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EX-32.1 - EXHIBIT 32.1 - ACADIA REALTY TRUSTa6706118ex32_1.htm
EX-32.2 - EXHIBIT 32.2 - ACADIA REALTY TRUSTa6706118ex32_2.htm
EX-31.1 - EXHIBIT 31.1 - ACADIA REALTY TRUSTa6706118ex31_1.htm
EX-31.2 - EXHIBIT 31.2 - ACADIA REALTY TRUSTa6706118ex31_2.htm
EX-10.42 - EXHIBIT 10.42 - ACADIA REALTY TRUSTa6706118ex10_42.htm
EX-10.43 - EXHIBIT 10.43 - ACADIA REALTY TRUSTa6706118ex10_43.htm
EX-10.41 - EXHIBIT 10.41 - ACADIA REALTY TRUSTa6706118ex10_41.htm

UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
FORM 10-Q
 
x         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2011
 
or
 
o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______ to _______
 
Commission File Number 1-12002
 
ACADIA REALTY TRUST
 
(Exact name of registrant in its charter)
 
MARYLAND
 (State or other jurisdiction of
 incorporation or organization)
 
 1311 MAMARONECK AVENUE, SUITE 260
WHITE PLAINS, NY
 (Address of principal executive offices)
 
 
 
23-2715194
 (I.R.S. Employer
 Identification No.)
 
 10605
 (Zip Code)
 

(914) 288-8100
 
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
YES     x           NO      o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES     o          NO      o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange 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
 
As of May 5, 2011 there were 40,323,366 common shares of beneficial interest, par value $.001 per share, outstanding.
 
 
 
 

 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
 
FORM 10-Q
 
INDEX
 
   
Page
     
Part I:
Financial Information
 
     
 
     
 
1
     
 
2
     
 
3
     
 
4
     
 
6
     
17
     
27
     
27
     
Part II:
Other Information
 
     
27
     
27
     
27
     
27
     
27
     
27
     
27
     
 
28
     
 
29
     
     
 
 
 
 

 

 
Part I. Financial Information
 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
 
 
 
(dollars in thousands)
 
March 31,
   
December 31,
 
   
2011
   
2010
 
ASSETS
 
(unaudited)
       
             
Operating real estate
           
Land
  $ 226,785     $ 222,786  
Building and improvements
    930,334       915,221  
Construction in progress
    2,174       4,400  
      1,159,293       1,142,407  
Less: accumulated depreciation
    227,025       219,920  
Net operating real estate
    932,268       922,487  
Real estate under development
    240,352       243,892  
Notes receivable, net
    92,417       89,202  
Investments in and advances to unconsolidated affiliates
    70,613       31,036  
Cash and cash equivalents
    107,335       120,592  
Cash in escrow
    25,947       28,610  
Rents receivable, net
    19,905       18,044  
Deferred charges, net
    25,487       25,730  
Acquired lease intangibles, net
    17,731       18,622  
Prepaid expenses and other assets
    28,986       22,463  
Assets of discontinued operations
 
      4,128  
  Total assets
  $ 1,561,041     $ 1,524,806  
                 
LIABILITIES
               
                 
 Mortgage notes payable
  $ 844,104     $ 806,212  
 Convertible notes payable, net of unamortized discount of $793 and $1,063, respectively
    48,982       48,712  
 Distributions in excess of income from, and investments in, unconsolidated affiliates
    21,040       20,884  
 Accounts payable and accrued expenses
    24,019       27,691  
 Dividends and distributions payable
    7,505       7,427  
 Acquired lease and other intangibles, net
    5,483       5,737  
 Other liabilities
    17,142       20,621  
Total liabilities
    968,275       937,284  
                 
EQUITY
               
                 
Shareholders’ equity
  Common shares, $.001 par value, authorized 100,000,000 shares; issued
               
    and outstanding 40,321,306 and 40,254,525 shares, respectively
    40       40  
  Additional paid-in capital
    303,324       303,823  
  Accumulated other comprehensive loss
    (2,362 )     (2,857 )
  Retained earnings
    19,371       17,206  
Total shareholders’ equity
    320,373       318,212  
Noncontrolling interests
    272,393       269,310  
 Total equity
    592,766       587,522  
 Total liabilities and equity
  $ 1,561,041     $ 1,524,806  

See accompanying notes
 
 
 
1

 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
 
 
 (unaudited)
 
   
Three months ended
March 31,
 
(dollars in thousands, except per share amounts)
 
2011
   
2010
 
             
Revenues
           
Rental income
  $ 28,315     $ 25,601  
Interest income
    4,538       4,993  
Expense reimbursements
    5,635       6,030  
Management fee income
    629       400  
Other
    689       437  
  Total revenues
    39,806       37,461  
                 
Operating Expenses
               
Property operating
    8,148       7,787  
Real estate taxes
    4,386       4,527  
General and administrative
    5,690       5,119  
Depreciation and amortization
    9,184       10,195  
  Total operating expenses
    27,408       27,628  
                 
Operating income
    12,398       9,833  
                 
Equity in (losses) earnings of unconsolidated affiliates
    (148 )     387  
Other interest income
    34       134  
Gain on debt extinguishment
    1,673    
 
Interest and other finance expense
    (8,008 )     (8,467 )
Income from continuing operations before income taxes
    5,949       1,887  
Income tax provision
    (262 )     (439 )
Income from continuing operations
    5,687       1,448  
                 
Discontinued Operations
               
Operating income from discontinued operations
    43       59  
Gain on sale of property
    3,922    
 
Income from discontinued operations
    3,965       59  
                 
Net income
    9,652       1,507  
                 
Noncontrolling interests
               
Continuing operations
    2,949       3,670  
Discontinued operations
    (3,178 )     (47 )
Net (income) loss attributable to noncontrolling interests
    (229 )     3,623  
                 
