10-Q 1 akr2017-03x3110xq.htm 10-Q Document



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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


For the quarterly period ended March 31, 2017

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

For the transition period from _______ to _______

Commission File Number 1-12002

ACADIA REALTY TRUST

(Exact name of registrant in its charter)
MARYLAND
 (State or other jurisdiction of
 incorporation or organization)
 
23-2715194
 (I.R.S. Employer
 Identification No.)
 
 
 
411 THEODORE FREMD AVENUE, SUITE 300, RYE, NY
 (Address of principal executive offices)
10580
 (Zip Code)
(914) 288-8100
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES x
 
NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES x
 
NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer  x
 
Accelerated Filer  o
 
Emerging Growth Company  o
 
 
 
 
 
Non-accelerated Filer  o
 
Smaller Reporting Company  o
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes o No x
As of April 25, 2017 there were 84,730,288 common shares of beneficial interest, par value $0.001 per share, outstanding.





ACADIA REALTY TRUST AND SUBSIDIARIES
FORM 10-Q
INDEX

 
 
 
 
Item No.
Description
 
Page
 
 
 
1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.
 
3.
 
4.
 
 
 
 
 
 
 
 
1.
 
1A.
 
2.
 
3.
 
4.
 
5.
 
6.
 
 
 
 
 
 
 



 
2
 





SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q (the “Report”) 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, as amended (the “Exchange Act”) 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 headings “Item 1A. Risk Factors” and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of this Report. These risks and uncertainties should be considered in evaluating any forward-looking statements contained or incorporated by reference herein.
SPECIAL NOTE REGARDING CERTAIN REFERENCES
All references to “Notes” throughout the document refer to the footnotes to the consolidated financial statements of the registrant referenced in Part I, Item 1. Financial Statements, below.



 
3
 





PART I—FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS.

ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
 
March 31,
 
December 31,
(dollars in thousands, except per share amounts)
 
2017
 
2016
ASSETS
 
(Unaudited)
 
 
Investments in real estate, at cost
 
 

 
 

Operating real estate, net
 
$
2,621,536

 
$
2,551,448

Real estate under development, at cost
 
510,548

 
543,486

Net investments in real estate
 
3,132,084

 
3,094,934

Notes receivable, net
 
276,507

 
276,163

Investments in and advances to unconsolidated affiliates
 
260,497

 
272,028

Other assets, net
 
201,822

 
192,786

Cash and cash equivalents
 
47,707

 
71,805

Rents receivable, net
 
50,766

 
43,842

Restricted cash
 
24,021

 
22,904

Assets of properties held for sale
 
21,498

 
21,498

Total assets
 
$
4,014,902

 
$
3,995,960

 
 
 
 
 
LIABILITIES
 
 

 
 

Mortgage and other notes payable, net
 
$
1,143,049

 
$
1,055,728

Unsecured notes payable, net
 
358,847

 
432,990

Accounts payable and other liabilities
 
207,679

 
208,672

Capital lease obligations
 
70,247

 
70,129

Dividends and distributions payable
 
23,366

 
36,625

Distributions in excess of income from, and investments in, unconsolidated affiliates
 
15,221

 
13,691

Total liabilities
 
1,818,409

 
1,817,835

Commitments and contingencies
 


 


EQUITY
 
 

 
 

Acadia shareholders' Equity
 
 
 
 
Common shares, $0.001 par value, authorized 100,000,000 shares, issued and outstanding
83,630,051 and 83,597,741 shares, respectively
 
84

 
84

Additional paid-in capital
 
1,589,765

 
1,594,926

Accumulated other comprehensive income (loss)
 
438

 
(798
)
Distributions in excess of accumulated earnings
 
(11,753
)
 
(5,635
)
Total Acadia shareholders’ equity
 
1,578,534

 
1,588,577

Noncontrolling interests
 
617,959

 
589,548

Total equity
 
2,196,493

 
2,178,125

Total liabilities and equity
 
$
4,014,902

 
$
3,995,960


The accompanying notes are an integral part of these consolidated financial statements

 
4
 





ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
 
 
Three Months Ended March 31,
(in thousands except per share amounts)
 
2017
 
2016
Revenues
 
 
Rental income
 
$
48,585

 
$
38,590

Expense reimbursements
 
12,316

 
7,959

Other
 
1,098

 
1,496

Total revenues
 
61,999

 
48,045

Operating expenses
 
 

 
 

Depreciation and amortization
 
24,536

 
16,849

General and administrative
 
8,469

 
9,352

Real estate taxes
 
10,606

 
6,165

Property operating
 
8,197

 
5,537

Other operating
 
294

 
291

Total operating expenses
 
52,102

 
38,194

Operating income
 
9,897

 
9,851

Equity in earnings and gains of unconsolidated affiliates inclusive of
gains on disposition of properties of $11,486 and $ - , respectively
 
12,703

 
1,954

Interest income
 
8,984

 
4,638

Interest expense
 
(11,488
)
 
(8,038
)
Income from continuing operations before income taxes
 
20,096

 
8,405

Income tax (provision) benefit
 
(125
)
 
77

Income from continuing operations before gain
on disposition of properties
 
19,971

 
8,482

Gain on disposition of properties, net of tax
 

 
65,393

Net income
 
19,971

 
73,875

Net income attributable to noncontrolling interests
 
(4,340
)
 
(44,950
)
Net income attributable to Acadia
 
$
15,631

 
$
28,925


 
 

 
 

Basic and diluted earnings per share
 
$
0.18

 
$
0.40

The accompanying notes are an integral part of these consolidated financial statements

 
5
 





ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
 
 
Three Months Ended March 31,
(in thousands)
 
2017
 
2016
 
 
 
 
 
Net income
 
$
19,971

 
$
73,875

Other comprehensive income (loss):
 

 

Unrealized income (loss) on valuation of swap agreements
 
118

 
(8,819
)
Reclassification of realized interest on swap agreements
 
963

 
1,046

Other comprehensive income (loss)
 
1,081

 
(7,773
)
Comprehensive income
 
21,052

 
66,102

Comprehensive income attributable to noncontrolling interests
 
(4,185
)
 
(44,181
)
Comprehensive income attributable to Acadia
 
$
16,867

 
$
21,921



The accompanying notes are an integral part of these consolidated financial statements.

