10-Q 1 a2018-06x30form10xq.htm 10-Q Document



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 June 30, 2018

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “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 July 24, 2018 there were 81,502,812 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
 
PART I - FINANCIAL INFORMATION
 
 
1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.
 
3.
 
4.
 
 
 
 
 
 
PART II - OTHER INFORMATION
 
 
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 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.



 
3
 





PART I – FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS.

ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
 
June 30,
 
December 31,
(dollars in thousands, except per share amounts)
 
2018
 
2017
ASSETS
 
(Unaudited)
 
 
Investments in real estate, at cost
 
 

 
 

Operating real estate, net
 
$
2,977,556

 
$
2,952,918

Real estate under development
 
192,215

 
173,702

Net investments in real estate
 
3,169,771

 
3,126,620

Notes receivable, net
 
109,209

 
153,829

Investments in and advances to unconsolidated affiliates
 
306,616

 
302,070

Other assets, net
 
207,583

 
214,959

Cash and cash equivalents
 
17,330

 
74,823

Rents receivable, net
 
56,503

 
51,738

Restricted cash
 
13,756

 
10,846

Assets of properties held for sale
 

 
25,362

Total assets
 
$
3,880,768

 
$
3,960,247

 
 
 
 
 
LIABILITIES
 
 

 
 

Mortgage and other notes payable, net
 
$
981,567

 
$
909,174

Unsecured notes payable, net
 
465,687

 
473,735

Unsecured line of credit
 
14,000

 
41,500

Accounts payable and other liabilities
 
197,181

 
210,052

Capital lease obligation
 
70,857

 
70,611

Dividends and distributions payable
 
23,719

 
24,244

Distributions in excess of income from, and investments in, unconsolidated affiliates
 
15,208

 
15,292

Total liabilities
 
1,768,219

 
1,744,608

Commitments and contingencies
 


 


EQUITY
 
 

 
 

Acadia Shareholders' Equity
 
 
 
 
Common shares, $0.001 par value, authorized 200,000,000 shares, issued and outstanding 81,502,812 and 83,708,140 shares, respectively
 
82

 
84

Additional paid-in capital
 
1,543,651

 
1,596,514

Accumulated other comprehensive income
 
10,138

 
2,614

Distributions in excess of accumulated earnings
 
(61,196
)
 
(32,013
)
Total Acadia shareholders’ equity
 
1,492,675

 
1,567,199

Noncontrolling interests
 
619,874

 
648,440

Total equity
 
2,112,549

 
2,215,639

Total liabilities and equity
 
$
3,880,768

 
$
3,960,247


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

 
4
 





ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands except per share amounts)
 
2018
 
2017
 
2018
 
2017
Revenues
 
 
 
 
 
 
Rental income
 
$
51,322

 
$
48,468

 
$
102,101

 
$
97,053

Expense reimbursements
 
10,598

 
10,074

 
21,806

 
22,390

Other
 
1,649

 
962

 
2,786

 
2,060

Total revenues
 
63,569

 
59,504

 
126,693

 
121,503

Operating expenses
 
 

 
 

 
 

 
 

Depreciation and amortization
 
29,503

 
26,057

 
58,079

 
50,593

General and administrative
 
7,907

 
8,864

 
16,377

 
17,333

Real estate taxes
 
7,031

 
8,034

 
15,990

 
18,640

Property operating
 
12,524

 
9,364

 
22,862

 
17,561

Other operating
 
305

 
443

 
385

 
737

Total operating expenses
 
57,270

 
52,762

 
113,693

 
104,864

Operating income
 
6,299

 
6,742

 
13,000

 
16,639

Equity in earnings of unconsolidated affiliates inclusive of gain on disposition of properties of $0, $3,285, $0 and $14,771, respectively
 
5,019

 
4,340

 
6,703

 
17,043

Interest income
 
3,289

 
8,203

 
7,026

 
17,187

Interest expense
 
(16,915
)
 
(12,750
)
 
(32,805
)
 
(24,238
)
(Loss) income from continuing operations before income taxes
 
(2,308
)
 
6,535

 
(6,076
)
 
26,631

Income tax benefit (provision)
 
5

 
(427
)
 
(387
)
 
(552
)
(Loss) income from continuing operations before gain on disposition of properties
 
(2,303
)
 
6,108

 
(6,463
)
 
26,079

Gain on disposition of properties, net of tax
 
33

 

 
33

 

Net (loss) income
 
(2,270
)
 
6,108

 
(6,430
)
 
26,079

Net loss attributable to noncontrolling interests
 
9,935

 
5,952

 
21,514

 
1,612

Net income attributable to Acadia
 
$
7,665

 
$
12,060

 
$
15,084

 
$
27,691


 
 

 
 

 
 
 
 
Basic and diluted earnings per share
 
$
0.09

 
$
0.14

 
$
0.18

 
$
0.33

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

 
5
 





ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Net (loss) income
 
$
(2,270
)
 
$
6,108

 
$
(6,430
)
 
$
26,079

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Unrealized income (loss) on valuation of swap agreements
 