  Net income attributable to Common Shareholders
  $ 9,423     $ 5,130  
                 
Basic Earnings per Share
               
Income from continuing operations
  $ 0.21     $ 0.13  
Income from discontinued operations
    0.02    
 
Basic earnings per share
  $ 0.23     $ 0.13  
                 
Diluted Earnings per Share
               
Income from continuing operations
  $ 0.21     $ 0.13  
Income from discontinued operations
    0.02    
 
Diluted earnings per share
  $ 0.23     $ 0.13  
 

 
See accompanying notes
 
 
2

 
 
ACADIA REALTY TRUST AND SUBSIDIARIES


FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(unaudited)


 

                     
Accumulated
                         
               
Additional
   
Other
         
Total
             
   
Common Shares
   
Paid-in
   
Comprehensive
   
Retained
   
Shareholders’
   
Noncontrolling
   
Total
 
(dollars in thousands, except per share amounts)
 
Shares
   
Amount
   
Capital
   
Loss
   
Earnings
   
Equity
   
Interests
   
Equity
 
                                                 
Balance at December 31, 2010
    40,254     $ 40     $ 303,823     $ (2,857 )   $ 17,206     $ 318,212     $ 269,310     $ 587,522  
                                                                 
Conversion of 10,024 OP Units to Common
                                                               
Shares by limited partners of the Operating
                                                               
Partnership
    10    
      40    
   
      40       (40 )  
 
Dividends declared ($0.18 per Common Share)
 
   
   
   
      (7,258 )     (7,258 )     (247 )     (7,505 )
Vesting of employee Restricted Share and LTIP
                                                               
  awards
    95    
      132    
   
      132       700       832  
Common Shares issued under Employee Share
                                                               
  Purchase Plan
    1    
      24    
   
      24    
      24  
Issuance of LTIP Unit awards to employees
 
   
   
   
   
   
      2,441       2,441  
Issuance of Common Shares to trustees
 
   
      22    
   
      22    
      22  
Exercise of trustees options
    1    
      7    
   
      7    
      7  
Employee Restricted Shares cancelled
    (40 )  
      (724 )  
   
      (724 )  
      (724 )
Noncontrolling interest distributions
 
   
   
   
   
   
      (83 )     (83 )
 
    40,321       40       303,324       (2,857 )     9,948       310,455       272,081       582,536  
Comprehensive income:
                                                               
Net income
 
   
   
   
      9,423       9,423       229       9,652  
Unrealized loss on valuation of swap agreements
 
   
   
      (241 )  
      (241 )     (66 )     (307 )
Reclassification of realized interest on swap
  agreements
 
   
   
      736    
      736       149       885  
  Total comprehensive income
 
   
   
      495       9,423       9,918       312       10,230  
                                                                 
Balance at March 31, 2011
    40,321     $ 40     $ 303,324     $ (2,362 )   $ 19,371     $ 320,373     $ 272,393     $ 592,766  
                                                                 
Balance at December 31, 2009
    39,787     $ 40     $ 299,014     $ (2,994 )   $ 16,125     $ 312,185     $ 220,292     $ 532,477  
                                                                 
Conversion of 250,300 OP Units to Common
                                                               
Shares by limited partners of the Operating
                                                               
Partnership
    250    
      2,114    
   
      2,114       (2,114 )  
 
Dividends declared ($0.18 per Common Share)
 
   
   
   
      (7,231 )     (7,231 )     (192 )     (7,423 )
Vesting of employee Restricted Share and LTIP
                                                               
  awards
    133    
      552    
   
      552       444       996  
Common Shares issued under Employee Share
                                                               
  Purchase Plan
    2    
      24    
   
      24    
      24  
Issuance of Common Shares to trustees
    3    
      61    
   
      61    
      61  
Employee Restricted Shares cancelled
    (57 )  
      (966 )  
   
      (966 )  
      (966 )
Noncontrolling interest distributions
 
   
   
   
   
   
      (487 )     (487 )
Noncontrolling interest contributions
 
   
   
   
   
   
      11,876       11,876  
 
    40,118       40       300,799       (2,994 )     8,894       306,739       229,819       536,558  
Comprehensive income (loss):
                                                               
Net income (loss)
 
   
   
   
      5,130       5,130       (3,623 )     1,507  
Unrealized loss on valuation of swap agreements
 
   
   
      (991 )  
      (991 )     (31 )     (1,022 )
Reclassification of realized interest on swap
  agreements
 
   
   
      772    
      772       96       868  
  Total comprehensive income (loss)
 
   
   
      (219 )     5,130       4,911       (3,558 )     1,353  
                                                                 
Balance at March 31, 2010
    40,118     $ 40     $ 300,799     $ (3,213 )   $ 14,024     $ 311,650     $ 226,261     $ 537,911  

See accompanying notes
 
 
 
3

 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
 
 
 (unaudited)
 

(dollars in thousands)
 
Three months ended
March 31,
 
   
2011
   
2010
 
             
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income
  $ 9,652     $ 1,507  
Adjustments to reconcile net income to net cash provided by operating activities
               
Depreciation and amortization
    9,184       10,341  
Gain on sale of property
    (3,922 )  
 
Gain on debt extinguishment
    (1,673 )  
 
Noncash accretion of notes receivable
    (406 )     (1,438 )
Share compensation expense
    853       1,057  
Equity in losses (earnings) of unconsolidated affiliates
    148       (387 )
Other, net
    1,557       1,022  
Changes in assets and liabilities
               
Cash in escrow
    2,341       1,933  
Rents receivable, net
    (2,409 )     (2,250 )
Prepaid expenses and other assets, net
    (6,504 )     (2,366 )
Accounts payable and accrued expenses
    (1,057 )     (939 )
Other liabilities
    (3,006 )     1,002  
                 
