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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
     
þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
     
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  þ     NO  o
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  þ
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  þ     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.  o
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  þ     Accelerated Filer  o     Non-accelerated Filer  o
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)  YES  o     NO  þ
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 $751.4 million, based on a price of $23.65 per share, the average sales price for the registrant’s 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, 2007 was 32,132,797.
DOCUMENTS INCORPORATED BY REFERENCE
Part III – Definitive proxy statement for the 2007 Annual Meeting of Shareholders presently scheduled to be held May 15, 2007 to be filed pursuant to Regulation 14A.
 
 

 


 

TABLE OF CONTENTS
Form 10-K Report
             
Item No.       Page
           
1.       4  
1A.       12  
1B.       17  
2.       17  
3.       26  
4.       26  
           
5.       27  
6.       29  
7.       30  
7A.       39  
8.       40  
9.       40  
9A.       40  
9B.       41  
           
10.       42  
11.       42  
12.       42  
13.       42  
14.       42  
           
15.       42  
 Amended and Restated Loan Agreement dated as of December 19, 2006
 Loan Agreement dated as of December 19, 2006
 List of Affiliates of Acadia Realty Trust
 Consent of BDO Seidman, LLP
 Consent of Independent Registered Public Accounting Firm
 Certification of Kenneth F. Bernstein, Principal Executive Officer
 Certification of Michael Nelsen, Principal Financial Officer
 Certification of Kenneth F. Bernstein Pursuant to 18 U.S.C. Section 1350
 Certification of Michael Nelsen Pursuant to 18 U.S.C. Section 1350

 


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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 heading “Item 1A Risk Factors” in this Form 10-K. These risks and uncertainties should be considered in evaluating any forward-looking statements contained or incorporated by reference herein.

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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 74 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 which, in total, comprise approximately 10 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, 2006, 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 represent entities or individuals which contributed their interests in certain properties or entities to the Operating Partnership in exchange for common or preferred units of limited partnership interest (“Common OP Units” or “Preferred OP Units”). 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”). This structure is commonly referred to as an umbrella partnership REIT or “UPREIT”.
BUSINESS OBJECTIVES AND STRATEGIES
Our primary business objective is to acquire, develop 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 portfolio of community and neighborhood shopping centers and mixed-use properties with a retail component located in markets with strong demographics
 
    Generate internal growth within the portfolio through aggressive redevelopment, re-anchoring and leasing activities
 
    Generate external growth through an opportunistic yet disciplined acquisition program. The emphasis is on targeting 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
 
    Partner with private equity investors for the purpose of making investments in operating retailers with significant embedded value in their real estate assets
 
    Maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth
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 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 joint ventures in which we earn, in addition to a return on our equity interest, fees and priority distributions for our services. To date, we have launched two acquisition joint ventures, Acadia Strategic Opportunity Fund, LP (“Fund I”) and Acadia Strategic Opportunity Fund II, LLC (“Fund II”).
Fund I
In September 2001, we and four of our institutional shareholders formed a joint venture, whereby the investors committed $70.0 million for the purpose of acquiring real estate assets. The Operating Partnership committed an additional $20.0 million to Fund I, as the general partner with a 22% interest. In addition to a pro-rata return on its invested equity, the Operating Partnership is entitled to a profit participation based upon certain investment return thresholds. Cash flow is distributed pro-rata to the partners (including the Operating Partnership) until they have received a 9% cumulative return on, and a return of all capital contributions.
Thereafter, remaining cash flow is distributed 80% to the partners (including the Operating Partnership) and 20% to the Operating Partnership as a carried interest (“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 and construction services. All such fees and priority distributions are reflected as adjustments to minority interest in the Consolidated Financial Statements included in Item 8 of Form 10-K.

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Our acquisition program was executed exclusively 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 of 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.
On January 4, 2006, Fund I recapitalized a one million square foot retail portfolio located in Wilmington Delaware (“Brandywine Portfolio”) through a merger of interests with affiliates of GDC Properties (“GDC”). The Brandywine Portfolio was recapitalized through a “cash-out” merger of the 77.8% interest, which was previously held by the institutional investors in Fund I, to GDC at a valuation of $164.0 million. The Operating Partnership, through a subsidiary, retained its existing 22.2% interest and continues to operate the Brandywine Portfolio and earn fees for such services. At the closing of the merger, the Fund I investors received a return of all of their capital invested in Fund I and their unpaid preferred return, thus triggering the payment to the Operating Partnership of its additional 20% Promote in all future Fund I distributions. During June 2006, the Fund I investors received $36.0 million of additional proceeds from this transaction following the replacement of bridge financing which they provided, with permanent mortgage financing, triggering $7.2 million in additional Promote due the Operating Partnership, which will be paid from the Fund I investor’s share of the remaining assets in Fund I.
There are 32 assets comprising approximately two million square feet remaining in Fund I in which the Operating Partnership’s interest in cash flow and income has increased from 22.2% to 37.8% as a result of the Promote.
Fund II
Following our success with Fund I, we formed a second, larger acquisition joint venture. During June of 2004, we launched Fund II, which includes all of the investors from Fund I as well as two additional institutional investors. With $300.0 million of committed discretionary capital, Fund II expects to be able to acquire up to $900.0 million of real estate assets on a leveraged basis. The Operating Partnership is the managing member with a 20% interest in Fund II. The terms and structure of Fund II are substantially the same as Fund I with the exception that the Preferred Return is 8%.
As the demand for retail real estate has significantly increased in recent years, there has been a commensurate increase in selling prices. In an effort to generate superior risk-adjusted returns for our shareholders and joint venture investors, we have channeled our acquisition efforts through Fund II in two new opportunistic joint ventures launched during 2004 – the Retailer Controlled Property Venture and the New York Urban Infill Redevelopment Initiative.
Retailer Controlled Property Venture (the “RCP Venture”)
On January 27, 2004, through Funds I and II, we entered into the RCP Venture with Klaff Realty, L.P. (“Klaff”) and Klaff’s long time partner Lubert-Adler Management, Inc. (“Lubert-Adler”) for the purpose of making investments in surplus or underutilized properties owned by retailers. The initial size of the RCP Venture is expected to be approximately $300 million in equity based on anticipated investments of approximately $1 billion. Each participant in the RCP Venture has the right to opt out of any potential investment. Affiliates of Funds I and II have invested $12.3 million and $37.1 million, respectively, 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. Since Fund I is fully invested, Fund II will provide the remaining portion of the original 20% of the equity of the RCP Venture. Cash flow is to be distributed to the partners 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. We seek to invest opportunistically in the RCP Venture primarily in the following four ways:
    Invest in operating retailers 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. During 2006, we made additional investments with our participation in the acquisition of Albertsons, Cub, ShopKo and Marsh Supermarkets as further discussed in “PROPERTY ACQUISITIONS” in this Item 1 of Form 10-K.
New York Urban/Infill Redevelopment Initiative
In September of 2004, through Fund II, we launched our New York Urban Infill Redevelopment initiative. As retailers continue to recognize that many of the nation’s urban markets are underserved from a retail standpoint, we are poised to capitalize on this trend 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 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. See Item 7 of Form 10K for further information on the Acadia P/A Joint Venture as detailed in “Liquidity and Capital Resources”. To date, Fund II has, in conjunction with P/A, invested in six projects and entered into an