2,950

 
(2,124
)
 
8,603

 
(2,008
)
Reclassification of realized interest on swap agreements
 
109

 
930

 
472

 
1,903

Other comprehensive income (loss)
 
3,059

 
(1,194
)
 
9,075

 
(105
)
Comprehensive income
 
789

 
4,914

 
2,645

 
25,974

Comprehensive loss attributable to noncontrolling interests
 
9,638

 
6,205

 
19,963

 
1,995

Comprehensive income attributable to Acadia
 
$
10,427

 
$
11,119

 
$
22,608

 
$
27,969


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

 
6
 



ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Six Months Ended June 30, 2018 and 2017



 
Acadia Shareholders
 
 
 
 
(in thousands, except per share amounts)
Common Shares
 
Share Amount
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Distributions in Excess of Accumulated Earnings
 
Total
Common
Shareholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
Balance at
January 1, 2018
83,708

 
$
84

 
$
1,596,514

 
$
2,614

 
$
(32,013
)
 
$
1,567,199

 
$
648,440

 
$
2,215,639

Conversion of OP Units to Common Shares by limited partners of the Operating Partnership
64

 

 
1,123

 

 

 
1,123

 
(1,123
)
 

Repurchase of Common Shares
(2,294
)
 
(2
)
 
(55,055
)
 

 

 
(55,057
)
 

 
(55,057
)
Dividends/distributions declared ($0.54 per Common Share/OP Unit)

 

 

 

 
(44,267
)
 
(44,267
)
 
(3,434
)
 
(47,701
)
Employee and trustee stock compensation, net
25

 

 
271

 

 

 
271

 
5,842

 
6,113

Noncontrolling interest distributions

 

 

 

 

 

 
(15,640
)
 
(15,640
)
Noncontrolling interest contributions

 

 

 

 

 

 
6,550

 
6,550

Comprehensive income

 

 

 
7,524

 
15,084

 
22,608

 
(19,963
)
 
2,645

Reallocation of noncontrolling interests

 

 
798

 

 

 
798

 
(798
)
 

Balance at
June 30, 2018
81,503


$
82


$
1,543,651


$
10,138


$
(61,196
)

$
1,492,675


$
619,874


$
2,112,549

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
41

 

 
730

 

 

 
730

 
(730
)
 

Dividends/distributions declared ($0.52 per Common Share/OP Unit)

 

 

 

 
(43,495
)
 
(43,495
)
 
(3,207
)
 
(46,702
)
Employee and trustee stock compensation, net
20

 

 
340

 

 

 
340

 
6,662

 
7,002

Noncontrolling interest distributions

 

 

 

 

 

 
(4,507
)
 
(4,507
)
Noncontrolling interest contributions

 

 

 

 

 

 
20,505

 
20,505

Comprehensive income

 

 

 
278

 
27,691

 
27,969

 
(1,995
)
 
25,974

Reallocation of noncontrolling interests

 

 
(3,927
)
 

 

 
(3,927
)
 
3,927

 

Balance at
June 30, 2017
83,659


$
84


$
1,592,069


$
(520
)

$
(21,439
)

$
1,570,194


$
610,203


$
2,180,397

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

 
7
 



ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS



 
 
Six Months Ended June 30,
(in thousands)
 
2018
 
2017
CASH FLOWS FROM OPERATING ACTIVITIES
 
 

 
 

Net (loss) income
 
$
(6,430
)
 
$
26,079

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 

 
 

Gain on disposition of properties
 
(33
)
 

Depreciation and amortization
 
58,079

 
50,593

Distributions of operating income from unconsolidated affiliates
 
10,210

 
10,301

Equity in earnings and gains of unconsolidated affiliates
 
(6,703
)
 
(17,043
)
Stock compensation expense
 
6,113

 
7,002

Amortization of financing costs
 
2,743

 
2,504

Other, net
 
(4,450
)
 
(7,625
)
Changes in assets and liabilities:
 
 
 
 
Other liabilities
 
680

 
(820
)
Prepaid expenses and other assets
 
(1,883
)
 
(3,417
)
Rents receivable, net
 
(4,252
)
 
(3,837
)
Accounts payable and accrued expenses
 
(5,038
)
 
5,164

Net cash provided by operating activities
 
49,036

 
68,901

CASH FLOWS FROM INVESTING ACTIVITIES
 
 

 
 

Acquisition of real estate
 
(46,171
)
 
(77,785
)
Development, construction and property improvement costs
 
(41,937
)
 
(46,303
)
Issuance of or advances on notes receivable
 
(3,002
)
 
(10,300
)
Proceeds from the disposition of properties, net
 
25,218

 

Investments in and advances to unconsolidated affiliates
 
(2,265
)
 
(4,262
)
Return of capital from unconsolidated affiliates and other
 
19,512

 
28,409

Proceeds from notes receivable
 
26,000

 
12,000

Return (payment) of deposits for properties under contract
 
1,750

 
(1,000
)
Payment of deferred leasing costs
 
(1,645
)
 