Net cash provided by operating activities
    4,758       9,482  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Investment in real estate
    (13,225 )     (11,075 )
Deferred acquisition and leasing costs
    (900 )     (395 )
Investments in and advances to unconsolidated affiliates
    (40,618 )     (156 )
Return of capital from unconsolidated affiliates
    689       28  
Repayments of notes receivable
    874    
 
Increase in notes receivable
    (3,834 )  
 
Proceeds from sale of property
    7,977    
 
                 
Net cash used in investing activities
    (49,037 )     (11,598 )
 
 
 
4

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

(dollars in thousands)
 
Three months ended
March 31,
 
   
2011
   
2010
 
             
CASH FLOWS FROM FINANCING ACTIVITIES
           
Principal payments on mortgage notes
    (8,411 )     (25,742 )
Proceeds received on mortgage notes
    48,149    
 
Increase in deferred financing and other costs
    (512 )     (2,943 )
Capital contributions from noncontrolling interests
 
      11,876  
Distributions to noncontrolling interests
    (254 )     (676 )
Dividends paid to Common Shareholders
    (7,256 )     (7,188 )
Repurchase and cancellation of Common Shares
    (725 )     (966 )
Common Shares issued under Employee Share Purchase Plan
    24       24  
Exercise of options to purchase Common Shares
    7    
 
                 
Net cash provided by (used in) financing activities
    31,022       (25,615 )
                 
Decrease in cash and cash equivalents
    (13,257 )     (27,731 )
Cash and cash equivalents, beginning of period
    120,592       93,808  
                 
Cash and cash equivalents, end of period
  $ 107,335     $ 66,077  
                 
Supplemental disclosure of cash flow information
               
Cash paid during the period for interest, including capitalized interest of $1,188 and $442, respectively
  $ 8,492     $ 7,724  
                 
Cash paid for income taxes
  $ 3,343     $ 784  
                 


See accompanying notes
 
 
 
5

 

ACADIA REALTY TRUST AND SUBSIDIARIES
 
 
(unaudited)

1.         ORGANIZATION AND BASIS OF PRESENTATION

Business and Organization

Acadia Realty Trust (the “Trust”) and subsidiaries (collectively, the “Company”), is a fully-integrated equity real estate investment trust (“REIT”) focused on the ownership, management and redevelopment of high-quality retail properties and urban/infill mixed-use properties with a strong retail component located primarily in high-barrier-to-entry, densely-populated metropolitan areas along the East Coast and in the Midwestern United States.

All of the Company’s assets are held by, and all of its operations are conducted through, Acadia Realty Limited Partnership (the “Operating Partnership”) and entities in which the Operating Partnership owns an interest. As of March 31, 2011, the Trust controlled approximately 99% 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 primarily represent entities or individuals that contributed their interests in certain properties or entities to the Operating Partnership in exchange for common or preferred units of limited partnership interest (“Common or Preferred OP Units”) and restricted OP units (“LTIP Units”) awarded to employees as long-term compensation (Note 13). Limited partners holding Common OP Units are generally entitled to exchange their units on a one-for-one basis for common shares of beneficial interest of the Trust (“Common Shares”).

As of March 31, 2011, the Company has ownership interests in 34 properties within its core portfolio (“Core Portfolio”) and 48 properties within its three opportunity funds, Acadia Strategic Opportunity Fund I, L.P. (“Fund I”), Acadia Strategic Opportunity Fund II, LLC (“Fund II”) and Acadia Strategic Opportunity Fund III, LLC (“Fund III” and together with Fund I and Fund II, the “Opportunity Funds”). The 82 properties consist of commercial properties, primarily neighborhood and community shopping centers, mixed-use properties with a retail component and self-storage properties. In addition, the Company also invests in operating companies through Acadia Mervyn Investors I, LLC (“Mervyns I”) and Acadia Mervyn Investors II, LLC (“Mervyns II”) or Fund II, all on a non-recourse basis. These investments comprise and are referred to as the Company’s Retailer Controlled Property initiative (“RCP Venture”). The Operating Partnership has the following equity interests in the Opportunity Funds, Mervyns I and Mervyns II:

Entity
Equity Interest Held By Operating Partnership
Fund I and Mervyns I
22.2%
Fund II and Mervyns II
20.0%
Fund III
19.9%

In addition, with respect to each of the Opportunity Funds, Mervyns I and Mervyns II, the Operating Partnership is entitled to a profit participation in excess of its equity interest percentage based on certain investment return thresholds (“Promote”).
 
Basis of Presentation

The consolidated financial statements include the consolidated accounts of the Company and its investments in partnerships and limited liability companies in which the Company is presumed to have control in accordance with the consolidation guidance of the Financial Accounting Statements Board (“FASB”) Accounting Standards Codification (“ASC”). Investments in entities for which the Company has the ability to exercise significant influence but does not have financial or operating control, are accounted for under the equity method of accounting. Accordingly, the Company’s share of the net earnings (or losses) of entities accounted for under the equity method are included in consolidated net income under the caption, Equity in (Losses) Earnings of Unconsolidated Affiliates. Investments in entities for which the Company does not have the ability to exercise any influence are accounted for under the cost method.

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates. Operating results for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2011. The information furnished in the accompanying consolidated financial statements reflects all adjustments that, in the opinion of management, are necessary for a fair presentation of the aforementioned consolidated financial statements for the interim periods. These consolidated financial statements should be read in conjunction with the Company’s 2010 Annual Report on Form 10-K, as filed with the SEC on February 28, 2011.