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agreement on a seventh project, subject to certain approvals, as discussed further in “PROPERTY ACQUISITIONS” in this Item 1 of this Form 10-K.
Other Investments
We may also invest in preferred equity investments, mortgages, other real estate interests and other investments. The mortgages in which we invest in may be either first mortgages or mezzanine debt, where we believe the underlying value of the real estate collateral is in excess of its loan balance. As of December 31, 2006 our investments in first mortgages and mezzanine debt aggregated $38.3 million.
Capital Strategy — Balance Sheet Focus and Access to Capital
Our primary capital objective is to maintain a strong and flexible balance sheet through conservative financial practices 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, 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 such as the issuance of Operating Partnership Units. We manage our interest rate risk primarily through the use of variable and fixed rate-debt as well as with LIBOR swap agreements as discussed further in Item 7A of this Form 10-K.
In December 2006, we issued $100.0 million of 3.75% unsecured Convertible Notes (the “Notes”). Interest on the Notes is payable semi-annually. The Notes have an initial conversion rate of 32.4002 of our Common Shares for each $1,000 principal amount, representing a conversion price of approximately $30.86 per Common Share, or a conversion premium of approximately 20.0%. The Notes are redeemable for cash up to their principal amount plus accrued interest and, at our option, cash, our Common Shares, or a combination thereof with respect to the remainder, if any, of the conversion value in excess of the principal amount. The Notes mature December 15, 2026, although the holders of the Notes may require the Company to repurchase their Notes, in whole or in part, on December 20, 2011, December 15, 2016, and December 15, 2021. After December 20, 2011, we have the right to redeem the Notes in whole or in part at any time. In January 2007, an option was exercised to issue an additional $15.0 million of these Notes. The $112.1 million in proceeds, net of related costs, were used to retire variable rate debt, provide for future Fund capital commitments and for general working capital purposes.
During January 2007, we filed a shelf registration on Form S-3 providing offerings for up to a total of $300.0 million of Common Shares, Preferred Shares and debt securities. To date, we have not issued any securities pursuant to this shelf registration.
Common and Preferred OP Unit Transactions
On January 27, 2004, we issued 4,000 Series B Preferred OP Units to Klaff in connection with the acquisition from Klaff of its rights to provide asset management, leasing, disposition, development and construction services for an existing portfolio of retail properties. These units have a stated value of $1,000 each and are entitled to a quarterly preferred distribution of the greater of (i) $13.00 (5.2% annually) per Preferred OP Unit or (ii) the quarterly distribution attributable to a Preferred OP Unit if such unit were converted into a Common OP Unit. The Preferred OP Units are convertible into Common OP Units based on the stated value of $1,000 divided by 12.82 at any time. Klaff may redeem them at par for either cash or Common OP Units (at our option) after the earlier of the third anniversary of their issuance, or the occurrence of certain events including a change in the control of our Company. Finally, after the fifth anniversary of the issuance, we may redeem the Preferred OP Units and convert them into Common OP Units at market value as of the redemption date.
Effective February 15, 2005, we acquired the balance of Klaff’s rights to provide the above services as well as certain potential future revenue streams. The consideration for this acquisition was $4.0 million in the form of 250,000 restricted Common OP Units, valued at $16 per unit, which are convertible into our Common Shares on a one-for-one basis after a five year lock-up period. As part of this transaction we also assumed all operational and redevelopment responsibility for the Klaff Properties a year earlier than was contemplated in the January 2004 transaction.
In February 2007, Klaff converted 3,800 Series B Preferred OP Units into 296,412 Common OP Units and ultimately into Common Shares.
Common Share Transactions
During November 2004, we issued 1,890,000 Common Shares (the “Offering”) pursuant to shelf registration statements filed under the Securities Act of 1933, as amended, and previously declared effective by the Securities and Exchange Commission. The $28.3 million in proceeds from the Offering, which were net of related costs, were used to retire above-market, fixed-rate indebtedness as well as to invest in real estate assets. Yale University and its affiliates (“Yale”), and Kenneth F. Bernstein, our Chief Executive Officer, also sold 1,000,000, and 110,000 Common Shares, respectively, in connection with this transaction.
In March of 2004, a secondary public offering was completed for a total of 5,750,000 Common Shares. The selling shareholders, Yale and Ross Dworman, a former trustee and Chairman, sold 4,191,386 and 1,558,614 Common Shares, respectively. Yale was a major shareholder, owning, at one time, approximately one-third of all of our outstanding Common Shares. We did not sell any