 
6
 





ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)
Three Months Ended March 31, 2017 and 2016


 
Acadia Shareholders
 
 
 
 
(in thousands, except per share amounts)
Common Shares
 
Share Amount
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
(Loss) Income
 
(Distributions in Excess of Accumulated Earnings) Retained Earnings
 
Total
Common
Shareholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
Balance at
January 1, 2017
83,598

 
$
84

 
$
1,594,926

 
$
(798
)
 
$
(5,635
)
 
$
1,588,577

 
$
589,548

 
$
2,178,125

Conversion of OP Units to Common Shares by limited partners of the Operating Partnership
25

 

 
438

 

 

 
438

 
(438
)
 

Dividends/distributions declared ($0.26 per Common Share/OP Unit)

 

 

 

 
(21,749
)
 
(21,749
)
 
(1,617
)
 
(23,366
)
Employee and trustee stock compensation, net
7

 

 
94

 

 

 
94

 
4,141

 
4,235

Noncontrolling interest distributions

 

 

 

 

 

 
(3,822
)
 
(3,822
)
Noncontrolling interest contributions

 

 

 

 

 

 
20,269

 
20,269

Reallocation of noncontrolling interests

 

 
(5,693
)
 

 

 
(5,693
)
 
5,693

 

Comprehensive income

 

 

 
1,236

 
15,631

 
16,867

 
4,185

 
21,052

Balance at
March 31, 2017
83,630


$
84


$
1,589,765


$
438


$
(11,753
)

$
1,578,534


$
617,959


$
2,196,493

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at
   January 1, 2016
70,258

 
$
70

 
$
1,092,239

 
$
(4,463
)
 
$
12,642

 
$
1,100,488

 
$
420,866

 
$
1,521,354

Conversion of OP Units to Common Shares by limited partners of the Operating Partnership
249

 
1

 
5,679

 

 

 
5,680

 
(5,680
)
 

Issuance of Common Shares, net of issuance costs
1,050

 
1

 
35,219

 

 

 
35,220

 

 
35,220

Issuance of OP Units to acquire real estate

 

 

 

 

 

 
29,336

 
29,336

Dividends/distributions declared ($0.25 per Common Share/OP Unit)

 

 

 

 
(17,872
)
 
(17,872
)
 
(1,473
)
 
(19,345
)
Acquisition of noncontrolling interests

 

 
7,569

 

 

 
7,569

 
(25,948
)
 
(18,379
)
Employee and trustee stock compensation, net
9

 

 
208

 

 

 
208

 
3,811

 
4,019

Noncontrolling interest distributions

 

 

 

 

 

 
(36,174
)
 
(36,174
)
Noncontrolling interest contributions

 

 

 

 

 

 
46,343

 
46,343

Comprehensive (loss) income

 

 

 
(7,004
)
 
28,925

 
21,921

 
44,181

 
66,102

Balance at
March 31, 2016
71,566


$
72


$
1,140,914


$
(11,467
)

$
23,695


$
1,153,214


$
475,262


$
1,628,476


The accompanying notes are an integral part of these consolidated financial statements.

 
7
 





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

 
 
Three Months Ended March 31,
(in thousands)
 
2017
 
2016
CASH FLOWS FROM OPERATING ACTIVITIES
 
 

 
 

Net income
 
$
19,971

 
$
73,875

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

 
 

Gain on disposition of properties
 

 
(65,393
)
Depreciation and amortization
 
24,536

 
16,849

Distributions of operating income from unconsolidated affiliates
 
1,299

 
1,082

Equity in earnings and gains of unconsolidated affiliates
 
(12,703
)
 
(1,954
)
Stock compensation expense
 
4,235

 
4,019

Amortization of financing costs
 
1,169

 
625

Other, net
 
(2,908
)
 
(2,031
)
Changes in assets and liabilities:
 


 


Other liabilities
 
1,076

 
(8,849
)
Prepaid expenses and other assets
 
(5,736
)
 
881

Rents receivable, net
 
(6,723
)
 
(3,596
)
Restricted cash
 
(1,010
)
 
3,259

Accounts payable and accrued expenses
 
273

 
(792
)
Net cash provided by operating activities
 
23,479

 
17,975

CASH FLOWS FROM INVESTING ACTIVITIES
 
 

 
 

Acquisition of real estate
 
(34,688
)
 
(12,287
)
Development and property improvement costs
 
(27,015
)
 
(37,463
)
Issuance of or advances on notes receivable
 
(150
)
 
(27,800
)
Proceeds from the disposition of properties
 

 
104,458

Investments in and advances to unconsolidated affiliates
 
(3,174
)
 
(8,034
)
Return of capital from unconsolidated affiliates
 
2,677

 
34,235

Proceeds from notes receivable
 

 
20,500

Proceeds from disposition of properties of unconsolidated affiliates
 
25,080

 

Payment of deferred leasing costs
 
(2,033
)
 
(847
)
Net cash (used in) provided by investing activities
 
(39,303
)
 
72,762













 
8
 





ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
 
Three Months Ended March 31,
(in thousands)
 
2017
 
2016
CASH FLOWS FROM FINANCING ACTIVITIES
 
 

 
 

Principal payments on mortgage and other notes
 
(5,236
)
 
(99,501
)
Principal payments on unsecured debt
 
(94,100
)
 
(101,500
)
Proceeds received on mortgage and other notes
 
93,044

 
1,945

Proceeds from unsecured debt
 
20,000

 
134,616

Proceeds from issuance of Common Shares, net of
issuance costs of $0 and $1,654 respectively
 

 
32,026

Capital contributions from noncontrolling interests
 
20,264

 
46,343

Distributions to noncontrolling interests
 
(6,163
)
 
(56,995
)
Dividends paid to Common Shareholders
 
(34,275
)
 
(35,112
)
Deferred financing and other costs
 
(1,701
)
 
(475
)
Loan proceeds held as restricted cash
 
(107
)
 

Net cash used in financing activities
 
(8,274
)
 
(78,653
)

 
 
 
 
(Decrease) increase in cash and cash equivalents
 
(24,098
)
 
12,084

Cash and cash equivalents, beginning of the period
 
71,805

 
72,776

Cash and cash equivalents, end of the period
 
$
47,707

 
$
84,860

 
 
 
 
 
Supplemental disclosure of cash flow information
 
 

 
 

Cash paid during the period for interest, net of
capitalized interest of $5,009 and $5,115, respectively
 
$
9,629

 
$
8,437

Cash paid for income taxes, net of (refunds)
 
$
220

 
$
(256
)
 
 
 
 
 
Supplemental disclosure of non-cash investing activities
 
 

 
 

Acquisition of real estate through assumption of debt
 
$

 
$
1,463

Acquisition of real estate through issuance of OP Units
 
$

 
$
29,336

Acquisition of capital lease obligation
 
$

 
$
76,461

Assumption of accounts payable and accrued expenses
through acquisition of real estate
 
$
(662
)
 
$

The accompanying notes are an integral part of these consolidated financial statements.

 
9
 


ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
    

 




1. Organization, Basis of Presentation and Summary of Significant Accounting Policies

Organization

Acadia Realty Trust and subsidiaries (collectively, the “Company”) is a fully-integrated equity real estate investment trust (“REIT”) focused on the ownership, acquisition, development, and management of retail properties located primarily in high-barrier-to-entry, supply-constrained, densely-populated metropolitan areas in the United States.

All of the Company’s assets are held by, and all of its operations are conducted through, Acadia Realty Limited Partnership (the “Operating Partnership”) and entities in which the Operating Partnership owns an interest. As of March 31, 2017 and December 31, 2016, the Company controlled approximately 95% of the Operating Partnership as the sole general partner and is entitled to share, in proportion to its percentage interest, in the cash distributions and profits and losses of the Operating Partnership. The limited partners primarily represent entities or individuals that contributed their interests in certain properties or entities to the Operating Partnership in exchange for common or preferred units of limited partnership interest (“Common OP Units” or “Preferred OP Units”) and employees who have been awarded restricted Common OP Units (“LTIP Units”) as long-term incentive compensation (Note 13). Limited partners holding Common OP and LTIP Units are generally entitled to exchange their units on a one-for-one basis for common shares of beneficial interest of the Company (“Common Shares”). This structure is referred to as an umbrella partnership REIT or “UPREIT.”

