INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

Core Portfolio

The Company owns a 22.2% interest in an approximately one million square foot retail portfolio (the “Brandywine Portfolio”) located in Wilmington, Delaware, a 49% interest in a 311,000 square foot shopping center located in White Plains, New York (“Crossroads”), and a 50% interest in an approximately 28,000 square foot retail portfolio located in Georgetown, Washington D.C. (the "Georgetown Portfolio"). These investments are accounted for under the equity method.


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

Opportunity Funds

RCP Venture

The Company along with Klaff Realty, LP (“Klaff”) and Lubert-Adler Management, Inc. (“Lubert-Adler”) formed an investment group, the RCP Venture, for the purpose of making investments in surplus or underutilized properties owned by retailers. The RCP Venture is neither a single entity nor a specific investment. Any member of this group has the option of participating, or not, in any individual investment and each individual investment has been made on a stand-alone basis through a separate limited liability company (“LLC”). These investments have been made through different investment vehicles with different affiliated and unaffiliated investors and different economics to the Company. Investments under the RCP Venture are structured as separate joint ventures as there may be other investors participating in certain investments in addition to Klaff, Lubert-Adler and Acadia. The Company has made these investments through its subsidiaries, Mervyns I, Mervyns II and Fund II, (together the “Acadia Investors”), all on a non-recourse basis. Through September 30, 2012, the Acadia Investors have made investments in Mervyns Department Stores (“Mervyns”) and Albertsons including additional investments in locations that are separate from these original investments (“Add-On Investments”). Additionally, they have invested in Shopko, Marsh and Rex Stores Corporation (collectively “Other RCP Investments”).

The Acadia Investors have noncontrolling interests in the individual investee LLC’s as follows:



			Acadia Investors Ownership % in:
Investment	Investee LLC	Acadia Investors Entity	Investee LLC	Underlying entity(ies)
Mervyns	KLA/Mervyn’s, LLC	Mervyns I and Mervyns II	10.5%	5.8%
Mervyns Add-On investments	KLA/Mervyn’s, LLC	Mervyns I and Mervyns II	10.5%	5.8%
Albertsons	KLA A Markets, LLC	Mervyns II	18.9%	5.7%
Albertsons Add-On investments	KLA A Markets, LLC	Mervyns II	20.0%	6.0%
Shopko	KLA-Shopko, LLC	Fund II	20.0%	2.0%
Marsh and Add-On investments	KLA Marsh, LLC	Fund II	20.0%	3.3%
Rex Stores	KLAC Rex Venture, LLC	Mervyns II	13.3%	13.3%

The Company accounts for the original investments in Mervyns and Albertsons under the equity method of accounting as the Company has the ability to exercise significant influence, but does not have financial or operating control.

The Company accounts for the Add-On Investments and Other RCP Investments under the cost method. Due to its minor ownership interest, based on the size of the investments as well as the terms of the underlying operating agreements, the Company has no influence over such entities' operating and financial policies. Other than the minority investor rights to which the Company is entitled pursuant to statute, it has no rights other than to receive its pro-rata share of cash distributions as declared by the managers of the Add-On Investments and Other RCP Investments. The Company has no rights with respect to the control and operation of these investment vehicles, nor with the formulation and execution of business and investment policies.

During the nine months ended September 30, 2012, the Company received RCP Venture distributions from Albertsons Add-On investments and Rex Stores totaling $3.9 million of which the Operating Partnership's share totaled $0.8 million.

In September 2008, the Company, certain of its subsidiaries, and other unrelated entities (the "Investor Consortium") were named as defendants in an adversary proceeding brought by Mervyn's LLC ("Mervyns") in the United States Bankruptcy Court for the District of Delaware. The action involved five claims alleging fraudulent transfers in which Mervyns was nominally seeking approximately $1.175 billion in damages from the Investor Consortium, although the actual claims made by the administrator and the unsecured creditors were substantially less. The first claim contended that, at the time of the sale of Mervyns by Target Corporation ("Target") to the Investor Consortium, a transfer of assets was made in an effort to defraud creditors. The Company 5. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES (continued)

believed that this aspect of the case was without merit. The remaining four claims relate to transfers of assets of Mervyns at various times after the sale by Target. The Company believed that there were substantial defenses to these claims.

