10-K 1 c60427_10k.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

 

 

x

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

 

 

 

For the fiscal year ended December 31, 2009

 

 

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 as specified in its charter)

 

 

Maryland

23-2715194

(State of incorporation)

(I.R.S. employer identification no.)

1311 Mamaroneck Avenue, Suite 260
White Plains, NY 10605

(Address of principal executive offices)
(914) 288-8100
(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Common Shares of Beneficial Interest, $.001 par value
(Title of Class)
New York Stock Exchange
(Name of Exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES o  NO x
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Securities Act.
YES o  NO x
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 o  NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.           x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act).

 

 

 

 

Large Accelerated Filer o

Accelerated Filer x

Non-accelerated Filer o

Smaller Reporting Company o

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)
YES o  NO x
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $523.5 million, based on a price of $13.05 per share, the average sales price for the registrant’s common shares of beneficial interest on the New York Stock Exchange on that date.

The number of shares of the registrant’s common shares of beneficial interest outstanding on March 1, 2010 was 40,111,565.

DOCUMENTS INCORPORATED BY REFERENCE

Part III – Portions of the registrant’s definitive proxy statement relating to its 2010 Annual Meeting of Shareholders presently scheduled to be held May 10, 2010 to be filed pursuant to Regulation 14A.


TABLE OF CONTENTS

Form 10-K Report

 

 

 

 

Item No.

 

 

Page

 

 

 

 

 

PART I

 

 

1.

Business

 

4

1A.

Risk Factors

 

12

1B.

Unresolved Staff Comments

 

18

2.

Properties

 

19

3.

Legal Proceedings

 

28

4.

Submission of Matters to a Vote of Security Holders

 

28

 

PART II

 

 

5.

Market for Registrant’s Common Equity, Related Shareholder Matters, Issuer Purchases of Equity Securities and Performance Graph

 

29

6.

Selected Financial Data

 

31

7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

33

7A.

Quantitative and Qualitative Disclosures about Market Risk

 

47

8.

Financial Statements and Supplementary Data

 

48

9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

48

9A.

Controls and Procedures

 

48

9B.

Other Information

 

49

 

PART III

 

 

10.

Directors and Executive Officers of the Registrant

 

50

11.

Executive Compensation

 

50

12.

Security Ownership of Certain Beneficial Owners and Management

 

50

13.

Certain Relationships and Related Transactions

 

50

14.

Principal Accountant Fees and Services

 

50

 

PART IV

 

 

15.

Exhibits, Financial Statements, Schedules

 

50

2


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Annual Report on Form 10-K 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 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 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation” in this Form 10-K. These risks and uncertainties should be considered in evaluating any forward-looking statements contained or incorporated by reference herein.

3


PART I

ITEM 1. BUSINESS.

GENERAL

Acadia Realty Trust (the “Trust”) was formed on March 4, 1993 as a Maryland real estate investment trust (“REIT”). All references to “Acadia,” “we,” “us,” “our,” and “Company” refer to Acadia Realty Trust and its consolidated subsidiaries. We are a fully integrated, self-managed and self-administered equity REIT focused primarily on the ownership, acquisition, redevelopment and management of retail properties, including neighborhood and community shopping centers and mixed-use properties with retail components. We currently operate 79 properties, which we own or have an ownership interest in. These assets are located primarily in the Northeast, Mid-Atlantic and Midwestern regions of the United States and, in total, comprise approximately eight million square feet. We also have private equity investments in other retail real estate related opportunities including investments for which we provide operational support to the operating ventures in which we have a minority equity interest.

All of our investments are held by, and all of our operations are conducted through, Acadia Realty Limited Partnership (the “Operating Partnership”) and entities in which the Operating Partnership owns a controlling interest. As of December 31, 2009, the Trust controlled 98% of the Operating Partnership as the sole general partner. As the general partner, the Trust 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 generally represent entities or individuals, which contributed their interests in certain assets or entities to the Operating Partnership in exchange for common or preferred units of limited partnership interest (“Common OP Units” or “Preferred OP Units”, respectively, and collectively, “OP Units”). Limited partners holding Common OP Units are generally entitled to exchange their units on a one-for-one basis for our common shares of beneficial interest (“Common Shares”). This structure is referred to as an umbrella partnership REIT or “UPREIT”.

BUSINESS OBJECTIVES AND STRATEGIES

Our primary business objective is to acquire and manage commercial retail properties that will provide cash for distributions to shareholders while also creating the potential for capital appreciation to enhance investor returns. We focus on the following fundamentals to achieve this objective:

 

 

Own and operate a Core Portfolio (as defined in Item 2 of this Form 10-K) of community and neighborhood shopping centers and main street retail located in markets with strong demographics and generate internal growth within the Core Portfolio through aggressive redevelopment, re-anchoring and/or leasing activities.

 

 

Maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth.

 

 

Generate external growth through an opportunistic yet disciplined acquisition program. We target transactions with high inherent opportunity for the creation of additional value through redevelopment and leasing and/or transactions requiring creative capital structuring to facilitate the transactions. These transactions may include other types of commercial real estate besides those which we invest in through our Core Portfolio. These may also include joint ventures with private equity investors for the purpose of making investments in operating retailers with significant embedded value in their real estate assets.

Investment Strategy — External Growth through Opportunistic Acquisition Platforms

The requirements that acquisitions be accretive on a long-term basis based on our cost of capital, as well as increase the overall portfolio quality and value, are core to our acquisition program. As such, we constantly evaluate the blended cost of equity and debt and adjust the amount of acquisition activity to align the level of investment activity with capital flows. We may also engage in discussions with public and private entities regarding business combinations. In addition to our direct investments in real estate assets, we have also capitalized on our expertise in the acquisition, redevelopment, leasing and management of retail real estate by establishing discretionary opportunity funds in which we earn, in addition to a return on our equity interest and carried interest (“Promote”), fees and priority distributions for our services. To date, we have launched three opportunity funds (“Opportunity Funds”), Acadia Strategic Opportunity Fund, LP (“Fund I”), Acadia Strategic Opportunity Fund II, LLC (“Fund II”) and Acadia Strategic Opportunity Fund III, LLC (“Fund III”). Due to the level of our control, we consolidate these Opportunity Funds for financial reporting purposes.

Fund I

During September of 2001, we and four of our institutional shareholders formed Fund I, and during August of 2004 formed a limited liability company, Acadia Mervyn Investors I, LLC (“Mervyns I”), whereby the investors committed $70.0 million for the purpose of acquiring real estate assets. The Operating Partnership committed an additional $20.0 million in the aggregate to Fund I and Mervyns I, as the general partner or managing member with a 22.2% interest. In addition to a pro-rata return on its invested equity, the Operating Partnership is entitled to a Promote based upon certain investment return thresholds. Cash flow was distributed pro-rata to the partners (including the Operating Partnership) until a 9% cumulative return was achieved (“Preferred Return”) on, and a return of all capital contributions.

4


During 2006, the Fund I investors received a return of all of their capital invested in Fund I and their unpaid preferred. Accordingly, all cash flow is now distributed 80% to the partners (including the Operating Partnership) and 20% to the Operating Partnership as a Promote. The Operating Partnership also earns fees and/or priority distributions for asset management services equal to 1.5% of the allocated invested equity, as well as for property management, leasing, legal and construction services. All such fees and priority distributions are reflected as a reduction in the noncontrolling interest share in income from Opportunity Funds in the Consolidated Financial Statements beginning on page F-1 of this Form 10-K.

Our acquisition program was executed primarily through Fund I through June 2004. Fund I focused on targeting assets for acquisition that had superior in-fill locations, restricted competition due to high barriers to entry and in-place below-market anchor leases with the potential to create significant additional value through re-tenanting, timely capital improvements and property redevelopment.

As of December 31, 2009, there were 21 assets comprising approximately 1.0 million square feet remaining in Fund I in which the Operating Partnership’s interest in cash flow and income is 37.8% as a result of the Promote.

Fund II

Following our success with Fund I, during June of 2004 we formed a second, larger Opportunity Fund, Fund II, and during August of 2004, formed Acadia Mervyn Investors II, LLC (“Mervyns II”), with the investors from Fund I as well as two additional institutional investors, whereby the investors, including the Operating Partnership, committed capital totaling $300.0 million. The Operating Partnership is the managing member with a 20% interest in Fund II and Mervyns II and can invest the committed equity on a discretionary basis within the parameters defined in the Fund II and Mervyns II operating agreements. The terms and structure of Fund II and Mervyns II are substantially the same as Fund I and Mervyns I with the exception that the Preferred Return is 8%. As of December 31, 2009, $223.3 million of Fund II’s and Mervyns II’s capital was invested and the balance of $76.7 million is expected to be utilized to complete development activities for existing Fund II investments.

Given the market conditions for commercial real estate at the time Fund II was formed, we channeled our acquisition efforts through Fund II in two opportunistic strategies described below – the New York Urban Infill Redevelopment Initiative and the Retailer Controlled Property Venture.

New York Urban/Infill Redevelopment Initiative

During September of 2004, through Fund II, we launched our New York Urban Infill Redevelopment Initiative. Despite the current economy, we believe that retailers continue to recognize that many of the nation’s urban markets are underserved from a retail standpoint, and we capitalized on this situation by investing in redevelopment projects in dense urban areas where retail tenant demand has effectively surpassed the supply of available sites. During 2004, Fund II, together with an unaffiliated partner, P/A Associates, LLC (“P/A”), formed Acadia-P/A Holding Company, LLC (“Acadia-P/A”) for the purpose of acquiring, constructing, developing, owning, operating, leasing and managing certain retail or mixed-use real estate properties in the New York City metropolitan area. P/A agreed to invest 10% of required capital up to a maximum of $2.2 million and Fund II, the managing member, agreed to invest the balance to acquire assets in which Acadia-P/A agreed to invest. See Item 7 of this Form 10-K for further information on the Acadia-P/A Joint Venture as detailed in “Liquidity and Capital Resources – New York Urban/Infill Redevelopment Initiative”. To date, Fund II has invested in nine projects, eight of which are in conjunction with P/A, as discussed further in “—PROPERTY ACQUISITIONS– New York Urban/Infill Redevelopment Initiative” below in this Item 1.

Retailer Controlled Property Venture (the “RCP Venture”)

On January 27, 2004, through Funds I and II, we entered into an association, known as the RCP Venture, with Klaff Realty, L.P. (“Klaff”) and Lubert-Adler Management, Inc. (“Lubert-Adler”) for the purpose of making investments in surplus or underutilized properties owned by retailers. The initial expected size of the RCP Venture is approximately $300.0 million in equity, of which our share is $60.0 million. Each participant in the RCP Venture has the right to opt out of any potential investment. We would consider expanding the size of the RCP Venture and our share thereof based on investment opportunities. Investments under the RCP Venture are structured as separate joint ventures as there may be other investors participating in certain investments in addition to Klaff, Lubert-Adler and us. Affiliates of Mervyns I and II and Fund II have invested $60.8 million in the RCP Venture to date on a non-recourse basis. While we are not required to invest any additional capital into any of these investments, should additional capital be required and we elect not to contribute our share, our proportionate share in the investment will be reduced. Cash flow from any RCP Venture investments is to be distributed to the participants until they have received a 10% cumulative return and a full return of all contributions. Thereafter, remaining cash flow is to be distributed 20% to Klaff (“Klaff’s Promote”) and 80% to the partners (including Klaff). The Operating Partnership may also earn market-rate fees for property management, leasing and construction services on behalf of the RCP Venture. While we are primarily a passive partner in the investments made through the RCP Venture, historically we have provided our support in reviewing potential acquisitions and operating and redevelopment assistance in areas where we have both a presence and expertise. We seek to invest opportunistically with the RCP Venture primarily in any of the following four ways:

5



 

 

Invest in operating retailers to control their real estate through private equity joint ventures

 

 

Work with financially healthy retailers to create value from their surplus real estate

 

 

Acquire properties, designation rights or other control of real estate or leases associated with retailers in bankruptcy

 

 

Complete sale leasebacks with retailers in need of capital

During 2004, we made our first RCP Venture investment with our participation in the acquisition of Mervyns. From 2006 through 2009, we made additional investments as further discussed in “—PROPERTY ACQUISITIONS – RCP Venture” below in this Item 1.

Fund III

Following the success of Fund I and the full commitment of Fund II, Fund III was formed during 2007, with fourteen institutional investors, including a majority of the investors from Fund I and Fund II, whereby the investors, including the Operating Partnership, committed capital totaling $503.0 million. The Operating Partnership’s share of the committed capital is $100.0 million and it is the sole managing member with a 19.9% interest in Fund III and can invest the committed equity on a discretionary basis within the parameters defined in the Fund III operating agreements. The terms and structure of Fund III are substantially the same as the previous Funds with the exception that the Preferred Return is 6%. As of December 31, 2009, $96.5 million of Fund III’s capital was invested. To date, Fund III has invested in 14 projects as discussed further in “—PROPERTY ACQUISITIONS” below in this Item 1.

Notes Receivable, Preferred Equity and Other Real Estate Related Investments

We may also invest in mortgage loans, preferred equity investments, other real estate interests and other investments. As of December 31, 2009, our notes receivable and preferred equity investments aggregated $125.2 million, and were collateralized by either the properties (either first or second mortgage liens) or the borrower’s ownership interest in the properties. In addition, certain notes receivable are personally guaranteed by principals of the borrowers. Interest rates on our notes receivable, mezzanine loan investments and preferred equity investment, ranged from 10% to 22.4% with maturities that range from demand notes to January 2017.

Capital Strategy — Balance Sheet Focus and Access to Capital

Given the significant turmoil in the capital markets and the current post recessionary period, our primary capital objective is to maintain a strong and flexible balance sheet through conservative financial practices, including moderate leverage levels, while ensuring access to sufficient capital to fund future growth. We intend to continue financing acquisitions and property redevelopment with sources of capital determined by management to be the most appropriate based on, among other factors, availability in the current capital markets, pricing and other commercial and financial terms. The sources of capital may include the issuance of public equity, unsecured debt, mortgage and construction loans, and other capital alternatives including the issuance of OP Units. We manage our interest rate risk primarily through the use of fixed rate-debt and, where we use variable rate debt, we use certain derivative instruments, including London Interbank Offered Rate (“LIBOR”) swap agreements and interest rate caps as discussed further in Item 7A of this Form 10-K.

During April 2009, we issued 5.75 million Common Shares and generated net proceeds of approximately $65.0 million. The proceeds were primarily used to purchase a portion of our outstanding convertible notes payable and pay down existing lines of credit.

During December of 2006 and January of 2007, we issued $115.0 million of 3.75% unsecured Convertible Notes (the “Notes”). See Note 9 to our Consolidated Financial Statements, which begin on page F-1 of this Form 10-K for a discussion of the terms and conditions of the Notes. The $112.1 million in proceeds, net of related costs, were used to retire variable rate debt, provide for future Opportunity Fund capital commitments and for general working capital purposes. During 2008, we purchased $8.0 million in principal amount of the Notes and purchased an additional $57.0 million in principal amount during 2009, all at an average discount of approximately 19%.

Operating Strategy — Experienced Management Team with Proven Track Record

Our senior management team has decades of experience in the real estate industry. We believe our management team has demonstrated the ability to create value internally through anchor recycling, property redevelopment and strategic non-core dispositions. We have capitalized on our expertise in the acquisition, redevelopment, leasing and management of retail real estate by establishing joint ventures, such as the Opportunity Funds, in which we earn, in addition to a return on our equity interest and Promote, fees and priority distributions. In connection with these joint ventures we have launched several successful acquisition platforms including our New York Urban Infill Redevelopment Initiative and RCP Venture.

Operating functions such as leasing, property management, construction, finance and legal (collectively, the “Operating Departments”) are generally provided by our personnel, providing for fully integrated property management and development. By incorporating the Operating Departments in the acquisition process, acquisitions are appropriately priced giving effect to each asset’s specific risks and returns. Also, because of the Operating Departments involvement with, and corresponding understanding of, the acquisition process, transition time is minimized and management can immediately execute on its strategic plan for each asset.

6


We typically hold our Core Portfolio properties for long-term investment. As such, we continuously review the existing portfolio and implement programs to renovate and modernize targeted centers to enhance the property’s market position. This in turn strengthens the competitive position of the leasing program to attract and retain quality tenants, increasing cash flow and consequently property value. We also periodically identify certain properties for disposition and redeploy the capital to existing centers or acquisitions with greater potential for capital appreciation. Our Core Portfolio consists primarily of neighborhood and community shopping centers, which are generally dominant centers in high barrier-to-entry markets and are principally anchored by supermarkets and necessity-based retailers. We believe these attributes enable our properties to better withstand the current post recessionary period.

During 2009, 2008 and 2007 we sold three non-core properties and redeployed capital to acquire three retail properties as further discussed in “—ASSET SALES AND CAPITAL/ASSET RECYCLING” below in this Item 1.

PROPERTY ACQUISITIONS

RCP Venture

Albertson’s

In June 2006, the RCP Venture, as part of an investment consortium, participated in the acquisition of 699 stores from Albertson’s and 26 Cub Food stores. Mervyns II’s share of equity invested totaled $20.7 million. The Operating Partnership’s share was $4.2 million.

During February of 2007, Mervyns II received cash distributions totaling approximately $44.4 million from its ownership position in Albertson’s. The Operating Partnership’s share of this distribution amounted to approximately $8.9 million. Mervyns II received additional distributions from this investment totaling $8.8 million in 2007, $10.6 million in 2008, and $2.0 million in 2009. The Operating Partnership’s share of these distributions aggregated $4.3 million.

Through December 31, 2009, Mervyns II has made additional add-on investments in Albertson’s totaling $2.4 million and received distributions totaling $1.2 million. The Operating Partnership’s share of these combined amounts was $0.4 million and $0.2 million, respectively.

Mervyns Department Stores

In September 2004, we made our first RCP Venture investment. Through Mervyns I and Mervyns II, we invested in a consortium to acquire the Mervyns Department Store chain (“Mervyns”) consisting of 262 stores (“REALCO”) and its retail operation (“OPCO”) from Target Corporation. To date, REALCO has disposed of a significant portion of the portfolio. In addition, in November 2007, we sold our interest in OPCO and, as a result, have no further investment in OPCO. During 2008 and 2007, Mervyns I and Mervyns II made additional investments in Mervyns totaling $2.9 million. The Operating Partnership’s share of the total investment in Mervyns was $4.9 million.

Through December 31, 2009, Mervyns I and Mervyns II have also made add-on investments in Mervyns properties totaling $5.1 million including $1.7 million in 2009. The Operating Partnerships share of this amount was $0.8 million.

During 2005, Mervyns made a distribution to the investors from the proceeds from the sale of a portion of the portfolio and the refinancing of existing debt, of which a total of $42.7 million was distributed to Mervyns I and Mervyns II. The Operating Partnership’s share of this distribution amounted to $10.2 million. Subsequently, Mervyns and Mervyns add-ons distributed additional cash totaling $5.0 million. The Operating Partnership’s share of this distribution totaled $1.4 million.

Other RCP Venture Investments

During 2006, Fund II invested $1.1 million in Shopko and $0.7 million in Marsh. The Operating Partnership’s share of these investment totaled $0.3 million. Fund II received a $1.1 million distribution from the Shopko investment during 2007 and a $1.0 million distribution from the Marsh investment during 2008, of which the Operating Partnership’s share totaled $0.4 million. During 2008, Fund II made additional investments of $2.0 million in Marsh. The Operating Partnership’s share was $0.4 million. During 2009, Fund II received additional distributions of $1.6 million from Marsh, of which the Operating Partnership’s share was $0.3 million.

During 2007, Mervyns II invested $2.7 million in REX Stores Corporation. The Operating Partnership’s share was $0.5 million. During 2009, Fund II received a distribution of $0.4 million from REX, of which the Operating Partnership’s share was $0.1 million.

7


The following table summarizes the RCP Venture investments from inception through December 31, 2009:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Partnership Share

 

Investor

 

Investment

 

Year
acquired

 

Invested
Capital

 

Distributions

 

Invested
Capital

 

Distributions

 


 


 


 


 


 


 


 

Mervyns I and Mervyns II

 

Mervyns

 

 

2004

 

$

26.1

 

$

46.0

 

$

4.9

 

$

11.3

 

Mervyns I and Mervyns II

 

Mervyns add-on investments

 

 

2005/2008

 

 

5.1

 

 

1.7

 

 

0.8

 

 

0.3

 

Mervyns II

 

Albertson’s

 

 

2006

 

 

20.7

 

 

65.8

 

 

4.2

 

 

13.2

 

Mervyns II

 

Albertson’s add-on investments

 

 

2006/2007

 

 

2.4

 

 

1.2

 

 

0.4

 

 

0.2

 

Fund II

 

Shopko

 

 

2006

 

 

1.1

 

 

1.1

 

 

0.2

 

 

0.2

 

Fund II

 

Marsh

 

 

2006

 

 

2.7

 

 

2.6

 

 

0.5

 

 

0.5

 

Mervyns II

 

Rex

 

 

2007

 

 

2.7

 

 

0.4

 

 

0.5

 

 

0.1

 

 

 

 

 

 

 

 



 



 



 



 

Total

 

 

 

 

 

 

$

60.8

 

$

118.8

 

$

11.5

 

$

25.8

 

 

 

 

 

 

 

 



 



 



 



 

New York Urban/Infill Redevelopment Initiative

As of December 31, 2009, we had ten New York Urban/Infill projects. Construction is substantially complete at six of the projects, one is under construction and three are in the design phase as follows:

Construction Substantially Complete

Fordham Place — During September of 2004, Acadia-P/A purchased 400 East Fordham Road, Bronx, New York. Construction of a 119,000 square foot retail component and 157,000 square foot office tower are complete. The retail component is 100% occupied and the office component is 34% occupied. The total cost of the project to Acadia-P/A was approximately $130.0 million.