As of March 31, 2017, the Company has ownership interests in 118 properties within its core portfolio, which consist of those properties either 100% owned, or partially owned through joint venture interests, by the Operating Partnership, or subsidiaries thereof, not including those properties owned through its funds (“Core Portfolio”). The Company also has or had ownership interests in 64 properties within its opportunity funds, Acadia Strategic Opportunity Fund I, LP (“Fund I,” which was liquidated in 2015), Acadia Strategic Opportunity Fund II, LLC (“Fund II”), Acadia Strategic Opportunity Fund III LLC (“Fund III”), Acadia Strategic Opportunity Fund IV LLC, and Acadia Strategic Opportunity Fund V LLC (“Fund V,” or the “Current Fund,” and together with Funds I, II, III and IV, the “Funds”). The 182 Core Portfolio and Fund properties primarily consist of street and urban retail, and suburban shopping centers. In addition, the Company, together with the investors in the Funds, invest in operating companies through Acadia Mervyn Investors I, LLC (“Mervyns I”), Acadia Mervyn Investors II, LLC (“Mervyns II”) and Fund II, all on a non-recourse basis. The Company consolidates the Funds as it has (i) the power to direct the activities that most significantly impact the Funds’ economic performance, (ii) is obligated to absorb the Funds’ losses and (iii) has the right to receive benefits from the Funds that could potentially be significant.

The Operating Partnership is the sole general partner or managing member of the Funds and Mervyns I and II and earns fees or priority distributions for asset management, property management, construction, development, leasing, and legal services. Cash flows from the Funds and Mervyns I and II are distributed pro-rata to their respective partners and members (including the Operating Partnership) until each receives a certain cumulative return (“Preferred Return”) and the return of all capital contributions. Thereafter, remaining cash flow is distributed 20% to the Operating Partnership (“Promote”) and 80% to the partners or members (including the Operating Partnership). All transactions between the Funds and the Operating Partnership have been eliminated in consolidation.

The following table summarizes the general terms and Operating Partnership’s equity interests in the Funds and Mervyns I and II (dollars in millions):
Entity
Formation Date
Operating Partnership Share of Capital
Fund Size
 
Capital Called as of March 31, 2017
 
Unfunded Commitment
Equity Interest Held By Operating Partnership (b)
Preferred Return
Total Distributions as of March 31, 2017 (c)
Fund I and Mervyns I (a)
9/2001
22.22%
$
90.0

 
$
86.6

 
$

37.78%
9%
$
194.5

Fund II and
   Mervyns II
6/2004
28.33%
300.0

 
347.1

 

28.33%
8%
131.6

Fund III
5/2007
24.54%
502.5

 
396.7

 
53.3

39.63%
6%
551.0

Fund IV
5/2012
23.12%
540.6

 
390.7

 
139.3

23.12%
6%
101.9

Fund V
8/2016
20.10%
520.0

 

 
520.0

20.10%
6%

__________

(a)
As of December 31, 2015, Fund I had been liquidated.
(b)
Amount represents the current economic ownership at March 31, 2017, which could differ from the stated legal ownership based upon the cumulative preferred returns of the respective fund.

 
10
 


ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
    

 



(c)
Represents the total for the Funds, including the Operating Partnership and noncontrolling interests’ shares.

Basis of Presentation

Segments

At March 31, 2017, the Company had three reportable operating segments: Core Portfolio, Funds and Structured Financing.  The Company’s chief operating decision maker may review operational and financial data on a property basis and does not differentiate properties on a geographical basis for purposes of allocating resources or capital. Each property is considered a separate operating segment; however, each property on a stand-alone basis represents less than 10% of revenues, profit or loss, and assets of the combined reported operating segment and meets the majority of the aggregations criteria under the applicable standard.  

Principles of Consolidation

The consolidated financial statements include the consolidated accounts of the Company and its investments in partnerships and limited liability companies in which the Company has control in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810 “Consolidation” (“ASC Topic 810”). The ownership interests of other investors in these entities are recorded as noncontrolling interests. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in entities for which the Company has the ability to exercise significant influence over, but does not have financial or operating control, are accounted for using the equity method of accounting. Accordingly, the Company’s share of the earnings (or losses) of these entities are included in consolidated net income.

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the full fiscal year. The information furnished in the accompanying consolidated financial statements reflects all adjustments that, in the opinion of management, are necessary for a fair presentation of the aforementioned consolidated financial statements for the interim periods. Such adjustments consisted of normal recurring items.

These consolidated financial statements should be read in conjunction with the Company’s 2016 Annual Report on Form 10-K, as filed with the SEC on February 24, 2017 and amended on February 27, 2017.

Use of Estimates

GAAP requires 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 notes receivable and rents receivable. Application of these estimates and assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 does not apply to the Company’s lease revenues, but will apply to reimbursed tenant costs. Additionally, this guidance modifies disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued ASU 2015-14, which defers the effective date of ASU 2014-09 for all entities by one year, until years beginning in 2018, with early adoption permitted but not before 2017. Entities may adopt ASU 2014-09 using either a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients or a retrospective approach with the cumulative effect recognized at the date of adoption. While the Company is still completing the assessment of the impact of this standard to its consolidated financial statements, management believes the majority of the Company’s revenue falls outside of the scope of this guidance.  The Company intends to implement the standard retrospectively with the cumulative effect recognized in retained earnings at the date of application.

 
11
 


ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
    

 




In February 2016, the FASB issued ASU No. 2016-02, Leases. ASU 2016-02 outlines a new model for accounting by lessees, whereby their rights and obligations under substantially all leases, existing and new, would be capitalized and recorded on the balance sheet. For lessors, however, the accounting remains largely unchanged from the current model, with the distinction between operating and financing leases retained, but updated to align with certain changes to the lessee model and the new revenue recognition standard discussed above. The new guidance requires that internal leasing costs be expensed as incurred, as opposed to capitalized and deferred. ASU 2016-02 will also require extensive quantitative and qualitative disclosures and is effective beginning after December 15, 2018, but early adoption is permitted. The Company is evaluating the impact of the new standard and has not yet determined if it will have a material impact on its consolidated financial statements; however, the Company capitalized internal leasing costs of $0.2 million and $0.3 million during the three months ended March 31, 2017 and 2016, respectively.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses. ASU 2016-13 introduces a new model for estimating credit losses for certain types of financial instruments, including loans receivable, held-to-maturity debt securities, and net investments in direct financing leases, amongst other financial instruments. ASU 2016-13 also modifies the impairment model for available-for-sale debt securities and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for losses. ASU 2016-13 is effective for periods beginning after December 15, 2019, with adoption permitted for fiscal years beginning after December 15, 2018. Retrospective adjustments shall be applied through a cumulative-effect adjustment to retained earnings. The adoption of ASU 2016-13 is not expected to have a material impact on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides guidance on certain specific cash flow issues, including, but not limited to, debt prepayment or extinguishment costs, contingent consideration payments made after a business combination and distributions received from equity method investees. ASU 2016-15 is effective for periods beginning after December 15, 2017, with early adoption permitted and shall be applied retrospectively where practicable. The adoption of ASU 2016-15 is not expected to have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations – Clarifying the Definition of a Business. ASU 2017-01 clarifies that to be considered a business, the elements must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. The new standard illustrates the circumstances under which real estate with in-place leases would be considered a business and provides guidance for the identification of assets and liabilities in purchase accounting. ASU 2017-01 is effective for periods beginning after December 15, 2017 and early adoption is permitted. The Company is currently evaluating the impact ASU 2014-15 will have on its consolidated financial statements; however, it is expected that the new standard would reduce the number of future real estate acquisitions that will be accounted for as business combinations and, therefore, reduce the amount of acquisition costs that will be expensed.