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Common Shares in this transaction and did not receive any proceeds from this transaction.
Operating Strategy — Experienced Management Team with Proven Track Record
Our senior management team has an average of nine years with us and our predecessors and 26 years in the real estate industry. Our management team successfully completed a major multi-year portfolio repositioning initiative culminating in 2002 that significantly improved the quality of our portfolio and tenant base. We believe our management team has demonstrated the ability to create value internally through anchor recycling, property redevelopment and strategic non-core dispositions. Our team has built several successful acquisition platforms including our New York Urban Infill Redevelopment Initiative and RCP Venture. We have also capitalized on our expertise in the acquisition, redevelopment, leasing and management of retail real estate by establishing joint ventures, such as Funds I and II, in which we earn, in addition to a return on our equity interest, fees and priority distributions for our services.
Operating functions such as leasing, property management, construction, finance and legal (collectively, the “Operating Departments”) are 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.
We typically hold our 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. The anchors at these centers typically pay market or below-market rents and have low rent-to-sales ratios, which are, on average, less than 5%. Furthermore, supermarket and necessity-based retailers anchor the majority of our core portfolio. These attributes enable our properties to better withstand a weakening economy while also creating opportunities to increase rental income.
During 2006 and 2005 we sold six non-core properties and redeployed the capital to acquire five retail properties as further discussed in “ASSET SALES” and CAPITAL/ASSET RECYCLING” in this Item 1 of Form 10-K.
PROPERTY ACQUISITIONS
RCP Venture
In June 2006, the RCP Venture made its second major investment with its participation in the acquisition of Albertsons. The total price paid by the investment consortium, which included Cerberus, Schottenstein and Kimco Realty, to Albertsons for the portfolio was $1.9 billion which was funded with $0.3 billion of equity and $1.6 billion of financing. Albertsons was the nation’s 2nd largest grocery and drug chain which operated over 2,500 stores in 37 states. Albertsons divided its assets into three independent components and for a total price of $17.4 billion, sold 1,124 stores to Supervalu, 700 stores to CVS and 699 stores along with 26 Cub Food stores to the investment consortium. Supervalu and CVS are the investment consortium’s strategic operating partners and, as such, are part of the purchasing group, but fund, own, and operate their respective portions of the portfolio independently. As with the Mervyns investment (see below), we anticipate investing in Albertsons add-on real estate opportunities. During the third quarter of 2006, additional investments of $1.0 million were made in, the Camellia Center and Newkirk portfolio. Camellia Center is an Albertsons-anchored center located in Sacramento, California and Newkirk is a portfolio of 50 properties currently leased to Albertsons. As of December 31, 2006, our total invested capital in Albertsons and add-on investments amounted to $23.1 million, of which the Operating Partnership’s share was $4.6 million.
We also invested $1.1 million in Shopko, a regional multi-department retailer with 358 stores located throughout the Midwest, Mountain and Pacific Northwest and $0.7 million in Marsh, a regional supermarket chain operating 271 stores in central Indiana, Illinois and western Ohio. The Operating Partnership’s share of these investments totaled $0.4 million.
In September 2004, we made our first RCP Venture investment with our participation in the acquisition of Mervyn’s. Through affiliates of Fund I and Fund II, which were separately organized, newly formed limited liability companies on a non-recourse basis, we invested in the acquisition of Mervyn’s through the RCP Venture, which, as part of an investment consortium of Sun Capital and Cerberus, acquired Mervyn’s from Target Corporation. The total acquisition price was approximately $1.2 billion subject to debt of approximately $800.0 million. Our share of equity invested aggregated $24.6 million on a non-recourse basis and was divided equally between affiliates of Funds I and II. The Operating Partnership’s share was $5.2 million.
As of the date of acquisition, Mervyn’s was a 257-store discount retailer with a very strong West Coast concentration. During 2005, the consortium sold a portion of the portfolio as well as refinanced existing mortgage debt and distributed cash to the investors, of which a total of $42.7 million was distributed to us of which the Operating Partnership’s share amounted to $10.2 million. In February of 2006, the consortium distributed additional cash of which a total of $1.4 million was distributed to us of which $0.4 million was the Operating Partnership’s share.