Pelham Manor Shopping Plaza — During October of 2004, Acadia-P/A entered into a 95-year, inclusive of extension options, ground lease to redevelop a 16-acre site in Pelham Manor, Westchester County, New York. We demolished the existing industrial and warehouse buildings, and completed construction of a 229,000 square foot community retail center and a 90,000 square foot self-storage facility at a total cost of approximately $62.0 million. Home Depot was originally slated to anchor the project, but announced its decision to curtail plans for expansion. As part of our lease termination agreement with Home Depot, we purchased the building that Home Depot had constructed on the site for $10 million, representing approximately half of their cost of construction. The retail center is currently 74% occupied and anchored by a BJ’s Wholesale Club.

216th Street — During December of 2005, Acadia-P/A acquired a parking garage located at 10th Avenue and 216th Street in the Inwood section of Manhattan. During 2007, we completed the construction of a 60,000 square foot office building and we relocated an agency of the City of New York, which was a tenant at another of our Urban/Infill Redevelopment projects, to this location. The total cost to Acadia-P/A for the project, which also includes a 100-space rooftop parking deck, were approximately $28.0 million.

Liberty Avenue — During December of 2005, Acadia-P/A acquired the remaining 40-year term of a leasehold interest in land located at Liberty Avenue and 98th Street in Ozone Park (Queens), New York. The property is currently operating and includes approximately 30,000 square feet of retail anchored by a CVS drug store and a 98,500 square foot self-storage facility. The total cost to Acadia-P/A of the redevelopment was approximately $15.0 million.

161st Street - During August of 2005, Acadia-P/A purchased 244-268 161st Street located in the Bronx, New York for $49.3 million. The redevelopment plan for this currently 99% leased and 84% occupied, 10-story office building, is to recapture and convert street level office space into retail. Additional redevelopment costs to Acadia-P/A are anticipated to be approximately $16.0 million.

Atlantic Avenue – During May of 2007, we, through Fund II and in partnership with Post Management, LLC (“Storage Post”), acquired a property on Atlantic Avenue in Brooklyn, New York. Storage Post is our unaffiliated partner in our self-storage portfolio (see below) and at two of our other New York urban projects with a self-storage component. During 2009, we completed construction of the 110,000 square feet, six-story storage facility and commenced operations. The total cost of the project was approximately $23.0 million.

8


Under Construction

Canarsie - During October of 2007, Acadia-P/A acquired a 530,000 square foot warehouse building in Canarsie, Brooklyn for approximately $21.0 million. The development plan for this property includes the demolition of a portion of the warehouse and the construction of a 265,000 square foot mixed-use project consisting of retail and office. The total cost of the redevelopment, including acquisition costs, is expected to be approximately $77.0 million. We had executed a lease with Home Depot to anchor the project. However, during 2008, Home Depot terminated their lease and paid us a fee of $24.5 million. The project is currently under construction and 80% pre-leased to BJ’s Wholesale Club and the New York City Police Department.

In Design

Sherman Plaza - During April of 2005, Acadia-P/A acquired 4650 Broadway located in the Washington Heights/Inwood section of Manhattan. The property, which was occupied by an agency of the City of New York (“NYC”) and a commercial parking garage, was acquired for a purchase price of $25.0 million. During 2007 we relocated NYC to Acadia-P/A’s 216th St. redevelopment as discussed above. We are currently reviewing various alternatives to redevelop the site to include retail and office components.

CityPoint - During June of 2007, Acadia-P/A and an unaffiliated joint venture partner purchased the leasehold interests in The Gallery at Fulton Street in downtown Brooklyn for approximately $115.0 million, with an option to purchase the fee position, which is owned by the City of New York, at a later date. Redevelopment plans for the property, renamed “CityPoint”, include the demolition of the existing structure (completed) and the development of a 1.3 million square foot project to include retail and residential components. Acadia-P/A will participate in the development of the retail component. Acadia-P/A does not plan on participating in the development of, or have an ownership interest in, the residential component of the project. The current plan calls for the commencement during 2010 of the first of four phases of redevelopment which is expected to include between 40,000 and 50,000 square feet of retail space on five levels. Development of the balance of the project, including the residential component, is expected to occur over multiple years. The project has been conditionally awarded $20.0 million of federal stimulus bond financing to fund construction of the first phase. Please refer to the discussion under the heading “Off Balance Sheet Arrangments” in Item 7 of this Form 10-K for a discussion of $26.0 million of debt on this property that will mature in August 2010 and potential additional capital requirements Fund II may have if our unaffiliated joint venture partner determines not to fund its requisite share of capital.

Sheepshead Bay - During November of 2007, Fund III acquired a property in Sheepshead Bay, Brooklyn for approximately $20.0 million. The project is currently in the design phase and we have demolished one of two buildings on the existing site and expect to develop a multi-story retail center with approximately 240,000 square feet of gross leasable area.

Self-Storage Portfolio

On February 29, 2008, Fund III, in conjunction with Storage Post, acquired a portfolio of eleven self-storage properties from Storage Post’s existing institutional investors for approximately $174.0 million. In addition, we, through Fund II, developed three self-storage properties as discussed above. The fourteen self-storage property portfolio, located throughout New York and New Jersey, totals approximately 1,127,000 net rentable square feet, and is operating at various stages of stabilization.

Other Investments

In addition to the RCP Venture, the New York Urban/Infill and Self-Storage Portfolio investments as discussed above, through Fund III, we have also acquired the following:

During January 2009, we purchased Cortlandt Towne Center for $78.0 million. The operating property is a 642,000 square foot shopping center located in Westchester County, New York.

During November 2007, we acquired 125 Main Street, Westport, Connecticut for approximately $17.0 million. Our plan is to redevelop the existing building into 30,000 square feet of retail and office space.

Core Portfolio

See Item 2. PROPERTIES for the definition of our Core Portfolio.

During April of 2008, the Operating Partnership acquired a 20,000 square foot single tenant retail property located on 17th Street near 5th Avenue in Manhattan, New York for $9.7 million.

During March of 2007, the Operating Partnership purchased a 52,000 square foot single-tenant building located at 1545 East Service Road in Staten Island, New York for $17.0 million and a 10,000 square foot retail commercial condominium at 200 West 54th Street located in Manhattan, New York for $36.4 million.

9


Preferred Equity, Notes Receivable and Other Real Estate Related Investments

During December 2009, the Operating Partnership made a loan for $8.6 million which bears interest at 14.5% with a one year term and one six month extension.

During June 2008, the Operating Partnership made a $40.0 million preferred equity investment in a portfolio of 18 properties located primarily in Georgetown, Washington D.C. The portfolio consists of 306,000 square feet of principally retail space.

During July 2008, the Operating Partnership made a $34.0 million mezzanine loan, which is collateralized by a mixed-use retail and residential development at 72 nd Street and Broadway on the Upper West Side of Manhattan.

During September 2008, Fund III made a $10.0 million first mortgage loan, which is collateralized by land located on Long Island, New York.

The following table sets forth our preferred equity and notes receivable investments as of December 31, 2009:

Notes Receivable
(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Averages

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Underlying third-party
first mortgage loan

 

 

 

 

 

 

 

 

 

Stated
Interest
rate

 

Effective
interest
rate 1

 

 

 

Extension
options
(years)

 


 

 

 

 

 

Accrued
interest

 

 

 

 

 

Maturity
date

 

 

Amount

 

Maturity
dates

 

Investment

 

Principal

 

 

Total

 

 

 

 

 

 

 

























 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Georgetown A - 5 property portfolio

 

$

8,000

 

$

994

 

$

8,994

 

 

9.75

%

 

10.19

%

11/2010

 

2 x 1 year

 

8,375

 

2010 through 2012

 

Georgetown B - 18 property portfolio

 

 

40,000

 

 

5,405

 

 

45,405

 

 

13.00

%

 

13.44

%

6/2010

 

2 x 1 year

 

115,454

 

2011 through 2016

 

72nd Street

 

 

40,975

 

 

3,637

 

 

44,612

 

 

13.00

%

 

19.48

%

7/2011

 

1 year

 

185,000

(2)

2011 w/ 1 year extension

 

First mortgage and other notes

 

 

20,853

 

 

72

 

 

20,925

 

 

12.87

%

 

13.42

%

2010

 

1 year

 

n/a

 

n/a

 

Mezzanine notes

 

 

15,393

 

 

145

 

 

15,538

 

 

13.97

%

 

14.83

%

2013

 

 

272,559

 

2011 through 2019

 

 

 
















 

 

 

 

 

 

 

 

Total notes receivable

 

$

125,221

 

$

10,253

 

$

135,474

 

 

12.89

%

 

15.38

%

 

 

 

 

 

 

 

 

 

 
















 

 

 

 

 

 

 

 


 

 


1

The effective rate includes upfront points and exit fees

 

 

2

The first mortgage amount for 72nd Street represents the maximum availability under the loan

ASSET SALES AND CAPITAL/ASSET RECYCLING

Core Portfolio

We periodically identify certain core properties for disposition and redeploy the capital to existing centers or acquisitions with greater potential for capital appreciation. Since January of 2007, we have sold the following Core Portfolio assets:

 

 

 

 

 

 

 

 

 

 

 

 

Property

 

Location

 

Date sold

 

Gross
leasable
area

 

Sales price
(dollars in
thousands)

 


 


 


 


 


 

Blackman Plaza

 

Wilkes-Barre, Pennsylvania

 

November 2009

 

 

125,264

 

$

2,500

 

Village Apartments

 

Winston-Salem, North Carolina

 

April 2008

 

 

599,106

 

 

23,300

 

Colony and GHT Apartments

 

Columbia, Missouri

 

December 2007

 

 

625,545

 

 

15,500

 

 

 

 

 

 

 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

1,349,915

 

$

41,300

 

 

 

 

 

 

 



 



 

Proceeds from these sales in part have been used to fund the Core Portfolio acquisitions as discussed in “—PROPERTY ACQUISITIONS” above.

10


Monetization of Fund I

Given that Fund I was established as a finite life entity, we are currently engaged in the multi-year process of monetizing the fund’s investments. As of December 31, 2009 there were 21 assets comprising 1.0 million square feet remaining in Fund I as summarized by region below

 

 

 

 

 

 

 

 

Shopping Center

 

Location

 

Year
acquired

 

GLA

 


 


 


 


 

New York Region

 

 

 

 

 

 

 

New York

 

 

 

 

 

 

 

Tarrytown Centre

 

Tarrytown

 

2004

 

35,291

 

Midwest Region

 

 

 

 

 

 

 

Ohio

 

 

 

 

 

 

 

Granville Centre

 

Columbus

 

2002

 

134,997

 

Michigan

 

 

 

 

 

 

 

Sterling Heights Shopping Center

 

Detroit

 

2004

 

154,835

 

Various Regions

 

 

 

 

 

 

 

Kroger/Safeway Portfolio

 

Various (18 properties)

 

2003

 

709,400

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

1,034,523

 

 

 

 

 

 

 


 

On February 2, 2009, The Kroger Co. purchased the fee at six locations in Fund I’s Kroger/Safeway Portfolio for $14.6 million, resulting in a $5.6 million gain. The Operating Partnership’s share of the gain was $1.6 million.

During April 2008, Fund I sold Haygood Shopping Center located in Virginia Beach, Virginia, for $24.9 million, resulting in a $6.8 million gain. The Operating Partnership’s share of the gain was $1.3 million.

During November 2007, Fund I sold Amherst Marketplace and Sheffield Crossing, community shopping centers in Ohio, for $26.0 million, resulting in a $7.5 million gain. The Operating Partnership’s share of the gain was $2.8 million.

PROPERTY REDEVELOPMENT AND EXPANSION

Our redevelopment program focuses on selecting well-located neighborhood and community shopping centers within our Core Portfolio and creating significant value through re-tenanting and property redevelopment.

ENVIRONMENTAL LAWS

For information relating to environmental laws that may have an impact on our business, please see “Item 1A. Risk Factors-- Possible liability relating to environmental matters.”

COMPETITION

There are numerous entities that compete with us in seeking properties for acquisition and tenants that will lease space in our properties. Our competitors include other REIT’s, financial institutions, insurance companies, pension funds, private companies and individuals. Our properties compete for tenants with similar properties primarily on the basis of location, total occupancy costs (including base rent and operating expenses) and the design and condition of the improvements.

FINANCIAL INFORMATION ABOUT MARKET SEGMENTS

We have five reportable segments: Core Portfolio, Opportunity Funds, Self-Storage Portfolio, Notes Receivable and Other. Notes Receivable consists of the Company’s notes receivable and preferred equity investments and related interest income, Other primarily consists of management fees and interest income. The accounting policies of the segments are the same as those described in the summary of significant accounting policies set forth in Note 1 to our Consolidated Financial Statements, which begin on page F-1 of this Form 10-K. We evaluate property performance primarily based on net operating income before depreciation, amortization and certain nonrecurring items. Investments in our Core Portfolio are typically held long-term. Given the contemplated finite life of our Opportunity Funds, these investments are typically held for shorter terms. Fees earned by us as general partner/member of the Opportunity Funds are eliminated in our Consolidated Financial Statements. See Note 3 to our Consolidated Financial Statements, which begin on page F-1 of this Form 10-K for information regarding, among other things, revenues from external customers, a measure of profit and loss and total assets with respect to each of our segments.

11


CORPORATE HEADQUARTERS AND EMPLOYEES

Our executive offices are located at 1311 Mamaroneck Avenue, Suite 260, White Plains, New York 10605, and our telephone number is (914) 288-8100. As of December 31, 2009, we had 118 employees, of which 90 were located at our executive office and 28 were located at regional property management offices. None of our employees are covered by collective bargaining agreements. Management believes that its relationship with employees is good.

COMPANY WEBSITE

All of our filings with the Securities and Exchange Commission, including our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available free of charge at our website at www.acadiarealty.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. These filings can also be accessed through the Securities and Exchange Commission’s website at www.sec.gov. Alternatively, we will provide paper copies of our filings free of charge upon request. If you wish to receive a copy of the Form 10-K, you may contact Robert Masters, Corporate Secretary, at Acadia Realty Trust, 1311 Mamaroneck Avenue, Suite 260, White Plains, NY 10605. You may also call (914) 288-8100 to request a copy of the Form 10-K. Information included or referred to on our website is not incorporated by reference in or otherwise a part of this Form 10-K.

CODE OF ETHICS AND WHISTLEBLOWER POLICIES

The Board of Trustees adopted a Code of Ethics for Senior Financial Officers that applies to our Chief Executive Officer, Senior Vice President-Chief Financial Officer, Senior Vice President-Chief Accounting Officer, Vice President-Controller, Vice President- Financial Reporting, Director of Taxation and Assistant Controllers. The Board also adopted a Code of Business Conduct and Ethics applicable to all employees, as well as a “Whistleblower Policy.” Copies of these documents are available in the Investor Information section of our website. We intend to disclose future amendments to, or waivers from, our Code of Ethics for Senior Financial Officers in the Investor Information section of our website within four business days following the date of such amendment or waiver.

ITEM 1A. RISK FACTORS.

If any of the following risks actually occur, our business, results of operations and financial condition would likely suffer. This section includes or refers to certain forward-looking statements. Refer to the explanation of the qualifications and limitations on such forward-looking statements discussed in the beginning of this Form 10-K.

We rely on revenues derived from major tenants.

We derive significant revenues from certain anchor tenants that occupy space in more than one center. We could be adversely affected in the event of the bankruptcy or insolvency of, or a downturn in the business of, any of our major tenants, or in the event that any such tenant does not renew its leases as they expire or renews at lower rental rates. Vacated anchor space not only would reduce rental revenues if not re-tenanted at the same rental rates but also could adversely affect the entire shopping center because of the loss of the departed anchor tenant’s customer drawing power. Loss of customer drawing power also can occur through the exercise of the right that most anchors have to vacate and prevent re-tenanting by paying rent for the balance of the lease term, or the departure of a “shadow” anchor tenant that owns its own property. In addition, in the event that certain major tenants cease to occupy a property, such an action may result in a significant number of other tenants having the right to terminate their leases, or pay a reduced rent based on a percentage of the tenant’s sales, at the affected property, which could adversely affect the future income from such property. See “Item 2. Properties—Major Tenants” for quantified information with respect the percentage of our minimum rents received from major tenants.

We may not be able to renew current leases and the terms of re-letting (including the cost of concessions to tenants) may be less favorable to us than current lease terms.

Upon the expiration of current leases for space located in our properties, we may not be able to re-let all or a portion of that space, or the terms of re-letting (including the cost of concessions to tenants) may be less favorable to us than current lease terms. If we are unable to re-let promptly all or a substantial portion of the space located in our properties or if the rental rates we receive upon re-letting are significantly lower than current rates, our net income and ability to make expected distributions to our shareholders will be adversely affected due to the resulting reduction in rent receipts. There can be no assurance that we will be able to retain tenants in any of our properties upon the expiration of their leases. See “Item 2. Properties – Lease Expirations” in this Annual Report on Form 10-K for additional information as to the scheduled lease expirations in our portfolio.

12


The current economic environment, while improving, may cause us to lose tenants and may impair our ability to borrow money to purchase properties, refinance existing debt or finance our current redevelopment projects.

Our operations and performance depend on general economic conditions. The U.S. economy has recently experienced a financial downturn, with consumer spending on the decline, credit tightening and unemployment rising. Many financial and economic analysts are predicting that the world economy has entered a prolonged economic downturn characterized by high unemployment, limited availability of credit and decreased consumer and business spending. This economic downturn has and may continue to adversely affect the businesses of many of our tenants. We and the Opportunity Funds may experience higher vacancy rates as well as delays in re-leasing vacant space.

The current downturn has had, and may continue to have, an unprecedented impact on the global credit markets. In general, credit is currently difficult to obtain. While we currently believe we have adequate sources of liquidity, there can be no assurance that we will be able to obtain mortgage loans to purchase additional properties, obtain financing to complete current redevelopment projects, or successfully refinance our properties as loans become due. To the extent that the availability of credit continues to be limited, it will also adversely impact our preferred equity and mezzanine investments as counterparties may not be able to obtain the financing required to repay the loans upon maturity.

The bankruptcy of, or a downturn in the business of, any of our major tenants or a significant number of our smaller tenants may adversely affect our cash flows and property values.

The bankruptcy of, or a downturn in the business of, any of our major tenants causing them to reject their leases, or not renew their leases as they expire, or renew at lower rental rates may adversely affect our cash flows and property values. Furthermore, the impact of vacated anchor space and the potential reduction in customer traffic may adversely impact the balance of tenants at the center.

Certain of our tenants have experienced financial difficulties and have filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code (“Chapter 11 Bankruptcy”). Pursuant to bankruptcy law, tenants have the right to reject their leases. In the event the tenant exercises this right, the landlord generally has the right to file a claim for lost rent equal to the greater of either one year’s rent (including tenant expense reimbursements) for remaining terms greater than one year, or 15% of the rent remaining under the balance of the lease term, but not to exceed three years rent. Actual amounts to be received in satisfaction of those claims will be subject to the tenant’s final plan of reorganization and the availability of funds to pay its creditors.

Since January 1, 2007, there have been two significant tenant bankruptcies within our portfolio:

On December 11, 2008, KB Toys (“KB”) filed for protection under Chapter 11 Bankruptcy. KB operated in two locations in our Core Portfolio, totaling approximately 12,000 square feet. Rental revenues from KB at these locations totaled $0.03 million, $0.3 million, and $0.3 million for the years ended December 31, 2009, 2008 and 2007, respectively. Both leases were rejected by KB in February 2009.

On November 10, 2008, Circuit City Stores Inc. (“Circuit City”) filed for protection under Chapter 11 Bankruptcy. Circuit City operated at two of our Core Portfolio locations totaling approximately 59,278 square feet. Rental revenues from Circuit City at these locations totaled $0.1 million, $1.0 million and $0.7 million for the years ended December 31, 2009, 2008 and 2007 respectively. Circuit City has rejected both leases. In addition, Circuit City executed a lease at a property owned by Acadia-P/A Holding Company. Circuit City has rejected that lease. On January 16, 2009, Circuit City sought Bankruptcy Court approval to liquidate its assets.

13


There are risks relating to investments in real estate.

Real property investments are subject to varying degrees of risk. Real estate values are affected by a number of factors, including: changes in the general economic climate, local conditions (such as an oversupply of space or a reduction in demand for real estate in an area), the quality and philosophy of management, competition from other available space, the ability of the owner to provide adequate maintenance and insurance and to control variable operating costs. Shopping centers, in particular, may be affected by changing perceptions of retailers or shoppers regarding the safety, convenience and attractiveness of the shopping center and by the overall climate for the retail industry generally. Real estate values are also affected by such factors as government regulations, interest rate levels, the availability of financing and potential liability under, and changes in, environmental, zoning, tax and other laws. A significant portion of our income is derived from rental income from real property. Our income and cash flow would be adversely affected if a significant number of our tenants were unable to meet their obligations, or if we were unable to lease on economically favorable terms a significant amount of space in our properties. In the event of default by a tenant, we may experience delays in enforcing, and incur substantial costs to enforce, our rights as a landlord. In addition, certain significant expenditures associated with each equity investment (such as mortgage payments, real estate taxes and maintenance costs) are generally not reduced when circumstances cause a reduction in income from the investment.

Our ability to change our portfolio is limited because real estate investments are illiquid.

Equity investments in real estate are relatively illiquid and, therefore, our ability to change our portfolio promptly in response to changed conditions will be limited. Our Board of Trustees may establish investment criteria or limitations as it deems appropriate, but currently does not limit the number of properties in which we may seek to invest or on the concentration of investments in any one geographic region. We could change our investment, disposition and financing policies without a vote of our shareholders.

We could become highly leveraged, resulting in increased risk of default on our obligations and in an increase in debt service requirements, which could adversely affect our financial condition and results of operations and our ability to pay distributions.

