10-Q 1 a2017-09x30form10xq.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 September 30, 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 October 31, 2017 there were 83,705,835 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
 
 
September 30, 2017
 
December 31, 2016
(dollars in thousands, except per share amounts)
 
 
ASSETS
 
(Unaudited)
 
 
Investments in real estate, at cost
 
 

 
 

Operating real estate, net
 
$
2,905,000

 
$
2,551,448

Real estate under development, at cost
 
237,434

 
543,486

Net investments in real estate
 
3,142,434

 
3,094,934

Notes receivable, net
 
250,194

 
276,163

Investments in and advances to unconsolidated affiliates
 
270,245

 
272,028

Other assets, net
 
213,018

 
192,786

Cash and cash equivalents
 
48,255

 
71,805

Rents receivable, net
 
53,479

 
43,842

Restricted cash
 
19,473

 
22,904

Assets of properties held for sale
 
95,859

 
21,498

Total assets
 
$
4,092,957

 
$
3,995,960

 
 
 
 
 
LIABILITIES
 
 

 
 

Mortgage and other notes payable, net
 
$
1,045,877

 
$
1,055,728

Unsecured notes payable, net
 
497,970

 
432,990

Unsecured line of credit
 
59,000

 

Accounts payable and other liabilities
 
211,206

 
208,672

Capital lease obligation
 
70,498

 
70,129

Dividends and distributions payable
 
23,350

 
36,625

Distributions in excess of income from, and investments in, unconsolidated affiliates
 
15,262

 
13,691

Total liabilities
 
1,923,163

 
1,817,835

Commitments and contingencies
 


 


EQUITY
 
 

 
 

Acadia Shareholders' Equity
 
 
 
 
Common shares, $0.001 par value, authorized 200,000,000 and 100,000,000 shares, issued and outstanding 83,680,337 and 83,597,741 shares, respectively
 
84

 
84

Additional paid-in capital
 
1,594,332

 
1,594,926

Accumulated other comprehensive loss
 
(553
)
 
(798
)
Distributions in excess of accumulated earnings
 
(30,325
)
 
(5,635
)
Total Acadia shareholders’ equity
 
1,563,538

 
1,588,577

Noncontrolling interests
 
606,256

 
589,548

Total equity
 
2,169,794

 
2,178,125

Total liabilities and equity
 
$
4,092,957

 
$
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 September 30,
 
Nine Months Ended September 30,
(in thousands except per share amounts)
 
2017
 
2016
 
2017
 
2016
Revenues
 
 
 
 
 
 
Rental income
 
$
51,707

 
$
35,710

 
$
148,760

 
$
109,486

Expense reimbursements
 
9,957

 
7,192

 
32,347

 
22,920

Other
 
1,014

 
953

 
3,074

 
3,412

Total revenues
 
62,678

 
43,855

 
184,181

 
135,818

Operating expenses
 
 

 
 

 
 

 
 

Depreciation and amortization
 
26,652

 
15,217

 
77,245

 
46,744

General and administrative
 
7,953

 
12,869

 
25,286

 
30,742

Real estate taxes
 
8,822

 
6,195

 
27,462

 
18,000

Property operating
 
9,417

 
5,055

 
26,978

 
15,697

Other operating
 
250

 
3,265

 
987

 
4,094

Impairment of an asset
 
3,840

 

 
3,840

 

Total operating expenses
 
56,934

 
42,601

 
161,798

 
115,277

Operating income
 
5,744

 
1,254

 
22,383

 
20,541

Equity in earnings (losses) and gains (losses) of unconsolidated affiliates inclusive of gains (losses) on disposition of properties of $0, ($726), $14,771 and ($726), respectively
 
4,001

 
(102
)
 
21,044

 
3,592

Interest income
 
6,461

 
7,245

 
23,648

 
19,298

Interest expense
 
(15,428
)
 
(7,982
)
 
(39,666
)
 
(24,917
)
Income from continuing operations
before income taxes
 
778

 
415

 
27,409

 
18,514

Income tax provision
 
(465
)
 
(89
)
 
(1,017
)
 
(123
)
Income from continuing operations before gain
on disposition of properties
 
313

 
326

 
26,392

 
18,391

Gain on disposition of properties, net of tax
 
12,972

 

 
12,972

 
81,965

Net income
 
13,285

 
326

 
39,364

 
100,356

Net loss (income) attributable to noncontrolling interests
 
(418
)
 