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On February 26, 2007 we, through our RCP Venture, received a cash distribution totaling approximately $42.5 million from our ownership position in Albertsons. The Operating Partnership’s share of this distribution amounted to approximately $8.5 million. The distribution resulted from cash proceeds obtained by Albertsons in connection with its disposition of certain operating stores and a refinancing of the remaining assets held in the entity.
New York Urban/Infill Redevelopment Initiative
The Center at Albee Square – On February 23, 2007, Acadia-P/A and Paul Travis of Washington Square Partners (collectively, “Acadia P/A–Travis”), entered into an agreement for the purchase of the leasehold interest in The Gallery at Fulton Street and adjacent parking garage in Downtown Brooklyn, NY for $120.0 million. The fee position in the property is owned by the City of New York and the agreement includes an option to purchase this fee position at a later date. Plans for the property include the demolition of the existing improvements and the development of a 1.6 million square foot mixed-use complex. This transaction is subject to approval by the Mayor of the City of New York. There are no assurances that the approval will be granted.
Liberty Avenue — On December 20, 2005, Acadia-P/A acquired the remaining 40-year term of a leasehold interest in land located at Liberty Avenue and 98th Street in Queens (Ozone Park). Development of this project is substantially complete and includes approximately 30,000 square feet of retail anchored by a CVS drug store, which is open and operating. The project also includes a 95,000 square foot self-storage facility which is open and currently operated by Storage Post. Storage Post is a partner in the self-storage complex, and is anticipated to be a partner in future retail projects in New York City where self storage will be a potential component of the redevelopment. The total cost of the redevelopment is expected to be approximately $15 million.
216th Street — On December 1, 2005, Acadia-P/A acquired a 65,000 square foot parking garage located at 10th Avenue and 216th Street in the Inwood section of Manhattan for $7.0 million. Construction is underway for a 60,000 square foot office building to relocate an agency of the City of New York, which is a current tenant at another of our Urban/Infill Redevelopment projects. Inclusive of acquisition costs, total costs for the project, which also includes a 100-space rooftop parking deck, are anticipated to be approximately $25 million.
161st Street - On August 5, 2005, Acadia-P/A purchased 244-268 161st Street located in the Bronx for $49.3 million, inclusive of closing costs. The ultimate redevelopment plan for the property, a 100% occupied, 10-story office building, is to reconfigure the property so that approximately 50% of the income from the building will eventually be derived from retail tenants. Additional redevelopment costs are anticipated to be approximately $16 million.
4650 Broadway - On April 6, 2005, Acadia-P/A acquired 4650 Broadway located in the Washington Heights/Inwood section of Manhattan. The property, a 140,000 square foot building, which is currently occupied by an agency of the City of New York and a commercial parking garage, was acquired for a purchase price of $25.0 million. Following the relocation of the office tenant to our 216th St. redevelopment during 2007 as discussed above, we plan to commence redevelopment of the site to include retail, commercial and residential components totaling over 285,000 square feet. Expected costs to complete the retail and commercial component of the project are estimated at $30.0 million before any potential sale of the residential air rights. In lieu of directly developing the potential residential portion of the project, the rights to this component may be sold while retaining ownership of the other portions of the project.
Pelham Manor — On October 1, 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 have commenced demolition of the existing industrial and warehouse buildings, and will be replacing them with a multi-anchor community retail center at a total estimated cost of $40 million.
Fordham Road — On September 29, 2004, Acadia-P/A purchased 400 East Fordham Road, Bronx, New York. Sears, a former tenant that operated on four levels at this property, has signed a new lease to occupy only the concourse level after redevelopment. We have commenced redevelopment at this site which is expected to include four levels of retail and office space totaling 276,000 square feet when completed. The total cost of the project, including the acquisition cost of $30 million, is expected to be $115 million.
In addition to the above New York Urban/Infill projects, through Fund II we also acquired the following:
During November 2005, we acquired a ground lease interest in a 112,000 square foot building occupied by Neiman Marcus. The property is located at Oakbrook Center, a super-regional Class A mall located in the Chicago Metro area. The ground lease was acquired for $6.9 million, including closing and other acquisition costs.
During July 2005, we acquired for $1.0 million, a 50% equity interest from its partner in the RCP Venture in the entity which has a leasehold interest in a former Levitz Furniture store located in Rockville, Maryland.

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Fund I
To date, through Fund I we have purchased a total of 35 assets totaling approximately 3.0 million square feet. During January 2006, we recapitalized the Brandywine Portfolio, representing two assets totaling approximately 1.0 million square feet, through a merger of interests with GDC as discussed further in “BUSINESS OBJECTIVES AND STRATEGIES” in this Item 1 of Form 10-K. Following the recapitalization of the Brandywine Portfolio, there are 33 assets comprising 2.0 million square feet remaining in Fund I, (in which the Operating Partnership’s interest in cash flow and income has increased from 22.2% to 37.8% as a result of the Promote) as follows:
                         
            Year    
Shopping Center   Location   acquired   GLA
New York Region
                       
New York
                       
Tarrytown Center
  Westchester     2004       35,291  
Mid-Atlantic Region
                       
South Carolina
                       
Hitchcock Plaza
  Aiken     2004       232,383  
Pine Log Plaza
  Aiken     2004       35,064  
Virginia
                       
Haygood Shopping Center
  Virginia Beach     2004       178,335  
Midwest Region
                       
Ohio
                       
Amherst Marketplace
  Cleveland     2002       79,945  
Granville Centre
  Columbus     2002       134,997  
Sheffield Crossing
  Cleveland     2002       112,534  
Michigan
                       
Sterling Heights Shopping Center
  Detroit     2004       154,835  
Various Regions
                       
Kroger/Safeway Portfolio
  Various     2003       1,018,100  
 
                       
 
                       
Total
                    1,981,484  
 
                       
In November 2006, we acquired the remaining 50% interest from its unaffiliated partner in the Tarrytown Center for $3.5 million.
During February 2006, we finalized an agreement with its unaffiliated partner in the Hitchcock and Pine Log Plazas whereby we converted our common equity interest in the properties to a preferred equity position with a 15% preferred return payable currently and a 20% profit interest after all invested capital and preferred returns are paid. In connection with this agreement, our partner assumed all operational, redevelopment and leasing responsibilities
Other Investments
In March of 2005, we invested $20 million in a preferred equity position (“Preferred Equity”) in Levitz SL, L.L.C. (“Levitz SL”), the owner of fee and leasehold interests in 30 locations (the “Levitz Properties”), totaling 2.5 million square feet, of which the majority are currently leased to Levitz Furniture Stores. In October 2005, Levitz Furniture filed for bankruptcy under Chapter 11. Klaff is a managing member of Levitz SL. The Preferred Equity investment received a return of 10%, plus a minimum return of capital of $2.0 million per annum. During March 2006, the rate of return was reset to the six-month LIBOR plus 644 basis points or 11.5%.
On June 1, 2006, we converted the Preferred Equity Investment to a first mortgage loan and advanced additional proceeds bringing the total outstanding amount to $31.3 million. The loan has a maturity date of May 31, 2008 and bears interest at a rate of 10.5%. The loan was secured by fee and leasehold mortgages as well as a pledge of the entities owning 19 of the above remaining locations totaling 1.8 million square feet. During the third quarter of 2006, Levitz SL sold one of the Levitz Properties located in Northridge, California and used $20.4 million of the proceeds to pay down the loan. As of December 31, 2006, the loan balance amounted to $10.9 million. Although Levitz Furniture is currently operating under Chapter 11 bankruptcy protection, we believe the underlying value of the real estate is sufficient to recover the principal and interest due under the mortgage.