We have incurred, and expect to continue to incur, indebtedness in furtherance of our activities. Neither our Declaration of Trust nor any policy statement formally adopted by our Board of Trustees limits either the total amount of indebtedness or the specified percentage of indebtedness that we may incur. Accordingly, we could become more highly leveraged, resulting in increased risk of default on our obligations and in an increase in debt service requirements, which could adversely affect our financial condition and results of operations and our ability to make distributions.

Our loan agreements contain customary representations, covenants and events of default. Certain loan agreements require us to comply with certain affirmative and negative covenants, including the maintenance of certain debt service coverage and leverage ratios.

Interest expense on our variable debt as of December 31, 2009 would increase by $3.4 million annually for a 100 basis point increase in interest rates. We may seek additional variable-rate financing if and when pricing and other commercial and financial terms warrant. As such, we would consider hedging against the interest rate risk related to such additional variable-rate debt through interest rate swaps and protection agreements, or other means.

We enter into interest-rate hedging transactions, including interest rate swaps and cap agreements, with counterparties. There can be no guarantee that the financial condition of these counterparties will enable them to fulfill their obligations under these agreements.

Competition may adversely affect our ability to purchase properties and to attract and retain tenants.

There are numerous commercial developers, real estate companies, financial institutions and other investors with greater financial resources than we have that compete with us in seeking properties for acquisition and tenants who will lease space in our properties. Our competitors include other REIT’s, financial institutions, insurance companies, pension funds, private companies and individuals. This competition may result in a higher cost for properties that we wish to purchase. In addition, retailers at our properties face increasing competition from outlet malls, discount shopping clubs, Internet commerce, direct mail and telemarketing, which could (i) reduce rents payable to us; (ii) reduce our ability to attract and retain tenants at our properties; and (iii) lead to increased vacancy rates at our properties.

We could be adversely affected by poor market conditions where properties are geographically concentrated.

Our performance depends on the economic conditions in markets in which our properties are concentrated. We have significant exposure to the greater New York region, from which we derive 36% of the annual base rents within our Core Portfolio. Our operating results could be adversely affected if market conditions, such as an oversupply of space or a reduction in demand for real estate, in this area become more competitive relative to other geographic areas.

14


We have pursued, and may in the future continue to pursue extensive growth opportunities, which may result in significant demands on our operational, administrative and financial resources.

We have pursued extensive growth opportunities. This expansion has placed significant demands on our operational, administrative and financial resources. The continued growth of our real estate portfolio can be expected to continue to place a significant strain on our resources. Our future performance will depend in part on our ability to successfully attract and retain qualified management personnel to manage the growth and operations of our business and to finance such acquisitions. In addition, acquired properties may fail to operate at expected levels due to the numerous factors that may affect the value of real estate. There can be no assurance that we will have sufficient resources to identify and manage acquired properties or otherwise be able to maintain our historic rate of growth.

Our inability to carry out our growth strategy could adversely affect our financial condition and results of operations.

Our earnings growth strategy is based on the acquisition and development of additional properties, including acquisitions through co-investment programs such as our Opportunity Funds. In the context of our business plan, “redevelopment” generally means an expansion or renovation of an existing property. The consummation of any future acquisitions will be subject to satisfactory completion of our extensive valuation analysis and due diligence review and to the negotiation of definitive documentation. We cannot be sure that we will be able to implement our strategy because we may have difficulty finding new properties, negotiating with new or existing tenants or securing acceptable financing.

Acquisitions of additional properties entail the risk that investments will fail to perform in accordance with expectations, including operating and leasing expectations. Redevelopment is subject to numerous risks, including risks of construction delays, cost overruns or uncontrollable events that may increase project costs, new project commencement risks such as the receipt of zoning, occupancy and other required governmental approvals and permits, and the incurrence of development costs in connection with projects that are not pursued to completion.

A component of our growth strategy is through private-equity type investments made through our RCP Venture. These include investments in operating retailers. The inability of the retailers to operate profitably would have an adverse impact on income realized from these investments.

We operate through a partnership structure, which could have an adverse effect on our ability to manage our assets.

Our primary property-owning vehicle is the Operating Partnership, of which we are the general partner. Our acquisition of properties through the Operating Partnership in exchange for interests in the Operating Partnership may permit certain tax deferral advantages to limited partners who contribute properties to the Operating Partnership. Since properties contributed to the Operating Partnership may have unrealized gain attributable to the difference between the fair market value and adjusted tax basis in such properties prior to contribution, the sale of such properties could cause adverse tax consequences to the limited partners who contributed such properties. Although we, as the general partner of the Operating Partnership, generally have no obligation to consider the tax consequences of our actions to any limited partner, there can be no assurance that the Operating Partnership will not acquire properties in the future subject to material restrictions designed to minimize the adverse tax consequences to the limited partners who contribute such properties. Such restrictions could result in significantly reduced flexibility to manage our assets.

Limited control over joint venture investments.

Under the terms of our Fund III joint venture, which is similar to the terms of Fund I and Fund II, we are required to first offer to Fund III all of our opportunities to acquire retail shopping centers. We may only pursue opportunities to acquire retail shopping centers directly if (i) our joint venture partner elects not to approve Fund III’s pursuit of an acquisition opportunity; (ii) the ownership of the acquisition opportunity by Fund III would create a material conflict of interest for us; (iii) we require the acquisition opportunity for a “like-kind” exchange; or (iv) the consideration payable for the acquisition opportunity is our Common Shares, OP Units or other securities. As a result, we may not be able to make attractive acquisitions directly and may only receive a minority interest in such acquisitions through Fund III.

Our joint venture investments, including our Opportunity Fund investments may involve risks not otherwise present for investments made solely by us, including the possibility that our joint venture partner might have different interests or goals than we do. Other risks of joint venture investments include impasse on decisions, such as a sale, because neither we nor a joint venture partner would have full control over the joint venture. Also, there is no limitation under our organizational documents as to the amount of funds that may be invested in joint ventures. Please refer to the discussion under the heading “Off Balance Sheet Arrangements” in Item 7 of this Form 10-K for a discussion of $26.0 million of debt on the CityPoint property that will mature in August 2010 and potential additional capital requirements Fund II may have if our unaffiliated joint venture partner determines not to fund its requisite share of capital.

Through our investments in joint ventures we have also invested in operating businesses that have operational risk in addition to the risks associated with real estate investments, including among other risks, human capital issues, adequate supply of product and material, and merchandising issues.

During 2009, 2008 and 2007, our Fund I and Mervyns I joint ventures provided Promote income. There can be no assurance that the joint ventures will continue to operate profitably and thus provide additional Promote income in the future.

15


Market factors could have an adverse effect on our share price.

One of the factors that may influence the trading price of our Common Shares is the annual dividend rate on our Common Shares as a percentage of its market price. An increase in market interest rates may lead purchasers of our Common Shares to seek a higher annual dividend rate, which could adversely affect the market price of our Common Shares. A decline in our share price, as a result of this or other market factors, could unfavorably impact our ability to raise additional equity in the public markets.

The loss of a key executive officer could have an adverse effect on us.

Our success depends on the contribution of key management members. The loss of the services of Kenneth F. Bernstein, President and Chief Executive Officer, or other key executive-level employees could have a material adverse effect on our results of operations. We have obtained key-man life insurance for Mr. Bernstein. In addition, we have entered into an employment agreement with Mr. Bernstein; however, it could be terminated by Mr. Bernstein. We have not entered into employment agreements with other key executive level employees.

Possible liability relating to environmental matters.

Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, as an owner of real property, we may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under our property, as well as certain other potential costs relating to hazardous or toxic substances (including government fines and penalties and damages for injuries to persons and adjacent property). These laws may impose liability without regard to whether we knew of, or were responsible for, the presence or disposal of those substances. This liability may be imposed on us in connection with the activities of an operator of, or tenant at, the property. The cost of any required remediation, removal, fines or personal or property damages and our liability therefore could exceed the value of the property and/or our aggregate assets. In addition, the presence of those substances, or the failure to properly dispose of or remove those substances, may adversely affect our ability to sell or rent that property or to borrow using that property as collateral, which, in turn, would reduce our revenues and ability to make distributions.

A property can also be adversely affected either through physical contamination or by virtue of an adverse effect upon value attributable to the migration of hazardous or toxic substances, or other contaminants that have or may have emanated from other properties. Although our tenants are primarily responsible for any environmental damages and claims related to the leased premises, in the event of the bankruptcy or inability of any of our tenants to satisfy any obligations with respect to the property leased to that tenant, we may be required to satisfy such obligations. In addition, we may be held directly liable for any such damages or claims irrespective of the provisions of any lease.

From time to time, in connection with the conduct of our business, and prior to the acquisition of any property from a third party or as required by our financing sources, we authorize the preparation of Phase I environmental reports and, when necessary, Phase II environmental reports, with respect to our properties. Based upon these environmental reports and our ongoing review of our properties, we are currently not aware of any environmental condition with respect to any of our properties that we believe would be reasonably likely to have a material adverse effect on us. There can be no assurance, however, that the environmental reports will reveal all environmental conditions at our properties or that the following will not expose us to material liability in the future:

 

 

 

 

The discovery of previously unknown environmental conditions;

 

 

 

 

Changes in law;

 

 

 

 

Activities of tenants; and

 

 

 

 

Activities relating to properties in the vicinity of our properties.

Changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of our tenants, which could adversely affect our financial condition or results of operations.

Uninsured losses or a loss in excess of insured limits could adversely affect our financial condition.

We carry comprehensive general liability, fire, extended coverage, loss of rent insurance, and environmental liability on most of our properties, with policy specifications and insured limits customarily carried for similar properties. However, with respect to those properties where the leases do not provide for abatement of rent under any circumstances, we generally do not maintain loss of rent insurance. In addition, there are certain types of losses, such as losses resulting from wars, terrorism or acts of God that generally are not insured because they are either uninsurable or not economically insurable. Should an uninsured loss or a loss in excess of insured limits occur, we could lose capital invested in a property, as well as the anticipated future revenues from a property, while remaining obligated for any mortgage indebtedness or other financial obligations related to the property. Any loss of these types would adversely affect our financial condition.

16


Our Board of Trustees may change our investment policy without shareholder approval.

Our Board of Trustees will determine our investment and financing policies, our growth strategy and our debt, capitalization, distribution, acquisition, disposition and operating policies. Our Board of Trustees may establish investment criteria or limitations as it deems appropriate, but currently does not limit the number of properties in which we may seek to invest or on the concentration of investments in any one geographic region. Although our Board of Trustees has no present intention to revise or amend our strategies and policies, it may do so at any time without a vote by our shareholders. Accordingly, our shareholders’ control over changes in our strategies and policies is limited to the election of trustees, and changes made by our Board of Trustees may not serve the interests of all of our shareholders and could adversely affect our financial condition or results of operations, including our ability to distribute cash to shareholders or qualify as a REIT.

Distribution requirements imposed by law limit our operating flexibility.

To maintain our status as a REIT for federal income tax purposes, we are generally required to distribute to our shareholders at least 90% of our taxable income for each calendar year. Pursuant to recent IRS pronouncements, up to 90% of such distribution may be made in Common Shares rather than cash. Our taxable income is determined without regard to any deduction for dividends paid and by excluding net capital gains. To the extent that we satisfy the distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed income. In addition, we will incur a 4% nondeductible excise tax on the amount, if any, by which our distributions in any year are less than the sum of (i) 85% of our ordinary income for that year; (ii) 95% of our capital gain net income for that year and; (iii) 100% of our undistributed taxable income from prior years. We intend to continue to make distributions to our shareholders to comply with the distribution requirements of the Internal Revenue Code and to minimize exposure to federal income and nondeductible excise taxes. Differences in timing between the receipt of income and the payment of expenses in determining our income as well as required debt amortization payments and the capitalization of certain expenses could require us to borrow funds on a short-term basis to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT. The distribution requirements also severely limit our ability to retain earnings to acquire and improve properties or retire outstanding debt.

There can be no assurance we have qualified or will remain qualified as a REIT for federal income tax purposes.

We believe that we have consistently met the requirements for qualification as a REIT for federal income tax purposes beginning with our taxable year ended December 31, 1993, and we intend to continue to meet these requirements in the future. However, qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code, for which there are only limited judicial or administrative interpretations. No assurance can be given that we have qualified or will remain qualified as a REIT. The Internal Revenue Code provisions and income tax regulations applicable to REIT’s differ significantly from those applicable to other corporations. The determination of various factual matters and circumstances not entirely within our control can potentially affect our ability to continue to qualify as a REIT. In addition, no assurance can be given that future legislation, regulations, administrative interpretations or court decisions will not significantly change the requirements for qualification as a REIT or adversely affect the federal income tax consequences of such qualification. Under current law, if we fail to qualify as a REIT, we would not be allowed a deduction for dividends paid to shareholders in computing our net taxable income. In addition, our income would be subject to tax at the regular corporate rates. We also could be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. Cash available for distribution to our shareholders would be significantly reduced for each year in which we do not qualify as a REIT. In that event, we would not be required to continue to make distributions. Although we currently intend to continue to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause us, without the consent of our shareholders, to revoke the REIT election or to otherwise take action that would result in disqualification.

Limits on ownership of our capital shares.

For the Company to qualify as a REIT for federal income tax purposes, among other requirements, not more than 50% of the value of our capital shares may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) during the last half of each taxable year after 1993, and such capital shares must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year (in each case, other than the first such year). Our Declaration of Trust includes certain restrictions regarding transfers of our capital shares and ownership limits that are intended to assist us in satisfying these limitations. These restrictions and limits may not be adequate in all cases, however, to prevent the transfer of our capital shares in violation of the ownership limitations. The ownership limit discussed above may have the effect of delaying, deferring or preventing someone from taking control of us.

Actual or constructive ownership of our capital shares in excess of the share ownership limits contained in our Declaration of Trust would cause the violative transfer or ownership to be null and void from the beginning and subject to purchase by us at a price equal to the lesser of (i) the price stipulated in the challenged transaction; and (ii) the fair market value of such shares (determined in accordance with the rules set forth in our Declaration of Trust). As a result, if a violative transfer were made, the recipient of the shares would not acquire any economic or voting rights attributable to the transferred shares. Additionally, the constructive ownership rules for these limits are complex and groups of related individuals or entities may be deemed a single owner and consequently in violation of the share ownership limits.

17


Concentration of ownership by certain investors.

Six institutional shareholders own 5% or more individually, and 48.8% in the aggregate, of our Common Shares. A significant concentration of ownership may allow an investor or a group of investors to exert a greater influence over our management and affairs and may have the effect of delaying, deferring or preventing a change in control of us.

Restrictions on a potential change of control.

Our Board of Trustees is authorized by our Declaration of Trust to establish and issue one or more series of preferred shares without shareholder approval. We have not established any series of preferred shares. However, the establishment and issuance of a series of preferred shares could make more difficult a change of control of us that could be in the best interest of the shareholders.

In addition, we have entered into an employment agreement with our Chief Executive Officer and severance agreements are in place with our senior vice presidents which provide that, upon the occurrence of a change in control of us and either the termination of their employment without cause (as defined) or their resignation for good reason (as defined), those executive officers would be entitled to certain termination or severance payments made by us (which may include a lump sum payment equal to defined percentages of annual salary and prior years’ average bonuses, paid in accordance with the terms and conditions of the respective agreement), which could deter a change of control of us that could be in our best interest.

Legislative or regulatory tax changes could have an adverse effect on us.

There are a number of issues associated with an investment in a REIT that are related to the federal income tax laws, including, but not limited to, the consequences of a company’s failing to continue to qualify as a REIT. At any time, the federal income tax laws governing REIT’s or the administrative interpretations of those laws may be amended or modified. Any new laws or interpretations may take effect retroactively and could adversely affect us or our shareholders. Reduced tax rates applicable to certain corporate dividends paid to most domestic noncorporate shareholders are not generally available to REIT shareholders since a REIT’s income generally is not subject to corporate level tax. As a result, investment in non-REIT corporations may be viewed as relatively more attractive than investment in REIT’s by domestic noncorporate investors. This could adversely affect the market price of the Company’s shares.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

18


ITEM 2. PROPERTIES.

SHOPPING CENTER PROPERTIES

The discussion and tables in this Item 2 include properties held through our Core Portfolio and our Opportunity Funds. We define our Core Portfolio as those properties either 100% owned by, or partially owned through joint venture interests by, the Operating Partnership, or subsidiaries thereof, not including those properties owned through our Opportunity Funds. The discussion of the Opportunity Funds does not include our investment in a portfolio of self-storage properties, which are detailed separately within this Item 2.

As of December 31, 2009, excluding two properties under redevelopment, there are 32 properties in our Core Portfolio totaling approximately 4.8 million square feet of gross leasable area (“GLA”). Adjusting for our pro-rata ownership share of partially-owned centers, we own approximately 3.9 million square feet of GLA. The Core Portfolio properties are located in 12 states and are generally well-established community and neighborhood shopping centers anchored by supermarkets or value-oriented retail. The properties are diverse in size, ranging from approximately 10,000 to 875,000 square feet. As of December 31, 2009, our Core Portfolio was 92.9% occupied and 92.6% on a pro-rata ownership basis.

As of December 31, 2009, we owned and operated 26 properties totaling 2.1 million square feet of GLA, excluding properties under redevelopment, in our Opportunity Funds. In addition to shopping centers, the Opportunity Funds’ have invested in mixed-use properties, which generally include retail activities, and self-storage properties. The Opportunity Fund properties are located in 15 states. As of December 31, 2009, the properties owned by our Opportunity Funds were, in total, 86.8% occupied.

Within our Core Portfolio and Opportunity Funds, we had approximately 500 leases as of December 31, 2009. A majority of our rental revenues were from national tenants. A majority of the income from the properties consists of rent received under long-term leases. These leases generally provide for the payment of fixed minimum rent monthly in advance and for the payment by tenants of a pro-rata share of the real estate taxes, insurance, utilities and common area maintenance of the shopping centers. Minimum rents and expense reimbursements accounted for approximately 80% of our total revenues for the year ended December 31, 2009.

As of December 31, 2009, approximately 34% of our existing leases also provided for the payment of percentage rents either in addition to, or in place of, minimum rents. These arrangements generally provide for payment to us of a certain percentage of a tenant’s gross sales in excess of a stipulated annual amount. Percentage rents accounted for approximately 0.3% of the total 2009 revenues of the Company.

Four of our Core Portfolio properties and two of our Opportunity Fund properties are subject to long-term ground leases in which a third party owns and has leased the underlying land to us. We pay rent for the use of the land at and are responsible for all costs and expenses associated with the building and improvements at all six locations.