During the third quarter of 2012, the parties to this litigation arrived at an agreement to settle the claim. The settlement, was approved by the bankruptcy court and provides for a payment of $163.7 million. Based on the defendants' agreement, the net cost of the settlement to the Investor Consortium would amount to approximately $143.6 million. After applying cash on hand at the investee level, Mervyns I and Mervyns II's combined contribution to this settlement will be approximately $0.9 million. In addition, the Company reduced its carrying value of these investments from $6.3 million to its fair value of $5.5 million. In total, this resulted in a charge of $1.7 million during the quarter ended September 30, 2012, of which the Operating Partnership's share, net of income taxes was $0.2 million.

The following table summarizes activity related to the RCP Venture investments from inception through September 30, 2012:



(dollars in thousands)						Operating Partnership Share
Investment	Year Acquired	Invested Capital and Advances		Distributions		Invested Capital and Advances		Distributions
Mervyns	2004	$	26,058	$	45,966	$	4,901	$	11,251
Mervyns Add-On investments	2005/2008	6,517		3,558		1,046		819
Albertsons	2006	20,717		81,594		4,239		16,318
Albertsons Add-On investments	2006/2007	2,416		4,778		388		955
Shopko	2006	1,108		1,659		222		332
Marsh and Add-On investments	2006/2008	2,667		2,639		533		528
Rex Stores	2007	2,701		1,623		535		325
		$	62,184	$	141,817	$	11,864	$	30,528

Other Opportunity Fund Investments

The unaffiliated venture partners for Fund III's investments in Lincoln Road, Parkway Crossing, Arundel Plaza, Self-Storage Management and the White City Shopping Center maintain control over these entities and, as such, the Company accounts for these investments under the equity method.

Fund III owned an 84% interest in the Shop Rite at Orchard Center, which was accounted for using the equity method. During the second quarter of 2012, this property was sold for $13.8 million.

During the third quarter of 2012, Fund III acquired a 90% interest in Arundel Plaza (Note 4).

During the second quarter of 2012, Fund III made a 49% equity investment in an entity that holds a $2.2 million note receivable that is collateralized by a property. The note bears interest at 6% and matures February 2, 2017. As the unaffiliated venture partner maintains control over this entity, the Company accounts for this investment under the equity method.

During June 2010, Fund III, in a joint venture with an unaffiliated partner, invested in an entity for the purpose of providing management services to owners of self-storage properties, including the 14 locations currently owned through Fund II and Fund III. Fund III has a 50% interest in the entity. This entity was determined to be a variable interest entity for which the Company was determined not to be the primary beneficiary. As such, the Company accounts for this investment under the equity method.

Summary of Investments in Unconsolidated Affiliates

The following Combined and Condensed Balance Sheets and Statements of Operations, in each period, summarize the financial information of the Company’s investments in unconsolidated affiliates.


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



(dollars in thousands)	September 30, 2012			December 31, 2011
Combined and Condensed Balance Sheets
Assets
Rental property, net	$	296,390		$	280,470
Investment in unconsolidated affiliates	89,099			156,421
Other assets	40,554			29,587
Total assets	$	426,043		$	466,478
Liabilities and partners’ equity
Mortgage notes payable	$	318,568		$	319,425
Other liabilities	28,323			16,902
Partners’ equity	79,152			130,151
Total liabilities and partners’ equity	$	426,043		$	466,478
Company’s investment in and advances to unconsolidated affiliates	$	88,572		$	84,568
Company's share of distributions in excess of income and investments in unconsolidated affiliates	$	(22,409	)	$	(21,710	)



	Three Months Ended						Nine Months Ended
(dollars in thousands)	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
Combined and Condensed Statements of Operations
Total revenues	$	11,903		$	10,290		$	36,121		$	30,789
Operating and other expenses	4,977			3,699			13,793			10,993
Interest and other finance expense	4,603			4,274			13,854			12,532
Equity in earnings of unconsolidated affiliates	1,398			13,472			6,244			13,060
Depreciation and amortization	2,573			2,222			7,216			6,467
Gain on sale of property	—			—			3,402			—
Net income	$	1,148		$	13,567		$	10,904		$	13,857

Company’s share of net income	$	(2,440	)	$	3,208		$	2,291		$	3,318
Amortization of excess investment	(98		)	(98		)	(294		)	(293		)
Company’s equity in (losses) earnings of unconsolidated affiliates	$	(2,538	)	$	3,110		$	1,997		$	3,025