In January 2017, the FASB issued ASU No. 2017-03 Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323). ASU 2017-03 amends certain SEC guidance in the FASB Accounting Standards Codification in response to SEC staff announcements made during 2016 EITF meetings which addressed (i) the additional qualitative disclosures that a registrant is expected to provide when it cannot reasonably estimate the impact that ASUs 2014-09, 2016-02 and 2016-13 will have in applying the guidance in SAB Topic 11.M and (ii) guidance in ASC 323 related to the amendments made by ASU 2014-01 regarding use of the proportional amortization method in accounting for investments in qualified affordable housing projects (announcement made at the November 17, 2016, EITF meeting). The adoption of ASU 2017-03 is not expected to have a material impact on the Company’s consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, which amends the guidance on nonfinancial assets in ASC 610-20. The amendments clarify that (i) a financial asset is within the scope of ASC 610-20 if it meets the definition of an in substance nonfinancial asset and may include nonfinancial assets transferred within a legal entity to a counter-party, (ii) an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counter-party and derecognize each asset when a counter-party obtains control of it, and (iii) an entity should allocate consideration to each distinct asset by applying the guidance in ASC 606 on allocating the transaction price to performance obligations. Further, ASU 2017-05 provides guidance on accounting for partial sales of nonfinancial assets. The amendments are effective at the same time as the amendments in ASU 2014-09. The adoption of ASU 2017-05 is not expected to have a material impact on the Company's consolidated financial statements.

 
12
 


ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
    

 



2. Real Estate

The Company’s consolidated real estate is comprised of the following (in thousands):
 
 
March 31,
 
December 31,
 
 
2017
 
2016
Land
 
$
649,533

 
$
693,252

Buildings and improvements
 
2,041,300

 
1,916,288

Tenant improvements
 
137,168

 
132,220

Construction in progress
 
21,644

 
19,789

Properties under capital lease
 
76,965

 
76,965

Total
 
2,926,610

 
2,838,514

Less: Accumulated depreciation
 
(305,074
)
 
(287,066
)
Operating real estate, net
 
2,621,536

 
2,551,448

Real estate under development, at cost
 
510,548

 
543,486

Net investment in real estate
 
$
3,132,084

 
$
3,094,934


 
13
 


ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
    

 



Acquisitions

During the three months ended March 31, 2017 and the year ended December 31, 2016, the Company acquired the following consolidated retail properties (dollars in thousands):
Property and Location
Percent Acquired
Date of Acquisition
Purchase Price
 
Debt Assumed
2017 Acquisition
 
 
 
 
 
Fund IV
 
 
 
 
 
Lincoln Place - Fairview Heights, IL
100%
Mar 13, 2017
$
35,350

 
$

Total 2017 Acquisitions
 
 
$
35,350

 
$

 
 
 
 
 
 
2016 Acquisitions
 
 
 
 
 
Core Portfolio:
 
 
 
 
 
991 Madison Avenue - New York, NY (a)
100%
Mar 26, 2016
$
76,628

 
$

165 Newbury Street - Boston, MA
100%
May 13, 2016
6,250

 

Concord & Milwaukee - Chicago, IL
100%
Jul 28, 2016
6,000

 
2,902

151 North State Street - Chicago, IL
100%
Aug 10, 2016
30,500

 
14,556

State & Washington - Chicago, IL
100%
Aug 22, 2016
70,250

 
25,650

North & Kingsbury - Chicago, IL
100%
Aug 29, 2016
34,000

 
13,409

Sullivan Center - Chicago, IL
100%
Aug 31, 2016
146,939

 

California & Armitage - Chicago, IL
100%
Sep 12, 2016
9,250

 
2,692

555 9th Street - San Francisco, CA
100%
Nov 2, 2016
139,775

 
60,000

  Subtotal Core Portfolio
 
 
519,592

 
119,209

 
 
 
 
 
 
Fund IV:
 
 
 
 
 
Restaurants at Fort Point - Boston, MA
100%
Jan 14, 2016
11,500

 

1964 Union Street - San Francisco, CA (a)
90%
Jan 28, 2016
2,250

 
1,463

Wake Forest Crossing - Wake Forest, NC
100%
Sep 27, 2016
36,600

 

Airport Mall - Bangor, ME
100%
Oct 28, 2016
10,250

 

Colonie Plaza - Albany, NY
100%
Oct 28, 2016
15,000

 

Dauphin Plaza - Harrisburg, PA
100%
Oct 28, 2016
16,000

 

JFK Plaza - Waterville, ME
100%
Oct 28, 2016
6,500

 

Mayfair Shopping Center - Philadelphia, PA
100%
Oct 28, 2016
16,600

 

Shaw's Plaza - Waterville, ME
100%
Oct 28, 2016
13,800

 

Wells Plaza - Wells, ME
100%
Oct 28, 2016
5,250

 

717 N Michigan - Chicago, IL
100%
Dec 1, 2016
103,500

 

Subtotal Fund IV
 
 
237,250

 
1,463

Total 2016 Acquisitions
 
 
$
756,842

 
$
120,672

 
 
 
 
 
 
__________

(a)
These acquisitions were accounted for as asset acquisitions as the underlying properties did not meet the definition of a business.

All of the above acquisitions were deemed to be business combinations except 991 Madison Avenue and 1964 Union Street. The Company expensed $0.3 million of acquisition costs for the three months ended March 31, 2017, of which $0.2 million related to the Core Portfolio and $0.1 million related to the Funds and $0.3 million of acquisition costs for the three months ended March 31, 2016, of which $0.2 million related to the Core Portfolio and $0.1 million related to the Funds.


 
14
 


ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
    

 



Purchase Price Allocations

The purchase prices for the business combinations were allocated to the acquired assets and assumed liabilities based on their estimated fair values at the dates of acquisition.