No individual property contributed in excess of 10% of our total revenues for the years ended December 31, 2009, 2008 and 2007. Reference is made to Note 8 to our Consolidated Financial Statements, which begin on page F-1 of this Form 10-K, for information on the mortgage debt pertaining to our properties. The following sets forth more specific information with respect to each of our shopping centers at December 31, 2009:

19



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shopping Center

 

Location

 

Year
Constructed (C)
Acquired (A)

 

Ownership
Interest

 

GLA

 

Occupancy (1)
%
12/31/09

 

Anchor Tenants
Current Lease Expiration/
Lease Option Expiration


 


 


 


 


 


 


Core Portfolio

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

 

 

 

 

 

 

 

 

 

 

 

 

Connecticut

 

 

 

 

 

 

 

 

 

 

 

 

 

239 Greenwich Avenue

 

Greenwich

 

1998 (A)

 

Fee

 

16,834

(2)

 

100

%

Restoration Hardware 2014/2024 Coach 2016/2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New Jersey

 

 

 

 

 

 

 

 

 

 

 

 

 

Elmwood Park Shopping Center

 

Elmwood Park

 

1998 (A)

 

Fee

 

149,491

 

 

92

%

A&P 2017/2052 Walgreen’s 2022/2062

A&P Shopping Plaza

 

Boonton

 

2006 (A)

 

Fee

 

62,908

 

 

92

%

A&P 2024/2069

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

 

 

 

 

 

 

 

 

 

 

 

 

Village Commons Shopping Center

 

Smithtown

 

1998 (A)

 

Fee

 

87,237

 

 

73

%

 

Branch Shopping Plaza

 

Smithtown

 

1998 (A)

 

LI (3)

 

125,751

 

 

95

%

A&P 2013/2028 CVS 2010/—

Amboy Road

 

Staten Island

 

2005 (A)

 

LI (3)

 

60,090

 

 

100

%

King Kullen 2028/—Duane Reade 2013/2018

Bartow Avenue

 

Bronx

 

2005 (C)

 

Fee

 

14,676

 

 

76

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pacesetter Park Shopping Center

 

Pomona

 

1999 (A)

 

Fee

 

96,353

 

 

89

%

Stop & Shop 2020/2040

West Shore Expressway

 

Staten Island

 

2007 (A)

 

Fee

 

55,000

 

 

100

%

LA Fitness 2021/2036

West 54th Street

 

Manhattan

 

2007 (A)

 

Fee

 

9,693

 

 

100

%

Stage Deli 2018/—

East 17th Street

 

Manhattan

 

2008 (A)

 

Fee

 

19,622

 

 

100

%

Barnes & Noble 2011/2016

Crossroads Shopping Center

 

White Plains

 

1998 (A)

 

JV (4)

 

310,742

 

 

94

%

A&P/Waldbaum’s 2012/2032 Kmart 2012/2032 B. Dalton 2012/2022 Modell’s 2014/2019 Pier 1 2012/—Home Goods 2018/2033

 

 

 

 

 

 

 

 


 



 

 

Total New York Region

 

 

 

 

 

 

 

1,008,397

 

 

92

%

 

 

 

 

 

 

 

 

 


 



 

 

20



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shopping Center

 

Location

 

Year
Constructed (C)
Acquired (A)

 

Ownership
Interest

 

GLA

 

Occupancy (1)
%
12/31/09

 

Anchor Tenants
Current Lease Expiration/
Lease Option Expiration


 


 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core Portfolio, continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New England

 

 

 

 

 

 

 

 

 

 

 

 

 

Connecticut

 

 

 

 

 

 

 

 

 

 

 

 

 

Town Line Plaza

 

Rocky Hill

 

1998 (A)

 

Fee

 

206,346

(5)

 

98

%

Stop & Shop 2024/2064 Wal-Mart(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Massachusetts

 

 

 

 

 

 

 

 

 

 

 

 

 

Methuen Shopping Center

 

Methuen

 

1998 (A)

 

Fee

 

130,021

 

 

100

%

Demoulas Market 2010/2015
Wal-Mart 2012/2052

Crescent Plaza

 

Brockton

 

1984 (A)

 

Fee

 

218,141

 

 

91

%

Supervalu 2012/2042
Home Depot 2021/2056

New York

 

 

 

 

 

 

 

 

 

 

 

 

 

New Loudon Center

 

Latham

 

1982 (A)

 

Fee

 

255,826

 

 

100

%

Price Chopper 2015/2035
Marshall’s 2014/2029
Bon Ton 2014/2034
Raymour and Flanigan 2019/2034
AC Moore 2014/2024

Rhode Island

 

 

 

 

 

 

 

 

 

 

 

 

 

Walnut Hill Plaza

 

Woonsocket

 

1998 (A)

 

Fee

 

284,717

 

 

96

%

Supervalu 2013/2028
Sears 2013/2033
CVS 2011/2014

Vermont

 

 

 

 

 

 

 

 

 

 

 

 

 

The Gateway Shopping Center

 

South Burlington

 

1999 (A)

 

Fee

 

101,784

 

 

94

%

Supervalu 2024/2053

 

 

 

 

 

 

 

 


 



 

 

Total New England Region

 

 

 

 

 

 

 

1,196,835

 

 

97

%

 

 

 

 

 

 

 

 

 


 



 

 

Midwest

 

 

 

 

 

 

 

 

 

 

 

 

 

Illinois

 

 

 

 

 

 

 

 

 

 

 

 

 

Hobson West Plaza

 

Naperville

 

1998 (A)

 

Fee

 

99,126

 

 

93

%

Garden Fresh Markets 2012/2032

Clark Diversey

 

Chicago

 

2006 (A)

 

Fee

 

19,265

 

 

92

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Indiana

 

 

 

 

 

 

 

 

 

 

 

 

 

Merrillville Plaza

 

Merrillville

 

1998 (A)

 

Fee

 

235,026

 

 

94

%

TJ Maxx 2019/2029
JC Penney 2013/2018
Office Max 2013/2028
Pier 1 2014
David’s Bridal 2010/2020
K&G Fashion 2017/2027

Michigan

 

 

 

 

 

 

 

 

 

 

 

 

 

Bloomfield Town Square

 

Bloomfield Hills

 

1998 (A)

 

Fee

 

232,181

 

 

87

%

TJ Maxx 2019/2029
Marshalls 2011/2026
Home Goods 2010/2020
Office Max 2010/2025

Ohio

 

 

 

 

 

 

 

 

 

 

 

 

 

Mad River Station

 

Dayton

 

1999 (A)

 

Fee

 

125,984

 

 

88

%

Babies ‘R’ Us 2010/2020 Office Depot 2010/—Pier 1 2010/—

 

 

 

 

 

 

 

 


 



 

 

Total Midwest Region

 

 

 

 

 

 

 

711,582

 

 

91

%

 

 

 

 

 

 

 

 

 


 



 

 

21



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shopping Center

 

Location

 

Year
Constructed (C)
Acquired (A)

 

Ownership
Interest

 

GLA

 

Occupancy (1)
%
12/31/09

 

Anchor Tenants
Current Lease Expiration/
Lease Option Expiration


 


 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core Portfolio, continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-Atlantic

 

 

 

 

 

 

 

 

 

 

 

 

 

New Jersey

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketplace of Absecon

 

Absecon

 

1998 (A)

 

Fee

 

104,718

 

 

65

%

Rite Aid 2020/2040

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delaware

 

 

 

 

 

 

 

 

 

 

 

 

 

Brandywine Town Center

 

Wilmington

 

2003 (A)

 

JV (7)

 

874,908

 

 

95

%

Michaels 2011/2026
Old Navy (The Gap) 2011/2016
PetSmart 2017/2042
Thomasville Furniture 2011/2021
Access Group 2015/2025
Bed, Bath & Beyond 2014/2029
Dick’s Sporting Goods 2013/2028
Lowe’s Home Centers 2018/2048
Regal Cinemas 2017/2037
Target 2018/2058
TransUnion Settlement 2013/2018
Lane Home Furnishings 2015/—
MJM Designer 2015/2035
Christmas Tree Shops 2028/2048

Market Square Shopping Center

 

Wilmington

 

2003 (A)

 

JV (7)

 

102,047

 

 

96

%

TJ Maxx 2011/2016
Trader Joe’s 2019/2034

Route 202 Shopping Center

 

Wilmington

 

2006 (C)

 

LI/JV (3) (7)

 

19,970

 

 

55

%

 

Pennsylvania

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark Plaza

 

Edwardsville

 

1968 (C)

 

LI/Fee (3)

 

216,401

 

 

81

%

Redner’s Markets 2018/2028
Kmart 2014/2049

Plaza 422

 

Lebanon

 

1972 (C)

 

Fee

 

156,279

 

 

100

%

Home Depot 2028/2058
Dunham’s 2016/2031

Route 6 Mall

 

Honesdale

 

1994 (C)

 

Fee

 

175,519

 

 

99

%

Kmart 2020/2070
Rite Aid 2011/2026 Fashion Bug 2016/—

Chestnut Hill

 

Philadelphia

 

2006 (A)

 

Fee (8)

 

40,570

 

 

68

%

Borders 2010/2020
TJ Maxx 2010/2020

Abington Towne Center

 

Abington

 

1998 (A)

 

Fee

 

216,369

(6)

 

99

%

Target (6)

 

 

 

 

 

 

 

 


 



 

 

Total Mid-Atlantic Region

 

 

 

 

 

 

 

1,906,781

 

 

93

%

 

 

 

 

 

 

 

 

 


 



 

 

Total Core Operating Properties

 

 

 

 

 

 

 

4,823,595

 

 

92.9

%

 

 

 

 

 

 

 

 

 


 



 

 

Properties under Redevelopment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2914 Third Avenue

 

Bronx

 

2006 (A)

 

Fee

 

42,400

 

 

79

%

Dr. J’s 2021/—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ledgewood Mall

 

Ledgewood

 

1983 (A)

 

Fee

 

517,151

 

 

86

%

Wal-Mart 2019/2049
Macy’s 2010/2025
The Sports Authority 2012/2037
Marshalls 2014/2034
Ashley Furniture 2010/2020
Barnes and Noble 2010/2035

 

 

 

 

 

 

 

 


 



 

 

Total Core Properties

 

 

 

 

 

 

 

5,383,146

 

 

92

%

 

 

 

 

 

 

 

 

 


 



 

 

22



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shopping Center

 

Location

 

Year
Constructed (C)
Acquired (A)

 

Ownership
Interest

 

GLA

 

Occupancy (1)
%
12/31/09

 

Anchor Tenants
Current Lease Expiration/
Lease Option Expiration


 


 


 


 


 


 


Opportunity Fund Portfolio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fund I Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

Ohio

 

 

 

 

 

 

 

 

 

 

 

 

 

Granville Centre

 

Columbus

 

2002 (A)

 

Fee

 

134,997

 

 

36

%

Lifestyle Family Fitness 2017/2027

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

 

 

 

 

 

 

 

 

 

 

 

 

Tarrytown Shopping Center

 

Tarrytown

 

2004 (A)

 

Fee

 

35,291

 

 

85

%

Walgreen’s 2080/—

VARIOUS REGIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

Kroger/Safeway Portfolio

 

Various

 

2003 (A)

 

JV

 

709,400

 

 

100

%

18 Kroger/Safeway Supermarkets Various

 

 

 

 

 

 

 

 


 



 

 

Total Fund I Properties

 

 

 

 

 

 

 

879,688

 

 

90

%

 

 

 

 

 

 

 

 

 


 



 

 

Fund II Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

Illinois

 

 

 

 

 

 

 

 

 

 

 

 

 

Oakbrook

 

Oakbrook

 

2005 (A)

 

LI (3)

 

112,000

 

 

100

%

Neiman Marcus 2011/2036

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

 

 

 

 

 

 

 

 

 

 

 

 

Liberty Avenue

 

New York

 

2005 (A)

 

LI/JV (3)

 

26,125

 

 

100

%

CVS 2032/2052

216th Street

 

New York

 

2005 (A)

 

JV

 

60,000

 

 

100

%

City of New York 2027/2032

Fordham Place

 

Bronx

 

2004(A)

 

JV

 

119,446

 

 

82

%

Best Buy 2019/2039
Sears 2023/2033

Pelham Manor Shopping Plaza

 

Pelham Manor

 

2004 (A)

 

LI/JV (3)

 

229,183

 

 

74

%

BJ’s Wholesale Club 2033/2053
Michaels 2013/2033

 

 

 

 

 

 

 

 


 



 

 

Total Fund II Properties

 

 

 

 

 

 

 

546,754

 

 

85

%

 

 

 

 

 

 

 

 

 


 



 

 

Fund III Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

 

 

 

 

 

 

 

 

 

 

 

 

Cortlandt Towne Center

 

Mohegan Lake

 

2009 (A)

 

 

 

641,797

 

 

85

%

Walmart 2018/2048
A&P 2022/2047
United Artists Theatre 2018/2038
Barnes & Noble 2013/2028
Officemax 2013/2028
Petsmart 2014/2034
Modell’s 2013/2023
Michaels 2017/2037
Old Navy 2014/2019
Marshalls 2014/2024
Best Buy 2017/2032

 

 

 

 

 

 

 

 


 



 

 

Total Fund III Properties

 

 

 

 

 

 

 

641,797

 

 

85

%

 

 

 

 

 

 

 

 

 


 



 

 

Total Opportunity Fund Operating Properties

 

 

 

 

 

2,068,239

 

 

87

%

 

 

 

 

 

 

 

 

 


 



 

 

Properties under Redevelopment

 

 

 

 

 

 

 

 

 

 

 

 

 

Sterling Heights Shopping

 

 

 

 

 

 

 

 

 

 

 

 

 

Center

 

Detroit

 

2004 (A)

 

JV (9)

 

154,835

 

 

60

%

 

Sherman Plaza

 

New York

 

2005 (A)

 

JV

 

 

 

 

 

CityPoint

 

Brooklyn

 

2007 (A)

 

JV

 

 

 

 

Target

Atlantic Ave

 

Brooklyn

 

2007 (A)

 

JV

 

 

 

 

 

Canarsie Plaza

 

Brooklyn

 

2007 (A)

 

JV

 

 

 

 

 

Westport

 

Westport

 

2007 (A)

 

JV

 

 

 

 

 

Sheeepshead Bay

 

Brooklyn

 

2007 (A)

 

JV

 

 

 

 

 

161st Street

 

Bronx

 

2005 (A)

 

JV

 

227,379

 

 

84

%

City of New York 2011/—

 

 

 

 

 

 

 

 


 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Redevelopment Properties

 

 

 

 

 

 

 

382,214

 

 

74

%

 

 

 

 

 

 

 

 

 


 



 

 

23


Notes:

 

 

(1)

Does not include space leased for which rent had not yet commenced as of December 31, 2009.

 

 

(2)

In addition to the 16,834 square feet of retail GLA, this property also has 21 apartments comprising 14,434 square feet.

 

 

(3)

We are a ground lessee under a long-term ground lease.

 

 

(4)

We have a 49% investment in this property.

 

 

(5)

Includes a 97,300 square foot Wal-Mart which is not owned by us.

 

 

(6)

Includes a 157,616 square foot Target Store that is not owned by us.

 

 

(7)

We have a 22% investment in this property.

 

 

(8)

Property consists of two buildings.

 

 

(9)

Fund I has a 50% interest in this property.

MAJOR TENANTS

No individual retail tenant accounted for more than 5.8% of minimum rents for the year ended December 31, 2009 or occupied more than 6.8% of total leased GLA as of December 31, 2009. The following table sets forth certain information for the 20 largest retail tenants based upon minimum rents in place as of December 31, 2009. The amounts below include our pro-rata share of GLA and annualized base rent for the Operating Partnership’s partial ownership interest in properties, including the Opportunity Funds (GLA and rent in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of Total
Represented by Retail Tenant

 

 

 

 

 

 

 

 

 

 

 

 


 

Retail Tenant

 

Number of
Stores in
Portfolio

 

Total GLA

 

Annualized Base
Rent (1)

 

Total Portfolio
GLA (2)

 

Annualized Base
Rent (2)

 


 


 


 


 


 


 

A&P (Waldbaum’s, Pathmark)

 

 

5

 

 

191,902

 

$

3,468,127

 

 

3.8

%

 

5.8

%

Supervalu (Shaw’s)

 

 

3

 

 

175,801

 

 

2,420,980

 

 

3.5

%

 

4.0

%

TJX Companies (T.J. Maxx, Marshalls, Homegoods)

 

 

10

 

 

255,843

 

 

2,254,281

 

 

5.1

%

 

3.8

%

Wal-Mart

 

 

3

 

 

235,996

 

 

1,713,410

 

 

4.7

%

 

2.9

%

Sears (Sears, Kmart)

 

 

5

 

 

341,708

 

 

1,653,320

 

 

6.8

%

 

2.8

%

Stage Deli

 

 

1

 

 

4,211

 

 

1,403,822

 

 

0.1

%

 

2.3

%

Ahold (Stop & Shop)

 

 

2

 

 

117,911

 

 

1,363,237

 

 

2.4

%

 

2.3

%

L.A. Fitness

 

 

1

 

 

55,000

 

 

1,265,000

 

 

1.1

%

 

2.1

%

Safeway

 

 

12

 

 

123,626

 

 

1,212,747

 

 

2.5

%

 

2.0

%

Barnes & Noble

 

 

4

 

 

43,260

 

 

1,146,102

 

 

0.9

%

 

1.9

%

Home Depot

 

 

2

 

 

211,003

 

 

1,099,996

 

 

4.2

%

 

1.8

%

Restoration Hardware

 

 

1

 

 

12,293

 

 

1,041,152

 

 

0.2

%

 

1.7

%

Walgreens

 

 

3

 

 

22,692

 

 

854,313

 

 

0.5

%

 

1.4

%

Sleepy’s

 

 

5

 

 

33,635

 

 

828,474

 

 

0.7

%

 

1.4

%

Price Chopper

 

 

1

 

 

77,450

 

 

802,105

 

 

1.6

%

 

1.3

%

BJ’s Wholesale Club

 

 

1

 

 

25,881

 

 

772,834

 

 

0.5

%

 

1.3

%

King Kullen

 

 

1

 

 

37,266

 

 

745,320

 

 

0.7

%

 

1.2

%

Macy’s

 

 

1

 

 

73,349

 

 

651,245

 

 

1.5

%

 

1.1

%

Kroger

 

 

6

 

 

77,383

 

 

626,822

 

 

1.5

%

 

1.0

%

Payless Shoesource

 

 

8

 

 

27,739

 

 

603,259

 

 

0.6

%

 

1.0

%

 

 



 



 



 



 



 

Total

 

 

75

 

 

2,143,949

 

$

25,926,546

 

 

42.9

%

 

43.1

%

 

 



 



 



 



 



 

Notes:

 

 

(1)

Base rents do not include percentage rents (except where noted), additional rents for property expense reimbursements, and contractual rent escalations due after December 31, 2009.

 

 

(2)

Represents total GLA and annualized base rent for our retail properties including the Operating Partnership’s pro-rata share of joint venture properties, including the Opportunity Funds.

24


LEASE EXPIRATIONS

The following table shows scheduled lease expirations for retail tenants in place as of December 31, 2009, assuming that none of the tenants exercise renewal options. (GLA and Annualized Base Rent in thousands):

Core Portfolio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annualized Base Rent (1)

 

GLA

 

 

 

 

 

 





Leases maturing in

 

Number of
Leases

 

Current Annual
Rent

 

Percentage of
Total

 

Square
Feet

 

Percentage
of Total

 













Month to Month

 

 

11

 

$

355

 

 

1

%

 

17

 

 

0

%

2010

 

 

62

 

 

6,013

 

 

9

%

 

543

 

 

12

%

2011

 

 

62

 

 

7,107

 

 

10

%

 

379

 

 

8

%

2012

 

 

52

 

 

6,468

 

 

9

%

 

555

 

 

12

%

2013

 

 

55

 

 

8,803

 

 

13

%

 

524

 

 

11

%

2014

 

 

57

 

 

7,842

 

 

12

%

 

556

 

 

12

%

2015

 

 

22

 

 

5,000

 

 

7

%

 

285

 

 

6

%

2016

 

 

12

 

 

1,940

 

 

3

%

 

123

 

 

3

%

2017

 

 

18

 

 

4,592

 

 

7

%

 

202

 

 

4

%

2018

 

 

25

 

 

7,013

 

 

10

%

 

403

 

 

9

%

Thereafter

 

 

47

 

 

13,055

 

 

19

%

 

1,128

 

 

23

%

 

 
















Total

 

 

423

 

$

68,188

 

 

100

%

 

4,715

 

 

100

%

 

 
















Opportunity Funds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annualized Base Rent (1)

 

GLA

 

 

 

 

 

 





Leases maturing in

 

Number of
Leases

 

Current Annual
Rent

 

Percentage of
Total

 

Square
Feet

 

Percentage
of Total

 













Month to Month

 

 

9

 

$

428

 

 

1

%

 

31

 

 

1

%

2010

 

 

6

 

 

239

 

 

1

%

 

13

 

 

1

%

2011

 

 

27

 (2)

 

11,172

 

 

31

%

 

980

 

 

47

%

2012

 

 

8

 

 

859

 

 

2

%

 

38

 

 

2

%

2013

 

 

6

 

 

2,086

 

 

6

%

 

95

 

 

5

%

2014

 

 

13

 

 

2,160

 

 

6

%

 

107

 

 

5

%

2015

 

 

4

 

 

221

 

 

1

%

 

9

 

 

0

%

2016

 

 

1

 

 

177

 

 

0

%

 

9

 

 

0

%

2017

 

 

5

 

 

1,583

 

 

4

%

 

97

 

 

5

%

2018

 

 

10

 

 

2,383

 

 

7

%

 

198

 

 

9

%

Thereafter

 

 

22

 

 

14,595

 

 

41

%

 

522

 

 

25

%

 

 
















Total

 

 

111

 

$

35,903

 

 

100

%

 

2,099

 

 

100

%

 

 
















Note:

 

 

(1)

Base rents do not include percentage rents, additional rents for property expense reimbursements, nor contractual rent escalations due after December 31, 2009.

(2)

Includes 18 Kroger/Safeway leases representing annualized base rent of $6,492 and GLA of 709 square feet. Reference is made to page 27 below for a discussion of the Kroger/Safeway portfolio.

25


GEOGRAPHIC CONCENTRATIONS

The following table summarizes our retail properties by region as of December 31, 2009. (GLA and Annualized Base Rent in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of Total
Represented by
Region

 

 

 

 

 

 

 

 

 

 

 


 

Region

 

GLA (1)

 

Occupied %
(2)

 

Annualized
Base
Rent (2)

 

Annualized Base
Rent per
Occupied Square
Foot

 

GLA

 

Annualized
Base Rent

 

 

 


 


 


 


 


 


 

Core Properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York Region (3)

 

 

1,051

 

 

92

%

$

24,453

 

$

25.42

 

 

20

%

 

36

%

New England

 

 

1,197

 

 

97

%

 

10,225

 

 

9.66

 

 

22

%

 

15

%

Midwest

 

 

711

 

 

91

%

 

8,666

 

 

13.45

 

 

13

%

 

13

%

Mid-Atlantic

 

 

2,424

 

 

91

%

 

24,844

 

 

12.19

 

 

45

%

 

36

%

 

 



 



 



 



 



 



 

Total core properties

 

 

5,383

 

 

92

%

$

68,188

 

$

14.50

 

 

100

%

 

100

%

 

 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Opportunity Funds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Midwest (4)

 

 

247

 

 

65

%

$

1,418

 

$

8.87

 

 

12

%

 

5

%

New York Region (5)

 

 

1,112

 

 

83

%

 

23,044

 

 

24.87

 

 

54

%

 

74

%

Various (Kroger/Safeway Portfolio) (6)

 

 

709

 

 

100

%

 

6,492

 

 

9.15

 

 

34

%

 

21

%

 

 



 



 



 



 



 



 

Total Opportunity Fund operating properties

 

 

2,068

 

 

87

%

$

30,954

 

$

17.23

 

 

100

%

 

100

%

 

 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redevelopment Properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Midwest (7)

 

 

155

 

 

61

%

$

563

 

$

6.02

 

 

41

%

 

11

%

New York Region (8)

 

 

227

 

 

84

%

 

4,385

 

 

23.09

 

 

59

%

 

89

%

 

 



 



 



 



 



 



 

Total Opportunity Fund redevelopment properties

 

 

382

 

 

74

%

$

4,948

 

$

17.46

 

 

100

%

 

100

%

 

 



 



 



 



 



 



 

Notes:

 

 

(1)

Property GLA includes a total of 255,000 square feet, which is not owned by us. This square footage has been excluded for calculating annualized base rent per square foot.

 

 

(2)

The above occupancy and rent amounts do not include space that is currently leased, but for which payment of rent had not commenced as of December 31, 2009.

 

 

(3)

We have a 49% interest in two partnerships, which together, own the Crossroads Shopping Center.