5,786

 
1,194

 
(47,401
)
Net income attributable to Acadia
 
$
12,867

 
$
6,112

 
$
40,558

 
$
52,955


 
 

 
 

 
 
 
 
Basic and diluted earnings per share
 
$
0.15

 
$
0.08

 
$
0.48

 
$
0.71

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 September 30,
 
Nine Months Ended September 30,
(in thousands)
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
Net income
 
$
13,285

 
$
326

 
$
39,364

 
$
100,356

Other comprehensive income (loss):
 

 

 
 
 
 
Unrealized (loss) income on valuation of swap agreements
 
(644
)
 
1,474

 
(2,652
)
 
(12,624
)
Reclassification of realized interest on swap agreements
 
734

 
1,210

 
2,637

 
3,396

Other comprehensive income (loss)
 
90

 
2,684

 
(15
)
 
(9,228
)
Comprehensive income
 
13,375

 
3,010

 
39,349

 
91,128

Comprehensive (income) loss attributable to noncontrolling interests
 
(541
)
 
5,478

 
1,454

 
(46,554
)
Comprehensive income attributable to Acadia
 
$
12,834

 
$
8,488

 
$
40,803

 
$
44,574



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

 
6
 





ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)
Nine Months Ended September 30, 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
61

 

 
1,086

 

 

 
1,086

 
(1,086
)
 

Dividends/distributions declared ($0.78 per Common Share/OP Unit)

 

 

 

 
(65,248
)
 
(65,248
)
 
(4,805
)
 
(70,053
)
Employee and trustee stock compensation, net
21

 

 
425

 

 

 
425

 
8,704

 
9,129

Noncontrolling interest distributions

 

 

 

 

 

 
(7,278
)
 
(7,278
)
Noncontrolling interest contributions

 

 

 

 

 

 
20,522

 
20,522

Reallocation of noncontrolling interests

 

 
(2,105
)
 

 

 
(2,105
)
 
2,105

 

Comprehensive income

 

 

 
245

 
40,558

 
40,803

 
(1,454
)
 
39,349

Balance at
September 30, 2017
83,680


$
84


$
1,594,332


$
(553
)

$
(30,325
)

$
1,563,538


$
606,256


$
2,169,794

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
350

 
1

 
7,874

 

 

 
7,875

 
(7,875
)
 

Issuance of Common Shares, net of issuance costs
10,228

 
10

 
357,252

 

 

 
357,262

 

 
357,262

Issuance of OP Units to acquire real estate

 

 

 

 

 

 
29,336

 
29,336

Dividends/distributions declared ($0.75 per Common Share/OP Unit)

 

 

 

 
(56,782
)
 
(56,782
)
 
(4,398
)
 
(61,180
)
Acquisition of noncontrolling interests

 

 
7,546

 

 

 
7,546

 
(25,925
)
 
(18,379
)
Employee and trustee stock compensation, net
27

 

 
699

 

 

 
699

 
10,983

 
11,682

Change in control of previously unconsolidated investment

 

 

 

 

 

 
(75,713
)
 
(75,713
)
Noncontrolling interest distributions

 

 

 

 

 

 
(50,849
)
 
(50,849
)
Noncontrolling interest contributions

 

 

 

 

 

 
204,412

 
204,412

Comprehensive (loss) income

 

 

 
(8,381
)
 
52,955

 
44,574

 
46,554

 
91,128

Reallocation of noncontrolling interests

 

 
35,254

 

 

 
35,254

 
(35,254
)
 

Balance at
September 30, 2016
80,863


$
81


$
1,500,864


$
(12,844
)

$
8,815


$
1,496,916


$
512,137


$
2,009,053

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

 
7
 





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

 
 
Nine Months Ended September 30,
(in thousands)
 
2017
 
2016
CASH FLOWS FROM OPERATING ACTIVITIES
 
 

 
 

Net income
 
$
39,364

 
$
100,356

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

 
 

Gain on disposition of properties
 
(12,972
)
 
(81,965
)
Depreciation and amortization
 
77,245

 
46,744

Distributions of operating income from unconsolidated affiliates
 
7,412

 
4,917

Equity in earnings and gains of unconsolidated affiliates
 
(21,044
)
 
(3,592
)
Stock compensation expense
 
9,129

 
9,729

Amortization of financing costs
 
3,996

 
2,025

Impairment of asset
 
3,840

 

Other, net
 
(8,435
)
 
(5,577
)
Changes in assets and liabilities:
 


 


Other liabilities
 
(1,556
)
 