 
6

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

1.         ORGANIZATION AND BASIS OF PRESENTATION (continued)

Recent Accounting Pronouncements

During April 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-02 “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” ASU 2011-02 requires a creditor to evaluate whether a restructuring constitutes a troubled debt restructuring by concluding that the restructuring constitutes a concession and that the debtor is experiencing financial difficulties and is effective for the first interim or annual period beginning on or after June 15, 2011. The adoption of ASU 2011-02 is not expected to have a material impact on the Company’s financial condition or results of operations.


2.           EARNINGS PER COMMON SHARE

Basic earnings per Common Share is computed using net income attributable to common shareholders and the weighted average Common Shares outstanding. Diluted earnings per Common Share reflect the conversion of obligations and the assumed exercises of securities including the effects of awards issuable under the Company’s Share Incentive Plans.  The following table sets forth the computation of basic and diluted earnings per share from continuing operations for the periods indicated:

   
Three months ended
March 31,
 
(dollars in thousands, except per share amounts)
 
2011
   
2010
 
Numerator
           
Income from continuing operations  attributable to Common Shareholders
  $ 8,636     $ 5,118  
Effect of dilutive securities:
               
Preferred OP Unit distributions
    5    
 
Numerator for diluted earnings per Common Share
  $ 8,641     $ 5,118  
                 
Denominator
               
Weighted average shares for basic earnings per share
    40,318       39,981  
Effect of dilutive securities
               
 Employee share options
    237       169  
 Convertible Preferred OP Units
    25    
 
Dilutive potential Common Shares
    262       169  
Denominator for diluted earnings per share
    40,580       40,150  
Basic earnings per Common Share from continuing operations attributable to Common Shareholders
  $ 0.21     $ 0.13  
Diluted earnings per Common Share from continuing operations attributable to Common Shareholders
  $ 0.21     $ 0.13  

The weighted average shares used in the computation of diluted earnings per share include unvested restricted Common Shares (“Restricted Shares”) and restricted OP units (“LTIP Units”) (Note 13) that are entitled to receive dividend equivalent payments. The effect of the conversion of Common OP Units is not reflected in the above table, as they are exchangeable for Common Shares on a one-for-one basis. The income allocable to such units is allocated on this same basis and reflected as noncontrolling interests in subsidiaries in the accompanying consolidated financial statements. As such, the assumed conversion of these units would have no net impact on the determination of diluted earnings per share. The conversion of the convertible notes payable (Note 9) is not reflected in the table above as such conversion, based on the current market price of the Common Shares, would be settled with cash.

The effect of the assumed conversion of 188 Series A Preferred OP Units into 25,067 Common Shares would be dilutive for the three months ended March 31, 2011 and anti-dilutive for the three months ended March 31, 2010 and are accordingly included and excluded, respectively, from the table above.

 
 
7

 
 
ACADIA REALTY TRUST AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(unaudited)
3.         NONCONTROLLING INTERESTS

Noncontrolling interests represent the portion of equity in entities consolidated in the accompanying financial statements that the Company does not own. Such noncontrolling interests are reported on the Consolidated Balance Sheets within equity, separately from shareholders’ equity.

Noncontrolling interests include third party interests in the Company’s Opportunity Funds and other entities. It also include interests in the Operating Partnership which represent (i) the limited partners’ 281,294 Common OP Units at both March 31, 2011 and December 31, 2010 (ii) 188 Series A Preferred OP Units at both March 31, 2011 and December 31, 2010 and (iii) 1,060,225 and 641,534 LTIP Units at March 31, 2011 and December 31, 2010, respectively.

4.         ACQUISITION AND DISPOSITION OF PROPERTIES AND DISCONTINUED OPERATIONS

Acquisitions

During February 2011, Fund III, in a venture with an unaffiliated partner, acquired three retail properties (“Lincoln Road”), aggregating 61,400 square feet located in the Lincoln Road area of South Miami Beach, Florida for $51.9 million, which included the assumption of $20.6 million of in-place mortgage debt. Fund III has a 95% interest in these properties.

During February 2011, Fund III, in a venture with an unaffiliated partner, acquired a 64,600 square foot single tenant retail property (“White Oak”) located in Silver Spring, Maryland for $9.8 million. Fund III has a 90% interest in the property.

Discontinued Operations

The Company reports properties held-for-sale and properties sold during the periods as discontinued operations. The results of operations of discontinued operations are reflected as a separate component within the accompanying Consolidated Financial Statements for all periods presented.

During January 2011, the Company completed the sale of a Fund II leasehold interest in the Neiman Marcus location at Oakbrook Center, located in Oak Brook, Illinois, for $8.2 million. The sale resulted in a gain of $3.9 million. The combined assets and liabilities as of December 31, 2010 and results of operations of the property classified as discontinued operations for the three months ended March 31, 2011 and March 31, 2010 are summarized as follows:


BALANCE SHEET
   
December 31,
 
(dollars in thousands)
   
2010
 
         
ASSETS
       
Net real estate
    $ 4,046  
Rents receivable, net
      69  
Prepaid expenses and other assets, net
      13  
Total assets of discontinued operations
    $ 4,128  
LIABILITIES
         
Total liabilities of discontinued operations
   
 
 

 
STATEMENTS OF OPERATIONS
 
Three months ended March 31,
 
(dollars in thousands) 
 
2011
   
2010
 
             
Total revenues
  $ 45     $ 266  
Total expenses
    2       207  
Operating income
    43       59  
Gain on sale of property
    3,922    
 
Income from discontinued operations
    3,965       59  
Income from discontinued operations attributable to noncontrolling interests
    (3,178 )     (47 )
Income from discontinued operations attributable to Common Shareholders
  $ 787     $ 12  
 

 
8

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

5.           INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

Core Portfolio

Brandywine Portfolio

The Company owns a 22.2% interest in an approximately one million square foot retail portfolio (the “Brandywine Portfolio”) located in Wilmington, Delaware that is accounted for under the equity method.