 

 

(4)

We have a 37.78% interest in future earnings and distributions from Fund I, which owns one property, and a 20% interest in Fund II, which owns one property.

 

 

(5)

We have a 37.78% interest in future earnings and distributions from Fund I, which owns one property, a 20% interest in Fund II, which has a 99.01% interest in four properties, and a 20% interest in Fund III, which owns one property.

 

 

 

 

(6)

Fund I portfolio of 18 triple-net, anchor-only leases with Kroger and Safeway supermarkets.

 

 

(7)

We have a 37.78% interest in future earnings and distributions from Fund I, which has a 50% interest in one property.

 

 

(8)

We have a 20% interest in Fund II, which has a 99.01% interest in one property.

26


SELF-STORAGE PORTFOLIO

During February 2008, through Fund III, we acquired a 95% controlling interest in a portfolio of eleven self-storage properties from Storage Post’s existing institutional investors for approximately $174.0 million. In addition, we, through Fund II, developed three self-storage properties. The fourteen self-storage property portfolio, located throughout New York and New Jersey, totals 1,126,708 net rentable square feet, and is operating at various stages of stabilization as detailed in the table below. The portfolio is operated by Storage Post, which is an equity partner.

 

 

 

 

 

 

 

 

 

 

 

 

Owner

 

Operating Properties

 

Location

 

Net
Rentable
Square
Feet

 

Occupancy
as of
December 31,
2009

 













 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stabilized

 

 

 

 

 

 

 

 

 

Fund III

 

Suffern

 

Suffern, New York

 

 

78,950

 

 

 

 

Fund III

 

Yonkers

 

Westchester, New York

 

 

100,523

 

 

 

 

Fund III

 

Jersey City

 

Jersey City, New Jersey

 

 

76,720

 

 

 

 

Fund III

 

Webster Ave

 

Bronx, New York

 

 

36,535

 

 

 

 

Fund III

 

Linden

 

Linden, New Jersey

 

 

84,235

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

Subtotal Stabilized

 

 

 

 

376,963

 

 

85.3

%

 

 

 

 

 

 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeveloped - in Lease-up

 

 

 

 

 

 

 

 

 

Fund III

 

Bruckner Blvd

 

Bronx, New York

 

 

89,448

 

 

 

 

Fund III

 

New Rochelle

 

Westchester, New York

 

 

42,203

 

 

 

 

Fund III

 

Long Island City

 

Queens, New York

 

 

134,816

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

Subtotal in Lease-up

 

 

 

 

266,467

 

 

70.9

%

 

 

 

 

 

 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Operating Properties

 

 

 

 

643,430

 

 

79.3

%

 

 

 

 

 

 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In Initial Lease-up

 

 

 

 

 

 

 

 

 

Fund III

 

Fordham Road

 

Bronx, New York

 

 

84,955

 

 

 

 

Fund III

 

Ridgewood

 

Queens, New York

 

 

88,839

 

 

 

 

Fund III

 

Lawrence

 

Lawrence, New York

 

 

97,693

 

 

 

 

Fund II

 

Liberty Avenue

 

Queens, New York

 

 

72,850

 

 

 

 

Fund II

 

Pelham Plaza

 

Pelham Manor, New York

 

 

62,020

 

 

 

 

Fund II

 

Atlantic Avenue

 

Brooklyn, New York

 

 

76,921

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

Subtotal in Initial Leaseup

 

 

 

 

483,278

 

 

51.7

%

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Self-Storage Portfolio

 

 

 

 

1,126,708

 

 

 

 

 

 

 

 

 

 



 

 

 

 

KROGER/SAFEWAY PORTFOLIO

At December 31, 2009, Fund I, together with an unaffiliated joint venture partner (“Kroger/Safeway JV”), owns interests, through two master leases with an unaffiliated entity (“Master Lessee”), in 18 triple-net Kroger and Safeway supermarket leases (“Operating Leases”) aggregating approximately 0.7 million square feet. There are six Kroger and twelve Safeway locations in eleven states averaging approximately 39,000 square feet at rents ranging from approximately $3.90 to $7.00 per square foot. The master leases expire in 2011 with the Master Lessee having the option of extending the term of either or both of the master leases. The Kroger/Safeway JV acquired its interest subject to long-term ground leases, which have a term in excess of 80 years inclusive of multiple renewal options. Although there is no obligation for the Kroger/Safeway JV to pay ground rent during the initial term of the master lease, to the extent it exercises an option to renew a ground lease for a property thereafter, it will be obligated to pay an average ground rent of approximately $2.00 per square foot.

The Kroger Co. purchased six locations comprising 277,700 square feet, or 28% of the portfolio, during February of 2009 for $14.6 million, resulting in a gain of approximately $5.6 million.

The initial Operating Leases expired during 2009. Options on these leases provide for extensions through 2049 at an average rent of approximately $5.00 per square foot upon the commencement of the initial option period during 2009. All of the remaining locations

27


exercised their extension options during 2009.

ITEM 3. LEGAL PROCEEDINGS.

We are involved in other various matters of litigation arising in the normal course of business. While we are unable to predict with any certainty the amounts involved, management is of the opinion that, when such litigation is resolved, our resulting net liability, if any, will not have a significant effect on our consolidated financial position or results of operations.

In September 2008, we, and certain of our subsidiaries, and other unrelated entities were named as defendants in an adversary proceeding brought by Mervyn’s LLC (“Mervyns”) in the United States Bankruptcy Court for the District of Delaware. This lawsuit involves five claims alleging fraudulent transfers. The first claim is that, at the time of the sale of Mervyns by Target Corporation to a consortium of investors including Acadia, a transfer of assets was made in an effort to defraud creditors. We believe this aspect of the case is without merit. There are four other claims relating to transfers of assets of Mervyns at various times. We believe there are substantial defenses to these claims. The matter is in the early stages of discovery and we believe the lawsuit will not have a material adverse effect on our results of operations or consolidated financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matter was submitted to a vote of security holders through the solicitation of proxies or otherwise during the fourth quarter of 2009.

28


PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCK MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

(a) Market Information, dividends and record holders of our Common Shares

The following table shows, for the period indicated, the high and low sales price for our Common Shares as reported on the New York Stock Exchange, and cash dividends declared during the two years ended December 31, 2009 and 2008:

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

High

 

Low

 

Dividend
Per Share

 


 


 


 


 

2009

 

 

 

 

 

 

 

 

 

 

March 31, 2009

 

$

14.69

 

$

8.50

 

$

0.2100

 

June 30, 2009

 

 

15.44

 

 

10.37

 

 

0.1800

 

September 30, 2009

 

 

16.51

 

 

11.55

 

 

0.1800

 

December 31, 2009

 

 

17.69

 

 

13.31

 

 

0.1800

 

2008

 

 

 

 

 

 

 

 

 

 

March 31, 2008

 

$

26.09

 

$

21.17

 

$

0.2100

 

June 30, 2008

 

 

26.78

 

 

22.54

 

 

0.2100

 

September 30, 2008

 

 

26.14

 

 

21.38

 

 

0.2100

 

December 31, 2008

 

 

25.23

 

 

9.04

 

 

0.7600

 

At March 1, 2010, there were 326 holders of record of our Common Shares.

We have determined for income tax purposes that the composition of dividends for 2009 are as follows. 95% of the total dividends distributed to shareholders represented ordinary income, 4% represented unrecaptured Section 1250 gain and 1% represented Section 1231 gain. The dividend for the quarter ended December 31, 2009 was paid on February 1, 2010 and will be taxable in 2010. Our cash flow is affected by a number of factors, including the revenues received from rental properties, our operating expenses, the interest expense on our borrowings, the ability of lessees to meet their obligations to us and unanticipated capital expenditures. Future dividends paid by us will be at the discretion of the Trustees and will depend on our actual cash flows, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Trustees deem relevant. In addition, we have the ability to pay dividends in cash, Common Shares or in any combination of cash (minimum 10%) and Common Shares (maximum 90%).

(b) Issuer purchases of equity securities

We have an existing share repurchase program that authorizes management, at its discretion, to repurchase up to $20.0 million of our outstanding Common Shares. The program may be discontinued or extended at any time and there is no assurance that we will purchase the full amount authorized. There were no Common Shares repurchased by us during the fiscal year ended December 31, 2009.

29


(c) Securities authorized for issuance under equity compensation plans

The following table provides information related to our 1999 Share Incentive Plan (the “1999 Plan”), 2003 Share Incentive Plan (the “2003 Plan”) and the 2006 Share Incentive Plan (the “2006 Plan”) as of December 31, 2009:

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity Compensation Plan Information

 

 

 

 

 

(a)

 

(b)

 

(c)

 

 

 

Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights

 

Weighted - average
exercise price of
outstanding options,
warrants and rights

 

Number of securities
remaining available
for future issuance under
equity compensation plans
(excluding securities
reflected in column a)

 

 

 


 


 


 

Equity compensation plans approved by security holders

 

 

159,283

 

$

18.04

 

 

1,037,444

(1)

Equity compensation plans not approved by security holders

 

 

 

 

 

 

 

 

 



 



 



 

Total

 

 

159,283

 

$

18.04

 

 

1,037,444

(1)

 

 



 



 



 

Notes:

 

 

(1)

The 1999 Plan authorizes the issuance of options equal to up to 8% of the total Common Shares outstanding from time to time on a fully diluted basis. However, not more than 4,000,000 of the Common Shares in the aggregate may be issued pursuant to the exercise of options and no participant may receive more than 5,000,000 Common Shares during the term of the 1999 Plan. The 2003 Plan authorizes the issuance of options equal to up to 4% of the total Common Shares outstanding from time to time on a fully diluted basis. However, no participant may receive more than 1,000,000 Common Shares during the term of the 2003 Plan. The 2006 Plan authorizes the issuance of a maximum number of 500,000 Common Shares. No participant may receive more than 500,000 Common Shares during the term of the 2006 Plan.

Remaining Common Shares available is as follows:

 

 

 

 

 

Outstanding Common Shares as of December 31, 2009

 

 

39,787,018

 

Outstanding OP Units as of December 31, 2009

 

 

657,786

 

 

 



 

Total Outstanding Common Shares and OP Units

 

 

40,444,804

 

 

 

 

 

 

12% of Common Shares and OP Units pursuant to the 1999 and 2003 Plans

 

 

4,853,376

 

Common Shares pursuant to the 2006 Plan

 

 

500,000

 

 

 



 

Total Common Shares available under equity compensation plans

 

 

5,353,376

 

 

 

 

 

 

Less: Issuance of Restricted Shares and LTIP Units Granted

 

 

(1,540,413

)

Issuance of Options Granted

 

 

(2,775,519

)

 

 



 

Number of Common Shares remaining available

 

 

1,037,444

 

 

 



 

(d) Share Price Performance Graph (1)

The following graph compares the cumulative total shareholder return for our Common Shares for the period commencing December 31, 2004 through December 31, 2009 with the cumulative total return on the Russell 2000 Index (“Russell 2000”), the NAREIT All Equity REIT Index (the “NAREIT”) and the SNL Shopping Center REITs (the “SNL”) over the same period. Total return values for the Russell 2000, the NAREIT, the SNL and the Common Shares were calculated based upon cumulative total return assuming the investment of $100.00 in each of the Russell 2000, the NAREIT, the SNL and our Common Shares on December 31, 2004, and assuming reinvestment of dividends. The shareholder return as set forth in the table below is not necessarily indicative of future performance.

30


Comparison of 5 Year Cumulative Total Return among Acadia Realty Trust, the Russell 2000, the NAREIT and the SNL:

(LINE GRAPH)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period Ended

 

 

 


 

Index

 

12/31/04

 

12/31/05

 

12/31/06

 

12/31/07

 

12/31/08

 

12/31/09

 














 

Acadia Realty Trust

 

 

100.00

 

 

127.93

 

 

164.70

 

 

175.34

 

 

106.43

 

 

132.98

 

Russell 2000

 

 

100.00

 

 

104.55

 

 

123.76

 

 

121.82

 

 

80.66

 

 

102.58

 

NAREIT All Equity REIT Index

 

 

100.00

 

 

112.16

 

 

151.49

 

 

127.72

 

 

79.53

 

 

101.79

 

SNL REIT Retail Shopping Ctr Index

 

 

100.00

 

 

109.12

 

 

146.88

 

 

120.93

 

 

72.81

 

 

71.87

 


 

 

 


 

(1) The information is this section is not “soliciting material,” is not deemed “filed” with the SEC, and is not to be incorporated by reference into any filing of the Trust under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth, on a historical basis, our selected financial data. This information should be read in conjunction with our audited Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing elsewhere in this Form 10-K. Funds from operations (“FFO”) amounts for the year ended December 31, 2009 have been adjusted as set forth in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Reconciliation of Net Income to Funds from Operations and Adjusted Funds From Operations.”

31



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years ended December 31,

 

 

 

 

(dollars in thousands, except per share amounts)

 

2009

 

2008

 

2007

 

2006

 

2005

 

OPERATING DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

147,345

 

$

137,936

 

$

95,092

 

$

89,335

 

$

87,592

 

Operating expenses

 

 

71,141

 

 

61,390

 

 

46,265

 

 

40,525

 

 

36,250

 

Interest expense

 

 

32,154

 

 

28,893

 

 

24,564

 

 

19,929

 

 

16,166

 

Depreciation and amortization

 

 

37,218

 

 

33,334

 

 

25,114

 

 

23,016

 

 

22,375

 

Gain on sale of land

 

 

 

 

763

 

 

 

 

 

 

 

Equity in (losses) earnings of unconsolidated partnerships

 

 

(5,297

)

 

19,906

 

 

6,619

 

 

2,559

 

 

21,280

 

Impairment of notes receivable

 

 

(1,734

)

 

(4,392

)

 

 

 

 

 

 

Gain on extinguishment of debt

 

 

7,057

 

 

1,523

 

 

 

 

 

 

 

Income tax provision (benefit)

 

 

1,541

 

 

3,362

 

 

297

 

 

(508

)

 

2,140

 

 

 















 

Income from continuing operations

 

 

5,317

 

 

28,757

 

 

5,471

 

 

8,932

 

 

31,941

 

Income from discontinued operations

 

 

7,389

 

 

8,680

 

 

7,246

 

 

25,223

 

 

2,657

 

Income from extraordinary item (1)

 

 

 

 

 

 

27,844

 

 

 

 

 

 

 















 

Net income

 

 

12,706

 

 

37,437

 

 

40,561

 

 

34,155

 

 

34,598

 

 

 















 

Loss (income) attributable to noncontrolling interests in subsidiaries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

 

23,282

 

 

(11,630

)

 

9,558

 

 

5,594

 

 

(13,650

)

Discontinued operations

 

 

(4,855

)

 

(739

)

 

(606

)

 

(829

)

 

(322

)

Extraordinary item

 

 

 

 

 

 

(24,167

)

 

 

 

 

 

 















 

Net loss (income) attributable to noncontrolling interests in subsidiaries

 

 

18,427

 

 

(12,369

)

 

(15,215

)

 

4,765

 

 

(13,972

)

 

 















 

Net income attributable to Common Shareholders

 

$

31,133

 

$

25,068

 

$

25,346

 

$

38,920

 

$

20,626

 

 

 















 

Supplemental Information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations attributable to Common Shareholders

 

$

28,599

 

$

17,127

 

$

15,029

 

$

14,526

 

$

18,291

 

Income from discontinued operations attributable to Common Shareholders

 

 

2,534

 

 

7,941

 

 

6,640

 

 

24,394

 

 

2,335

 

Income from extraordinary item attributable to Common Shareholders

 

 

 

 

 

 

3,677

 

 

 

 

 

 

 















 

Net income attributable to Common Shareholders

 

$

31,133

 

$

25,068

 

$

25,346

 

$

38,920

 

$

20,626

 

 

 















 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.75

 

$

0.51

 

$

0.45

 

$

0.43

 

$

0.55

 

Income from discontinued operations

 

 

0.07

 

 

0.23

 

 

0.20

 

 

0.72

 

 

0.07

 

Income from extraordinary item

 

 

 

 

 

 

0.11

 

 

 

 

 

 

 















 

Basic earnings per share

 

$

0.82

 

$

0.74

 

$

0.76

 

$

1.15

 

$

0.62

 

 

 















 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.75

 

$

0.50

 

$

0.44

 

$

0.42

 

$

0.55

 

Income from discontinued operations

 

 

0.07

 

 

0.23

 

 

0.19

 

 

0.71

 

 

0.07

 

Income from extraordinary item

 

 

 

 

 

 

0.11

 

 

 

 

 

 

 















 

Diluted earnings per share

 

$

0.82

 

$

0.73

 

$

0.74

 

$

1.13

 

$

0.62

 

 

 















 

Weighted average number of Common Shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- basic

 

 

38,005

 

 

33,813

 

 

33,600

 

 

33,789

 

 

33,236

 

- diluted

 

 

38,242

 

 

34,267

 

 

34,282

 

 

34,440

 

 

33,501

 

Cash dividends declared per Common Share

 

$

0.7500

 

$

0.8951

(3)

$

1.0325

 

$

0.7550

 

$

0.7025

 

BALANCE SHEET DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate before accumulated depreciation

 

$

1,207,406

 

$

1,091,995

 

$

817,620

 

$

613,828

 

$

634,871

 

Total assets

 

 

1,382,464

 

 

1,291,383

 

 

998,783

 

 

851,396

 

 

841,204

 

Total mortgage indebtedness

 

 

732,287

 

 

653,543

 

 

399,997

 

 

315,147

 

 

372,957

 

Total convertible notes payable

 

 

47,910

 

 

100,403

 

 

105,790

 

 

90,256

 

 

 

Total Common Shareholders’ equity

 

 

312,185

 

 

227,722

 

 

249,717

 

 

250,567

 

 

220,576

 

Noncontrolling interests in subsidiaries

 

 

220,292

 

 

214,506

 

 

171,111

 

 

113,737

 

 

146,290

 

Total equity

 

 

532,477

 

 

442,228

 

 

420,828

 

 

364,304

 

 

366,866

 

OTHER:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Funds from Operations, adjusted for extraordinary item (1) (2)

 

 

49,613

 

 

37,964

 

 

42,094

 

 

39,860

 

 

35,842

 

Cash flows provided by (used in):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

 

47,462

 

 

66,517

 

 

105,294

 

 

39,627

 

 

50,239

 

Investing activities

 

 

(123,380

)

 

(302,265

)

 

(208,998

)

 

(58,890

)

 

(135,470

)

Financing activities

 

 

83,035

 

 

199,096

 

 

87,476

 

 

68,359

 

 

159,425

 


 

 

Notes:

 

 

(1)

The extraordinary item only relates to 2007 and represents the Company’s share of an extraordinary gain from its private-equity investment in Albertson’s. The Company considers its private-equity investments to be investments in operating businesses as opposed to real estate. Accordingly, all gains and losses from private-equity investments are included in FFO, which management believes provides a more accurate reflection of the operating performance of the Company.

 

 

(2)

The Company considers funds from operations (“FFO”) as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) to be an appropriate supplemental disclosure of operating performance for an equity REIT due to its widespread acceptance and use within the REIT and analyst communities. FFO is presented to assist investors in analyzing the performance of the Company. It is helpful as it excludes various items included in net

32



 

 

 

income that are not indicative of the operating performance, such as gains (losses) from sales of depreciated property and depreciation and amortization. However, the Company’s method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REIT’s. FFO does not represent cash generated from operations as defined by generally accepted accounting principles (“GAAP”) and is not indicative of cash available to fund all cash needs, including distributions. It should not be considered as an alternative to net income for the purpose of evaluating the Company’s performance or to cash flows as a measure of liquidity. Consistent with the NAREIT definition, the Company defines FFO as net income (computed in accordance with GAAP), excluding gains (losses) from sales of depreciated property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.

 

 

(3)

In addition to the $0.8951 cash dividends declared in 2008, the Company declared a Common Share dividend of $0.4949.

ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

OVERVIEW

As of December 31, 2009, we operated 79 properties, which we own or have an ownership interest in, within our Core Portfolio or within our three Opportunity Funds. Our Core Portfolio consists of those properties either 100% owned by, or partially owned through joint venture interests by the Operating Partnership, or subsidiaries thereof, not including those properties owned through our Opportunity Funds. These 79 properties consist of commercial properties, primarily neighborhood and community shopping centers, self-storage and mixed-use properties with a retail component. The properties we operate are located primarily in the Northeast, Mid-Atlantic and Midwestern regions of the United States. Excluding two properties under redevelopment, there are 32 properties in our Core Portfolio totaling approximately 4.8 million square feet. Fund I has 21 properties comprising approximately 1.0 million square feet. Fund II has 10 properties, seven of which (representing 1.2 million square feet) are currently operating, one is under construction, and two are in design phase. Three of the properties also include self-storage facilities. We expect the Fund II portfolio will have approximately 2.0 million square feet upon completion of all current construction and anticipated redevelopment activities. Fund III has 14 properties totaling approximately 1.8 million square feet, of which 11 locations representing 0.9 million net rentable square feet are self-storage facilities. The majority of our operating income is derived from rental revenues from these 79 properties, including recoveries from tenants, offset by operating and overhead expenses. As our RCP Venture invests in operating companies, we consider these investments to be private-equity style, as opposed to real estate, investments. Since these are not traditional investments in operating rental real estate but investments in operating businesses, the Operating Partnership invests in these through a taxable REIT subsidiary (“TRS”).