134

Prepaid expenses and other assets
 
(8,723
)
 
(11,642
)
Rents receivable, net
 
(6,646
)
 
(4,858
)
Restricted cash
 
3,538

 
1,733

Accounts payable and accrued expenses
 
(736
)
 
(1,511
)
Net cash provided by operating activities
 
84,412

 
56,493

CASH FLOWS FROM INVESTING ACTIVITIES
 
 

 
 

Acquisition of real estate
 
(138,429
)
 
(292,136
)
Development and property improvement costs
 
(84,554
)
 
(94,459
)
Issuance of or advances on notes receivable
 
(10,449
)
 
(148,203
)
Proceeds from the disposition of properties
 
47,025

 
150,379

Investments in and advances to unconsolidated affiliates
 
(4,555
)
 
(68,153
)
Return of capital from unconsolidated affiliates
 
12,300

 
50,622

Proceeds from notes receivable
 
12,000

 
42,819

Deposits for properties under contract
 

 
(8,576
)
Proceeds from disposition of properties of unconsolidated affiliates
 
25,735

 

Payment of deferred leasing costs
 
(5,381
)
 
(5,451
)
Change in control of previously consolidated affiliate
 

 
(2,578
)
Net cash used in investing activities
 
(146,308
)
 
(375,736
)










 
8
 






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

 
 
Nine Months Ended September 30,
(Continued)
 
2017
 
2016
CASH FLOWS FROM FINANCING ACTIVITIES
 
 

 
 

Principal payments on mortgage and other notes
 
(130,736
)
 
(292,815
)
Principal payments on unsecured debt
 
(143,215
)
 
(516,790
)
Proceeds received on mortgage and other notes
 
120,252

 
70,437

Proceeds from unsecured debt
 
267,200

 
616,315

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

 
357,262

Capital contributions from noncontrolling interests
 
20,522

 
204,412

Distributions to noncontrolling interests
 
(12,813
)
 
(74,612
)
Dividends paid to Common Shareholders
 
(77,770
)
 
(71,674
)
Deferred financing and other costs
 
(4,987
)
 
(5,288
)
Loan proceeds held as restricted cash
 
(107
)
 
8,462

Net cash provided by financing activities
 
38,346

 
295,709


 
 
 
 
Decrease in cash and cash equivalents
 
(23,550
)
 
(23,534
)
Cash and cash equivalents, beginning of the period
 
71,805

 
72,776

Cash and cash equivalents, end of the period
 
$
48,255

 
$
49,242

 
 
 
 
 
Supplemental disclosure of cash flow information
 
 

 
 

Cash paid during the period for interest, net of
capitalized interest of $12,246 and $14,936, respectively
 
$
39,626

 
$
28,116

Cash paid for income taxes, net of (refunds)
 
$
773

 
$
1,267

 
 
 
 
 
Supplemental disclosure of non-cash investing activities
 
 

 
 

Acquisition of real estate through assumption of debt
 
$

 
$
60,668

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
 
$
2,161

 
$
1,809

Acquisition of real estate through conversion of note receivable
 
$
9,142

 
$

Acquisition of undivided interest in a property through conversion of notes receivable
 
$
16,005

 
$

 
 
 
 
 
Change in control of previously consolidated investment
 
 
 
 
Real estate, net
 
$

 
$
90,559

Investments in and advances to unconsolidated affiliates
 

 
(21,421
)
Other assets and liabilities
 

 
3,997

Noncontrolling interest
 

 
(75,713
)
Cash removed in de-consolidation of previously consolidated investment
 
$

 
$
(2,578
)
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 September 30, 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 September 30, 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 ownership interests in 64 properties within its opportunity funds, Acadia Strategic Opportunity Fund II, LLC (“Fund II”), Acadia Strategic Opportunity Fund III LLC (“Fund III”), Acadia Strategic Opportunity Fund IV LLC (“Fund IV”), and Acadia Strategic Opportunity Fund V LLC (“Fund V”). Acadia Strategic Opportunity Fund I, LP (“Fund I,” together with Funds II, III, IV, and V, the “Funds”) was liquidated in 2015. 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 II (dollars in millions):
Entity
Formation Date
Operating Partnership Share of Capital
Capital Called as of September 30, 2017
Unfunded Commitment
Equity Interest Held By Operating Partnership (a)
Preferred Return
Total Distributions as of September 30, 2017 (b)
Fund II and Mervyns II
6/2004
28.33%
$
347.1

$

28.33%
8%
$
131.6

Fund III
5/2007
24.54%
396.7

53.3

39.63%
6%
553.7

Fund IV
5/2012
23.12%
390.7

139.3

23.12%
6%
101.9

Fund V
8/2016
20.10%

520.0

20.10%
6%

__________

(a)
Amount represents the current economic ownership at September 30, 2017, which could differ from the stated legal ownership based upon the cumulative preferred returns of the respective fund.
(b)
Represents the total for the Funds, including the Operating Partnership and noncontrolling interests’ shares.