Crossroads

The Company owns a 49% interest in Crossroads Joint Venture and Crossroads II (collectively, “Crossroads”), which own a 311,000 square foot shopping center located in White Plains, New York that is accounted for under the equity method.

Opportunity Funds

RCP Venture

During 2004, the Company along with Klaff Realty, LP (“Klaff”) and Lubert-Adler Management, Inc. (“Lubert-Adler”) formed an investment group, the RCP Venture, for the purpose of making investments in surplus or underutilized properties owned by retailers. The RCP Venture is neither a single entity nor a specific investment. Any member of this group has the option of participating, or not, in any individual investment and each individual investment has been made on a stand-alone basis through a separate limited liability company (“LLC”). These investments have been made through different investment vehicles with different affiliated and unaffiliated investors and different economics to the Company. Investments under the RCP Venture are structured as separate joint ventures as there may be other investors participating in certain investments in addition to Klaff, Lubert-Adler and Acadia. The Company has made these investments through its subsidiaries, Mervyns I, Mervyns II and Fund II, (together the “Acadia Investors”), all on a non-recourse basis. Through March 31, 2011, the Acadia Investors have made investments in Mervyns Department Stores (“Mervyns”) and Albertsons including additional investments in locations that are separate from these original investments (“Add-On Investments”). Additionally, the Acadia Investors have invested in Shopko, Marsh and Rex Stores Corporation (collectively “Other RCP Investments”).

The Acadia Investors have noncontrolling interests in the individual investee LLC’s as follows:
     
Acadia Investors
     
Ownership % in:
   
Acadia Investors
Investee
Underlying
Investment
Investee LLC
Entity
LLC
entity(s)
Mervyns
KLA/Mervyn’s, LLC
Mervyns I and Mervyns II
10.5%
5.8%
Mervyns Add-On investments
KLA/Mervyn’s, LLC.
Mervyns I and Mervyns II
10.5%
5.8%
Albertsons
KLA A Markets, LLC
Mervyns II
18.9%
5.7%
Albertsons Add-On investments
KLA A Markets, LLC
Mervyns II
20.0%
6.0%
Shopko
KLA-Shopko, LLC
Fund II
20.0%
2.0%
Marsh and Add-On investments
KLA Marsh, LLC
Fund II
20.0%
3.3%
Rex stores
KLAC Rex Venture, LLC
Mervyns II
13.3%
13.3%

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

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


 
9

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

5.           INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES (continued)


The following table summarizes activity related to the RCP Venture investments from inception through March 31, 2011:

(dollars in thousands)
                   
Operating Partnership Share
 
Investment
 
Year Acquired
   
Invested
Capital
and Advances
   
 
Distributions
   
Invested
Capital
and Advances
   
 
Distributions
 
Mervyns
 
2004
    $ 26,058     $ 45,966     $ 4,901     $ 11,251  
Mervyns Add-On investments
   2005/2008       6,517       1,703       1,046       283  
Albertsons
   2006       20,717       77,053       4,239       15,410  
Albertsons Add-On investments
   2006/2007       2,412       1,679       387       336  
Shopko
   2006       1,108       1,655       222       331  
Marsh and Add-on investments
   2006/2008       2,667       2,639       533       528  
Rex Stores
   2007       2,701       840       535       168  
            $ 62,180     $ 131,535     $ 11,863     $ 28,307  

Other Opportunity Fund Investments

Fund II Investments

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

Fund III Investments

The unaffiliated venture partners for the Lincoln Road and White Oak investments (Note 4) maintain control over these entities and, as such, the Company accounts for these investments using the equity method.

Fund III also has an additional investment in the White City Shopping Center for which the unaffiliated venture partner maintains control over the entity and, as such, the Company accounts for this investment using the equity method.

During June 2010, Fund III, together with an unaffiliated partner, invested in an entity for the purpose of providing management services to owners of self-storage properties, including the 14 locations currently owned through Fund II and Fund III.  The entity was determined to be a variable interest entity for which the Company was determined not to be the primary beneficiary.  As such, the Company accounts for this investment under the equity method.



 
10

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

5.           INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES (continued)

Summary of Investments in Unconsolidated Affiliates

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

             
(dollars in thousands)
 
March 31,
2011
   
December 31,
2010
 
Combined and Condensed Balance Sheets
           
Assets
           
Rental property, net
  $ 248,456     $ 186,802  
Investment in unconsolidated affiliates
    190,640       192,002  
Other assets
    28,212       27,841  
                 
Total assets
  $ 467,308     $ 406,645  
                 
Liabilities and partners’ equity
               
Mortgage notes payable
  $ 287,705     $ 267,565  
Other liabilities
    15,014       13,815  
Partners’ equity
    164,589       125,265  
                 
Total liabilities and partners’ equity
  $ 467,308     $ 406,645  
Company’s investment in and advances to
               
  unconsolidated affiliates
  $ 70,613     $ 31,036  
Company’s share of distributions in excess of share of
               
  income and  investments in unconsolidated affiliates
  $ (21,040 )   $ (20,884 )
                 


   
Three Months Ended
 
(dollars in thousands)
 
March 31,
2011
   
March 31,
2010
 
Combined and Condensed Statements of Operations
           
Total revenues
  $ 9,582     $ 7,069  
Operating and other expenses
    3,766       2,537  
Interest expense
    3,973       3,355  
Equity in earnings of unconsolidated affiliates
    958       2,923  
Depreciation and amortization
    1,912       1,098  
Loss on sale of property, net
 