The following table summarizes the allocation of the purchase price of properties acquired during the three months ended March 31, 2017 and the year ended December 31, 2016 (in thousands):
 
Three Months Ended March 31,
 
Year Ended December 31,
 
2017
 
2016
Net assets acquired:
 
 
 
Land
$
7,149

 
$
225,729

Buildings and improvements
22,201

 
458,525

Other assets

 
3,481

Acquisition-related intangible assets (in Acquired lease intangibles, net)
7,444

 
63,606

Acquisition-related intangible liabilities (in Acquired lease intangibles, net)
(1,444
)
 
(72,985
)
Above and below market debt assumed (included in Mortgages and other notes payable, net)

 
(119,601
)
Net assets acquired
$
35,350

 
$
558,755


Consideration:
 
 
 
Cash
$
34,687

 
$
677,964

Debt assumed

 
(119,209
)
Liabilities assumed
663

 

Total Consideration
$
35,350

 
$
558,755


Dispositions

During the year ended December 31, 2016, the Company disposed of the following consolidated properties (in thousands):
Property and Location
Owner
Date Sold
Sale Price
 
Gain on Sale
2016 Dispositions:
 
 
 
 
 
Cortlandt Town Center (65%) - Mohegan Lake, NY (Note 4)
Fund III
Jan 28, 2016
$
107,250

 
$
65,393

Heritage Shops - Chicago, IL
Fund III
Apr 26, 2016
46,500

 
16,572

Total 2016 Dispositions
 
 
$
153,750

 
$
81,965


The aggregate rental revenue, expenses and pre-tax income reported within continuing operations for the aforementioned consolidated properties that were sold during the year ended December 31, 2016 were as follows (in thousands):
 
Three Months Ended March 31,
 
2017
 
2016
Rental revenues
$

 
$
4,963

Expenses

 
(550
)
Gain on disposition of properties

 
65,393

Income from continuing operations of
disposed properties, net of income taxes

 
69,806

Amounts attributable to noncontrolling interests

 
(53,586
)
Net income attributable to Acadia
$

 
$
16,220


Property Held For Sale

 
15
 


ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
    

 




At March 31, 2017 and December 31, 2016, the Company had one property in Fund II classified as held-for-sale with net assets of $21.5 million and subject to a mortgage of $25.5 million, which will be repaid prior to the sale. The property held for sale had net (loss) income of $(0.5) million, and $0.2 million for the three months ended March 31, 2017 and 2016, respectively.

Pro Forma Financial Information

The following unaudited pro forma consolidated operating data is presented for the three months ended March 31, 2017, as if the acquisitions of the properties acquired during that period were completed on January 1, 2016 and as if the acquisition of the properties acquired during the three months ended March 31, 2016 were completed on January 1, 2015. The related acquisition expenses of $0.3 million and $0.3 million reported during the three months ended March 31, 2017 and 2016, respectively have been reflected as pro forma charges at January 1, 2016 and January 1, 2015, respectively. The unaudited supplemental pro forma operating data is not necessarily indicative of what the actual results of operations of the Company would have been, assuming the transactions had been completed as set forth above, nor do they purport to represent the Company’s results of operations for future periods.
 
Three Months Ended March 31,
 
2017
 
2016
Pro forma revenues
$
62,478

 
$
53,314

Pro forma income from continuing operations
20,201

 
74,174

Pro forma net income attributable to Acadia
15,808

 
29,155

Pro forma basic and diluted earnings per share
0.19

 
0.39


Real Estate Under Development and Construction in Progress

Real estate under development represents the Company’s consolidated properties that have not yet been placed into service while undergoing substantial development or construction. At March 31, 2017 and December 31, 2016, the Company had one Core property, two properties in Fund II, three properties in Fund III and four properties in Fund IV classified as real estate under development. At December 31, 2016 accumulated costs aggregated $543.5 million. During the first quarter, the Company capitalized $3.8 million of additional costs, placed a portion of the City Point project for $113.2 million into service, and reclassified real estate with a carrying value of $76.4 million into real estate under development, resulting in a balance of $510.5 million at March 31, 2017.

Construction in progress pertains to construction activity at the Company’s operating properties which are in service and continue to operate during the construction period.

3. Notes Receivable, Net

The Company’s notes receivable, net were collateralized either by the underlying properties or the borrower’s ownership interest in the entities that own the properties, and were as follows (dollars in thousands):

 
 
March 31,
 
December 31,
 
March 31, 2017
Description
 
2017
 
2016
 
Number
 
Maturity Date
 
Interest Rate
Core Portfolio
 
$
216,400

 
$
216,400

 
5
 
May 2017 - September 2019
 
6.0% - 9.0%
Fund II
 
31,201

 
31,007

 
1
 
May 2020
 
2.5%
Fund III
 
4,656

 
4,506

 
1
 
July 2020
 
18.0%
Fund IV
 
24,250

 
24,250

 
2
 
April 2017 - February 2021
 
6.0% - 15.3%
 
 
$
276,507

 
$
276,163

 
9
 
 
 
 


 
16
 


ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
    

 



During the three months ended March 31, 2017, the Company:

advanced an additional $0.2 million on a Fund III note, which is collateralized by a property; and
increased the balance of a Fund II note by the interest accrued of $0.2 million.

During the year ended December 31, 2016, the Company:

issued one Core note receivable and three Fund IV notes receivable aggregating $47.5 million with a weighted-average effective interest rate of 9.8%, which were collateralized by four mixed-use real estate properties;
received total collections of $42.8 million, including full repayment of five notes issued in prior periods aggregating $29.6 million; and
restructured a $30.9 million Core mezzanine loan, which bore interest at 15.0%, and replaced it with a new $153.4 million loan collateralized by a first mortgage in the borrower’s tenancy-in-common interest. The new loan, which was made to the Company’s partners in the Brandywine Portfolio, bears interest at 8.1% (Note 4).

At March 31, 2017 and December 31, 2016, one of the Core notes receivable in the amount of $12.0 million was in default; however, no principal reserve was established because the estimated fair value of the real estate collateral exceeded the carrying value of the note. In February 2017, there was an auction pursuant to an Order of the United States Bankruptcy Court for the Southern District of New York for the property which is collateral for this note. The winning bid was in excess of the Company’s carrying value and accrued interest. The sale of this property was approved by Order of the Bankruptcy Court confirming the Chapter 11 Plan of Reorganization of the note issuer and is expected to close during the second quarter of 2017. In connection with this sale, the Company anticipates recovering its full carrying value of principal and interest recognized of $2.2 million upon settlement of this transaction.

The Company monitors the credit quality of its notes receivable on an ongoing basis and considers indicators of credit quality such as loan payment activity, the estimated fair value of the underlying collateral, the seniority of the Company’s loan in relation to other debt secured by the collateral and the prospects of the borrower.

Earnings from these notes and mortgages receivable are reported within the Company’s Structured Financing segment (Note 12).