 
10
 


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

 



Basis of Presentation

Segments

At September 30, 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. Management believes the majority of the Company’s revenue falls outside of the scope of this guidance and does not anticipate any significant changes to the timing of the Company’s revenue recognition. 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. As a lessee, the Company is party to various equipment, ground, and office leases with future payment obligations aggregating $207.7 million at September 30, 2017 (Note 11) for which the Company expects to record right-of-use assets upon adoption of ASU 2016-02. 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 also requires that internal leasing costs be expensed as incurred, as opposed to capitalized and deferred. The Company expects that it will no longer capitalize a significant portion of internal leasing costs that were previously capitalized. The Company capitalized $0.8 million of internal leasing costs during each of the nine months ended September 30, 2017 and 2016, respectively. ASU 2016-02 will also require extensive quantitative and qualitative disclosures and is effective beginning after December 15, 2018, but early adoption is permitted.

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 Company expects to elect the “cumulative distribution approach” whereby distributions received from equity method investments would be classified as cash flows from operations to the extent of equity earnings and then as cash flows from investing activities thereafter. The Company is currently evaluating the impact of this guidance on its consolidated financial statements; however, upon the adoption of ASU 2016-15, the Company expects to reclassify a portion of its cash flows between investing activities and cash flows from operating activities in its historical presentation of cash flows related to its equity method investments.

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. It is expected that the new standard will 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. The Company expensed $0.9 million and $5.5 million of acquisition costs during the nine months ended September 30, 2017 and 2016, respectively.

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 Emerging Issues Task Force (“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 Staff Accounting Bulletin 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 de-recognize 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

 
12
 


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

 



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.

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies the scope of modification accounting with respect to changes to the terms or conditions of a share-based payment award. Modification accounting would not apply if a change to an award does not affect the total current fair value (or other applicable measurement), vesting conditions, or the classification of the award. For all entities, ASU 2017-09 is effective prospectively for awards modified in fiscal years beginning after December 15, 2017, and interim periods within those annual periods and early adoption is permitted. The adoption of ASU 2017-09 is not expected to have a material impact on the Company's consolidated financial statements because the Company has not historically had significant modifications of its awards.

In August 2017, the Financial Accounting Standards Board issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities. The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018, with early adoption, including adoption in an interim period, permitted. The Company plans to adopt ASU 2017-12 effective January 1, 2018. ASU 2017-12 requires a modified retrospective transition method in which the Company will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. While the Company continues to assess all potential impacts of the standard, the adoption is not expected to have a material impact on the Company’s consolidated financial statements.
2. Real Estate

The Company’s consolidated real estate is comprised of the following (in thousands):
 
 
September 30, 2017
 
December 31, 2016
 
 
 
 
 
Land
 
$
659,547

 
$
693,252

Buildings and improvements
 
2,344,370

 
1,916,288

Tenant improvements
 
140,027

 
132,220

Construction in progress
 
22,052

 
19,789

Properties under capital lease
 
76,965

 
76,965

Total
 
3,242,961

 
2,838,514

Less: Accumulated depreciation
 
(337,961
)
 
(287,066
)
Operating real estate, net
 
2,905,000

 
2,551,448

Real estate under development, at cost
 
237,434

 
543,486

Net investments in real estate
 
$
3,142,434

 
$
3,094,934



 
13
 


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

 



Acquisitions

During the nine months ended September 30, 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 Acquisitions
 
 
 
 
 
Fund IV:
 
 
 
 
 
Lincoln Place - Fairview Heights, IL
100%
Mar 13, 2017
$
35,350

 
$

Shaw's Plaza - Windham, ME (Note 3)
100%
Jun 30, 2017
9,142

 

Subtotal Fund IV
 
 
44,492

 

 
 
 
 
 
 
Fund V:
 
 
 
 
 
Plaza Santa Fe - Santa Fe, NM
100%
Jun 5, 2017
35,220

 