Our primary business objective is to acquire and manage commercial retail properties that will provide cash for distributions to shareholders while also creating the potential for capital appreciation to enhance investor returns. We focus on the following fundamentals to achieve this objective:

 

 

Own and operate a Core Portfolio of community and neighborhood shopping centers and main street retail located in markets with strong demographics and generate internal growth within the Core Portfolio through aggressive redevelopment, re-anchoring and/or leasing activities

 

 

Maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth

 

 

Generate external growth through an opportunistic yet disciplined acquisition program. We target transactions with high inherent opportunity for the creation of additional value through redevelopment and leasing and/or transactions requiring creative capital structuring to facilitate the transactions. These transactions may include other types of commercial real estate besides those which we invest in through our Core Portfolio. These may also include joint ventures with private equity investors for the purpose of making investments in operating retailers with significant embedded value in their real estate assets

BUSINESS OUTLOOK

The U.S. economy is currently in a post recessionary period, which has resulted in a significant decline in retail sales due to reduced consumer spending. Many financial and economic analysts are predicting that this period will extend beyond 2009. Although the occupancy and net operating income within our portfolio has not been materially adversely affected through December 31, 2009, should retailers continue to experience deteriorating sales performance, the likelihood of additional tenant bankruptcy filings may increase, which would negatively impact our results of operations. In addition to the impact on retailers, this period has had an unprecedented impact on the U.S. credit markets. Traditional sources of financing, such as the commercial-mortgage backed security market, have become severely curtailed, if not eliminated. If these conditions continue, our ability to finance new acquisitions or refinance existing debts as they mature will be adversely affected. Accordingly, our ability to generate external growth in income, as well as maintain existing operating income, could be limited.

See the “Item 1A. Risk Factors,” including the discussions under the headings “The current economic environment, while improving, may cause us to lose tenants and may impair our ability to borrow money to purchase properties, refinance existing debt or finance our current redevelopment projects” and “The bankruptcy of, or a downturn in the business of, any of our major tenants or a significant number of our smaller tenants may adversely affect our cash flows and property values.”

33


RESULTS OF OPERATIONS

Reference is made to Note 3 to the Notes to Consolidated Financial Statements beginning on page F-1 of this Form 10-K for an overview of our five reportable segments.

Comparison of the year ended December 31, 2009 (“2009”) to the year ended December 31, 2008 (“2008”)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues 

 

2009

 

2008

 

 

 


 


 

 

 

 

 

 

 

(dollars in millions)

 

Core
Portfolio

 

Opportunity
Funds

 

Self-
Storage
Portfolio

 

Notes
Receivable
and Other

 

Core
Portfolio

 

Opportunity
Funds

 

Self-
Storage
Portfolio

 

Notes
Receivable
and Other

 

 

 


 


 


 


 


 


 


 


 

Minimum rents

 

$

50.7

 

$

35.7

 

$

9.8

 

$

 

$

50.4

 

$

22.4

 

$

4.8

 

$

 

Percentage rents

 

 

0.5

 

 

 

 

 

 

 

 

0.5

 

 

 

 

 

 

 

Expense reimbursements

 

 

13.7

 

 

7.2

 

 

 

 

 

 

14.1

 

 

2.7

 

 

 

 

 

Lease termination income

 

 

2.8

 

 

 

 

 

 

 

 

 

 

24.0

 

 

 

 

 

Other property income

 

 

0.2

 

 

1.4

 

 

1.3

 

 

 

 

0.3

 

 

(0.6

)

 

0.8

 

 

0.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management fee income (1)

 

 

 

 

 

 

 

 

2.0

 

 

 

 

 

 

 

 

3.4

 

Interest income

 

 

 

 

 

 

 

 

20.3

 

 

 

 

 

 

 

 

14.5

 

Other income

 

 

1.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 



 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

69.6

 

$

44.3

 

$

11.1

 

$

22.3

 

$

65.3

 

$

48.5

 

$

5.6

 

$

18.5

 

 

 



 



 



 



 



 



 



 



 


 

 

Note:

 

(1)

Includes fees earned by the Company as general partner/managing member of the Opportunity Funds that are eliminated in consolidation. The Operating Partnership’s share of these fees are recognized as a reduction in noncontrolling interests. The net balance reflected herein represents third party fees which are not eliminated in consolidation.

The increase in minimum rents in the Opportunity Funds primarily relates to additional rents following the acquisition of Cortlandt Towne Center (“2009 Fund Acquisition”) of $7.5 million and additional leases at Fordham Place and Pelham Manor Shopping Plaza commencing in 2009 (“Fordham and Pelham”). The increase in minimum rents in the Storage Portfolio relates to the February 2008 acquisition of the Storage Post Portfolio and the Company’s election in 2008 to report the Storage Portfolio activity one month in arrears to enhance the accuracy and timeliness of reporting. Accordingly, the year ended December 31, 2008 reflects nine months of activity while the year ended December 31, 2009 reflects twelve months of activity (“Storage Acquisition”). In addition, the increase in minimum rents in the Storage Portfolio was also attributable to the full amortization of acquired lease intangible cost during 2009.

Expense reimbursements in the Opportunity Funds increased for both real estate taxes and common area maintenance as a result of the 2009 Fund Acquisition as well as Fordham and Pelham.

Lease termination income in the Core Portfolio for 2009 relates to a termination fee earned from Acme at Absecon Marketplace. Lease termination income in the Opportunity Funds for 2008 relates to a termination fee earned, net of costs, from Home Depot at Canarsie Plaza.

Management fee income decreased primarily as a result of lower fees earned of $0.9 million from the CityPoint development project and lower fees from our Klaff management contracts.

The increase in interest income was the result of higher interest earning assets in 2009, primarily from new notes/mezzanine financing investments originated during the second half of 2008.

Other income of $1.7 million in the Core Portfolio was the result of the Company’s retention of a sales contract deposit forfeited during 2009.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses 

 

2009

 

2008

 

 

 


 


 

 

 

 

 

 

 

(dollars in millions)

 

Core
Portfolio

 

Opportunity
Funds

 

Self-
Storage
Portfolio

 

Notes
Receivable
and Other

 

Core
Portfolio

 

Opportunity
Funds

 

Self-
Storage
Portfolio

 

Notes
Receivable
and Other

 

 

 


 


 


 


 


 


 


 


 

Property operating

 

$

12.1

 

$

10.2

 

$

8.7

 

$

(1.2

)

$

12.2

 

$

7.0

 

$

5.3

 

$

(0.4

)

Real estate taxes

 

 

9.3

 

 

5.3

 

 

2.2

 

 

 

 

8.8

 

 

2.0

 

 

1.3

 

 

 

General and administrative

 

 

24.0

 

 

13.5

 

 

0.1

 

 

(15.6

)

 

26.0

 

 

16.1

 

 

0.1

 

 

(17.6

)

Depreciation and amortization

 

 

17.2

 

 

17.1

 

 

4.4

 

 

(1.5

)

 

20.3

 

 

10.0

 

 

3.0

 

 

 

Abandonment of project costs

 

 

 

 

2.5

 

 

 

 

 

 

 

 

0.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reserve for notes receivable

 

 

 

 

 

 

 

 

1.7

 

 

 

 

 

 

 

 

4.4

 

 

 



 



 



 



 



 



 



 



 

Total operating expenses

 

$

62.6

 

$

48.6

 

$

15.4

 

$

(16.6

)

$

67.3

 

$

35.7

 

$

9.7

 

$

(13.6

)

 

 



 



 



 



 



 



 



 



 

34


The increase in property operating expenses in the Opportunity Funds was primarily the result of the 2009 Fund Acquisition as well as Fordham and Pelham. The increase in property operating expenses in the Storage Portfolio relates to the Storage Acquisition.

The increase in real estate taxes in the Opportunity Funds was primarily attributable to the 2009 Fund Acquisition. The increase in real estate taxes in the Storage Portfolio relates to the Storage Acquisition.

The decrease in general and administrative expense in the Core Portfolio was primarily attributable to reduced compensation expense following staff reductions in the second half of 2008 and in the first half of 2009. The decrease in general and administrative expense in the Opportunity Funds relates to the reduction in Promote expense attributable to Fund I and Mervyns I. The increase in general and administrative expense in Other primarily relates to the reduction in Fund I and Mervyns I Promote expense eliminated for consolidated financial statement presentation purposes.

Depreciation expense in the Core Portfolio decreased $2.4 million in 2009. This was principally a result of increased depreciation expense in 2008 resulting from the write-down of tenant improvements at two properties attributable to the bankruptcy of Circuit City. Amortization expense in the Core Portfolio decreased $0.7 million primarily as a result of lower amortization expense in 2009 associated with the Klaff management contracts. Depreciation expense increased $5.0 million and amortization expense increased $2.1 million in the Opportunity Funds primarily due to the 2009 Fund Acquisition as well as Fordham and Pelham. Depreciation expense and amortization expense increased $1.4 million in the Storage Portfolio primarily as a result of the Storage Acquisition as previously discussed. Depreciation and amortization expense decreased $1.5 million in Other as a result of depreciation associated with the elimination of capitalizable costs within the consolidated group.

The $2.5 million abandonment of project costs in 2009 is attributable to the Company’s determination that it most likely will not participate in a specific future development project.

The reserve for notes receivable of $1.7 million in 2009 relates to the establishment of a reserve for a notes receivable due to the loss of an anchor tenant at the underlying property. The 2008 reserve for notes receivable of $4.4 million relates to a mezzanine loan.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

2009

 

2008

 

 

 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(dollars in millions)

 

Core
Portfolio

 

Opportunity
Funds

 

Self-
Storage
Portfolio

 

Notes
Receivable
and Other

 

Core
Portfolio

 

Opportunity
Funds

 

Self-
Storage
Portfolio

 

Notes
Receivable
and Other

 

 

 


 








 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in (losses) earnings of unconsolidated affiliates

 

$

0.7

 

$

(2.2

)

$

 

$

 

$

 

$

19.9

 

$

 

$

 

Unconsolidated affiliate impairment reserve

 

 

 

 

(3.8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(18.7

)

 

(8.4

)

 

(5.0

)

 

 

 

(19.8

)

 

(5.5

)

 

(3.6

)

 

 

Gain on debt extinguishment

 

 

7.1

 

 

 

 

 

 

 

 

1.5

 

 

 

 

 

 

 

Gain on sale of land

 

 

 

 

 

 

 

 

 

 

0.8

 

 

 

 

 

 

 

Income tax provision

 

 

(1.5

)

 

 

 

 

 

 

 

(3.4

)

 

 

 

 

 

 

Income from discontinued operations

 

 

 

 

 

 

 

 

7.4

 

 

 

 

 

 

 

 

8.7

 

Loss (income) attributable to noncontrolling interests in subsidiaries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- Continuing operations

 

 

(0.4

)

 

22.3

 

 

(0.5

)

 

1.9

 

 

0.2

 

 

(15.8

)

 

0.4

 

 

3.6

 

- Discontinued operations

 

 

 

 

 

 

 

 

(4.9

)

 

 

 

 

 

 

 

(0.7

)

Equity in (losses) earnings of unconsolidated affiliates in the Opportunity Funds decreased primarily as a result of our pro-rata share of gains from the sale of Mervyns locations in 2008 of $10.4 million, a decrease in distributions in excess of basis from our Albertson’s investment of $7.9 million in 2009 and our pro-rata share of gain from the sale of the Haygood Shopping Center of $3.4 million in 2008.

The $3.8 million unconsolidated affiliate impairment reserve in 2009 relates to a Fund I unconsolidated investment.

Interest expense in the Core Portfolio decreased $1.1 million in 2009. This was primarily the result of lower interest expense related to the purchase of the Company’s convertible notes payable offset by a $0.7 million write-off of the unamortized premium related to the repayment of a mortgage note payable during 2008. Interest expense in the Opportunity Funds increased $2.9 million in 2009. This was primarily attributable to an increase of $4.2 million due to higher average outstanding borrowings in 2009 and $0.6 million of lower capitalized interest in 2009. These increases were offset by a $2.2 million decrease related to lower average interest rates in

35


2009. Interest expense in the Storage Portfolio increased $1.4 million in 2009. This was primarily due to an increase of $0.9 million due to higher average outstanding borrowings in 2009 as well as an increase of $0.8 million due to higher interest rates in 2009.

The gain on debt extinguishment of $7.1 million in 2009 and $1.5 million in 2008 is attributable to the purchase of our convertible debt at a discount.

The gain on sale of land of $0.8 million in the Core Portfolio relates to a land sale at Bloomfield Town Square in 2008.

The variance in the income tax provision in the Core Portfolio primarily relates to income taxes at the TRS level for our share of income/gains from Mervyns and Albertson’s in 2008.

Income from discontinued operations represents activity related to properties sold in 2009 and 2008.

Loss (income) attributable to noncontrolling interests in subsidiaries - Continuing operations for the Opportunity Funds primarily represents the noncontrolling interests’ share of all Opportunity Fund activity and ranges from a 77.8% interest in Fund I to an 80.1% interest in Fund III. The variance between 2009 and 2008 represents the noncontrolling interests’ share of all the Opportunity Funds variances discussed above. Loss (income) attributable to noncontrolling interests in subsidiaries - Continuing operations in Other relates to the noncontrolling interests’ share of capitalized construction, leasing and legal fees.

Loss (income) attributable to noncontrolling interests in subsidiaries - Discontinued operations primarily represents the noncontrolling interests’ share of activity related to properties sold in 2009 and 2008.

Comparison of the year ended December 31, 2008 (“2008”) to the year ended December 31, 2007 (“2007”)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

2008

 

2007

 

 

 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(dollars in millions)

 

Core
Portfolio

 

Opportunity
Funds

 

Self-
Storage
Portfolio

 

Notes
Receivable
and Other

 

Core
Portfolio

 

Opportunity
Funds

 

Self-
Storage
Portfolio

 

Notes
Receivable
and Other

 

 

 


 








 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Minimum rents

 

$

50.4

 

$

22.4

 

$

4.8

 

$

 

$

48.6

 

$

17.0

 

$

0.3

 

$

 

Percentage rents

 

 

0.5

 

 

 

 

 

 

 

 

0.5

 

 

 

 

 

 

 

Expense reimbursements

 

 

14.1

 

 

2.7

 

 

 

 

 

 

12.4

 

 

0.9

 

 

 

 

 

Lease termination income

 

 

 

 

24.0

 

 

 

 

 

 

 

 

 

 

 

 

 

Other property income

 

 

0.3

 

 

(0.6

)

 

0.8

 

 

0.6

 

 

0.8

 

 

0.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management fee income (1)

 

 

 

 

 

 

 

 

3.4

 

 

 

 

 

 

 

 

4.1

 

Interest income

 

 

 

 

 

 

 

 

14.5

 

 

 

 

 

 

 

 

10.3

 

Other income

 

 

 

 

 

 

 

 

 

 

0.2

 

 

 

 

 

 

 

 

 



 



 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

65.3

 

$

48.5

 

$

5.6

 

$

18.5

 

$

62.5

 

$

18.0

 

$

0.3

 

$

14.4

 

 

 



 



 



 



 



 



 



 



 

Note:

 

 

(1)

Includes fees earned by the Company as general partner/managing member of the Opportunity Funds that are eliminated in consolidation. The Operating Partnership’s share of these fees are recognized as a reduction in noncontrolling interests. The net balance reflected herein represents third party fees which are not eliminated in consolidation.

The increase in minimum rents in the Core Portfolio was attributable to additional rents following the acquisitions of 200 West 54th Street, 145 East Service Road and East 17th Street (“2007/2008 Core Acquisitions”) of $1.8 million. The increase in rents in the Opportunity Funds primarily relates to additional rents following the acquisition of 125 Main Street (“2007 Fund Acquisitions”) of $0.5 million, 216th Street being placed in service October 1, 2007 of $2.1 million, and Pelham Manor Shopping Plaza and Fordham Plaza being partially placed in service in 2008. The increase in minimum rents in the Storage Portfolio relates to the acquisition of the Storage Post Portfolio (“2008 Storage Acquisition”).

Expense reimbursements in the Core Portfolio increased for both real estate taxes and common area maintenance (“CAM”). Real estate tax reimbursements increased $0.7 million in the Core Portfolio as a result of the 2007/2008 Core Acquisitions as well as general increases in real estate taxes experienced across the Core Portfolio in 2008. CAM expense reimbursements in the Core Portfolio increased $1.0 million. As a result of the completion of a multi-year review of CAM billings during 2007 and the resolution of the majority of all outstanding CAM billing issues with our tenants, 2007 CAM expense reimbursements were adversely impacted by charges related to this settlement and the related accrual adjustments totaling $1.0 million. The increase in expense reimbursements in the Opportunity Funds relates primarily to the billing in 2008 of previous year’s operating expenses at 161st Street for $1.2 million and the billing of previous year’s utility charges to an anchor tenant for $0.3 million.

36


Lease termination income in the Opportunity Funds for 2008 relates to a termination fee earned, net of costs, from Home Depot at Canarsie Plaza.

The increase in interest income was the result of higher interest earning assets in 2008, primarily from new notes/mezzanine financing investments.

Operating Expenses 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2008

 

2007

 

 

 


 


 

(dollars in millions)

 

Core
Portfolio

 

Opportunity
Funds

 

Self-
Storage
Portfolio

 

Notes
Receivable
and Other

 

Core
Portfolio

 

Opportunity
Funds

 

Self-
Storage
Portfolio

 

Notes
Receivable
and Other

 

 

 


 


 


 


 


 


 


 


 

Property operating

 

$

12.2

 

$

7.0

 

$

5.3

 

$

(0.4

)

$

10.4

 

$

3.0

 

$

0.7

 

$

(0.3

)

Real estate taxes

 

 

8.8

 

 

2.0

 

 

1.3

 

 

 

 

8.1

 

 

1.3

 

 

 

 

 

General and administrative

 

 

26.0

 

 

16.1

 

 

0.1

 

 

(17.6

)

 

25.1

 

 

13.0

 

 

 

 

(15.2

)

Depreciation and amortization

 

 

20.3

 

 

10.0

 

 

3.0

 

 

 

 

17.4

 

 

7.4

 

 

0.3

 

 

 

Abandonment of project costs

 

 

 

 

0.6

 

 

 

 

 

 

 

 

0.1

 

 

 

 

 

Reserve for notes receivable

 

 

 

 

 

 

 

 

4.4

 

 

 

 

 

 

 

 

 

 

 



 



 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

$

67.3

 

$

35.7

 

$

9.7

 

$

(13.6

)

$

61.0

 

$

24.8

 

$

1.0

 

$

(15.5

)

 

 



 



 



 



 



 



 



 



 

The increase in property operating expenses in the Core Portfolio relates to additional reserves for tenant receivables, including straight line rent. The increase in property operating expenses in the Opportunity Funds was attributable to 216th Street being placed in service October 1, 2007 of $0.6 million, allocated property operating expenses related to Pelham Manor Shopping Plaza and Fordham Plaza being partially placed in service in 2008 of $2.3 million as well as additional reserves for tenant receivables, which was primarily for straight line rent receivables. The increase in property operating expenses in the Storage Portfolio relates to the 2008 Storage Acquisition.

The increase in real estate taxes in the Core Portfolio was due to the 2007/2008 Core Acquisitions as well as general increases in real estate taxes experienced across the Core Portfolio. The increase in real estate taxes in the Opportunity Funds was primarily attributable to allocated real estate taxes related to Pelham Manor Shopping Plaza and Fordham being partially placed in service in 2008. The increase in real estate taxes in the Storage Portfolio relates to the acquisition of the 2008 Storage Acquisition.

The increase in general and administrative expense in the Core Portfolio was primarily attributable to increased compensation expense of $1.1 million for additional personnel hired in the second half of 2007 and in 2008 as well as increases in existing employee salaries. In addition, there was an increase of $0.3 million for other overhead expenses following the expansion of our infrastructure related to increased activity in Opportunity Fund assets and asset management services. The increase in general and administrative expense in the Opportunity Funds primarily related to additional Fund III asset management fees of $2.8 million in 2008 as well as an increase in other professional fees. These increases were offset by a $0.8 million decrease in Promote expense related to Fund I and Mervyns I. The decrease in general and administrative in “Other” primarily relates to the elimination of the Fund III asset management fees offset by the elimination of the Fund I and Mervyns I Promote expense for consolidated financial statement presentation purposes.

Depreciation expense in the Core Portfolio increased $2.9 million in 2008. This was principally a result of increased depreciation expense following the full depreciation of tenant improvements at two properties following the bankruptcy of Circuit City of $2.4 million and increased depreciation expense resulting from the 2007/2008 Core Acquisitions. The increase in depreciation and amortization expense for the Opportunity Funds is primarily related to 216th Street being placed in service October 1, 2007 as well as Pelham Manor Shopping Plaza and Fordham Plaza being partially placed in service in 2008. The increase in depreciation and amortization in the Storage Portfolio relates to the acquisition of the 2008 Storage Acquisition.

The reserve for notes receivable of $4.4 million in 2008 relates to the impairment of a mezzanine loan.

37


Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2008

 

2007

 

 

 


 


 

(dollars in millions)

 

Core
Portfolio

 

Opportunity
Funds

 

Self-
Storage
Portfolio

 

Notes
Receivable
and Other

 

Core
Portfolio

 

Opportunity
Funds

 

Self-
Storage
Portfolio

 

Notes
Receivable
and Other

 

 

 


 


 


 


 


 


 


 


 

Equity in (losses) earnings of unconsolidated affiliates

 

$

 

$

19.9

 

$

 

$

 

$

0.6

 

$

5.8

 

$

 

$

0.2

 

Interest expense

 

 

(19.8

)

 

(5.5

)

 

(3.6

)

 

 

 

(19.4

)

 

(5.3

)

 

(0.4

)

 

0.5

 

Gain on debt extinguishment

 

 

1.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on sale of land

 

 

0.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax provision

 

 

(3.4

)

 

 

 

 

 

 

 

(0.3

)

 

 

 

 

 

 

Income from discontinued operations

 

 

 

 

 

 

 

 

8.7

 

 

 

 

 

 

 

 

7.2

 

Extraordinary item

 

 

 

 

 

 

 

 

 

 

 

 

27.8

 

 

 

 

 

Loss (income) attributable to noncontrolling interests in subsidiaries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- Continuing operations

 

 

0.2

 

 

(15.8

)

 

0.4

 

 

3.6

 

 

 

 

6.5

 

 

 

 

3.0

 

- Discontinued operations

 

 

 

 

 

 

 

 

(0.7

)

 

 

 

 

 

 

 

(0.6

)

- Extraordinary item

 

 

 

 

 

 

 

 

 

 

 

 

(24.2

)

 

 

 

 

Equity in earnings of unconsolidated affiliates in the Opportunity Funds increased primarily as a result of our pro-rata share of gains from the sale of Mervyns locations in 2008 of $5.2 million, additional distributions in excess of basis from our Albertson’s investment of $7.9 million and our pro-rata share of gain from the sale of the Haygood Shopping Center of $3.3 million. These increases were partially offset by a decrease in our pro-rata share of distributions in excess of basis from our investment in Hitchcock Plaza of $2.7 million as compared to 2007.