 
17
 


ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
    

 



4. Investments In and Advances to Unconsolidated Affiliates

The Company accounts for its investments in and advances to unconsolidated affiliates under the equity method of accounting as it has the ability to exercise significant influence, but does not have financial or operating control over the investment, which is maintained by each of the unaffiliated partners who co-invest with the Company. The Company’s investments in and advances to unconsolidated affiliates consist of the following (dollars in thousands):

 
 
Nominal Ownership Interest
 
March 31,
 
December 31,
Fund
Property
at March 31, 2017
 
2017
 
2016
Core:
 
 
 
 
 
 
 
840 N. Michigan (a)
88.43%
 
$
73,355

 
$
74,131

 
Renaissance Portfolio
20%
 
36,097

 
36,437

 
Gotham Plaza
49%
 
29,396

 
29,421

 
Brandywine Portfolio (a)
22.22%
 
20,449

 
20,755

 
Georgetown Portfolio
50%
 
4,237

 
4,287

 
 
 
 
163,534

 
165,031

 
 
 
 
 
 
 
Mervyns I & II:
KLA/Mervyn's, LLC (b)
10.5%
 

 

 
 
 
 
 
 
 
Fund III:
 
 
 
 
 
 
 
Fund III Other Portfolio
90%
 
225

 
8,108

 
Self Storage Management (c)
95%
 
241

 
241

 
 
 
 
466

 
8,349

Fund IV:
 
 
 
 
 
 
 
Broughton Street Portfolio (d)
50%
 
56,313

 
54,839

 
Fund IV Other Portfolio
90%
 
17,927

 
21,817

 
650 Bald Hill Road
90%
 
19,027

 
18,842

 
 
 
 
93,267

 
95,498

 
Due from Related Parties (e)
 
 
2,273

 
2,193

 
Other
 
 
957

 
957

 
Investments in and advances to unconsolidated affiliates
 
$
260,497

 
$
272,028

 
 
 
 
 
 
 
Core:
 
 
 
 
 
 
 
Crossroads (f)
49%
 
$
15,221

 
$
13,691

 
Distributions in excess of income from,
and investments in, unconsolidated affiliates
 
$
15,221

 
$
13,691

__________

(a)
Represents a tenancy-in-common interest.
(b)
Distributions have exceeded the Company’s non-recourse investment, therefore the carrying value is zero.
(c)
Represents a variable interest entity.
(d)
The Company is entitled to a 15% return on its cumulative capital contribution and a 9% preferred return on the balance of the loan it converted to equity during 2016, which was $14.9 million and $46.4 million at March 31, 2017, respectively.
(e)
Represents deferred fees.
(f)
Distributions have exceeded the Company’s investment; however, the Company recognizes a liability balance as it may be required to fund future obligations of the entity.






 
18
 


ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
    

 




Core Portfolio

The Company owns a 49% interest in a 311,000 square foot shopping center located in White Plains, New York (“Crossroads”), a 50% interest in a 28,000 square foot retail portfolio located in Georgetown, Washington D.C. (the “Georgetown Portfolio”), a 88.43% tenancy-in-common interest in an 87,000 square foot retail property located in Chicago, Illinois (“840 N. Michigan”), and a 49% noncontrolling interest in an approximately 123,000 square foot retail property located in Manhattan, New York (“Gotham Plaza”).

In January 2017, an entity in which the Company owns a 20% noncontrolling interest (the “Renaissance Portfolio”), acquired a 6,200 square foot property in Alexandria, Virginia referred to as (“907 King Street”) for $3.0 million. The Renaissance Portfolio is now a 213,000 square-foot portfolio of 18 mixed-use properties, 16 of which are located in Georgetown, Washington D.C. and two of which are located in Alexandria, Virginia.

The Company owns a 22.22% interest in an approximately one million square foot retail portfolio (the “Brandywine Portfolio”) located in Wilmington, Delaware. Prior to the second quarter of 2016, the Company had a controlling interest in the Brandywine Portfolio, and it was therefore consolidated within the Company’s financial statements. During April 2016, the arrangement with the partners of the Brandywine Portfolio was modified to change the legal ownership from a partnership to a tenancy-in-common interest, as well as to provide certain participating rights to the outside partners. As a result of these modifications, the Company de-consolidated the Brandywine Portfolio and accounts for its interest under the equity method of accounting effective May 1, 2016. Furthermore, as the owners of the Brandywine Portfolio had consistent ownership interests before and after the modification and the underlying net assets are unchanged, the Company has reflected the change from consolidation to equity method based upon its historical cost.

Additionally, in April 2016, the Company repaid the outstanding balance of $140.0 million of non-recourse debt collateralized by the Brandywine Portfolio. The Company provided a loan collateralized by the partners’ tenancy-in-common interest, as further described in Note 7, for their proportionate share of the repayment.

Fund Investments

Fund III Other Portfolio included the Company’s investment in Arundel Plaza through its date of sale in February 2017. Fund IV Other Portfolio includes the Company’s investment in 1701 Belmont Avenue, Promenade at Manassas, Eden Square and, through its date of sale in January 2017, an investment in 2819 Kennedy Boulevard.

Self-Storage Management, a Fund III investment, was determined to be a variable interest entity. Management has evaluated the applicability of ASC Topic 810 to this joint venture and determined that the Company is not the primary beneficiary and, therefore, consolidation of this venture is not required.

In January 2017, Fund IV completed the disposition of 2819 Kennedy Boulevard, for $19.0 million less $8.4 million debt repayment for a net sales price of $10.6 million, resulting in a gain on disposition of $6.3 million at the property level, of which the Fund’s share was $6.2 million, which is included in equity earnings and gains from unconsolidated affiliates in the consolidated financial statements. The Operating Partnership’s proportionate share of the gain was $1.4 million, net of noncontrolling interests.

During February 2017, Fund III completed the disposition of Arundel Plaza, for $28.8 million less $10.0 million debt repayments for a net sales price of $18.8 million, resulting in a gain on disposition of $8.2 million at the property level, of which the Fund’s share was $5.3 million, which is included in equity earnings and gains from unconsolidated affiliates in the consolidated financial statements. The Operating Partnership’s proportionate share of the gain was $1.3 million, net of noncontrolling interests.

During January 2016, Fund III completed the disposition of a 65% interest in Cortlandt Town Center for $107.3 million resulting in a gain of $65.4 million and the deconsolidation of its remaining interest (Note 2). During December 2016, Fund III completed the disposition of its remaining 35% interest in Cortlandt Town Center for $57.8 million less $32.6 million debt repayment for a net sales price of $25.2 million resulting in a gain on sale of $36.0 million, of which the Operating Partnership’s share was $8.8 million.


 
19
 


ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
    

 



Fees from Unconsolidated Affiliates

The Company earned property management, construction, development, legal and leasing fees from its investments in unconsolidated partnerships totaling $0.4 million and $0.1 million for the three months ended March 31, 2017 and 2016, respectively, which is included in other revenues in the consolidated financial statements.

In addition, the Company paid $0.5 million and $0.6 million to certain unaffiliated partners of our joint ventures during the three months ended March 31, 2017 and 2016, respectively, for leasing commissions, development, management and overhead fees.