Hickory Ridge - Hickory, NC
100%
Jul 27, 2017
44,020

 

New Towne Plaza - Canton, MI
100%
Aug 4, 2017
26,000

 

Subtotal Fund V
 
 
105,240

 

Total 2017 Acquisitions
 
 
$
149,732

 
$

 
 
 
 
 
 
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

 
 
 
 
 
 
__________


 
14
 


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

 



(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 $0.9 million of acquisition costs for the nine months ended September 30, 2017, of which $0.3 million related to the Core Portfolio and $0.6 million related to the Funds and $5.5 million of acquisition costs for the nine months ended September 30, 2016, of which $5.1 million related to the Core Portfolio and $0.4 million related to the Funds.

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 nine months ended September 30, 2017 and the year ended December 31, 2016 (in thousands):
 
Nine Months Ended
September 30, 2017
 
Year Ended December 31, 2016
 
 
Net Assets Acquired:
 
 
 
Land
$
21,917

 
$
225,729

Buildings and improvements
104,729

 
458,525

Other assets

 
3,481

Acquisition-related intangible assets (in Acquired lease intangibles, net)
31,378

 
63,606

Acquisition-related intangible liabilities (in Acquired lease intangibles, net)
(8,292
)
 
(72,985
)
Above and below market debt assumed (included in Mortgages and other notes payable, net)

 
(119,601
)
Net assets acquired
$
149,732

 
$
558,755


Consideration:
 
 
 
Cash
$
138,429

 
$
439,546

Conversion of note receivable
9,142

 

Debt assumed

 
119,209

Liabilities assumed
2,161

 

Total Consideration
$
149,732

 
$
558,755


Dispositions

During the nine months ended September 30, 2017 and 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
2017 Dispositions:
 
 
 
 
 
New Hyde Park Shopping Center - New Hyde Park, NY
Fund III
Jul 6, 2017
$
22,075

 
$
6,433

216th Street - New York, NY
Fund II
Sep 11, 2017
30,579

 
6,539

Total 2017 Dispositions
 
 
$
52,654

 
$
12,972

 
 
 
 
 
 
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


 
15
 


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

 



The aggregate rental revenue, expenses and pre-tax income reported within continuing operations for the aforementioned consolidated properties that were sold during the nine months ended September 30, 2017 and year ended December 31, 2016 were as follows (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
Rental revenues
 
$
503

 
$
1,122

 
$
2,136

 
$
7,378

Expenses
 
(523
)
 
(1,095
)
 
(2,343
)
 
(4,745
)
Loss on extinguishment of debt
 
(10
)
 

 
(10
)
 
(15
)
Income from continuing operations of
disposed properties before gain on disposition of properties
 
(30
)
 
27

 
(217
)
 
2,618

Gain on disposition of properties, net of tax
 
12,972

 

 
12,972

 
81,965

Net income attributable to noncontrolling interests
 
(9,166
)
 
(18
)
 
(9,034
)
 
(70,410
)
Net income attributable to Acadia
 
$
3,776

 
$
9

 
$
3,721

 
$
14,173


Properties Held For Sale

At December 31, 2016, the Company had one property in Fund II classified as held-for-sale with total assets of $21.5 million and subject to a mortgage of $25.5 million.

At September 30, 2017, the Company had one property in Fund II classified as held-for-sale, City Point Condominium Tower I, with total assets of $95.9 million and subject to mortgages aggregating $81.0 million, which will be repaid at closing. Upon classification as held for sale, the Company recognized an impairment charge of approximately $3.8 million (Note 8) relating to expected transaction costs associated with the sale. Additionally, the Company recognized a charge to income attributable to Acadia of approximately $1.1 million to adjust the non-controlling interest holder’s ownership in this property to its estimated redemption amount as a result of the sale at September 30, 2017. This property had a net loss of $4.3 million excluding losses attributable to noncontrolling interests of $3.9 million for the three and nine months ended September 30, 2017. On October 13, 2017, this property was sold and the associated mortgage was repaid (Note 15).

Pro Forma Financial Information

The following unaudited pro forma consolidated operating data is presented for the three and nine months ended September 30, 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 nine months ended September 30, 2016 were completed on January 1, 2015. The related acquisition expenses of $0.9 million and $5.5 million reported during the nine months ended September 30, 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 September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Pro forma revenues
$
63,253

 
$
51,871

 
$
191,673

 
$
164,410

Pro forma income from continuing operations
368

 
1,092

 
26,439

 
19,504

Pro forma net income attributable to Acadia
12,912

 
6,839

 
40,608

 
54,201

Pro forma basic and diluted earnings per share
0.15

 
0.08

 
0.48

 
0.66


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.