Interest expense in the Core Portfolio increased $0.4 million in 2008. This was primarily the result of a $1.1 million increase attributable to higher average outstanding borrowings in 2008 and a $0.2 million increase related to higher average interest rates in 2008. These increases were offset by a $0.7 million write-off of the unamortized premium related to the repayment of a mortgage note payable in 2008 and a $0.4 million decrease resulting from costs associated with a loan payoff in 2007. Interest expense in the Opportunity Funds increased $0.2 million in 2008. This was the result of an increase of $3.2 million due to higher average outstanding borrowings in 2008 offset by a $3.1 million decrease related to lower average interest rates in 2008. Interest expense in the Storage Portfolio increased $3.2 million as a result of the 2008 Storage Acquisition.

The gain on debt extinguishment of $1.5 million is attributable to the purchase of the Company’s convertible debt at a discount in 2008.

The gain on sale of land in 2008 in the Core Portfolio relates to a land parcel sale at Bloomfield Town Square.

The variance in income tax provision in the Core Portfolio primarily relates to income taxes at the TRS level for our share of gains from the sale of Mervyns locations in 2008.

Income from discontinued operations represents activity related to properties sold in 2009, 2008 and 2007.

The extraordinary item in 2007 in the Opportunity Funds relates to the extraordinary gain, net of income taxes, from our Albertson’s investment.

Loss (income) attributable to noncontrolling interests in subsidiaries - Continuing operations for the Opportunity Funds primarily represents the noncontrolling interests’ share of all Opportunity Fund activity and ranges from a 77.8% interest in Fund I to an 80.1% interest in Fund III. The variance between 2008 and 2007 represents the noncontrolling interests’ share of all the Opportunity Funds variances discussed above. Loss (income) attributable to noncontrolling interests in subsidiaries - Continuing operations in Notes Receivable and Other relates to the noncontrolling interests’ share of capitalized construction, leasing and legal fees.

Loss (income) attributable to noncontrolling interests in subsidiaries - Discontinued operations primarily represents the noncontrolling interests’ share of activity related to properties sold in 2009, 2008 and 2007.

Loss (income) attributable to noncontrolling interests in subsidiaries – Extraordinary item represents the noncontrolling interests’ share of the extraordinary gain from the Albertson’s investment.

38


RECONCILIATION OF NET INCOME TO FUNDS FROM OPERATIONS AND ADJUSTED FUNDS FROM OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Years Ended December 31,

 

(dollars in thousands)

 

2009

 

2008

 

2007

 

2006

 

2005

 

 

 


 


 


 


 


 

Net income attributable to Common Shareholders

 

$

31,133

 

$

25,068

 

$

25,346

 

$

38,920

 

$

20,626

 

Depreciation of real estate and amortization of leasing costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated affiliates, net of noncontrolling interests’ share

 

 

18,847

 

 

18,519

 

 

19,669

 

 

20,206

 

 

16,676

 

Unconsolidated affiliates

 

 

1,603

 

 

1,687

 

 

1,736

 

 

1,806

 

 

746

 

Income attributable to noncontrolling interests in operating partnership (1)

 

 

465

 

 

437

 

 

614

 

 

803

 

 

416

 

Gain on sale of properties (net of noncontrolling interests’ share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated affiliates

 

 

(2,435

)

 

(7,182

)

 

(5,271

)

 

(20,974

)

 

50

 

Unconsolidated affiliates

 

 

 

 

(565

)

 

 

 

(901

)

 

(2,672

)

Extraordinary item (net of noncontrolling interests’ share and income taxes) (3)

 

 

 

 

 

 

(3,677

)

 

 

 

 

 

 



 



 



 



 



 

Funds from operations (2)

 

 

49,613

 

 

37,964

 

 

38,417

 

 

39,860

 

 

35,842

 

Add back: Extraordinary item, net (3)

 

 

 

 

 

 

3,677

 

 

 

 

 

 

 



 



 



 



 



 

Funds from operations, adjusted for extraordinary item

 

$

49,613

 

$

37,964

 

$

42,094

 

$

39,860

 

$

35,842

 

 

 



 



 



 



 



 


 

 

Notes:

 

 

(1)

Represents income attributable to Common OP Units and does not include distributions paid to Series A and B Preferred OP Unitholders.

 

 

(2)

The Company considers funds from operations (“FFO”) as defined by NAREIT to be an appropriate supplemental disclosure of operating performance for an equity REIT due to its widespread acceptance and use within the REIT and analyst communities. FFO is presented to assist investors in analyzing the performance of the Company. It is helpful as it excludes various items included in net income that are not indicative of the operating performance, such as gains (losses) from sales of depreciated property and depreciation and amortization. However, the Company’s method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. FFO does not represent cash generated from operations as defined by generally accepted accounting principles (“GAAP”) and is not indicative of cash available to fund all cash needs, including distributions. It should not be considered as an alternative to net income for the purpose of evaluating the Company’s performance or to cash flows as a measure of liquidity. Consistent with the NAREIT definition, the Company defines FFO as net income (computed in accordance with GAAP), excluding gains (losses) from sales of depreciated property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.

 

 

(3)

The extraordinary item represents the Company’s share of estimated extraordinary gain related to its private-equity investment in Albertson’s. The Albertson’s entity has recorded an extraordinary gain in connection with the allocation of purchase price to assets acquired. The Company considers its private-equity investments to be investments in operating businesses as opposed to real estate. Accordingly, all gains and losses from private-equity investments are included in adjusted FFO, which management believes provides a more accurate reflection of the operating performance of the Company.

LIQUIDITY AND CAPITAL RESOURCES

Uses of Liquidity

Our principal uses of liquidity are (i) distributions to our shareholders and OP unit holders, (ii) investments which include the funding of our capital committed to the Opportunity Funds and property acquisitions and redevelopment/re-tenanting activities within our Core Portfolio, and (iii) debt service and loan repayments, including the repurchase of our Convertible Notes.

Distributions

In order to qualify as a REIT for Federal income tax purposes, we must currently distribute at least 90% of our taxable income to our shareholders. For the year ended December 31, 2009, we paid dividends and distributions on our Common Shares and Common OP Units totaling $29.1 million. In addition, in December of 2008, our Board of Trustees approved a special dividend of approximately $0.55 per share, or $18.0 million in the aggregate, which was associated with taxable gains arising from property dispositions in 2008, which was paid on January 30, 2009, to shareholders of record on December 31, 2008. Ninety percent of the special dividend was paid with the issuance of 1.3 million Common Shares and 10%, or $1.8 million, was paid in cash.

39


Fund I and Mervyns I

In September 2001, the Operating Partnership committed $20.0 million to a newly formed Opportunity Fund with four of our institutional shareholders, who committed $70.0 million for the purpose of acquiring a total of approximately $300.0 million of community and neighborhood shopping centers on a leveraged basis. During 2006, the Fund I investors received a return of all their invested capital in Fund I and their unpaid preferred return. The Operating Partnership is entitled to 37.8% of all future income and distributions (Promote and pro-rata share of the remaining 80%).

As of December 31, 2009, Fund I has a total of 21 properties totaling 1.0 million square feet as further discussed in “PROPERTY ACQUISITIONS” in Item 1 of this Form 10-K.

 

 

 

 

 

 

 

 

Shopping Center

 

Location

 

Year acquired

 

GLA

 


 


 


 


 

New York Region

 

 

 

 

 

 

 

New York

 

 

 

 

 

 

 

Tarrytown Shopping Center

 

Tarrytown

 

2004

 

35,291

 

 

 

 

 

 

 

 

 

Mid-Atlantic Region

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ohio

 

 

 

 

 

 

 

Granville Centre

 

Columbus

 

2002

 

134,997

 

Michigan

 

 

 

 

 

 

 

Sterling Heights Shopping Center (1)

 

Detroit

 

2004

 

154,835

 

 

 

 

 

 

 

 

 

Various Regions

 

 

 

 

 

 

 

Kroger/Safeway Portfolio

 

Various

 

2003

 

709,400

 

 

 

 

 

 



 

Total

 

 

 

 

 

1,034,523

 

 

 

 

 

 



 


 

 

 

Notes:

 

 

 

(1) During 2009, Fund I recorded an impairment reserve of $3.8 million related to this investment.

In addition, we, along with our Fund I investors have invested in Mervyns as discussed in Item 1 of this form 10-K.

Fund II and Mervyns II

On June 15, 2004, we formed our second opportunity fund, Fund II, and during August 2004, formed Mervyns II with the investors from Fund I as well as two additional institutional investors, whereby the investors, including the Operating Partnership, committed capital totaling $300.0 million. The Operating Partnership is the managing member with a 20% interest in the joint venture. The terms and structure of Fund II are substantially the same as Fund I with the exception that the preferred return is 8%. As of December 31, 2009, $223.3 million had been contributed to Fund II, of which the Operating Partnership’s share was $44.7 million.

Fund II has invested in the New York Urban/Infill Redevelopment and the RCP Venture initiatives and other investments as further discussed in “PROPERTY ACQUISITIONS” in Item 1 of this Form 10-K.

New York Urban/ Infill Redevelopment Initiative

In September 2004, we, through Fund II, launched our New York Urban Infill Redevelopment initiative. During 2004, Fund II, together with an unaffiliated partner, P/A Associates, LLC (“P/A”), formed Acadia-P/A Holding Company, LLC (“Acadia-P/A”) for the purpose of acquiring, constructing, developing, owning, operating, leasing and managing certain retail or mixed-use real estate properties in the New York City metropolitan area. P/A agreed to invest 10% of required capital up to a maximum of $2.2 million and Fund II, the managing member, agreed to invest the balance to acquire assets in which Acadia-P/A agrees to invest. Operating cash flow is generally to be distributed pro-rata to Fund II and P/A until each has received a 10% cumulative return and then 60% to Fund II and 40% to P/A. Distributions of net refinancing and net sales proceeds, as defined, follow the distribution of operating cash flow except that unpaid original capital is returned before the 60%/40% split between Fund II and P/A. Upon the liquidation of the last property investment of Acadia-P/A, to the extent that Fund II has not received an 18% internal rate of return (“IRR”) on all of its capital contributions, P/A is obligated to return a portion of its previous distributions, as defined, until Fund II has received an 18% IRR. To date, Fund II has invested in nine New York Urban Infill Redevelopment construction projects, eight of which were made through Acadia-P/A, as follows:

40



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redevelopment (dollars in millions)

 

 

 

 

 

 

 

 

 


 

Property

 

Location

 

Year
acquired

 

Costs
to date

 

Anticipated
additional
costs

 

Estimated
construction
completion

 

Square
feet upon
completion

 


 


 


 


 


 


 


 

Liberty Avenue (1)

 

Queens

 

2005

 

$

15.2

 

$

 

Completed

 

125,000

 

216th Street

 

Manhattan

 

2005

 

 

27.7

 

 

 

Completed

 

60,000

 

Fordham Place

 

Bronx

 

2004

 

 

123.5

 

 

6.5

 

Substantially completed

 

276,000

 

Pelham Manor Shopping Plaza (1)

 

Westchester

 

2004

 

 

58.0

 

 

4.0

 

Substantially completed

 

320,000

 

161st Street

 

Bronx

 

2005

 

 

55.3

 

 

9.7

 

(2)

(4)

230,000

 

Atlantic Avenue (3)

 

Brooklyn

 

2007

 

 

21.0

 

 

2.0

 

Completed

 

110,000

 

Canarsie Plaza

 

Brooklyn

 

2007

 

 

32.1

 

 

44.9

 

1st half 2011

 

265,000

 

Sherman Plaza

 

Manhattan

 

2005

 

 

34.1

 

 

(2)

(2)

 

(2)

CityPoint (1)

 

Brooklyn

 

2007

 

 

43.7

 

 

(2)

(2)

 

(2)

 

 

 

 

 

 



 



 

 

 


 

Total

 

 

 

 

 

$

410.6

 

$

67.1

 

 

 

1,386,000

 

 

 

 

 

 

 



 



 

 

 


 

Notes:

 

 

 

 

(1)

Acadia-P/A acquired a ground lease interest at this property.

 

 

 

 

(2)

To be determined.

 

 

 

 

(3)

P/A is not a partner in this project.

 

 

 

 

(4)

Currently operating but redevelopment activities have commenced.

RCP Venture

See “Property Acquisitions” in Item 1 of this Form 10-K for a table summarizing the RCP Venture investments from inception through December 31, 2009.

Fund III

In May 2007, we formed Fund III with fourteen institutional investors, including a majority of the investors from Fund I and Fund II with a total of $503.0 million of committed discretionary capital. The Operating Partnership’s share of the committed capital is $100.0 million and it is the sole managing member with a 19.9% interest in Fund III. The terms and structure of Fund III are substantially the same as the previous Funds, including the Promote structure, with the exception that the Preferred Return is 6%. As of December 31, 2009, $96.5 million has been invested in Fund III, of which the Operating Partnership contributed $19.2 million.

Fund III has invested in the New York Urban/Infill Redevelopment initiatives and other investments as further discussed in “PROPERTY ACQUISITIONS” in Item 1 of this Form 10-K. The projects are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redevelopment (dollars in millions)

 

 

 

 

 

 

 

 

 


 

Property

 

Location

 

Year
acquired

 

Costs
to date

 

Anticipated
additional
costs

 

Square
feet upon
completion

 


 


 


 


 


 


 

Sheepshead Bay

 

Brooklyn, NY

 

2007

 

$

22.7

 

$

(1)

 

 

125 Main Street

 

Westport, CT

 

2007

 

 

17.6

 

 

5.4

(2)

 

30,000

 

 

 

 

 

 

 



 



 



 

Total

 

 

 

 

 

 

 

$

40.3

 

$

5.4

 

 

30,000

 

 

 

 

 

 

 

 

 



 



 



 

Notes:

 

 

 

 

(1)

To be determined

 

 

 

 

(2)

Completion to be determined

During February 2008, Acadia, through Fund III, and in conjunction with an unaffiliated partner, Storage Post, acquired a portfolio of eleven self-storage properties from Storage Post’s existing institutional investors for approximately $174.0 million. The properties are located throughout New York and New Jersey. The portfolio continues to be operated by Storage Post, which is a 5% equity partner. During January 2009, Fund III purchased Cortlandt Towne Center for $78.0 million. The property is a 642,000 square foot shopping center located in Westchester County, NY, a trade area with high barriers to entry for regional and national retailers.

Preferred Equity Investment, Mezzanine Loan Investments and Notes Receivable

At December 31, 2009, our preferred equity investment, mezzanine loan investments and notes receivable, net aggregated $125.2 million, with accrued interest thereon of $10.3 million, and were collateralized by the underlying properties, the borrower’s ownership interest in the entities that own the properties and/or by the borrower’s personal guarantee. Effective interest rates on our preferred equity investment, mezzanine loan investments and notes receivable ranged from 10.0% to 22.4% with maturities through January 2017.

41


During December 2009, we made a loan for $8.6 million which bears interest at 14.5% with a one year term and one six month extension.

Other Investments

Acquisitions made during 2007, 2008 and 2009 are discussed in “PROPERTY ACQUISITIONS” in Item 1 of this Form 10-K:

Property Redevelopment and Expansion

Our redevelopment program focuses on selecting well-located neighborhood and community shopping centers and creating significant value through re-tenanting and property redevelopment.

Purchase of Convertible Notes

Repurchase of the Notes is another use of our liquidity. During 2009, we purchased an additional $57.0 million in face amount of our outstanding convertible notes for $46.7 million.

Share Repurchase

We have an existing share repurchase program that authorizes management, at its discretion, to repurchase up to $20.0 million of our outstanding Common Shares. The program may be discontinued or extended at any time and there is no assurance that we will purchase the full amount authorized. Under this program we have repurchased 2.1 million Common Shares, none of which were repurchased after December 2001. As of December 31, 2009, management may repurchase up to approximately $7.5 million of our outstanding Common Shares under this program.

SOURCES OF LIQUIDITY

We intend on using Fund III, as well as new funds that we may establish in the future, as the primary vehicles for our future acquisitions, including investments in the RCP Venture and New York Urban/Infill Redevelopment Initiative. Additional sources of capital for funding property acquisitions, redevelopment, expansion and re-tenanting and RCP Venture investments, are expected to be obtained primarily from (i) the issuance of public equity or debt instruments, (ii) cash on hand and cash flow from operating activities, (iii) additional debt financings, (iv) noncontrolling interests’ unfunded capital commitments of $61.3 million and $325.2 million for Funds II and III, respectively, and (v) future sales of existing properties.

During 2009, Fund II received capital contributions of $31.2 million to fund redevelopment projects and paydown the line of credit of Fund II.

As of December 31, 2009, we had approximately $139.5 million of additional capacity under existing debt facilities and cash and cash equivalents on hand of $93.8 million.

Issuance of Convertible Notes

During December of 2006 and January of 2007, we issued $115.0 million of 3.75% Convertible Notes. These notes were issued at par and are due in 2026. The $112.1 million in proceeds, net of related costs, was used to retire variable rate debt, fund capital commitments and general corporate purposes.

Shelf Registration Statements and Issuance of Equity

During April 2009, we filed a shelf registration on Form S-3 providing for offerings of up to a total of $500.0 million of Common Shares, Preferred Shares and debt securities. During April 2009, we issued 5.75 million Common Shares and generated net proceeds of approximately $65.0 million. The proceeds were primarily used to purchase a portion of our outstanding convertible notes payable and pay down existing lines of credit. Following this issuance, we have remaining capacity under this registration statement to issue up to approximately $430.0 million of these securities.

Asset Sales

Asset sales are an additional source of liquidity for us. During November 2009, we sold Blackman Plaza for $2.5 million, which resulted in a gain on sale of $1.5 million. During February 2009, The Kroger Co. purchased the fee at six locations in Fund I’s Kroger/Safeway Portfolio for $14.6 million of which Fund I’s share of the sales proceeds amounted to $8.1 million after the repayment of the mortgage debt on these properties. During April 2008, we sold a residential complex located in Winston-Salem, North Carolina. During December of 2007, we sold an apartment complex in Columbia Missouri. These sales are discussed in “ASSET SALES AND CAPITAL/ASSET RECYCLING” in Item 1 of this Form 10-K.

42


Notes Receivable Repayment and Mezzanine Loan Paydowns

During the year ended December 31, 2009, we received $12.6 million in loan repayments on several first mortgage notes and $1.0 million in paydowns on mezzanine loans.

Financing and Debt

At December 31, 2009, mortgage and convertible notes payable aggregated $780.1 million, net of unamortized premium of $0.1 million, and the mortgage notes were collateralized by 28 properties and related tenant leases. Interest rates on our outstanding indebtedness ranged from 0.72% to 7.18% with maturities that ranged from March 2010 to November 2032. Taking into consideration $83.4 million of notional principal under variable to fixed-rate swap agreements currently in effect, as of December 31, 2009, $439.0 million of the portfolio, or 56%, was fixed at a 5.8% weighted average interest rate and $341.1 million, or 44% was floating at a 3.1% weighted average interest rate. There is $132.6 million of debt maturing in 2010 at weighted average interest rates of 2.2%. Of this amount, $2.1 million represents scheduled annual amortization. The loans relating to $80.3 million of the 2010 maturities provide for extension options, which we believe we will be able to exercise. If we are unable to extend these loans and refinance the balance of $52.3 million, we believe we will be able to repay this debt with existing liquidity, including unfunded capital commitments from the Opportunity Fund investors. As it relates to maturities after 2010, we may not have sufficient cash on hand to repay such indebtedness, we may have to refinance this indebtedness or select other alternatives based on market conditions at that time. Given the current post recessionary period, refinancing this debt will be very difficult. See “Item 1A. Risk Factors—The current economic environment, while improving, may cause us to lose tenants and may impair our ability to borrow money to purchase properties, refinance existing debt or finance our current redevelopment projects.”

The following table sets forth certain information pertaining to the Company’s secured credit facilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(dollars in millions)
Borrower

 

Total
available
credit
facilities

 

Amount
borrowed
as of
December 31,
2008

 

2009 net
borrowings
(repayments)
during the year
ended December
31, 2009

 

Amount
borrowed
as of
December 31,
2009

 

Letters
of credit
outstanding as
of December
31, 2009

 

Amount
available
under
credit
facilities
as of December
31, 2009

 


 


 


 


 


 


 


 

Acadia Realty, LP

 

$

64.5

 

$

48.9

 

$

(18.9

)

$

30.0

 

$

4.0

 

$

30.5

 

Acadia Realty, LP

 

 

30.0

 

 

 

 

2.0

 

 

2.0

 

 

 

 

28.0

 

Fund II

 

 

53.5

 

 

34.7

 

 

13.6

 

 

48.3

 

 

5.2

 

 

 

Fund III

 

 

221.0

 

 

62.3

 

 

77.2

 

 

139.5

 

 

0.5

 

 

81.0

 

 

 



 



 



 



 



 



 

Total

 

$

369.0

 

$

145.9

 

$

73.9

 

$

219.8

 

$

9.7

 

$

139.5

 

 

 



 



 



 



 



 



 

Reference is made to Note 8 and Note 9 to our Consolidated Financial Statements, which begin on Page F-1 of this Form 10-K, for a summary of the financing and refinancing transactions since December 31, 2008.