      (2,957 )
Net income
  $ 889     $ 45  
                 
Company’s share of net (loss) income
  $ (50 )   $ 484  
Amortization of excess investment
    (98 )     (97 )
Company’s share of net (loss) income
  $ (148 )   $ 387  
                 



 
11

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

6.           NOTES RECEIVABLE

At March 31, 2011, the Company’s notes receivable, net aggregated $92.4 million, and were collateralized by the underlying properties, the borrowers’ ownership interest in the entities that own the properties and/or by the borrowers’ personal guarantee as follows:
 
 

Description
 
Effective
interest
rate
   
Maturity date
   
First
Priority
liens
   
Net carrying
 amount of
notes
receivable
   
Extension
options
(dollars in thousands)
                           
Mezzanine Loan
    20.9%       7/2011     $ 170,727     $ 47,000    
1 x 1 year
Mezzanine Loan
    10.2%       11/2011       9,410       8,000    
1 x 1 year
Mezzanine Loan
    14.5%       6/2011    
      8,585    
1 x 6 months
Mezzanine Loan
    13.0%       9/2011    
      2,980    
Mezzanine Loan
    15.0%    
Upon Capital Event
   
      3,834    
First Mortgage Loan
    10.8%       9/2011    
      10,000    
Zero coupon Loan
    24.0%       1/2016    
      3,309    
Individually less
 
   10% to
   
Demand note
                     
  than 3%
    17.5%    
to 1/2017
      106,089       8,709    
Total
                          $ 92,417      

During February 2011, the Company made a mezzanine loan for $3.8 million which accrues interest at 15% and is payable upon a capital event. The Company also received a payment of $1.9 million on a mezzanine loan.

Allowances for real estate notes receivable 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.

The activity in the allowance for notes receivable for the three months ended March 31, 2011 is as follows:

   
Allowance for
 
(dollars in thousands)
 
Notes Receivable
 
       
Balance at December 31, 2010
  $ 4,964  
Provision for losses on notes receivable
    151  
Balance at March 31, 2011
  $ 5,115  


7.         DERIVATIVE FINANCIAL INSTRUMENTS

As of March 31, 2011, the Company’s derivative financial instruments consisted of seven interest rate swaps with an aggregate notional value of $71.4 million, which effectively fix LIBOR at rates ranging from 0.4% to 5.1% and mature between September 2011 and November 2012. The Company also has a derivative financial instrument with a notional value of $28.9 million which caps LIBOR at 6.0% and matures in April 2013. The fair value of the net derivative liability of these instruments, which is included in other liabilities in the Consolidated Balance Sheets, totaled $2.3 million and $2.8 million at March 31, 2011 and December 31, 2010, respectively. The notional value does not represent exposure to credit, interest rate, or market risks.

These derivative instruments have been designated as cash flow hedges and hedge the future cash outflows on variable rate mortgage debt. Such instruments are reported at the fair value reflected above. As of March 31, 2011 and December 31, 2010, unrealized losses totaling $2.4 million and $2.8 million, respectively, were reflected in accumulated other comprehensive loss.

As of March 31, 2011 and December 31, 2010, no derivatives were designated as fair value hedges, hedges of net investments in foreign operations or considered to be ineffective. Additionally, the Company does not use derivatives for trading or speculative purposes.
 
 
 
12

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


8.         MORTGAGE NOTES PAYABLE
 
The Company completed the following transactions related to mortgage loans and credit facilities during the three months ended March 31, 2011:

During January 2011, the Company liquidated a $9.3 million mortgage loan for $7.6 million, resulting in a $1.7 million gain on extinguishment of debt.

During January 2011, the Company borrowed the remaining $2.4 million of a $34.0 million loan collateralized by a property.

During February 2011, the Company borrowed $39.0 million under the Fund III subscription line of credit.  As of March 31, 2011, the total outstanding amount on this line of credit was $210.5 million.

During January 2011, the Company amended an existing $48.0 million construction loan collateralized by a property. The amendment provided for an additional $3.0 million supplemental loan and a $7.0 million subordinate loan. The amended loan continues to bear interest at LIBOR plus 400 basis points, subject to an interest rate floor of 6.50% and matures on January 12, 2012. During the first quarter of 2011, the Company drew down an additional $6.7 million on this construction loan.  As of March 31, 2011, the total outstanding amount on this loan was $46.9 million.
 
9.         CONVERTIBLE NOTES PAYABLE

In December 2006 and January 2007, the Company issued $115.0 million of convertible notes with a fixed interest rate of 3.75% due 2026 (the “Convertible Notes”). The Convertible Notes were issued at par and require interest payments semi-annually in arrears on June 15th and December 15th of each year. The Convertible Notes are unsecured obligations and rank equally with all other unsecured and unsubordinated indebtedness. The Convertible Notes have an effective interest rate of 6.03% giving effect to the accounting treatment required by ASC Topic 470-20 “Debt with Conversion and Other Options”. Holders of the Convertible Notes may require the Company to repurchase the Convertible Notes at par on December 20, 2011, December 15, 2016 and December 15, 2021. The Company deems that the Convertible Notes will mature on December 20, 2011.

The carrying amount of the equity component included in additional paid-in capital totaled $0.8 million at March 31, 2011 and $1.1 million at December 31, 2010. The additional non-cash interest expense recognized in the Consolidated Statements of Income was $0.3 million for each of the three months ended March 31, 2011 and 2010. The if-converted value of the Convertible Notes does not exceed their aggregate principal amount as of March 31, 2011 and there are no derivative transactions that were entered into in connection with the issuance of the Convertible Notes.

Through March 31, 2011, the Company has purchased $65.2 million in face amount of its Convertible Notes at an average discount of approximately 19%. The outstanding Convertible Notes face amount as of March 31, 2011 was $49.8 million.
 