 
16
 


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

 



Depreciation and amortization expense for the nine months ended September 30, 2017 includes $2.0 million of accelerated depreciation related to a building under development that was demolished.

Development activity comprised the following during the periods presented (dollars in thousands):
 
December 31, 2016
 
Nine Months Ended September 30, 2017
 
September 30, 2017
 
Number of Properties
 
Carrying Value
 
Transfers In
 
Capitalized Costs
 
Transfers Out
 
Number of Properties
 
Carrying Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Core
1

 
$
2,530

 
$
7,258

 
$
3,852

 
$
5,441

 
2

 
$
8,199

Fund II
2

 
443,012

 

 
7,677

 
414,000

 
1

 
36,689

Fund III
3

 
51,421

 

 
13,838

 
8,146

 
2

 
57,113

Fund IV
8

 
46,523

 
79,624

 
13,883

 
4,597

 
8

 
135,433

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
14

 
$
543,486

 
$
86,882

 
$
39,250

 
$
432,184

 
13

 
$
237,434


During the nine months ended September 30, 2017, the Company placed substantially all of the City Point project into service.

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):

 
 
September 30,
 
December 31,
 
September 30, 2017
Description
 
2017
 
2016
 
Number
 
Maturity Date
 
Interest Rate
Core Portfolio
 
$
198,395

 
$
216,400

 
4
 
June 2018 - September 2019
 
6.0% - 8.7%
Fund II
 
31,593

 
31,007

 
1
 
May 2020
 
2.5%
Fund III
 
4,956

 
4,506

 
1
 
July 2020
 
18.0%
Fund IV
 
15,250

 
24,250

 
1
 
February 2021
 
15.3%
 
 
$
250,194

 
$
276,163

 
7
 
 
 
 

During the nine months ended September 30, 2017, the Company:

recovered the full value of a $12.0 million Core note receivable, which was previously in default, plus accrued interest and fees aggregating $16.8 million as further described below;
exchanged a $16.0 million Core note receivable plus accrued interest thereon of $0.3 million for an additional undivided interest in one of the properties in the Brandywine Portfolio (Note 4);
funded an additional $10.0 million on an existing Core note receivable, which had a total commitment of $20.0 million;
entered into an agreement to extend the maturity of a $15.0 million Core note receivable to June 1, 2018;
increased the balance of a Fund II note receivable by the interest accrued of $0.6 million;
advanced an additional $0.5 million on a Fund III note receivable; and
exchanged a $9.0 million Fund IV note receivable plus accrued interest of $0.1 million thereon for an investment in a shopping center in Windham, Maine (Note 2).


 
17
 


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

 



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 loan bears interest at 8.1% (Note 4).

At 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 estimated 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 closed during the second quarter of 2017. In connection with this sale, the Company recovered its full carrying value of principal and interest and recognized additional interest income and expense reimbursements of $2.2 million in the first quarter of 2017 and $1.4 million in the second quarter of 2017 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).


 
18
 


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 primarily 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
 
September 30, 2017
 
December 31, 2016
Fund
Property
September 30, 2017
 
 
Core:
 
 
 
 
 
 
 
840 N. Michigan (a)
88.43%
 
$
70,859

 
$
74,131

 
Renaissance Portfolio
20%
 
35,139

 
36,437

 
Gotham Plaza
49%
 
29,196

 
29,421

 
Brandywine Market Square (a, b)
61.11%
 
20,642

 
5,469

 
Brandywine Portfolio (a, b)
22.22%
 
15,948

 
15,286

 
Georgetown Portfolio
50%
 
3,751

 
4,287

 
 
 
 
175,535

 
165,031

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

 

 
 
 
 
 
 
 
Fund III:
 
 
 
 
 
 
 
Fund III Other Portfolio
90%
 
168

 
8,108

 
Self Storage Management (d)
95%
 
241

 
241

 
 
 
 
409

 
8,349

Fund IV:
 
 
 
 
 
 
 
Broughton Street Portfolio (e)
50%
 
57,368

 
54,839

 
Fund IV Other Portfolio
90%
 
20,392

 
21,817

 
650 Bald Hill Road
90%
 
13,642

 
18,842

 
 
 
 
91,402

 
95,498

 
 
 
 