(3,894
)
Net cash used in investing activities
 
(22,540
)
 
(103,135
)








 
8
 



ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS


 
 
Six Months Ended June 30,
(Continued)
 
2018
 
2017
CASH FLOWS FROM FINANCING ACTIVITIES
 
 

 
 

Principal payments on mortgage and other notes
 
(48,272
)
 
(31,901
)
Principal payments on unsecured debt
 
(519,300
)
 
(130,716
)
Proceeds received on mortgage and other notes
 
119,752

 
98,528

Proceeds from unsecured debt
 
482,300

 
119,400

Payments for repurchase of Common Shares
 
(55,057
)
 

Capital contributions from noncontrolling interests
 
6,550

 
20,505

Distributions to noncontrolling interests
 
(19,004
)
 
(8,452
)
Dividends paid to Common Shareholders
 
(44,863
)
 
(56,019
)
Deferred financing and other costs
 
(3,185
)
 
(4,067
)
Net cash (used in) provided by financing activities
 
(81,079
)
 
7,278


 
 
 
 
Decrease in cash and restricted cash
 
(54,583
)
 
(26,956
)
Cash of $74,823 and $71,805 and restricted cash of $10,846 and $22,904, respectively, beginning of period
 
85,669

 
94,709

Cash of $17,330 and $43,442 and restricted cash of $13,756 and $24,311, respectively, end of period
 
$
31,086

 
$
67,753

 
 
 
 
 
Supplemental disclosure of cash flow information
 
 

 
 

Cash paid during the period for interest, net of
capitalized interest of $2,836 and $9,666, respectively
 
$
29,219

 
$
23,343

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

 
$
138

 
 
 
 
 
Supplemental disclosure of non-cash investing activities
 
 

 
 

Assumption of accounts payable and accrued expenses
through acquisition of real estate
 
$
425

 
$
1,927

Acquisition of real estate through conversion of note receivable
 
$

 
$
9,142

Acquisition of undivided interest in a property
through conversion of notes receivable
 
$
22,201

 
$
16,005

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 June 30, 2018 and December 31, 2017, the Company controlled approximately 94% and 95%, respectively, 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 June 30, 2018, 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 54 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 172 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,” which was liquidated in 2018), 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
June 30, 2018
Unfunded Commitment
Equity Interest Held By Operating Partnership (a)
Preferred Return
Total Distributions as of
June 30, 2018 (b)
Fund II and Mervyns II (c)
6/2004
28.33%
$
347.1

$

28.33%
8%
$
146.6

Fund III
5/2007
24.54%
420.2

29.8

24.54%
6%
551.9

Fund IV
5/2012
23.12%
412.7

117.3

23.12%
6%
136.7

Fund V
8/2016
20.10%
45.8

474.2

20.10%
6%

__________

(a)
Amount represents the current economic ownership at June 30, 2018, 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.
(c)
During April 2018, a distribution of $15.0 million was made to the Fund II investors, including $4.3 million to the Operating Partnership. This amount remains subject to re-contribution to Fund II until April 2021.

 
10
 


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



    

 



Basis of Presentation

Segments

At June 30, 2018, 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 aggregation 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 2017 Annual Report on Form 10-K, as filed with the SEC on February 27, 2018.

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.

Recently Adopted 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 modified retrospective approach with the cumulative effect, recognized at the date of adoption. Substantially all of the Company’s revenue is derived from its leases and therefore falls outside of the scope of this guidance. The Company implemented the standard using the modified retrospective approach; however, there was no cumulative effect required to be recognized in retained earnings at the date of application. With respect to its fee-derived revenue, the Company had no changes to the timing of the Company’s revenue recognition. However, the recognition of gains on sales of properties may be impacted prospectively under limited circumstances under which collectability may not be reasonably assured or if the Company has continuing involvement with a sold property. 


 
11
 


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



    

 



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 adopted ASU 2016-15 effective January 1, 2018 and elected 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. Accordingly, the Company has reclassified $7.5 million of its cash inflows from investing activities to cash flows from operating activities in its historical presentation of cash flows related to its equity method investments for the six months ended June 30, 2017.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for public business entities in fiscal years beginning after December 15, 2017, with early adoption permitted. The Company adopted this guidance effective January 1, 2018. Accordingly, the Company has reclassified $1.3 million of its cash outflows from operating activities and $0.1 million of its cash outflows from financing activities to change in cash and restricted cash in its historical presentation of cash flows for the six months ended June 30, 2017.

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 has been adopted by the Company effective January 1, 2018. 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. Accordingly, the Company capitalized $0.1 million of acquisition costs during the six months ended June 30, 2018 and expensed $0.6 million of acquisition costs during the six months ended June 30, 2017.

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 Company adopted 2017-03 effective January 1, 2018. The adoption of ASU 2017-03 did not have a material impact on the Company’s consolidated financial statements.

In February 2017, the FASB issued ASU No. 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 amendments are effective at the same time as the amendments in ASU 2014-09. The Company adopted ASU 2017-05 effective January 1, 2018. The adoption of ASU 2017-05 did not have a material impact on the Company's consolidated financial statements.

