Investments In and Advances to Unconsolidated Affiliates

Core Portfolio

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

Opportunity Funds

RCP Venture

The Opportunity Funds, along with Klaff Realty, LP (“Klaff”) and Lubert-Adler Management, Inc. ("Lubert-Adler"), formed an investment group, the RCP Venture, for the purpose of making investments in surplus or underutilized properties owned by retailers. The RCP Venture is neither a single entity nor a specific investment. Any member of this group has the option of participating, or not, in any individual investment and each individual investment has been made on a stand-alone basis through a separate limited liability company (“LLC”). These investments have been made through different investment vehicles with different affiliated and unaffiliated investors and different economics to the Company. Investments under the RCP Venture are structured as separate joint ventures as there may be other investors participating in certain investments in addition to Klaff, Lubert-Adler and Acadia. The Company has made these investments through its subsidiaries, Mervyns I, Mervyns II and Fund II, (together the “Acadia Investors”), all on a non-recourse basis. Through December 31, 2012, the Acadia Investors have made investments in Mervyns Department Stores (“Mervyns”) and Albertson’s, as well as additional investments in locations that are separate from these original investments (“Add-On Investments”). Additionally, they have invested in Shopko, Marsh and Rex Stores Corporation (collectively “Other RCP Investments”).

Mervyns Department Stores

Through Mervyns I and Mervyns II, the Company invested in a consortium to acquire Mervyns, consisting of 262 stores (“REALCO”) and its retail operations (“OPCO”), from Target Corporation. The Company’s share of this investment was $23.2 million. Subsequent to the initial acquisition, the Company, through Mervyns I and Mervyns II, made additional investments of $3.9 million. Through December 31, 2012, REALCO has disposed of a significant portion of the portfolio. In addition, in November 2007, the Company sold its interest in OPCO and, as a result, has no further investment in OPCO. Through December 31, 2012, the Company has received distributions from this investment totaling $46.0 million.

Through December 31, 2012, the Company, through Mervyns I and Mervyns II, made Add-On Investments in Mervyns totaling $6.5 million and have received distributions totaling $3.6 million.

During the year ended December 31, 2012, the Company recorded an impairment charge of $2.0 million on its investment in Mervyn's relating to a reduction in the fair value of the remaining assets of the portfolio. The Operating Partnership's share of this impairment, net of taxes, was $0.2 million.

Albertson’s

The RCP Venture made its second investment as part of an investment consortium, acquiring Albertson’s and Cub Foods, of which the Company’s share was $20.7 million. Through December 31, 2012, the Company has received distributions from this investment totaling $81.7 million, including $2.4 million and $4.5 million received in 2012 and 2011, respectively.

Through December 31, 2012, the Company, through Mervyns II, made Add-On Investments in Albertson’s totaling $2.4 million and received distributions totaling $4.8 million, including $3.1 million received in 2012.

Other RCP Investments

Through December 31, 2012, the Company, through Fund II, made investments of $1.1 million in Shopko, $0.7 million in Marsh, and $2.0 million in Marsh Add-On Investments. As of December 31, 2012, the Company has received distributions totaling $1.7 million from its Shopko investment and $2.6 million from its Marsh and Marsh Add-On Investments.

During July of 2007, the RCP Venture acquired a portfolio of 87 retail properties from Rex Stores Corporation, which the Company invested through Mervyns II. The Company’s share of this investment was $2.7 million. As of December 31, 2012, the Company has received distributions totaling $2.0 million, including $1.1 million received in 2012.

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Investments In and Advances to Unconsolidated Affiliates, continued

The following table summarizes activity related to the RCP Venture investments from inception through December 31, 2012:



						Operating Partnership Share
Investment	Year Acquired	Invested Capital and Advances		Distributions		Invested Capital and Advances		Distributions
Mervyns	2004	$	27,088	$	45,966	$	4,901	$	11,251
Mervyns Add-On investments	2005/2008	6,517		3,558		1,252		819
Albertsons	2006	20,717		81,680		4,239		16,318
Albertsons Add-On investments	2006/2007	2,416		4,778		388		972
Shopko	2006	1,108		1,659		222		332
Marsh and Add-On investments	2006/2008	2,667		2,639		533		528
Rex Stores	2007	2,701		1,956		535		392
Total		$	63,214	$	142,236	$	12,070	$	30,612

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

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

The Acadia Investors have non-controlling interests in the individual investee LLC’s as follows:



			Acadia Investors Ownership % in:
Investment	Investee LLC	Acadia Investors Entity	Investee LLC	Underlying entity(s)
Mervyns	KLA/Mervyn's, L.L.C	Mervyns I and Mervyns II	10.5%	5.8%
Mervyns Add-On Investments	KLA/Mervyn's, L.L.C	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	KA-Shopko, LLC	Fund II	20.0%	2.0%
Marsh and Add-On Investments	KA Marsh, LLC	Fund II	20.0%	3.3%
Rex Stores	KLAC Rex Venture, LLC	Mervyns II	13.3%	13.3%

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Investments In and Advances to Unconsolidated Affiliates, continued

Other Opportunity Fund Investments

Fund II Investments

Prior to June 30, 2010, Fund II had a 24.75% interest in CityPoint, a redevelopment project located in downtown Brooklyn, NY, which was accounted for under the equity method. On June 30, 2010, Fund II acquired the remaining interest in the project from its unaffiliated partner and, as a result, has consolidated the CityPoint investment since that point.

Fund III Investments

The unaffiliated venture partners for the Lincoln Road, Arundel Plaza, Parkway Crossing and the White City Shopping Center investments maintain control over these entities and, as such, the Company accounts for these investments under the equity method.

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

Fund IV Investments

The unaffiliated venture partners for 1701 Belmont Avenue (Note 2) and Lincoln Road (Note 2) investment maintain control over the entity and, as such, the Company accounts for these investments under the equity method.

Summary of Investments in Unconsolidated Affiliates

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

Summary of Investments in Unconsolidated Affiliates, continued



(dollars in thousands)	December 31, 2012			December 31, 2011
Combined and Condensed Balance Sheets
Assets:
Rental property, net	$	441,611		$	280,470
Investment in unconsolidated affiliates	93,923			156,421
Other assets	39,035			29,587
Total assets	$	574,569		$	466,478
Liabilities and partners’ equity:
Mortgage notes payable	$	326,296		$	319,425
Other liabilities	24,267			16,902
Partners’ equity	224,006			130,151
Total liabilities and partners’ equity	$	574,569		$	466,478
Company’s investment in and advances to unconsolidated affiliates	$	221,694		$	84,568
Company's share of distributions in excess of share of income and investments in unconsolidated affiliates	$	(22,707	)	$	(21,710	)

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Investments In and Advances to Unconsolidated Affiliates, continued



	Years Ended December 31,
(dollars in thousands)	2012			2011			2010
Combined and Condensed Statements of Operations
Total revenues	$	49,729		$	42,185		$	29,460
Operating and other expenses	18,919			15,924			10,617
Interest expense	18,547			17,099			13,525
Equity in earnings of unconsolidated affiliates	583			7,243			56,482
Depreciation and amortization	9,551			8,837			4,839
Loss on debt extinguishment	293			—			—
Gain (loss) on sale of property, net	3,402			—			(2,957		)
Net income	$	6,404		$	7,568		$	54,004

Company’s share of net income	$	1,971		$	1,946		$	11,363
Amortization of excess investment	(392		)	(391		)	(392		)
Company’s equity in earnings of unconsolidated affiliates	$	1,579		$	1,555		$	10,971