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ASSET SALES AND CAPITAL/ASSET RECYCLING
We periodically identify certain properties for disposition and redeploy the capital to existing centers or acquisitions with greater potential for capital appreciation. Since January 1, 2004, we have sold the following assets:
                                 
                            Sales price  
Shopping Center   Location     Date sold     GLA     (dollars in thousands)  
Soundview Marketplace
  Long Island, New York   December 2006     183,815     $ 24,000  
Bradford Towne Centre
  Northeast Pennsylvania   November 2006     257,123       16,000  
Greenridge Plaza
  Northeast Pennsylvania   November 2006     191,767       10,600  
Pittston Plaza
  Northeast Pennsylvania   November 2006     79,498       6,000  
Luzerne Street Shopping Center
  Northeast Pennsylvania   November 2006     58,035       3,600  
Berlin Shopping Center
  Central New Jersey   July 2005     188,688       4,000  
East End Centre
  Northeast Pennsylvania   November 2004     305,858       12,400  
 
                           
 
                               
Total
                    1,264,784     $ 76,600  
 
                           
Proceeds from these sales in part have been used to fund the following acquisitions:
In September 2006, we purchased 2914 Third Avenue in the Bronx, New York for $18.5 million. The 41,305 square foot property is 100% leased and is located in a densely populated, high barrier-to-entry, infill area.
In June 2006, we purchased 8400 and 8625 Germantown Road in Philadelphia, Pennsylvania for $16.0 million. Tenants at these “Main Street” locations include Borders bookstore, Talbot’s and Limited Express.
During January 2006, we closed on a 20,000 square foot retail building in the Lincoln Park district in Chicago. The property was acquired from an affiliate of Klaff for $9.9 million. Tenants include Starbucks, Nine West, Vitamin Shoppe and Cold Stone Creamery.
Also during January 2006, we acquired a 60% interest in the A&P Shopping Plaza located in Boonton, New Jersey. The property, which is 100% occupied and located in northeastern New Jersey, is a 63,000 square foot shopping center anchored by a 49,000 square foot A&P Supermarket. The remaining 40% interest is owned by a principal of P/A. The interest was acquired for $3.2 million.
During July 2005 we purchased 4343 Amboy Road located in Staten Island, New York for $16.6 million in cash and $0.2 million in Common OP Units. The property, a 60,000 square foot neighborhood shopping center, is anchored by a Waldbaum’s supermarket and a Duane Reade drug store, and is subject to a 23-year ground lease.
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.
During 2006, we commenced the redevelopment and re-tenanting of the Bloomfield Town Square, located in Bloomfield Hills, Michigan. A former out-parcel building was demolished and replaced with a 17,500 square foot building now occupied by Drexel Heritage and Panera Bread. The new tenants opened and commenced paying rent during the third and fourth quarters of 2006, respectively, and are paying a combined base rent at a 127% increase over that of the former tenant. In addition, the Company has leased approximately 26,000 square feet to Circuit City, which is anticipated to open and commence paying rent in the fourth quarter of 2007 at a 79% increase over that of the former tenants. Total costs for this project are expected to be $3.3 million.
During 2004, we completed the redevelopment of the New Loudon Center, located in Latham, New York. A new anchor, The Bon Ton Department Store, opened for business during the fourth quarter of 2003 as part of the redevelopment of this shopping center. Occupying 66,000 square feet formerly occupied by an Ames department store, Bon Ton is paying base rent at a 15% increase over that of Ames. During 2004, Marshall’s, an existing tenant at the center, expanded its current 26,000 square foot store to 37,000 square feet. We also installed a new 49,000 square foot Raymour and Flanigan Furniture store at this center during 2004. This community shopping center is now 100% occupied. Costs incurred for this project totaled $0.4 million.
We also completed the redevelopment and re-anchoring of the Town Line Plaza, located in Rocky Hill, Connecticut during 2004. The former building, occupied by GU Markets, was demolished and replaced with a 66,000 square foot Super Stop & Shop. The new supermarket anchor is paying gross rent at a 33% increase over that of the former tenant with no interruption in rent payments. Costs for this project totaled $1.7 million.
COMPETITION
There are numerous entities 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. Our properties compete for tenants with similar properties primarily on the basis of location, total occupancy costs (including base rent and operating expenses), services provided, and the design and condition of the improvements.

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FINANCIAL INFORMATION ABOUT MARKET SEGMENTS
We have two reportable segments: retail properties and multi-family properties. The accounting policies of the segments are the same as those described in the notes to the consolidated financial statements appearing in Item 8 of this Annual Report on Form 10-K. We evaluate property performance primarily based on net operating income before depreciation, amortization and certain non-recurring items. The reportable segments are managed separately due to the differing nature of the leases and property operations associated with retail versus residential tenants. We do not have any foreign operations. See Note 3 to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for certain information regarding each of our segments.
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. We have 130 employees, of which 105 are located at our executive office, six at the Pennsylvania regional office and the remaining property management personnel are located on-site at our properties.
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.
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, Chief Financial Officer, Chief Accounting Officer, Controller, Director of 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.

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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 an 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.
Tenants may seek the protection of the bankruptcy laws, which could result in the rejection and termination of their leases and thereby cause a reduction in the cash flow available for distribution by us. Such reduction could be material if a major tenant files bankruptcy. See the risk factor titled, “The bankruptcy of, or a downturn in the business of, any of our major tenants may adversely affect our cash flows and property values” below.
Limited control over joint venture investments.
Our joint venture 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.
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 2006 and 2005, our 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.
Under the terms of our Fund II joint venture, we are required to first offer to Fund II all of our opportunities to acquire retail shopping centers. Only if (i) our joint venture partner elects not to approve Fund II’s pursuit of an acquisition opportunity; (ii) the ownership of the acquisition opportunity by Fund II 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, may we pursue the opportunity directly. 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 II.
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.
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