In May 2017, the FASB issued ASU No. 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. The Company adopted ASU 2017-09 effective January 1, 2018. The adoption of ASU 2017-09 did not have a material impact on the Company's consolidated financial statements because the Company has not had significant modifications of its awards.


 
12
 


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



    

 



In August 2017, the FASB issued ASU No. 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 early adopted ASU 2017-12 effective January 1, 2018 and the adoption of ASU 2017-12 did not have a material impact on the Company's consolidated financial statements.
In March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, which allowed public companies to record provisional amounts in earnings for the year ended December 31, 2017 due to the complexities involved in accounting for the enactment of the Tax Cuts and Jobs Act. ASU 2018-05 was effective upon issuance. The Company recognized the estimated income tax effects of the Tax Cuts and Jobs Act in its 2017 Consolidated Financial Statements in accordance with SEC Staff Accounting Bulletin No. 118.

Recently Issued Accounting Pronouncements

In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. These amendments provide financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recorded. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods therein. Early adoption is permitted. The Company is currently assessing the impact this guidance will have on its consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. These amendments provide specific guidance for transactions for acquiring goods and services from nonemployees and specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (i) financing to the issuer or (ii) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods beginning after December 15, 2020. Early adoption is permitted but not earlier than the adoption of Topic 606. The Company does not believe that this guidance will have a material effect on its consolidated financial statements as it has not historically issued share-based payments in exchange for goods or services to be consumed within its operations.
In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements. These amendments provide clarifications and corrections to certain ASC subtopics including the following: 220-10 (Income Statement - Reporting Comprehensive Income - Overall), 470-50 (Debt - Modifications and Extinguishments), 480-10 (Distinguishing Liabilities from Equity - Overall), 718-740 (Compensation - Stock Compensation - Income Taxes), 805-740 (Business Combinations - Income Taxes), 815-10 (Derivatives and Hedging - Overall), and 820-10 (Fair Value Measurement - Overall). The Company is currently assessing the impact this guidance will have on its consolidated financial statements.
In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases. These amendments provide clarifications and corrections to ASU 2016-02, Leases (Topic 842). The Company is currently assessing the impact this guidance will have on its consolidated financial statements.

 
13
 


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):
 
 
June 30, 2018
 
December 31, 2017
 
 
 
 
 
Land
 
$
667,759

 
$
658,835

Buildings and improvements
 
2,446,826

 
2,406,488

Tenant improvements
 
136,839

 
131,850

Construction in progress
 
27,439

 
18,642

Properties under capital lease
 
76,965

 
76,965

Total
 
3,355,828

 
3,292,780

Less: Accumulated depreciation
 
(378,272
)
 
(339,862
)
Operating real estate, net
 
2,977,556

 
2,952,918

Real estate under development, at cost
 
192,215

 
173,702

Net investments in real estate
 
$
3,169,771

 
$
3,126,620



 
14
 


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



    

 



Acquisitions and Conversions

During the six months ended June 30, 2018 and the year ended December 31, 2017, the Company acquired the following consolidated retail properties (dollars in thousands):
Property and Location
Percent Acquired
Date of Acquisition
Purchase Price
2018 Acquisitions
 
 
 
Core
 
 
 
Bedford Green Land Parcel
100%
Mar 23, 2018
$
1,337

Subtotal Core
 
 
1,337

 
 
 
 
Fund V
 
 
 
Trussville Promenade - Trussville, AL
100%
Feb 21, 2018
45,259

Subtotal Fund V
 
 
45,259

Total 2018 Acquisitions
 
 
$
46,596

 
 
 
 
2017 Acquisitions and Conversions
 
 
 
Core
 
 
 
Market Square Shopping Center - Wilmington, DE (Conversion) (Note 4)
100%
Nov 16, 2017
$
42,800

Subtotal Core
 
 
42,800

 
 
 
 
Fund IV
 
 
 
Lincoln Place - Fairview Heights, IL
100%
Mar 13, 2017
35,350

Shaw's Plaza - Windham, ME (Conversion) (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

Fairlane Green - Allen Park, MI
100%
Dec 20, 2017
62,000

Subtotal Fund V
 
 
167,240

Total 2017 Acquisitions and Conversions
 
 
$
254,532

 
 
 
 

The 2018 acquisitions were considered asset acquisitions based on accounting guidance effective as of January 1, 2018 (Note 1). The 2017 acquisitions and conversions were deemed to be business combinations. For the six months ended June 30, 2018, the Company capitalized $0.1 million of acquisition costs related to the Funds. The Company expensed $0.6 million of acquisition costs for the six months ended June 30, 2017, of which $0.2 million related to the Core Portfolio and $0.4 million related to the Funds. No debt was assumed in any of the 2018 Acquisitions or 2017 Acquisitions or Conversions.