 
 
13

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


10.         FAIR VALUE MEASUREMENTS

The FASB’s fair value measurements and disclosure guidance requires the valuation of certain of the Company’s financial assets and liabilities, based on a three-level fair value hierarchy. Market participant assumptions obtained from sources independent of the Company are observable inputs that are classified within Levels 1 and 2 of the hierarchy, and the Company’s own assumptions about market participant assumptions are unobservable inputs classified within Level 3 of the hierarchy.

The following table presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of March 31, 2011:

(dollars in thousands)
 
Level 1
   
Level 2
   
Level 3
 
Liabilities
                 
Derivative financial instruments (Note 7)
  $     $ 2,340     $  

Financial Instruments

Certain of the Company’s assets and liabilities meet the definition of financial instruments. Except as disclosed below, the carrying amounts of these financial instruments approximates their fair value.

The Company has determined the estimated fair values of the following financial instruments by discounting future cash flows utilizing a discount rate equivalent to the rate at which similar financial instruments would be originated at the reporting date:

   
March 31, 2011
   
December 31, 2010
 
         
Estimated
         
Estimated
 
   
Carrying
   
Fair
   
Carrying
   
Fair
 
(dollars in thousands)
 
Amount
   
Value
   
Amount
   
Value
 
                         
Notes Receivable
  $ 92,417     $ 92,689     $ 89,202     $ 90,612  
                                 
Mortgage Notes Payable and Convertible Notes Payable
  $ 893,086     $ 893,426     $ 854,924     $ 863,639  

11.         RELATED PARTY TRANSACTIONS

The Company earned property management fees, legal and leasing fees from the Brandywine portfolio totaling $0.5 million and $0.2 million for the three months ended March 31, 2011 and March 31, 2010, respectively.

Lee Wielansky, the Lead Trustee of the Company, was paid a consulting fee of $25,000 for each of the three months ended March 31, 2011 and 2010.

12.         SEGMENT REPORTING

The Company has 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 investment and related interest income.  “Other” consists primarily 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. The Company evaluates property performance primarily based on net operating income before depreciation, amortization and certain nonrecurring items. Investments in the Core Portfolio are typically held long-term. Given the contemplated finite life of the Opportunity Funds, these investments are typically held for shorter terms. Fees earned by the Company as the general partner/member of the Opportunity Funds are eliminated in the Company’s consolidated financial statements. The following tables set forth certain segment information for the Company, reclassified for discontinued operations, as of and for the three months ended March 31, 2011 and 2010 (does not include unconsolidated affiliates):
 
 
 
14

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

12.         SEGMENT REPORTING, continued

Three Months Ended March 31, 2011

(dollars in thousands)
 
Core
Portfolio
   
Opportunity
Funds
   
Self -
Storage
 Portfolio
   
Notes
Receivable
   
Other
   
Amounts
Eliminated in Consolidation
   
Total
 
Revenues
  $ 15,710     $ 13,594     $ 5,335     $ 4,538     $ 6,474     $ (5,845 )   $ 39,806  
Property operating expenses
and real estate taxes
    4,914       4,852       3,213       -       -       (445 )     12,534  
Other expenses
    5,898       3,480       -       -       -       (3,688 )     5,690  
Income before depreciation
and amortization
  $ 4,898     $ 5,262     $ 2,122     $ 4,538     $ 6,474     $ (1,712 )   $ 21,582  
Depreciation and amortization
  $ 3,728     $ 4,405     $ 1,177     $
-
    $
-
    $ (126 )   $ 9,184  
Interest and other finance expense
  $ 4,077     $ 3,093     $ 851     $
-
    $
-
    $ (13 )   $ 8,008  
Real estate at cost
  $ 480,619     $ 722,253     $ 210,396     $
-
    $
-
    $ (13,623 )   $ 1,399,645  
Total assets
  $ 567,991     $ 813,476     $ 193,505     $ 92,417     $
-
    $ (106,348 )   $ 1,561,041  
Expenditures for real estate and
    improvements
  $ 1,385       11,670     $ 445     $
-
    $
-
    $ (275 )   $ 13,225  
Reconciliation to net income and net income attributable to Common Shareholders
                         
Net property income before depreciation and amortization
    $ 21,582  
Other interest income
      34  
Depreciation and amortization
      (9,184 )
Equity in losses of unconsolidated affiliates
      (148 )
Interest and other finance expense
      (8,008 )
Income tax provision
      (262 )
Gain on debt extinguishment
      1,673  
Income from discontinued operations
      3,965  
Net income
      9,652  
Net income attributable to noncontrolling interests
      (229 )
Net income attributable to Common Shareholders
    $ 9,423  

Three Months Ended March 31, 2010

(dollars in thousands)
 
Core
Portfolio
   
Opportunity
Funds
   
Self -
Storage
Portfolio
   
Notes
Receivable
   
Other
   
Amounts
Eliminated in
Consolidation
   
Total
 
Revenues
  $ 15,934     $ 11,596     $ 4,539     $ 4,993     $ 4,785     $ (4,386 )   $ 37,461  
Property operating expenses
and real estate taxes
    5,329       4,370       2,907    
-
   
-
      (292 )     12,314  
Other expenses
    5,714       3,382    
-
   
-
   
-
      (3,977 )     5,119  
Income before
depreciation and amortization
  $ 4,891     $ 3,844     $ 1,632     $ 4,993     $ 4,785     $ (117 )   $ 20,028  
Depreciation and amortization
  $ 3,917     $ 5,203     $ 1,183     $
-
    $
-
    $ (108 )   $ 10,195  
Interest and other finance expense
  $ 4,302     $ 3,063     $ 1,102     $
-
    $
-
    $
-
    $ 8,467  
Real estate at cost
  $ 476,751     $ 534,884     $ 210,422     $
-
    $
-
    $ (11,144 )   $ 1,210,913  
Total assets
  $ 538,061     $ 612,245     $ 196,206     $ 126,643     $
-
    $ (112,981 )   $ 1,360,174  
Expenditures for real estate and
    improvements
  $ 2,970     $ 7,594     $ 562      $
-
    $
-
    $ (51 )   $ 11,075  
Reconciliation to net income and net income attributable to Common Shareholders
 