Summarized Financial Information of Unconsolidated Affiliates

The following combined and condensed Balance Sheets and Statements of Income, in each period, summarize the financial information of the Company’s investments in unconsolidated affiliates (in thousands):
 
 
March 31,
 
December 31,
 
 
2017
 
2016
Combined and Condensed Balance Sheets
 
 

 
 

Assets:
 
 

 
 

Rental property, net
 
$
549,632

 
$
576,505

Real estate under development
 
16,837

 
18,884

Investment in unconsolidated affiliates
 
6,853

 
6,853

Other assets
 
101,144

 
75,254

Total assets
 
$
674,466

 
$
677,496

Liabilities and partners’ equity:
 
 

 
 

Mortgage notes payable
 
$
389,198

 
$
407,344

Other liabilities
 
58,909

 
30,117

Partners’ equity
 
226,359

 
240,035

Total liabilities and partners’ equity
 
$
674,466

 
$
677,496

 
 
 
 
 
Company's share of accumulated equity
 
$
177,805

 
$
191,049

Basis differential
 
60,520

 
61,827

Deferred fees, net of portion related to the Company's interest
 
4,678

 
3,268

Amounts receivable by the Company
 
2,273

 
2,193

Investments in and advances to unconsolidated affiliates, net of Company's share of distributions in excess of income from and investments in unconsolidated affiliates
 
$
245,276

 
$
258,337


 
 
Three Months Ended March 31,
 
 
2017
 
2016
Combined and Condensed Statements of Income
 
 

 
 

Total revenues
 
$
21,603

 
$
13,372

Operating and other expenses
 
(5,866
)
 
(3,730
)
Interest expense
 
(4,538
)
 
(2,736
)
Depreciation and amortization
 
(6,449
)
 
(3,880
)
Loss on debt extinguishment
 
(151
)
 

Gain on disposition of properties
 
14,446

 

Net income attributable to unconsolidated affiliates
 
$
19,045

 
$
3,026

 
 
 
 
 
Company’s share of equity in
net income of unconsolidated affiliates
 
$
13,569

 
$
2,052

Basis differential amortization
 
(866
)
 
(98
)
Company’s equity in earnings of
unconsolidated affiliates
 
$
12,703

 
$
1,954



 
20
 


ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
    

 



5. Other Assets, Net and Accounts Payable and Other Liabilities

Other assets, net and accounts payable and other liabilities are comprised of the following for the periods presented:
 
 
March 31,
 
December 31,
(in thousands)
 
2017
 
2016
Other assets, net:
 
 
 
 
Lease intangibles, net (Note 6)
 
$
116,371

 
$
114,584

Deferred charges, net (a)
 
26,505

 
25,221

Prepaid expenses
 
17,070

 
14,351

Other receivables
 
11,797

 
9,514

Accrued interest receivable
 
10,766

 
9,354

Deposits
 
4,491

 
4,412

Due from seller
 
4,300

 
4,300

Deferred tax assets
 
3,822

 
3,733

Derivative financial instruments (Note 8)
 
3,378

 
2,921

Due from related parties
 
1,300

 
1,655

Corporate assets
 
624

 
1,241

Income taxes receivable
 
1,398

 
1,500

 
 
$
201,822

 
$
192,786

 
 
 
 
 
(a) Deferred charges, net:
 
 
 
 
      Deferred leasing and other costs
 
$
42,728

 
$
40,728

      Deferred financing costs
 
5,945

 
5,915

 
 
48,673

 
46,643

      Accumulated amortization
 
(22,168
)
 
(21,422
)
      Deferred charges, net
 
$
26,505

 
$
25,221

 
 
 
 
 
Accounts payable and other liabilities:
 
 
 
 
Lease intangibles, net (Note 6)
 
$
103,573

 
$
105,028

Accounts payable and accrued expenses
 
48,383

 
48,290

Deferred income
 
35,979

 
35,267

Tenant security deposits, escrow and other
 
15,081

 
14,975

Derivative financial instruments (Note 8)
 
3,013

 
3,590

Income taxes payable
 
1,418

 
1,287

Other
 
232

 
235

 
 
$
207,679

 
$
208,672




 
21
 


ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
    

 



6. Lease Intangibles

Upon acquisitions of real estate accounted for as business combinations, the Company assesses the fair value of acquired assets (including land, buildings and improvements, and identified intangibles such as above- and below-market leases, including below- market options and acquired in-place leases) and assumed liabilities in accordance with ASC Topic 805. The lease intangibles are amortized over the remaining terms of the respective leases, including option periods where applicable.

Intangible assets and liabilities are summarized as follows (in thousands):
 
March 31, 2017
 
December 31, 2016
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Amortizable Intangible Assets
 
 
 
 
 
 
 
 
 
 
 
In-place lease intangible assets
$
163,219

 
$
(53,027
)
 
$
110,192

 
$
156,420

 
$
(47,827
)
 
$
108,593

Above-market rent
17,295

 
(11,116
)
 
6,179

 
16,649

 
(10,658
)
 
5,991

 
$
180,514

 
$
(64,143
)
 
$
116,371

 
$
173,069

 
$
(58,485
)
 
$
114,584

 
 
 
 
 
 
 
 
 
 
 
 
Amortizable Intangible Liabilities
 
 
 
 
 
 
 
 
 
 
 
Below-market rent
$
(138,476
)
 
$
34,903

 
$
(103,573
)
 
$
(137,032
)
 
$
32,004

 
$
(105,028
)
 
$
(138,476
)
 
$
34,903

 
$
(103,573
)
 
$
(137,032
)
 
$
32,004

 
$
(105,028
)

During the three months ended March 31, 2017, the Company acquired in-place lease intangible assets of $6.8 million, above-market rents of $0.6 million and below-market rents of $1.4 million with weighted-average useful lives of 3.1, 3.7 and 13.3 years, respectively. Amortization of in-place lease intangible assets is recorded in depreciation and amortization expense and amortization of above-market rent and below-market rent are recorded as a reduction to and increase to rental income, respectively, in the consolidated statements of income.

The scheduled amortization of acquired lease intangible assets and assumed liabilities as of March 31, 2017 is as follows (in thousands):
Years Ending December 31,
 
Net Increase in Lease Revenues
 
Increase to Amortization
 
Net
2017 (Remainder)
 
$
9,068

 
$
23,802

 
$
(14,734
)
2018
 
9,439

 
18,149

 
(8,710
)
2019
 
9,021

 
12,823

 
(3,802
)
2020
 
7,746

 
10,595

 
(2,849
)
2021
 
6,883

 
9,022

 
(2,139
)
Thereafter
 
55,237

 
35,801

 
19,436

Total
 
$
97,394

 
$
110,192

 
$
(12,798
)


 
22
 


ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
    

 



7. Debt

A summary of the Company’s consolidated indebtedness is as follows (dollars in thousands):
 
Interest Rate
 
Maturity Date at
March 31, 2017
 
Carrying Value
 
March 31, 2017
 
December 31, 2016
 
 
March 31, 2017
 
December 31, 2016
Mortgages Payable
 
 
 
 
 
 
 
 
 
Core Fixed Rate
3.88%-6.65%
 
3.88%-6.65%
 
August 2017 - April 2035
 
$
234,273

 
$
234,875

Core Variable Rate - Swapped (a)
1.71%-3.77%
 
1.71%-3.77%
 
September 2022 - June 2026
 
81,663

 
82,250

   Total Core Mortgages Payable
 
 
 
 
 
