 7,611 | — | 3,297 | 7,611 | 10,908 | 174 | ||||||||||||||||||||||||||||
Chestnut Hill |
9,997 | 8,978 | 5,568 | — | 8,978 | 5,568 | 14,546 | 69 | ||||||||||||||||||||||||||||
Third Avenue |
— | 11,108 | 8,038 | — | 11,108 | 8,038 | 19,146 | 48 | ||||||||||||||||||||||||||||
Liberty Avenue |
5,362 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Tarrytown Centre |
— | 2,323 | 7,396 | — | 2,323 | 7,396 | 9,719 | 409 | ||||||||||||||||||||||||||||
Mark Plaza |
— | 250 | — | — | 250 | 250 | ||||||||||||||||||||||||||||||
Acadia Realty L.P. |
— | — | 1,455 | — | 1,455 | 1,455 | 1,169 | |||||||||||||||||||||||||||||
Acadia K-H, LLC |
— | — | 50 | — | 50 | 50 | 25 | |||||||||||||||||||||||||||||
Acadia Sterling Heights |
— | — | (26 | ) | — | (26 | ) | (26 | ) | (0 | ) | |||||||||||||||||||||||||
Acadia Haygood |
— | — | (103 | ) | — | (103 | ) | (103 | ) | (1 | ) | |||||||||||||||||||||||||
Pelham Manor |
— | 905 | — | — | 905 | — | 905 | |||||||||||||||||||||||||||||
Hobson West Plaza |
— | 1,793 | 7,172 | 690 | 1,793 | 7,862 | 9,655 | 1,928 | 1998 | (a) | ||||||||||||||||||||||||||
Naperville, IL Village |
||||||||||||||||||||||||||||||||||||
Commons/Smithtown
Shopping Center |
9,925 | 3,229 | 12,917 | 1,229 | 3,229 | 14,146 | 17,375 | 3,580 | 1998 | (a) | ||||||||||||||||||||||||||
Smithtown, NY |
||||||||||||||||||||||||||||||||||||
Town Line Plaza |
878 | 3,510 | 7,176 | 907 | 10,657 | 11,564 | 6,562 | 1998 | (a) | |||||||||||||||||||||||||||
Rocky Hill, CT |
||||||||||||||||||||||||||||||||||||
Branch Shopping Center |
16,000 | 3,156 | 12,545 | 653 | 3,156 | 13,198 | 16,354 | 2,902 | 1998 | (a) | ||||||||||||||||||||||||||
Village of the
Branch, NY |
||||||||||||||||||||||||||||||||||||
F- 41
Table of Contents
| Costs capitalized | Date of | |||||||||||||||||||||||||||||||||||
| Buildings & | Subsequent | Buildings & | Accumulated | Acquisition (a) | ||||||||||||||||||||||||||||||||
| Description | Encumbrances | Land | Improvements | to Acquisition | Land | Improvements | Total | Depreciation | Construction(c) | |||||||||||||||||||||||||||
The Methuen Shopping
Center |
— | 956 | 3,826 | 358 | 956 | 4,184 | 5,140 | 801 | 1998 | (a) | ||||||||||||||||||||||||||
Methuen, MA |
||||||||||||||||||||||||||||||||||||
Gateway Shopping Center |
20,500 | 1,273 | 5,091 | 11,536 | 1,273 | 16,627 | 17,900 | 2,478 | 1999 | (a) | ||||||||||||||||||||||||||
Burlington, VT |
||||||||||||||||||||||||||||||||||||
Mad River Station |
— | 2,350 | 9,404 | 546 | 2,350 | 9,950 | 12,300 | 2,040 | 1999 | (a) | ||||||||||||||||||||||||||
Dayton, OH |
||||||||||||||||||||||||||||||||||||
Pacesetter Park Shopping
Center |
12,500 | 1,475 | 5,899 | 1,032 | 1,475 | 6,931 | 8,406 | 1,507 | 1999 | (a) | ||||||||||||||||||||||||||
Ramapo, NY |
||||||||||||||||||||||||||||||||||||
239 Greenwich |
15,672 | 1,817 | 15,846 | 502 | 1,817 | 16,348 | 18,165 | 3,172 | 1999 | (c) | ||||||||||||||||||||||||||
Greenwich, CT |
||||||||||||||||||||||||||||||||||||
Residential Properties
Gate House, Holiday House,
Tiger Village |
10,459 | 2,312 | 9,247 | 3,474 | 2,312 | 12,721 | 15,033 | 3,635 | 1998 | (a) | ||||||||||||||||||||||||||
Columbia, MO |
||||||||||||||||||||||||||||||||||||
Village Apartments |
— | 3,429 | 13,716 | 2,919 | 3,429 | 16,635 | 20,064 | 4,378 | 1998 | (a) | ||||||||||||||||||||||||||
Winston Salem, NC |
||||||||||||||||||||||||||||||||||||
Colony Apartments |
5,229 | 1,118 | 4,470 | 1,654 | 1,118 | 6,124 | 7,242 | 1,767 | 1998 | (a) | ||||||||||||||||||||||||||
Columbia, MO |
||||||||||||||||||||||||||||||||||||