 
15
 


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



    

 



Purchase Price Allocations

The purchase prices for the 2018 acquisitions and the 2017 acquisitions and conversions 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 six months ended June 30, 2018 and the year ended December 31, 2017 (in thousands):
 
Six Months Ended
June 30, 2018
 
Year Ended December 31, 2017
 
 
Net Assets Acquired
 
 
 
Land
$
8,924

 
$
48,138

Buildings and improvements
34,237

 
173,576

Other assets

 
84

Acquisition-related intangible assets (Note 6)
6,486

 
44,269

Acquisition-related intangible liabilities (Note 6)
(3,051
)
 
(11,535
)
Net assets acquired
$
46,596

 
$
254,532

Consideration
 
 
 
Cash
$
46,171

 
$
200,429

Conversion of note receivable

 
41,010

Liabilities assumed
425

 
3,363

Existing interest in previously unconsolidated investment

 
4,159

Change in control of previously unconsolidated investment

 
5,571

Total Consideration
$
46,596

 
$
254,532


Dispositions

During the six months ended June 30, 2018 and the year ended December 31, 2017, the Company disposed of the following consolidated properties (in thousands):
Property and Location
Owner
Date Sold
Sale Price
 
Gain/(Loss) on Sale
2018 Disposition
 
 
 
 
 
Sherman Avenue - New York, NY
Fund II
Apr 17, 2018
$
26,000

 
$
33

Total 2018 Dispositions
 
 
$
26,000

 
$
33

 
 
 
 
 
 
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

 
6,543

City Point Condominium Tower I - Brooklyn, NY
Fund II
Oct 13, 2017
96,000

 
(810
)
1151 Third Avenue - New York, NY
Fund IV
Nov 16, 2017
27,000

 
5,183

260 E 161st Street - Bronx, NY
Fund II
Dec 13, 2017
105,684

 
31,537

Total 2017 Dispositions
 
 
$
281,338

 
$
48,886


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, 2017 were as follows (in thousands):

 
16
 


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



    

 



 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2017
Rental revenues
 
$
4,621

 
$
7,529

Expenses
 
(5,541
)
 
(10,693
)
Loss from continuing operations of
disposed properties before gain on disposition of properties
 
(920
)
 
(3,164
)
Net loss attributable to noncontrolling interests
 
646

 
2,252

Net loss attributable to Acadia
 
$
(274
)
 
$
(912
)

Properties Held For Sale

At December 31, 2017, the Company had one property in Fund II classified as held-for-sale, Sherman Avenue, with total assets of $25.4 million, which was sold on April 17, 2018 as noted in the disposition table above. This property had a net operating loss of $0.5 million and $0.6 million for the six months ended June 30, 2018 and 2017, respectively.

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.

Development activity for the Company’s consolidated properties comprised the following during the periods presented (dollars in thousands):
 
December 31, 2017
 
Six Months Ended June 30, 2018
 
June 30, 2018
 
Number of Properties
 
Carrying Value
 
Transfers In
 
Capitalized Costs
 
Transfers Out
 
Number of Properties
 
Carrying Value
Core
2

 
$
21,897

 
$

 
$
3,996

 
$

 
2

 
$
25,893

Fund II

 
4,908

 

 
904

 

 

 
5,812

Fund III
2

 
63,939

 

 
12,887

 

 
2

 
76,826

Fund IV
1

 
82,958

 

 
726

 

 
1

 
83,684

Total
5

 
$
173,702

 
$

 
$
18,513

 
$

 
5

 
$
192,215


During the six months ended June 30, 2018, the Company did not move any consolidated projects into or out of development. In addition to the consolidated projects noted above, the Company had one unconsolidated project in development at December 31, 2017, which it placed into service during the six months ended June 30, 2018.

During the year ended December 31, 2017, the Company placed substantially all of Fund II’s City Point project into service as well as three Fund IV properties, reclassified Fund II’s Sherman Avenue property as held for sale and placed one Core property into development. In addition to the consolidated projects noted above, the Company had one unconsolidated project remaining in development after placing three of its four unconsolidated Fund IV development properties into service during the year ended December 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.


 
17
 


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



    

 



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):

 
 
June 30,
 
December 31,
 
June 30, 2018
Description
 
2018
 
2017
 
Number
 
Maturity Date
 
Interest Rate
Core Portfolio
 
$
56,475

 
$
101,695

 
2
 
April 2019 - April 2020
 
6.0% - 8.1%
Fund II
 
32,178

 
31,778

 
1
 
May 2020
 
2.5%
Fund III
 
5,306

 
5,106

 
1
 
July 2020
 
18.0%
Fund IV
 
15,250

 
15,250

 
1
 
February 2021
 
15.3%
 
 
$
109,209

 
$
153,829

 
5
 
 
 
 


During the six months ended June 30, 2018, the Company:

exchanged $22.0 million of a Core note receivable plus accrued interest thereon of $0.3 million for an additional undivided interest in the Town Center property (Note 4);
received full payment on $26.0 million of Core notes receivable plus accrued interest of $0.2 million;
funded an additional $2.8 million to its existing $15.0 million Core note receivable and entered into an agreement to extend the maturity to April 1, 2020;
advanced an additional $0.2 million on a Fund III note receivable; and
increased the balance of a Fund II note receivable by the interest accrued of $0.4 million.