 
 
 
Various Funds:
Due from Related Parties (f)
 
 
2,343

 
2,193

 
Other (g)
 
 
556

 
957

 
Investments in and advances to unconsolidated affiliates
 
$
270,245

 
$
272,028

 
 
 
 
 
 
 
Core:
 
 
 
 
 
 
 
Crossroads (h)
49%
 
$
15,262

 
$
13,691

 
Distributions in excess of income from,
and investments in, unconsolidated affiliates
 
$
15,262

 
$
13,691

__________

(a)
Represents a tenancy-in-common interest.
(b)
During May 2017, as discussed below, the Company increased its ownership in Brandywine Market Square, which was formerly included within the Brandywine Portfolio.
(c)
Distributions have exceeded the Company’s non-recourse investment, therefore the carrying value is zero.
(d)
Represents a variable interest entity.
(e)
The Company is entitled to a 15% return on its cumulative capital contribution which was $15.2 million and $14.5 million at September 30, 2017 and December 31, 2016, respectively. In addition, the Company is entitled to a 9% preferred return on a portion of its equity, which was $47.0 million and $45.4 million at September 30, 2017 and December 31, 2016, respectively.
(f)
Represents deferred fees.
(g)
Includes a cost-method investment in Albertson’s (Note 8) and other investments.

 
19
 


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

 



(h)
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.

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”), an 88.43% tenancy-in-common interest in an 87,000 square foot retail property located in Chicago, Illinois (“840 N. Michigan”), and a 49% interest in an approximately 123,000 square foot retail property located in Manhattan, New York (“Gotham Plaza”).

Acquisition of Unconsolidated Investment

On January 4, 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.

Brandywine Portfolio and Brandywine Market Square

The Company owns an interest in an approximately one million square foot retail portfolio (the “Brandywine Portfolio” joint venture) located in Wilmington, Delaware, which includes a property referred to as “Brandywine Market Square.” 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. The Brandywine Portfolio and Brandywine Market Square ventures do not include the property held by Brandywine Holdings, an entity consolidated by the Company.

Additionally, in April 2016, the Company repaid the outstanding balance of $140.0 million of non-recourse debt collateralized by the Brandywine Portfolio and provided a note receivable collateralized by the partners’ tenancy-in-common interest in the Brandywine Portfolio for their proportionate share of the repayment. On May 1, 2017, the Company exchanged $16.0 million of the $153.4 million note receivable (Note 3) plus accrued interest of $0.3 million for one of the partner’s 38.89% tenancy-in-common interests in Brandywine Market Square. The Company already had a 22.22% interest in Brandywine Market Square and continues to apply the equity method of accounting for its aggregate 61.11% noncontrolling interest in Brandywine Market Square and its 22.22% interest in the rest of the Brandywine Portfolio. The incremental investment in Brandywine Market Square was recorded at $16.6 million and the excess of this amount over the venture’s book value associated with this interest, or $9.8 million, will be amortized over the remaining depreciable lives of the venture’s assets.

Fund Investments

Fund III Other Portfolio includes 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 Promenade at Manassas and Eden Square as well as 2819 Kennedy Boulevard and 1701 Belmont Avenue through their dates of sale. 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.

Mervyn’s I & II

During July 2017, Mervyn’s I and Mervyn’s II received a total of $1.0 million in distributions from certain investments. The Company had already reduced the carrying amount of its investments in Mervyn’s I and Mervyn’s II to zero, and consequently the entire amount received has been reflected as equity in earnings (losses) and gains of unconsolidated affiliates in the consolidated statement of income.


 
20
 


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

 



Albertson’s

“Other” includes Fund II’s cost method investment in Albertson’s supermarkets among other investments. During July 2017, the Company received $2.3 million in distributions from Albertson’s. The Company reduced the carrying amount of the investment to zero and reflected the remaining $1.9 million as equity in earnings (losses) and gains of unconsolidated affiliates in the consolidated statement of income.

Dispositions of Unconsolidated Investments

On January 31, 2017, Fund IV completed the disposition of 2819 Kennedy Boulevard, for $19.0 million less $8.4 million debt repayment for net proceeds 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 in 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.

On February 15, 2017, Fund III completed the disposition of Arundel Plaza, for $28.8 million less $10.0 million debt repayments for net proceeds 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 in 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.