Net property income before depreciation and amortization
    $ 20,028  
Other interest income
      134  
Depreciation and amortization
      (10,195 )
Equity in earnings of unconsolidated affiliates
      387  
Interest and other finance expense
      (8,467 )
Income tax provision
      (439 )
Income from discontinued operations
      59  
Net income
      1,507  
Net loss attributable to noncontrolling interests
      3,623  
Net income attributable to Common Shareholders
    $ 5,130  
 
 
 
15

 

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

13.         LONG-TERM INCENTIVE COMPENSATION

LONG-TERM INCENTIVE COMPENSATION

The Company maintains two share incentive plans, the 2003 Share Incentive Plan and the 2006 Share Incentive Plan (collectively the “Share Incentive Plans”).

On March 3, 2011 and March 22, 2011, the Company issued a combined total of 429,909 LTIP Units and 1,549 Restricted Shares to officers of the Company and 164 LTIP Units and 9,584 Restricted Shares to other employees of the Company.  Vesting with respect to these awards is recognized ratably over the five annual anniversaries following the issuance date. Vesting with respect to 11% of the awards issued to officers is also generally subject to achieving certain Company performance measures.

These awards were measured at their fair value as if they were vested on the grant date.  Fair value was established as the market price of the Company’s Common Shares as of the close of trading on the day preceding the grant date.

The total value of the above Restricted Shares and LTIP Units as of the grant date was $8.4 million, of which $2.4 million has been recognized in compensation expense during 2010 and $6.0 million will be recognized in compensation expense over the vesting period.  Compensation expense of $0.3 million has been recognized in the accompanying financial statements related to these awards for the three months ended March 31, 2011.

Total long-term incentive compensation expense, including the expense related to the above-mentioned plans, was $0.8 million and $1.0 million for the three months ended March 31, 2011 and 2010, respectively.

In 2009, the Company adopted the Long Term Investment Alignment Program (the “Program”) pursuant to which the Company may award units primarily to senior executives which would entitle them to receive up to 25% of any future Fund III Promote when and if such Promote is ultimately realized. During March 2011, the Company awarded an additional 12% of the Program, with the total awards to date representing 73% of the Program, which were determined to have no value at issuance or as of March 31, 2011.  In accordance with ASC Topic 718, “Compensation - Stock Compensation,” compensation relating to these awards will be recorded based on the change in the estimated fair value at each reporting period.

14.         SUBSEQUENT EVENTS

During April 2011, the Company, through Fund III, acquired The Heritage Shops at Millennium Park, a 105,000 square foot property located in the East Loop section of downtown Chicago, Illinois, for $31.6 million.


 
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The following discussion is based on the consolidated financial statements of the Company as of March 31, 2011 and 2010 and for the three months then ended. This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results performance or achievements expressed or implied by such forward-looking statements. Such factors are set forth under the heading “Item 1A. Risk Factors” in our Form 10-K for the year ended December 31, 2010 (our “2010 Form 10-K”) and include, among others, the following: general economic and business conditions, including the current post-recessionary period, which will, among other things, affect demand for rental space, the availability and creditworthiness of prospective tenants, lease rents and the availability of financing; adverse changes in our real estate markets, including, among other things, competition with other companies; risks of real estate development, acquisition and investment; risks related to our use of leverage; demands placed on our resources due to the growth of our business; risks related to operating through a partnership structure; our limited control over joint venture investments; the risk of loss of key members of management; uninsured losses; REIT distribution requirements and ownership limitations; concentration of ownership by certain institutional investors; governmental actions and initiatives; and environmental/safety requirements. Except as required by law, we do not undertake any obligation to update or revise any forward-looking statements contained in this Form 10-Q.

OVERVIEW

As of March 31, 2011, we operated 82 properties, which we own or have an ownership interest in, within our Core Portfolio or within our three Opportunity Funds. These 82 properties consist of commercial properties, primarily neighborhood and community shopping centers, mixed-use properties with a retail component and self-storage properties. The properties we operate are located primarily in the Northeast, Mid-Atlantic and Midwestern regions of the United States. Our Core Portfolio consists of those properties either 100% owned, or partially owned through joint venture interests, by the Operating Partnership, or subsidiaries thereof, not including those properties owned through our Opportunity Funds. Excluding properties under redevelopment, there are 32 properties in our Core Portfolio totaling approximately 4.8 million square feet. Fund I has 20 properties comprising approximately 0.9 million square feet. Fund II has 10 properties, eight of which (representing 1.2 million square feet) are currently operating, one is under construction, and one is in the 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 18 properties totaling approximately 1.9 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 82 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 generally traditional investments in operating rental real estate but investments in operating businesses, the Operating Partnership principally 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
 
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 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. Management bases its 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 the 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 there have been no material changes to the items that we disclosed as our critical accounting policies under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our 2010 Form 10-K.
 
 
 
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RESULTS OF OPERATIONS


Comparison of the three months ended March 31, 2011 (“2011”) to the three months ended March 31, 2010 (“2010”)

Revenues
 
2011
   
2010
 
(dollars in millions)
 
Core
Portfolio
   
Opportunity
Funds
   
Storage
Portfolio
   
Notes
Receivable
and Other
   
Core
Portfolio
   
Opportunity
Funds
   
Storage
Portfolio
   
Notes
Receivable
and Other