During the year ended December 31, 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;
exchanged $92.7 million of Core notes receivable plus accrued interest thereon of $1.8 million for additional undivided interests in the Market Square and Town Center properties (Note 4);
funded an additional $10.0 million on an existing Core note receivable, which had a total commitment of $20.0 million, and was subsequently repaid in full during the fourth quarter;
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 $0.8 million;
advanced an additional $0.6 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).

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
 
June 30, 2018
 
December 31, 2017
Portfolio
Property
June 30, 2018
 
 
Core:
 
 
 
 
 
 
 
840 N. Michigan (a)
88.43%
 
$
67,685

 
$
69,846

 
Renaissance Portfolio
20%
 
33,735

 
35,041

 
Gotham Plaza
49%
 
29,710

 
29,416

 
Town Center (a, b)
75.22%
 
99,826

 
78,801

 
Georgetown Portfolio
50%
 
3,357

 
3,479

 
 
 
 
234,313

 
216,583

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

 

 
 
 
 
 
 
 
Fund III:
 
 
 
 
 
 
 
Fund III Other Portfolio
90%
 
186

 
167

 
Self Storage Management (d)
95%
 
206

 
206

 
 
 
 
392

 
373

Fund IV:
 
 
 
 
 
 
 
Broughton Street Portfolio (e)
50%
 
41,915

 
48,335

 
Fund IV Other Portfolio
90%
 
15,950

 
20,199

 
650 Bald Hill Road
90%
 
13,377

 
13,609

 
 
 
 
71,242

 
82,143

 
 
 
 
 
 
 
Various Funds:
Due from Related Parties (f)
 
 
113

 
2,415

 
Other (g)
 
 
556

 
556

 
Investments in and advances to unconsolidated affiliates
 
$
306,616

 
$
302,070

 
 
 
 
 
 
 
Core:
 
 
 
 
 
 
 
Crossroads (h)
49%
 
$
15,208

 
$
15,292

 
Distributions in excess of income from,
and investments in, unconsolidated affiliates
 
$
15,208

 
$
15,292

__________

(a)
Represents a tenancy-in-common interest.
(b)
During November 2017 and March 2018, as discussed below, the Company increased its ownership in Town Center.
(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 $15.8 million and $15.4 million at June 30, 2018 and December 31, 2017, respectively. In addition, the Company is entitled to a 9% preferred return on a portion of its equity, which was $36.1 million and $41.2 million at June 30, 2018 and December 31, 2017, respectively.
(f)
Represents deferred fees.
(g)
Includes a cost-method investment in Albertson’s (Note 8), Storage Post and other investments.
(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.


 
19
 


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



    

 



Core Portfolio

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, Market Square and Town Center

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 two properties referred to as “Market Square” and “Town Center.” 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 accounted 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 were unchanged, the Company reflected the change from consolidation to equity method based upon its historical cost. The Brandywine Portfolio and 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 notes receivable (the “Brandywine Notes Receivable”) (Note 3) plus accrued interest of $0.3 million for one of the partner’s 38.89% tenancy-in-common interests in Market Square. The Company already had a 22.22% interest in Market Square and continued to apply the equity method of accounting for its aggregate 61.11% noncontrolling interest in Market Square and its 22.22% interest in Town Center through November 16, 2017. The incremental investment in Market Square was recorded at $16.3 million and the excess of this amount over the venture’s book value associated with this interest, or $9.8 million, was being amortized over the remaining depreciable lives of the venture’s assets through November 16, 2017. On November 16, 2017, the Company exchanged an additional $16.0 million of Brandywine Notes Receivable plus accrued interest of $0.6 million for the remaining 38.89% interest in Market Square, thereby obtaining a 100% controlling interest in the property. The exchange was deemed to be a business combination and as a result, the property was consolidated and a gain on change of control of $5.6 million was recorded (Note 2).

On November 16, 2017, the Company exchanged $60.7 million of the Brandywine Notes Receivable plus accrued interest of $0.9 million for one of the partner’s 38.89% tenancy-in-common interests in Town Center. The incremental investment in Town Center was recorded at $61.6 million and the excess of this amount over the venture’s book value associated with this interest, or $34.5 million, is being amortized over the remaining depreciable lives of the venture’s assets. The Company previously had a 22.22% interest in Town Center which then became 61.11% following the November 2017 transaction.

On March 28, 2018, the Company exchanged $22.0 million of its Brandywine Notes Receivable plus accrued interest of $0.3 million for one of the partner’s 14.11% tenancy-in-common interests in Town Center. The incremental investment in Town Center was recorded at $22.3 million and the excess of this amount over the venture’s book value associated with this interest, or $12.7 million, is being amortized over the remaining depreciable lives of the venture’s assets. The Company continues to apply the equity method of accounting for its aggregate 75.22% noncontrolling interest in Town Center after the March 2018 transaction.