 
315,936

 
317,125

Fund II Fixed Rate
1.00%-5.80%
 
1.00%-5.80%
 
October 2017 - May 2020
 
249,762

 
249,762

Fund II Variable Rate
LIBOR+0.79% -LIBOR+2.50%
 
LIBOR+0.62% -LIBOR+2.50%
 
August 2017 - November 2021
 
142,750

 
142,750

Fund II Variable Rate - Swapped (a)
2.88%
 
2.88%
 
November 2021
 
19,726

 
19,779

   Total Fund II Mortgages Payable
 
 
 
 
 
 
412,238

 
412,291

Fund III Variable Rate
Prime+0.50% -LIBOR+4.65%
 
Prime+0.50% -LIBOR+4.65%
 
May 2017 - December 2021
 
79,680

 
83,467

Fund IV Fixed Rate
3.4%-4.50%
 
3.4%-4.50%
 
October 2025-June 2026
 
10,504

 
10,503

Fund IV Variable Rate
LIBOR+1.70% -LIBOR+3.95%
 
LIBOR+1.70% - LIBOR+3.95%
 
May 2017 - April 2022
 
258,816

 
233,139

Fund IV Variable Rate - Swapped (a)
1.78%
 
1.78%
 
April 2022
 
81,668

 
14,509

   Total Fund IV Mortgages Payable
 
 
 
 
 
 
350,988

 
258,151

Net unamortized debt issuance costs
 
 
 
 
 
 
(16,951
)
 
(16,642
)
Unamortized premium
 
 
 
 
 
 
1,158

 
1,336

   Total Mortgages Payable
 
 
 
 
 
 
$
1,143,049

 
$
1,055,728

Unsecured Notes Payable
 
 
 
 
 
 
 
 
 
Core Unsecured Term Loans
LIBOR+1.30% -LIBOR+1.60%
 
LIBOR+1.30% -LIBOR+1.60%
 
July 2020 - December 2022
 
$
51,283

 
$
51,194

Core Variable Rate Unsecured
Term Loans - Swapped
 (a)
1.24%-3.77%
 
1.24%-3.77%
 
July 2018 - March 2025
 
248,717

 
248,806

  Total Core Unsecured Notes Payable
 
 
 
 
 
 
300,000

 
300,000

Fund IV Term Loan/Subscription Facility
 LIBOR+1.65% -LIBOR+2.75%
 
 LIBOR+1.65% -LIBOR+2.75%
 
February 2017- November 2017
 
60,536

 
134,636

Net unamortized debt issuance costs
 
 
 
 
 
 
(1,689
)
 
(1,646
)
  Total Unsecured Notes Payable
 
 
 
 
 
 
$
358,847

 
$
432,990

Unsecured Line of Credit
 
 
 
 
 
 
 
 
 
Core Unsecured Line of Credit
 LIBOR+1.40%
 
 LIBOR+1.40%
 
June 2020
 
$

 
$

  Total Unsecured Line of Credit
 
 
 
 
 
 
$

 
$

 
 
 
 
 
 
 
 
 
 
Total Debt - Fixed Rate (b)
 
 
 
 
 
$
926,314

 
$
860,486

Total Debt - Variable Rate
 
 
 
 
 
 
593,064

 
645,185

Total Debt
 
 
 
 
 
 
1,519,378

 
1,505,671

Net unamortized debt issuance costs
 
 
 
 
 
 
(18,640
)
 
(18,289
)
Unamortized premium
 
 
 
 
 
 
1,158

 
1,336

Total Indebtedness
 
 
 
 
 
 
$
1,501,896

 
$
1,488,718

__________

(a)
At March 31, 2017, the stated rates ranged from LIBOR + 1.08% to LIBOR +1.90% for Core variable-rate debt; LIBOR + .79% to LIBOR +2.50% for Fund II variable-rate debt; PRIME + 0.50% to LIBOR +4.65% for Fund III variable-rate debt; LIBOR + 1.70% to LIBOR +3.95% for Fund IV variable-rate debt and LIBOR + 1.30% to LIBOR +1.60% for Core variable-rate unsecured notes.
(b)
Includes $431,774 and $365,343, respectively, of variable-rate debt that has been fixed with interest rate swap agreements as of the periods presented.

 
23
 


ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
    

 



Mortgages Payable

During 2017, the Company obtained eight new non-recourse mortgages totaling $93.0 million with a weighted-average interest rate of 2.68% collateralized by eight properties, which mature between February 14, 2020 and April 1, 2022. The Company entered into interest rate swap contracts to effectively fix the interest rates of seven of these obligations with a notional value of $67.3 million at a weighted-average rate of 1.92%. During 2017, the Company repaid one mortgage in full, which had a balance of $3.5 million and an interest rate of LIBOR + 2.15%, and made scheduled principal payments of $1.9 million. At March 31, 2017 and December 31, 2016, the Company’s mortgages were collateralized by 47 and 39 properties, respectively, and the related tenant leases. Certain loans are cross-collateralized and contain cross-default provisions. The loan agreements contain customary representations, covenants and events of default. Certain loan agreements require the Company to comply with affirmative and negative covenants, including the maintenance of debt service coverage and leverage ratios. A portion of the Company’s variable-rate mortgage debt has been effectively fixed through certain cash flow hedge transactions (Note 8).

The mortgage loan related to Brandywine Holdings in our Core Portfolio amounted to $26.3 million and was in default at March 31, 2017 and December 31, 2016. This loan bears interest at 5.99%, excluding default interest of 5%, and is collateralized by a property, in which the Company holds a 22% controlling interest. In April 2017, the lender on this mortgage initiated a lawsuit against the Company for the full balance of the principal, accrued interest as well as penalties and fees aggregating approximately $31.0 million. The Company’s management believes that the mortgage is not recourse to the Company and that the suit is without merit.

In addition, at March 31, 2017, a mortgage loan in the amount of $14.3 million and collateralized by a Fund II property, was in default because its liquidity covenant had been breached.

Unsecured Notes Payable

At each of March 31, 2017 and December 31, 2016, the Company had a total of $0.0 and $9.9 million available under its unsecured term loans. A portion of the Company’s variable-rate term loan debt has been effectively fixed through certain cash flow hedge transactions (Note 8).

The Company completed the following transactions related to its unsecured notes payable during the three months ended March 31, 2017:

The Company reduced its maximum commitment available on the Fund IV subscription line of credit from $100.0 million to $21.5 million. Furthermore, upon repayment of $74.1 million, net of $10.0 million in draws, the Company was in compliance with its liquidity covenant at March 31, 2017 which was not in compliance at December 31, 2016. The balance was $20.4 million at March 31, 2017 and $94.5 million at December 31, 2016. Total available credit at March 31, 2017 and December 31, 2016 was $1.1 million and $55.5 million respectively on this line.

Unsecured Lines of Credit

At March 31, 2017 and December 31, 2016 the Company had a total of $150.0 million and $147.5 million, respectively available under its unsecured line of credit.

The Company completed the following transactions related to its unsecured line of credit during the three months ended March 31, 2017:

The Company drew down and repaid $10.0 million on the Core unsecured line of credit. There was no outstanding balance as of March 31, 2017.



 
24
 


ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
    

 



Scheduled Debt Principal Payments

The scheduled principal repayments of the Company’s consolidated indebtedness, as of March 31, 2017 are as follows (in thousands):
Year Ending December 31,
 
2017 (Remainder)