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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.
The bankruptcy of, or a downturn in the business of, any of our major 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, 2003, there have been two significant tenant bankruptcies within our portfolio:
On May 30, 2003, The Penn Traffic Company (“Penn Traffic”) filed for protection under Chapter 11 Bankruptcy. Penn Traffic operated in one location in our wholly-owned portfolio in 52,000 square feet. Rental revenues from this tenant at this location were $0.3 million, $0.4 million and $0.5 million for the years ended December 31, 2006, 2005 and 2004, respectively. As of November 3, 2006 we sold this property. Penn Traffic also operated in a location occupying 55,000 square feet at a property in which we, through Fund I, hold a 22.2% ownership interest. Penn Traffic rejected the lease at this location on February 20, 2004. Our pro-rata share of rental revenues from the tenant at this location was $0.02 million for the year ended December 31, 2004.
On January 14, 2004, KB Toys (“KB”) filed for protection under Chapter 11 Bankruptcy. KB operated in five locations in our wholly-owned portfolio totaling approximately 41,000 square feet. Rental revenues from KB at these locations aggregated $0.3 million, $ 0.3 million and $0.8 million for the years ended December 31, 2006, 2005 and 2004, respectively. KB rejected the lease at three of these locations and continues to operate in two of our wholly-owned locations but has neither assumed nor rejected these two leases. KB also operated in a location occupying 20,000 square feet at a property in which we hold a 22.2% ownership interest. KB rejected the lease at this location during 2004 and our pro-rata share of rental revenues at this location were $0.04 million for the year ended December 31, 2004.
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 New York region, from which we derive 33% of the annual base rents within our wholly-owned 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.
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.
Market interest rates 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 and our ability to raise additional equity in the public markets.

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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, 2006 would increase by $0.9 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.
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.
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, as of the date of this prospectus supplement, we are 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.

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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.
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 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 its 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 joint ventures. In the context of our business plan, “development” 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 force majeure 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.
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.
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 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 are more complex than those applicable to corporations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to continue to qualify as a REIT. In addition, no assurance can be given that legislation, regulations, administrative interpretations or court decisions will not significantly change the requirements for qualification as a REIT or the federal income tax consequences of such qualification. If we do not qualify as a REIT, we would not be allowed a deduction for distributions 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 the shareholders, to revoke the REIT election or to otherwise take action that would result in disqualification.

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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 that calendar year. 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 reduce 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 and the effect of required debt amortization payments 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.
Uninsured losses or a loss in excess of insured limits could adversely affect our financial condition.
We carry comprehensive liability, fire, extended coverage and rent loss insurance 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 rent loss 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.
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.
Adverse 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 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. Any of those new laws or interpretations may take effect retroactively and could adversely affect us or our shareholders. Recently enacted legislation reduces tax rates applicable to certain corporate dividends paid to most domestic noncorporate shareholders. REIT dividends generally are not eligible for reduced rates because 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.
Concentration of ownership by certain investors.
Six shareholders own 5% or more individually, and 42.7% in the aggregate, of our Common Shares. A significant concentration of ownership may allow an investor 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.

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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.
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. Although we have entered into an employment agreement with Mr. Kenneth F. Bernstein, the loss of his services could have an adverse effect on our operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES:
SHOPPING CENTER PROPERTIES
The discussion and tables in this Item 2 include properties held through consolidated and unconsolidated joint ventures in which we own a partial interest (“Consolidated Joint Venture Portfolio” and Unconsolidated Joint Venture Portfolio”, respectively). Except where noted, it does not include our partial interest in 25 anchor-only leases with Kroger and Safeway supermarkets. These are detailed separately within this Item 2 as the majority of these properties are free-standing and all are triple-net leases.
As of December 31, 2006, we owned and operated 47 shopping centers as part of our wholly-owned portfolio and Consolidated and Unconsolidated Joint Venture Portfolios, which included a mixed-use property (retail and residential), and twelve properties under redevelopment. Our shopping centers, which total approximately 8.4 million square feet of gross leaseable area (“GLA”), are located in 14 states and are generally well-established, anchored community and neighborhood shopping centers. The operating properties are diverse in size, ranging from approximately 15,000 to 815,000 square feet with an average size of 116,000 square feet. As of December 31, 2006, our wholly-owned portfolio and the Consolidated and Unconsolidated Joint Venture Portfolios (excluding properties under redevelopment) were 94.0% and 95.1% occupied, respectively. Our shopping centers are typically anchored by supermarkets or value-oriented retail.
We had approximately 656 leases as of December 31, 2006. 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. Most of these leases 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 82% of our total revenues for the year ended December 31, 2006.
As of December 31, 2006, approximately 43% 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 1% of the total 2006 revenues of the Company.
Seven of our shopping center 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 seven locations and are responsible for all costs and expenses associated with the building and improvements at all seven locations.

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No individual property contributed in excess of 10% of our total revenues for the years ended December 31, 2006, 2005 and 2004. Reference is made to our consolidated financial statements in Item 8 of this Annual Report on 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, 2006:
WHOLLY-OWNED PROPERTIES
                                             
            Year                            
            Constructed                     Occupancy     Anchor Tenants
            (C)     Ownership             (1)%     Current Lease Expiration/
Shopping Center   Location     Acquired(A)     Interest     GLA     12/31/06     Lease Option Expiration
NEW YORK REGION
                                           
Connecticut
                                           
239 Greenwich Avenue
  Greenwich     1998 (A)   Fee     16,834 (3)     100 %   Restoration Hardware
 
                                          2015/2025
 
                                          Coach 2016/2021
 
                                           
New York
                                           
Village Commons Shopping Center
  Smithtown     1998 (A)   Fee     87,169       86 %   Daffy’s 2008/2028
Branch Shopping Plaza
  Smithtown     1998 (A)   LI (4)     125,751       100 %   Waldbaum’s 2013/2028 CVS 2010/—
Pacesetter Park Shopping Center
  Pomona     1999 (A)   Fee     96,698       98 %   Stop & Shop 2020/2040
Amboy Road
  Staten Island     2005 (A)   LI (4)     60,090       98 %   Waldbaum’s 2028/— Duane Reade 2008/2018
Bartow Avenue
  Bronx     2005 (C)   Fee     14,694       51 %   Sleepy’s 2009/2014
 
                                           
2914 Third Avenue
  Bronx     2006 (A)   Fee     43,500       100 %   Dr. J’s 2021/—
 
                                           
New Jersey
                                           
Elmwood Park Shopping Center
  Elmwood Park     1998 (A)   Fee     149,085       100 %   Pathmark 2017/2052 Walgreen’s 2022/2062
Boonton Shopping Center
  Boonton     2006 (A)   Fee     62,908       98 %   A&P 2024
 