Amherst Marketplace |
4,526 | 1,534 | 6,144 | — | 1,534 | 6,144 | 7,678 | 737 | 2002 | (a) | ||||||||||||||||||||||||||
Sheffield Crossing |
6,744 | 2,049 | 7,557 | 46 | 2,049 | 7,603 | 9,652 | 849 | 2002 | (a) | ||||||||||||||||||||||||||
Granville Center |
2,939 | 2,186 | 8,744 | 59 | 2,186 | 8,803 | 10,989 | 981 | 2002 | (a) | ||||||||||||||||||||||||||
Kroger/Safeway |
14,764 | — | 48,938 | (48 | ) | — | 48,890 | 48,890 | 22,430 | 2003 | (a) | |||||||||||||||||||||||||
Various |
||||||||||||||||||||||||||||||||||||
400 E. Fordham Road |
18,000 | 11,144 | 18,010 | 902 | 12,012 | 18,044 | 30,056 | 1,017 | 2004 | (a) | ||||||||||||||||||||||||||
Bronx, NY |
||||||||||||||||||||||||||||||||||||
4650 Broadway/Sherman
Avenue |
19,000 | 25,267 | — | — | 25,267 | — | 25,267 | — | 2005 | (a) | ||||||||||||||||||||||||||
New York, NY |
||||||||||||||||||||||||||||||||||||
216th Street |
6,423 | 7,313 | — | (52 | ) | 7,261 | — | 7,261 | — | 2005 | (a) | |||||||||||||||||||||||||
New York, NY |
||||||||||||||||||||||||||||||||||||
161st Street |
30,000 | 16,679 | 28,410 | 181 | 16,679 | 28,591 | 45,270 | 1,008 | 2005 | (a) | ||||||||||||||||||||||||||
Bronx, NY |
||||||||||||||||||||||||||||||||||||
Oakbrook |
— | — | 6,906 | 17 | — | 6,923 | 6,923 | 683 | 2005 | (a) | ||||||||||||||||||||||||||
Oakbrook, IL |
||||||||||||||||||||||||||||||||||||
Undeveloped land |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Properties under
development |
— | — | — | 26,670 | — | 26,670 | 26,670 | — | 2005 | (a) | ||||||||||||||||||||||||||
| $ | 345,215 | $ | 149,867 | $ | 373,145 | $ | 154,226 | $ | 152,930 | $ | 524,308 | $ | 677,238 | $ | 142,071 | |||||||||||||||||||||
S.CONT
F- 42
Table of Contents
ACADIA REALTY TRUST
NOTES TO SCHEDULE III
NOTES TO SCHEDULE III
December 31, 2006
1. Depreciation and investments in buildings and improvements reflected in the statements of income
is calculated over the estimated useful life of the assets as follows:
Buildings 30 to 40 years Improvements Shorter of lease term or useful life
2. The aggregate gross cost of property included above for Federal income tax purposes was $352.7
million as of December 31, 2006.
3. (a) Reconciliation of Real Estate Properties:
The following table reconciles the real estate properties from January 1, 2004 to December 31,
2006:
| For the year ended December 31, | ||||||||||||
| (dollars in thousands) | 2006 | 2005 | 2004 | |||||||||
Balance at beginning of year |
$ | 710,106 | $ | 599,558 | $ | 541,892 | ||||||
Transfers (1) |
(131,341 | ) | ||||||||||
Other improvements |
28,698 | 12,700 | 6,909 | |||||||||
Reclassification of tenant
improvement activities |
— | — | 845 | |||||||||
Property Acquired |
69,775 | 97,848 | 49,912 | |||||||||
Balance at end of year |
$ | 677,238 | $ | 710,106 | $ | 599,558 | ||||||
| (1) | Reflects the change in accounting for the Brandywine Portfolio following the recapitalization of the investment in January 2006 (Note 1). |
(b) Reconciliation of Accumulated Depreciation:
The following table reconciles accumulated depreciation from January 1, 2004 to December 31, 2006:
| For the year ended December 31, | ||||||||||||
| (dollars in thousands) | 2006 | 2005 | 2004 | |||||||||
Balance at beginning of year |
$ | 127,819 | $ | 106,924 | $ | 86,337 | ||||||
Reclassification of tenant
improvement activities |
— | — | 660 | |||||||||
Depreciation related to real estate |
14,252 | 20,895 | 19,927 | |||||||||
Balance at end of year |
$ | 142,071 | $ | 127,819 | $ | 106,924 | ||||||
F- 43