43


CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS

At December 31, 2009, maturities on our mortgage notes ranged from March 2010 to November 2032. In addition, we have non-cancelable ground leases at six of our shopping centers. We lease space for our White Plains corporate office for a term expiring in 2015. The following table summarizes our debt maturities, obligations under non-cancelable operating leases and construction commitments as of December 31, 2009:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments due by period

 

Contractual obligations:

 

Total

 

Less than
1 year

 

1 to 3
years

 

3 to 5
years

 

More than
5 years

 

 

 


 


 


 


 


 

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

Future debt maturities

 

$

782.1

 

$

132.6

 

$

388.5

 

$

31.8

 

$

229.2

 

Interest obligations on debt

 

 

145.2

 

 

31.2

 

 

46.0

 

 

29.7

 

 

38.3

 

Operating lease obligations

 

 

111.6

 

 

4.8

 

 

9.8

 

 

10.0

 

 

87.0

 

Construction commitments 1

 

 

32.3

 

 

32.3

 

 

 

 

 

 

 

 

 



 



 



 



 



 

Total

 

$

1,071.2

 

$

200.9

 

$

444.3

 

$

71.5

 

$

354.5

 

 

 



 



 



 



 



 


 

Notes:

 

1 In conjunction with the redevelopment of our Core Portfolio and Opportunity Fund properties, we have entered into construction commitments with general contractors. We intend to fund these requirements with existing liquidity.

OFF BALANCE SHEET ARRANGEMENTS

We have investments in four joint ventures for the purpose of investing in operating properties. We account for these investments using the equity method of accounting as we have a noncontrolling interest. As such, our financial statements reflect our share of income and loss from but not the assets and liabilities of these joint ventures.

Reference is made to Note 4 to our Consolidated Financial Statements, which begin on page F-1 of this Form 10-K, for a discussion of our unconsolidated investments. Our pro-rata share of unconsolidated debt related to those investments is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

(dollars in millions)

 

Pro-rata share of mortgage debt

 

Interest rate at
December 31,
2009

 

 

 

Investment

 

Opportunity Funds

 

Operating Partnership

 

 

Maturity date

 


 


 







Crossroads

 

$

n/a

 

$

30.6

 

 

5.37

%

December 2014

 

Brandywine

 

 

n/a

 

 

36.9

 

 

5.99

%

July 2016

 

CityPoint

 

 

6.1

 

 

1.2

 

 

2.73

%

August 2010

 

Sterling Heights

 

 

2.1

 

 

0.8

 

 

2.08

%

August 2010

 

 

 



 



 

 

 

 

 

 

Total

 

$

8.2

 

$

69.5

 

 

 

 

 

 

 

 



 



 

 

 

 

 

 

As of December 31, 2009, there was $26.0 million of debt at CityPoint scheduled to mature during August of 2010. There are no options to extend this debt. Fund II and its unaffiliated joint venture partner’s (“JV Partner”) share of this debt was $6.1 million and $19.9 million, respectively. If CityPoint is unable to extend the maturity date of this debt, Fund II and its JV Partner may be required to fund their requisite share of capital to repay this obligation. In the event that the JV Partner does not fund its requisite share of capital, pursuant to the joint venture agreement, Fund II would have the option to fund the JV Partner’s share of capital to repay this debt either as a loan to the JV Partner or as additional equity in CityPoint.

In addition, we have arranged for the provision of four separate letters of credit in connection with certain leases and investments. As of December 31, 2009, there were no outstanding balances under any of the letters of credit. If the letters of credit were fully drawn, the combined maximum amount of exposure would be $9.7 million.

HISTORICAL CASH FLOW

The following table compares the historical cash flow for the year ended December 31, 2009 (“2009”) with the cash flow for the year ended December 31, 2008 (“2008”).

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31,

 

 

 

 

 

 

 

 

 

 

 

2009

 

2008

 

Variance

 

 

 


 


 


 

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

47.5

 

$

66.5

 

$

(19.0

)

Net cash used in investing activities

 

 

(123.4

)

 

(302.3

)

 

178.9

 

Net cash provided by financing activities

 

 

83.0

 

 

199.1

 

 

(116.1

)

 

 



 



 



 

Totals

 

$

7.1

 

$

(36.7

)

$

43.8

 

 

 



 



 



 

44


A discussion of the significant changes in cash flow for 2009 versus 2008 is as follows:

A decrease of $19.0 million in net cash provided by operating activities resulted from the following: (i) lease termination income of $24.0 million from Home Depot at Canarsie Plaza in 2008 and (ii) a $13.5 million decrease in distributions (primarily Albertson’s) of operating income from unconsolidated affiliates in 2009. These 2009 decreases were offset by a $24.0 million increase in other assets primarily related to additional cash used for the purchase of short term financial instruments in 2008 and the subsequent redemption of these financial instruments in 2009.

A decrease of $178.9 million of net cash used in investing activities resulted from the following: (i) a decrease of $112.4 million in expenditures for real estate, development and tenant installations in 2009 and (ii) a decrease of $81.5 million in advances of notes receivable in 2009. These decreases in cash used were offset by (i) an additional $11.7 million in proceeds from the sale of properties in 2008 and (ii) a decrease of $6.3 million in collections of notes receivable in 2009.

The $116.1 million decrease in net cash provided by financing activities resulted from the following decreases in cash for 2009: (i) $114.2 million of additional cash used for repayment of debt in 2009, (ii) an additional $40.7 million of cash used for the purchase of convertible notes in 2009, (iii) a decrease of $21.1 million of proceeds received on borrowings of debt in 2009, and (iv) a decrease of $20.4 million in capital contributions from noncontrolling interests in 2009. These 2009 cash decreases were offset by the following: (i) $65.2 million of additional cash from the issuance of Common Shares, net of costs, in 2009, (ii) an additional $13.7 million of distributions to noncontrolling interests in 2008, and (iii) an additional $4.5 million of dividends paid to Common Shareholders in 2008.

CRITICAL ACCOUNTING POLICIES

Management’s discussion and analysis of financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these Consolidated Financial Statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect the significant judgments and estimates used by us in the preparation of our Consolidated Financial Statements.

Valuation of Property Held for Use and Sale

On a quarterly basis, we review the carrying value of both properties held for use and for sale. We perform the impairment analysis by calculating and reviewing net operating income on a property-by-property basis. We evaluate leasing projections and perform other analyses to conclude whether an asset is impaired. We record impairment losses and reduce the carrying value of properties when indicators of impairment are present and the expected undiscounted cash flows related to those properties are less than their carrying amounts. In cases where we do not expect to recover our carrying costs on properties held for use, we reduce our carrying cost to fair value. For properties held for sale, we reduce our carrying value to the fair value less costs to sell. For the years ended December 31, 2009, 2008 and 2007, no impairment losses were recognized. Management does not believe that the value of any properties in its portfolio was impaired as of December 31, 2009.

Investments in and Advances to Unconsolidated Joint Ventures

The Company periodically reviews its investment in unconsolidated joint ventures for other than temporary declines in market value. Any decline that is not expected to be recovered in the next twelve months is considered other than temporary and an impairment charge is recorded as a reduction in the carrying value of the investment. During the year ended December 31, 2009, the Company recorded a $3.8 million impairment reserve related to a Fund I unconsolidated joint venture. No impairment charges related to the Company’s investment in unconsolidated joint ventures were recognized for the years ended December 31, 2008 and 2007.

Bad Debts

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make payments on arrearages in billed rents, as well as the likelihood that tenants will not have the ability to make payments on unbilled rents including estimated expense recoveries. We also maintain a reserve for straight-line rent receivables. For the years ended December 31, 2009 and 2008, we had recorded an allowance for doubtful accounts of $7.0 million and $5.7 million, respectively. If the financial condition of our tenants were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

45


Real Estate

Real estate assets are stated at cost less accumulated depreciation. Expenditures for acquisition, development, construction and improvement of properties, as well as significant renovations are capitalized. Interest costs are capitalized until construction is substantially complete. Construction in progress includes costs for significant property expansion and redevelopment. Depreciation is computed on the straight-line basis over estimated useful lives of 30 to 40 years for buildings, the shorter of the useful life or lease term for tenant improvements and five years for furniture, fixtures and equipment. Expenditures for maintenance and repairs are charged to operations as incurred.

Upon acquisitions of real estate, we assess the fair value of acquired assets (including land, buildings and improvements, and identified intangibles such as above and below market leases and acquired in-place leases and customer relationships) and acquired liabilities in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805 “Business Combinations” (formerly Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations”) and ASC Topic 350 “Intangibles – Goodwill and Other” (formerly SFAS No. 142, “Goodwill and Other Intangible Assets”), and allocate purchase price based on these assessments. We assess fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property.

Revenue Recognition and Accounts Receivable

Leases with tenants are accounted for as operating leases. Minimum rents are recognized on a straight-line basis over the term of the respective leases, beginning when the tenant takes possession of the space. Certain of these leases also provide for percentage rents based upon the level of sales achieved by the tenant. Percentage rent is recognized in the period when the tenants’ sales breakpoint is met. In addition, leases typically provide for the reimbursement to us of real estate taxes, insurance and other property operating expenses. These reimbursements are recognized as revenue in the period the expenses are incurred.

We make estimates of the uncollectability of our accounts receivable related to tenant revenues. An allowance for doubtful accounts has been provided against certain tenant accounts receivable that are estimated to be uncollectible. See “Bad Debts” above. Once the amount is ultimately deemed to be uncollectible, it is written off.

Notes Receivable and Preferred Equity Investment

Real estate notes receivable and preferred equity investments are intended to be held to maturity and are carried at cost. Interest income from notes receivable and preferred equity investments are recognized on the effective interest method over the expected life of the loan. Under the effective interest method, interest or fees to be collected at the origination of the loan or the payoff of the loan is recognized over the term of the loan as an adjustment to yield.

Allowances for real estate notes receivable and preferred equity investments are established based upon management’s quarterly review of the investments. In performing this review, management considers the estimated net recoverable value of the loan as well as other factors, including the fair value of any collateral, the amount and status of any senior debt, and the prospects for the borrower. Because this determination is based upon projections of future economic events, which are inherently subjective, the amounts ultimately realized from the loans may differ materially from the carrying value at the balance sheet date. Interest income recognition is generally suspended for loans when, in the opinion of management, a full recovery of income and principal becomes doubtful. Income recognition is resumed when the suspended loan becomes contractually current and performance is demonstrated to be resumed.

During 2009, we provided a $1.7 million reserve on a note receivable as a result of the loss of an anchor tenant at the underlying collateral property.

During 2008, we provided a $4.4 million reserve on a note receivable collateralized by an interest in an entity owning retail complexes associated with seven public rest stops along the toll roads in and around Chicago, Illinois. The note and all accrued interest was subsequently cancelled during 2009.

INFLATION

Our long-term leases contain provisions designed to mitigate the adverse impact of inflation on our net income. Such provisions include clauses enabling us to receive percentage rents based on tenants’ gross sales, which generally increase as prices rise, and/or, in certain cases, escalation clauses, which generally increase rental rates during the terms of the leases. Such escalation clauses are often related to increases in the consumer price index or similar inflation indexes. In addition, many of our leases are for terms of less than ten years, which permits us to seek to increase rents upon re-rental at market rates if current rents are below the then existing market rates. Most of our leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes, insurance and utilities, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Reference is made to Notes to our Consolidated Financial Statements, which begin on page F-1 of this Form 10-K.

46


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Information as of December 31, 2009

Our primary market risk exposure is to changes in interest rates related to our mortgage debt. See Note 8 to our Consolidated Financial Statements, which begin on page F-1 of this Form 10-K, for certain quantitative details related to our mortgage debt.

Currently, we manage our exposure to fluctuations in interest rates primarily through the use of fixed-rate debt and interest rate swap agreements. As of December 31, 2009, we had total mortgage and convertible notes payable of $780.1 million of which $439.0 million, or 56% was fixed-rate, inclusive of debt with rates fixed through the use of derivative financial instruments, and $341.1 million, or 44%, was variable-rate based upon LIBOR or commercial paper rates plus certain spreads. As of December 31, 2009, we were a party to eight interest rate swap transactions and one interest rate cap transaction to hedge our exposure to changes in interest rates with respect to $83.4 million and $30.0 million of LIBOR-based variable-rate debt, respectively.

The following table sets forth information as of December 31, 2009 concerning our long-term debt obligations, including principal cash flows by scheduled maturity and weighted average interest rates of maturing amounts (dollars in millions): Consolidated mortgage debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year

 

Scheduled
amortization

 

Maturities

 

Total

 

Weighted average
interest rate

 


 


 


 


 


 

2010

 

$

2.1

 

$

130.5

 

$

132.6

 

 

2.2

%

2011

 

 

2.5

 

 

328.6

 

 

331.1

 

 

2.9

%

2012

 

 

2.5

 

 

52.9

 

 

55.4

 

 

3.8

%

2013

 

 

2.9

 

 

8.8

 

 

11.7

 

 

5.5

%

2014

 

 

2.8

 

 

17.3

 

 

20.1

 

 

5.8

%

Thereafter

 

 

14.2

 

 

215.0

 

 

229.2

 

 

5.9

%

 

 



 



 



 

 

 

 

 

 

$

27.0

 

$

753.1

 

$

780.1

 

 

 

 

 

 



 



 



 

 

 

 

Mortgage debt in unconsolidated partnerships (at our pro-rata share):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year

 

Scheduled
amortization

 

Maturities

 

Total

 

Weighted average
interest rate

 


 


 


 


 


 

2010

 

$

0.5

 

$

2.0

 

$

2.5

 

 

2.5

%

2011

 

 

0.5

 

 

 

 

0.5

 

 

n/a

%

2012

 

 

0.5

 

 

 

 

0.5

 

 

n/a

%

2013

 

 

0.5

 

 

 

 

0.5

 

 

n/a

%

2014

 

 

0.6

 

 

28.0

 

 

28.6

 

 

5.4

%

Thereafter

 

 

 

 

36.9

 

 

36.9

 

 

6.0

%

 

 



 



 



 

 

 

 

 

 

$

2.6

 

$

66.9

 

$

69.5

 

 

 

 

 

 



 



 



 

 

 

 

$132.6 million of our total consolidated debt and $2.5 million of our pro-rata share of unconsolidated outstanding debt will become due in 2010. $331.1 million of our total consolidated debt and $0.5 million of our pro-rata share of uncolidated debt will become due in 2011. As we intend on refinancing some or all of such debt at the then-existing market interest rates, which may be greater than the current interest rate, our interest expense would increase by approximately $4.7 million annually if the interest rate on the refinanced debt increased by 100 basis points. After giving effect to noncontrolling interests, the Company’s share of this increase would be $1.7 million. Interest expense on our variable debt of $341.1 million, net of variable to fixed-rate swap agreements currently in effect, as of December 31, 2009 would increase $3.4 million if LIBOR increased by 100 basis points. After giving effect to noncontrolling interests, the Company’s share of this increase would be $0.6 million. We may seek additional variable-rate financing if and when pricing and other commercial and financial terms warrant. As such, we would consider hedging against the interest rate risk related to such additional variable-rate debt through interest rate swaps and protection agreements, or other means.

Based on our outstanding debt balances as of December 31, 2009, the fair value of our total consolidated outstanding debt would decrease by approximately $18.3 million if interest rates increase by 1%. Conversely, if interest rates decrease by 1%, the fair value of our total outstanding debt would increase by approximately $20.5 million.

As of December 31, 2009 and 2008, we had preferred equity investments and notes receivable of $125.2 million and $125.6 million, respectively. We determined the estimated fair value of our preferred equity investment and notes receivable as of December 31, 2009 and 2008 were $126.4 million and $122.3 million, respectively, by discounting future cash receipts utilizing a discount rate equivalent to the rate at which similar notes receivable would be originated under conditions then existing.

47


Based on our outstanding preferred equity investments and notes receivable balances as of December 31, 2009, the fair value of our total outstanding preferred equity investments and notes receivable would decrease by approximately $0.7 million if interest rates increase by 1%. Conversely, if interest rates decrease by 1%, the fair value of our total outstanding preferred equity investments and notes receivable would increase by approximately $0.7 million.

Summarized Information as of December 31, 2008

As of December 31, 2008, we had total mortgage and convertible notes payable of $753.8 million of which $505.6 million, or 67% was fixed-rate, inclusive of interest rate swaps, and $248.2 million, or 33%, was variable-rate based upon LIBOR plus certain spreads. As of December 31, 2008, we were a party to seven interest rate swap transactions and one interest rate cap transaction to hedge our exposure to changes in interest rates with respect to $73.4 million and $30.0 million of LIBOR-based variable-rate debt, respectively.

Interest expense on our variable debt of $248.2 million as of December 31, 2008 would have increased $2.5 million if LIBOR increased by 100 basis points. Based on our outstanding debt balances as of December 31, 2008, the fair value of our total outstanding debt would have decreased by approximately $18.1 million if interest rates increased by 1%. Conversely, if interest rates decreased by 1%, the fair value of our total outstanding debt would have increased by approximately $19.3 million.

Changes in Market Risk Exposures from 2008 to 2009

Our interest rate risk exposure from December 31, 2008 to December 31, 2009 has increased, as we had $248.2 million in variable-rate debt (or 33% of our total debt) at December 31, 2008, as compared to $341.1 million (or 44% of our total debt) in variable-rate debt at December 31, 2009. In addition, the amount of our total debt increased from $753.8 million at December 31, 2008 to $780.1 million at December 31, 2009. This increased amount of debt could expose us to greater fluctuations in the fair value of our debt.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements beginning on page F-1 are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

(i) Disclosure Controls and Procedures

We conducted an evaluation, under the supervision and with the participation of management including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2009 to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(ii) Internal Control Over Financial Reporting

(a) Management’s Annual Report on Internal Control Over Financial Reporting

Management of Acadia Realty Trust is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Securities Exchange Act of 1934 Rule 13(a)-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2009 as required by the Securities Exchange Act of 1934 Rule 13(a)-15(c). In making this assessment, we used the criteria set forth in the framework in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). Based on our evaluation under the COSO criteria, our management concluded that our internal control over financial reporting was effective as of December 31, 2009 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.

BDO Seidman, LLP, an independent registered public accounting firm that audited our Financial Statements included in this Annual Report, has issued an attestation report on our internal control over financial reporting as of December 31, 2009, which appears in paragraph (b) of this Item 9A.

Acadia Realty Trust
White Plains, New York
March 1, 2010

48


(b) Attestation report of the independent registered public accounting firm

The Shareholders and Trustees of
Acadia Realty Trust

We have audited Acadia Realty Trust and subsidiaries’ internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). Acadia Realty Trust and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on a company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control, based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Acadia Realty Trust and subsidiaries maintained in all material respects effective internal control over financial reporting as of December 31, 2009, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Acadia Realty Trust and subsidiaries as of December 31, 2009 and 2008 and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009 and our report dated March 1, 2010 expressed an unqualified opinion thereon.

/s/ BDO Seidman, LLP
New York, New York
March 1, 2010

(c) Changes in internal control over financial reporting

There was no change in our internal control over financial reporting during our fourth fiscal quarter ended December 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

None

49


PART III

In accordance with the rules of the SEC, certain information required by Part III is omitted and is incorporated by reference into this Form 10-K from our definitive proxy statement relating to our 2010 annual meeting of stockholders (our “2010 Proxy Statement”) that we intend to file with the SEC no later than April 30, 2010.

ITEM 10. DIRECTORS; EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The information under the following headings in the 2010 Proxy Statement is incorporated herein by reference:

 

 

 

“PROPOSAL 1 — ELECTION OF TRUSTEES”

 

 

 

 

“MANAGEMENT”

 

 

 

 

“SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE”

ITEM 11. EXECUTIVE COMPENSATION.

The information under the following headings in the 2010 Proxy Statement is incorporated herein by reference:

 

 

 

“ACADIA REALTY TRUST COMPENSATION COMMITTEE REPORT”

 

 

 

 

“COMPENSATION DISCUSSION AND ANALYSIS”

 

 

 

 

“EXECUTIVE AND TRUSTEE COMPENSATION”

 

 

 

 

“COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION”

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information under the heading “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” in the 2010 Proxy Statement is incorporated herein by reference.

The information under Item 5 of this Form 10-K under the heading “(c) Securities authorized for issuance under equity compensation plans” is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information under the following headings in the 2010 Proxy Statement is incorporated herein by reference:

 

 

 

“CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS”

 

 

 

 

“PROPOSAL 1 — ELECTION OF TRUSTEES—Trustee Independence”

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

The information under the heading “AUDIT COMMITTEE INFORMATION” in the 2010 Proxy Statement is incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

1. Financial Statements: See “Index to Financial Statements” at page F-1 below.

2. Financial Statement Schedule: See “Schedule III—Real Estate and Accumulated Depreciation” at page F-43 below.

3. Exhibits: The index of exhibits below is incorporated herein by reference.

50


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.

 

 

 

 

 

ACADIA REALTY TRUST

 

 

(Registrant)

 

 

 

 

By:

/s/ Kenneth F. Bernstein

 

 

Kenneth F. Bernstein

 

 

Chief Executive Officer,

 

 

President and Trustee

 

 

 

 

By:

/s/ Michael Nelsen

 

 

Michael Nelsen

 

 

Senior Vice President and

 

 

Chief Financial Officer

 

 

 

 

By:

/s/ Jonathan W. Grisham

 

 

Jonathan W. Grisham

 

 

Senior Vice President and

 

 

Chief Accounting Officer

Dated: March 1, 2010

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

 

 

 

 

Signature

 

Title

 

Date