                                           
NEW ENGLAND REGION
                                           
Connecticut
                                           
Town Line Plaza
  Rocky Hill     1998 (A)   Fee     206,356 (2)     100 %   Stop & Shop 2023/2063 Wal-Mart(2)
 
                                           
Massachusetts
                                           
Methuen Shopping Center
  Methuen     1998 (A)   LI/Fee (4)     130,021       97 %   DeMoulas Market 2015/2020 Wal-Mart 2011/2051
Crescent Plaza
  Brockton     1984 (A)   Fee     218,141       99 %   Shaw’s 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
 
                                           
Rhode Island
                                           
Walnut Hill Plaza
  Woonsocket     1998 (A)   Fee     285,418       98 %   Shaw’s 2013/2043 Sears 2008/2033
 
                                           
Vermont
                                           
The Gateway Shopping Center
  South Burlington     1999 (A)   Fee     101,784       96 %   Shaw’s 2024/2053

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            Year                            
            Constructed                     Occupancy     Anchor Tenants
            (C)     Ownership             (1)%     Current Lease Expiration/
Shopping Center   Location     Acquired(A)     Interest     GLA     12/31/06     Lease Option Expiration
MIDWEST REGION
                                           
Illinois
                                           
Hobson West Plaza
  Naperville     1998 (A)   Fee     98,902       99 %   Bobak’s Market & Restaurant 2007/2032
Clark Diversey
  Chicago     2006 (A)   Fee     19,265       100 %   Papyrus 2010/2015
 
                                          Starbucks 2010/2015
 
                                          Nine West 2009/—
 
                                          The Vitamin Shoppe 2014/2024
 
                                           
Indiana
                                           
Merrillville Plaza
  Merrillville     1998 (A)   Fee     235,678       96 %   TJ Maxx 2009/2014
 
                                          JC Penney 2008/2018
 
                                          Office Max 2008/2028
 
                                           
Michigan
                                           
Bloomfield Town Square
  Bloomfield Hills     1998 (A)   Fee     232,366       87 %   TJ Maxx 2009/—
 
                                          Marshalls 2011/2026
 
                                          Home Goods 2010/2025
 
                                           
Ohio
                                           
Mad River Station
  Dayton     1999 (A)   Fee     155,838 (6)     79 %   Babies ‘R’ Us 2010/2020
 
                                          Office Depot 2010/—
 
                                           
MID-ATLANTIC REGION
                                           
New Jersey
                                           
Marketplace of Absecon
  Absecon     1998 (A)   Fee     105,097       95 %   Acme 2015/2055
 
                                          Eckerd Drug 2020/2040
Ledgewood Mall
  Ledgewood     1983 (A)   Fee     518,950       88 %   Wal-Mart 2019/2049
 
                                          Macy’s 2010/2025
 
                                          The Sport’s Authority 2007/2037
 
                                          Circuit City 2020/2040
 
                                          Marshalls 2014/2034
 
                                           
Pennsylvania
                                           
Abington Towne Center
  Abington     1998 (A)   Fee     216,355 (5)     98 %   TJ Maxx 2010/2020
 
                                          Target (6)
Blackman Plaza
  Wilkes-Barre     1968 (C)   Fee     125,264       93 %   Kmart 2009/2049
Mark Plaza
  Edwardsville     1968 (C)   LI/Fee (4)     216,401       97 %   Redner’s Markets 2018/2028
 
                                          Kmart 2009/2049
Plaza 422
  Lebanon     1972 (C)   Fee     154,878       69 %   Home Depot 2028/2058
Route 6 Mall
  Honesdale     1994 (C)   Fee     175,505       99 %   Kmart 2020/2070
Chestnut Hill
  Philadelphia     2006 (A)   Fee     40,570       100 %   Borders 2010/-
 
                                          Limited Express 2009/--
 
                                       
    Wholly-owned portfolio             4,149,344       94 %    
 
                                       

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PROPERTIES HELD IN CONSOLIDATED JOINT VENTURES
                                             
            Year                            
            Constructed                     Occupancy     Anchor Tenants
            (C)     Ownership             (1)%     Current Lease Expiration/
       Shopping Center   Location     Acquired(A)     Interest     GLA     12/31/06     Lease Option Expiration
 
NEW YORK REGION
                                           
New York
                                           
Tarrytown Shopping Center
  Tarrytown     2004 (A)   JV (9)     35,291       85 %   Walgreen’s 2080/--
MIDWEST REGION
                                           
Illinois
                                           
Oakbrook
  Oakbrook     2005 (A)   JV (4) (10)     112,000       100 %   Neiman Marcus 2011/2029
Ohio
                                           
Amherst Marketplace
  Cleveland     2002 (A)   JV (9)     79,945       100 %   Giant Eagle 2021/2041
Riser Foods Company/Pharmacy 2012/2027
Granville Centre
  Columbus     2002 (A)   JV (9)     134,997       43 %   Lifestyle Family Fitness
2017/2027
Sheffield Crossing
  Cleveland     2002 (A)   JV (9)     112,534       94 %   Giant Eagle 2022/2042
Revco Drug 2012/2027
VARIOUS REGIONS
                                           
Kroger/Safeway Portfolio
  Various     2003 (A)   JV (9)     1,018,100       100 %   25 Kroger/Safeway
Supermarkets
2009/2049
JV REDEVELOPMENTS
                                           
New York
                                           
400 E. Fordham Road
  Bronx     2004 (A)   JV (10)     117,355       100 %   Sears 2021/2031
Pelham Manor Shopping
                                           
Plaza
  Westchester     2004 (A)   JV (4)(10)     398,775       29 %    
161st Street
  Bronx     2005 (A)   JV (10)     223,611       100 %   City of New York 2027/2032
Sherman Avenue
  New York     2005 (A)   JV (10)     134,773       100 %    
Liberty Avenue
  New York     2005 (A)   JV (4) (10)     (12)      (12)    
216th Street
  New York     2005 (A)   JV (10)     (12)      (12)    
 