At June 30, 2018, $38.7 million of the Brandywine Note Receivable remains outstanding (Note 3), which is collateralized by the remaining 24.78% undivided interest in Town Center.


 
20
 


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



    

 



Fund Investments

Mervyn’s I & II

In 2017, Mervyn’s I and Mervyn’s II received a total of $1.1 million in distributions from certain investments. The Company had already reduced the carrying amount of these investments to zero, and consequently the entire amount received has been reflected as equity in earnings and gains of unconsolidated affiliates in the consolidated statements of income.

Albertson’s

“Other” includes, among other investments, Fund II’s cost method investment reflecting an effective 1.05% interest in Albertson’s Companies, Inc. (“Albertson’s”), a privately-held national supermarket chain. In 2017, the Company received $2.4 million in distributions from Albertson’s and reduced the carrying amount of its investment in Albertson’s to zero (Note 8), reflecting the remaining $2.0 million as equity in earnings and gains of unconsolidated affiliates in the consolidated statements of income.

Storage Post

On May 15, 2018, Fund III’s Storage Post venture, which is a cost-method investment with no carrying value, distributed $3.2 million of which the Operating Partnership’s share was $0.8 million.

2018 Dispositions of Unconsolidated Investments

On January 18, 2018, Fund IV’s Broughton Street Portfolio venture sold two properties for aggregate proceeds of $8.0 million, resulting in a net loss of $0.4 million at the property level of which the Fund’s share and the Operating Partnership’s proportionate share of the loss was zero, due to Fund IV’s preferred return.

On June 29, 2018, Fund IV’s Broughton Street Portfolio venture terminated its master leases on two of its properties resulting in a net loss of $1.0 million at the property level for which the Operating Partnership’s share was less than $0.1 million.

At June 30, 2018, the Broughton Street portfolio had 14 remaining properties.

2017 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 statements of income. 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 statements of income. 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 statements of income. The Operating Partnership’s proportionate share of the gain was $0.8 million, net of noncontrolling interests.

On October 3 and December 21, 2017, Fund IV’s Broughton Street Portfolio venture sold a total of five properties for aggregate proceeds of $11.0 million resulting in a net gain of $1.2 million at the property level, of which the Fund’s share was $0.6 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 $0.1 million, net of noncontrolling interests.




Fees from Unconsolidated Affiliates


 
21
 


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



    

 



The Company earned property management, construction, development, legal and leasing fees from its investments in unconsolidated partnerships totaling $0.3 million for both the three months ended June 30, 2018 and 2017, respectively, and $0.5 million and $0.6 million for the six months ended June 30, 2018 and 2017, 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, $0.4 million for both the three months ended June 30, 2018 and 2017, respectively, and $0.9 million and $1.0 million for the six months ended June 30, 2018 and 2017, respectively, for leasing commissions, development, management, construction 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):
 
 
June 30,
 
December 31,
 
 
2018
 
2017
Combined and Condensed Balance Sheets
 
 

 
 

Assets:
 
 

 
 

Rental property, net
 
$
527,330

 
$
518,900

Real estate under development
 
2,796

 
26,681

Investment in unconsolidated affiliates
 
6,853

 
6,853

Other assets
 
92,350

 
100,901

Total assets
 
$
629,329

 
$
653,335

Liabilities and partners’ equity:
 
 

 
 

Mortgage notes payable
 
$
406,579

 
$
405,652

Other liabilities
 
56,865

 
61,932

Partners’ equity
 
165,885

 
185,751

Total liabilities and partners’ equity
 
$
629,329

 
$
653,335

 
 
 
 
 
Company's share of accumulated equity
 
$
183,007

 
$
185,533

Basis differential
 
106,480

 
95,358

Deferred fees, net of portion related to the Company's interest
 
1,808

 
3,472

Amounts receivable by the Company
 
113

 
2,415

Investments in and advances to unconsolidated affiliates, net of Company's share of distributions in excess of income from and investments in unconsolidated affiliates
 
291,408

 
286,778

Company's share of distributions in excess of income from and investments in unconsolidated affiliates
 
15,208

 
15,292

Investments in and advances to unconsolidated affiliates
 
$
306,616

 
$
302,070



 
22
 


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



    

 



 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Combined and Condensed Statements of Income
 
 
 
 
 
 
 
Total revenues
$
19,603

 
$
20,974

 
$
39,759

 
$
42,577

Operating and other expenses
(5,531
)
 
(6,272
)
 
(11,453
)
 
(12,138
)
Interest expense
(5,250
)
 
(4,641
)
 
(10,125
)
 
(9,179
)
Depreciation and amortization
(5,801
)
 
(6,063
)
 
(11,856
)
 
(12,512
)
Loss on debt extinguishment

 
(3
)
 

 
(154
)
(Loss) gain on disposition of properties
(992
)
 
3,332

 
(1,410
)
 
17,778

Net income attributable to unconsolidated affiliates
$
2,029

 
$
7,327

 
$
4,915

 
$
26,372

 
 
 
 
 
 
 
 