On June 30, 2017, Fund IV completed the disposition of 1701 Belmont Avenue, for $5.6 million less $2.9 million debt repayments for net proceeds of $2.7 million, resulting in a gain on disposition of $3.3 million at the property level, of which the Fund’s share was $3.3 million, which is included in equity in earnings and gains from unconsolidated affiliates in the consolidated financial statements. The Operating Partnership’s proportionate share of the gain was $0.8 million, net of noncontrolling interests.

On January 28, 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). On December 21, 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, which is included in equity in earnings and gains from unconsolidated affiliates in the consolidated financial statements.

During October 2017, Fund IV’s Broughton Street Portfolio venture sold several properties (Note 15).

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 $0.3 million for each of the three months ended September 30, 2017 and 2016, respectively, and $1.0 million and $0.9 million for the nine months ended September 30, 2017 and 2016, respectively, which is included in other revenues in the consolidated financial statements.

In addition, the Company paid to certain unaffiliated partners of its joint ventures, $0.5 million and $0.6 million during the three months ended September 30, 2017 and 2016, respectively, and $1.4 million and $1.8 million during the nine months ended September 30, 2017 and 2016, respectively for leasing commissions, development, management, construction and overhead fees.


 
21
 


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

 



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):
 
 
September 30,
 
December 31,
 
 
2017
 
2016
Combined and Condensed Balance Sheets
 
 

 
 

Assets:
 
 

 
 

Rental property, net
 
$
540,609

 
$
576,505

Real estate under development
 
22,359

 
18,884

Investment in unconsolidated affiliates
 
6,854

 
6,853

Other assets
 
103,335

 
75,254

Total assets
 
$
673,157

 
$
677,496

Liabilities and partners’ equity:
 
 

 
 

Mortgage notes payable
 
$
401,768

 
$
407,344

Other liabilities
 
57,125

 
30,117

Partners’ equity
 
214,264

 
240,035

Total liabilities and partners’ equity
 
$
673,157

 
$
677,496

 
 
 
 
 
Company's share of accumulated equity
 
$
177,251

 
$
191,049

Basis differential
 
69,728

 
61,827

Deferred fees, net of portion related to the Company's interest
 
5,662

 
3,268

Amounts receivable by the Company
 
2,342

 
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
 
$
254,983

 
$
258,337


 
 
Three Months Ended September 30,
 
Nine Months Ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
Combined and Condensed Statements of Income
 
 

 
 

 
 
 
 
Total revenues
 
$
20,883

 
$
26,590

 
$
63,460

 
$
58,984

Operating and other expenses
 
(6,847
)
 
(7,066
)
 
(18,985
)
 
(18,082
)
Interest expense
 
(4,788
)
 
(5,242
)
 
(13,967
)
 
(11,355
)
Depreciation and amortization
 
(6,208
)
 
(15,398
)
 
(18,720
)
 
(24,262
)
Loss on debt extinguishment
 

 

 
(154
)
 

(Loss) gain on disposition of properties
 

 
(1,452
)
 
17,778

 
(1,452
)
Net income attributable to unconsolidated affiliates
 
$
3,040

 
$
(2,568
)
 
$
29,412

 
$
3,833

 
 
 
 
 
 
 
 
 
Company’s share of equity in
net income of unconsolidated affiliates
 
$
4,544

 
$
377

 
$
23,156

 
$
4,267

Basis differential amortization
 
(543
)
 
(479
)
 
(2,112
)
 
(675
)
Company’s equity in earnings (losses)
of unconsolidated affiliates
 
$
4,001

 
$
(102
)
 
$
21,044

 
$
3,592



 
22
 


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:
(in thousands)
 
September 30, 2017
 
December 31, 2016
Other assets, net:
 
 
 
 
Lease intangibles, net (Note 6)
 
$
123,593

 
$
114,584

Deferred charges, net (a)
 
28,365

 
25,221

Prepaid expenses
 
18,173

 
14,351

Other receivables
 
9,440

 
9,514

Accrued interest receivable
 
12,030

 
9,354

Deposits
 
4,422

 
4,412

Due from seller
 
4,300

 
4,300

Deferred tax assets
 
3,719

 
3,733

Derivative financial instruments (Note 8)
 
2,661

 
2,921

Due from related parties
 
1,773

 
1,655

Corporate assets
 
2,408

 
1,241

Income taxes receivable
 
2,134

 
1,500

 
 
$
213,018

 
$
192,786

 
 
 
 
 
(a) Deferred charges, net:
 
 
 
 
      Deferred leasing and other costs
 
$
44,484

 
$
40,728

      Deferred financing costs