Company’s share of equity in
net income of unconsolidated affiliates
$
5,895

 
$
5,044

 
$
8,260

 
$
18,612

Basis differential amortization
(876
)
 
(704
)
 
(1,557
)
 
(1,569
)
Company’s equity in earnings of unconsolidated affiliates
$
5,019

 
$
4,340

 
$
6,703

 
$
17,043



 
23
 


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:
 
 
June 30,
 
December 31,
(in thousands)
 
2018
 
2017
Other Assets, Net:
 
 
 
 
Lease intangibles, net (Note 6)
 
$
114,982

 
$
127,571

Deferred charges, net (a)
 
27,082

 
24,589

Prepaid expenses
 
16,557

 
16,838

Other receivables
 
5,287

 
11,356

Accrued interest receivable
 
14,075

 
11,668

Deposits
 
4,543

 
6,296

Due from seller
 
4,300

 
4,300

Deferred tax assets
 
1,089

 
2,096

Derivative financial instruments (Note 8)
 
12,246

 
4,402

Due from related parties
 
1,667

 
1,479

Corporate assets
 
2,184

 
2,369

Income taxes receivable
 
3,571

 
1,995

 
 
$
207,583

 
$
214,959

 
 
 
 
 
(a) Deferred Charges, Net:
 
 
 
 
      Deferred leasing and other costs
 
$
42,574

 
$
41,020

      Deferred financing costs
 
8,767

 
7,786

 
 
51,341

 
48,806

      Accumulated amortization
 
(24,259
)
 
(24,217
)
      Deferred charges, net
 
$
27,082

 
$
24,589

 
 
 
 
 
Accounts Payable and Other Liabilities:
 
 
 
 
Lease intangibles, net (Note 6)
 
$
100,038

 
$
104,478

Accounts payable and accrued expenses
 
53,094

 
61,420

Deferred income
 
30,824

 
31,306

Tenant security deposits, escrow and other
 
10,428

 
10,029

Derivative financial instruments (Note 8)
 
794

 
1,467

Income taxes payable
 
32

 
176

Other
 
1,971

 
1,176

 
 
$
197,181

 
$
210,052




 
24
 


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



    

 



6. Lease Intangibles

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

Intangible assets and liabilities are included in other assets and other liabilities (Note 5) on the consolidated balance sheet and summarized as follows (in thousands):
 
June 30, 2018
 
December 31, 2017
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Amortizable Intangible Assets
 
 
 
 
 
 
 
 
 
 
 
In-place lease intangible assets
$
199,727

 
$
(90,414
)
 
$
109,313

 
$
193,821

 
$
(72,749
)
 
$
121,072

Above-market rent
17,365

 
(11,696
)
 
5,669

 
16,786

 
(10,287
)
 
6,499

 
$
217,092

 
$
(102,110
)
 
$
114,982

 
$
210,607

 
$
(83,036
)
 
$
127,571

 
 
 
 
 
 
 
 
 
 
 
 
Amortizable Intangible Liabilities
 
 
 
 
 
 
 
 
 
 
 
Below-market rent
$
(150,283
)
 
$
50,853

 
$
(99,430
)
 
$
(147,232
)
 
$
43,391

 
$
(103,841
)
Above-market ground lease
(671
)
 
63

 
(608
)
 
(671
)
 
34

 
(637
)
 
$
(150,954
)
 
$
50,916

 
$
(100,038
)
 
$
(147,903
)
 
$
43,425

 
$
(104,478
)

During the six months ended June 30, 2018, the Company acquired in-place lease intangible assets of $5.9 million, above-market rents of $0.6 million, and below-market rents of $3.1 million with weighted-average useful lives of 4.6, 1.1, and 27.3 years, respectively. During the year ended December 31, 2017, the Company acquired in-place lease intangible assets of $41.6 million, above-market rents of $2.7 million, below-market rents of $10.9 million, and an above-market ground lease of $0.7 million with weighted-average useful lives of 4.14.812.1, and 11.5 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 is recorded as a reduction to and increase to rental income, respectively, in the consolidated statements of income. Amortization of above-market ground leases are recorded as a reduction to rent expense in the consolidated statements of income.

The scheduled amortization of acquired lease intangible assets and assumed liabilities as of June 30, 2018 is as follows (in thousands):
Years Ending December 31,
 
Net Increase in Lease Revenues
 
Increase to Amortization
 
Reduction of Rent Expense
 
Net Income (Expense)
2018 (Remainder)
 
$
3,114

 
$
(8,035
)
 
$
29

 
$
(4,892
)
2019
 
9,633

 
(23,201
)
 
58

 
(13,510
)
2020
 
8,853

 
(17,244
)
 
58

 
(8,333
)
2021
 
7,670

 
(12,653
)
 
58

 
(4,925
)
2022
 
7,373

 
(8,863
)
 
58

 
(1,432
)
Thereafter
 
57,118

 
(39,317
)
 
347

 
18,148

Total
 
$
93,761

 
$
(109,313
)
 
$
608

 
$
(14,944
)


 
25
 


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 at
 
 
 
Carrying Value at