                                       
    Consolidated Joint Venture Portfolio
            2,367,381       89 %    
 
                                       

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PROPERTIES HELD IN UNCONSOLIDATED JOINT VENTURES
                                             
            Year                            
            Constructed                     Occupancy     Anchor Tenants
            (C)     Ownership             (1)%     Current Lease Expiration/
          Shopping Center   Location     Acquired(A)     Interest     GLA     12/31/06     Lease Option Expiration
 
NEW YORK REGION
                                           
New York
                                           
Crossroads Shopping Center
  White Plains     1998 (A)   JV (7)     310,644       98 %   Waldbaum’s 2007/2032
 
                                          Kmart 2012/2022
 
                                          B. Dalton 2012/2017
 
                                          Modell’s 2009/2019
MID-ATLANTIC REGION
                                           
Delaware
                                           
Brandywine Town Center
  Wilmington     2003 (A)   JV (11)     815,215       98 %   Drexel Heritage 2016/2026
 
                                          Michaels 2011/2006
 
                                          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 2018/2068
 
                                          Transunion Settlement 2013/2018
 
                                          The Bombay Company 2015/2025
 
                                          Lane Home Furnishings 2015/2030
 
                                          MJM Designer 2015/2035
 
                                           
Market Square Shopping Center
  Wilmington     2003 (A)   JV (11)     102,562       79 %   Trader Joe’s 2013/2028
TJ Maxx 2006/2016
JV REDEVELOPMENTS
                                           
Michigan
                                           
Sterling Heights Shopping Center
  Detroit     2004 (A)   JV (9)     154,835       64 %   Burlington Coat Factory 2024/--
Delaware
                                           
Naamans Road
  Wilmington     2006 (C)   JV (11)     19,932       45 %   Tweeters 2026/2046
South Carolina
                                           
Hitchcock Plaza
  Aiken     2004 (A)   JV (9)     232,383       78 %   Bed, Bath & Beyond 2008/2017
 
                                          Club Fitness 2004/2014
 
                                          Old Navy 2006/2021
 
                                          Stein Mart 2006/2016
 
                                          Ross Dress for Less 2006/2017
 
                                          TJ Maxx 2006/2016
Pine Log Plaza
  Aiken     2004 (A)   JV (9)     35,064       82 %    
Virginia
                                           
Haygood Shopping Center
  Virginia     2004 (A)   JV (9)     178,335       75 %   Eckerd Drug 2009/--
 
  Beach                                   Farm Fresh 2026/--
 
                                       
    Unconsolidated Joint Venture Portfolio
            1,848,970       81 %    
 
                                       
 
Notes:
(1)   Does not include space leased for which rent has not yet commenced.
 
(2)   Includes a 92,500 square foot Wal-Mart which is not owned us.
 
(3)   In addition to the 16,834 square feet of retail GLA, this property also has 21 apartments comprising 14,434 square feet.
 
(4)   We are a ground lessee under a long-term ground lease.
 
(5)   Includes a 157,616 square foot Target Store that is not owned by the Company.
 
(6)   The GLA for this property includes 28,205 square feet of office space.
 
(7)   We have a 49% investment in this property.
 
(8)   Does not include 50,000 square feet of new space in Phase II of the Brandywine Town Center, which will be paid for on an Earn-out basis only if, and when, it is leased.
 
(9)   We have invested in this asset through Fund I.
 
(10)   We have invested in this asset through Fund II.
 
(11)   We have invested in this asset with Ginsburg Development Corp. (GDC).
 
(12)   Under redevelopment.

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MAJOR TENANTS
No individual retail tenant accounted for more than 5.4% of minimum rents for the year ended December 31, 2006 or 8.8% of total leased GLA as of December 31, 2006. The following table sets forth certain information for the 20 largest retail tenants based upon minimum rents in place as of December 31, 2006. The table includes leases related to our partial interest in 25 anchor-only leases with Kroger and Safeway supermarkets. The amounts below include our pro-rata share of GLA and annualized base rent for our partial ownership interest in properties (GLA and rent in thousands):
                                         
                            Percentage of Total  
    Number                     Represented by Retail Tenant  
    of             Annualized     Total     Annualized  
    Stores in     Total     Base     Portfolio GLA     Base  
Retail Tenant   Portfolio     GLA     Rent (1)     (2)     Rent (2)  
Albertsons (Shaw’s, Acme)
    4       221     $ 3,013       4.2 %     5.4 %
A&P (Waldbaum’s)
    4       168       2,813       3.3 %     5.0 %
T.J. Maxx (T.J. Maxx, Marshalls, A.J. Wrights)
    9       266       2,018       5.1 %     3.6 %
Sears (Sears, Kmart)
    6       459       1,686       8.8 %     3.0 %
Wal-Mart
    2       210       1,515       4.0 %     2.7 %
Ahold (Stop & Shop)
    2       118       1,289       2.3 %     2.3 %
Home Depot
    2       211       1,010       4.1 %     1.8 %
Pathmark
    1       48       956       0.9 %     1.7 %
Price Chopper
    1       77       804       1.5 %     1.5 %
Restoration Hardware
    1       9       697       0.2 %     1.2 %
Kroger (3)
    12       156       1,137       3.0 %     2.0 %
Safeway (4)
    13       132       1,134       2.5 %     2.0 %
Federated (Macy’s)
    1       73       651       1.4 %     1.2 %
Sleepy’s
    5       36       621       0.7 %     1.1 %
JC Penney
    1       50       495       1.0 %     0.9 %
CVS
    4       33       527       0.6 %     1.0 %
Limited Brands – Express
    1       13       510       0.3 %     0.9 %
Payless Shoesource
    9       28       509       0.5 %     0.9 %
Borders Books
    1       19       482       0.4 %     0.9 %
Circuit City
    1       33       450       0.6 %     0.8 %
 
                             
Total
    80       2,360     $ 22,317       45.4 %     39.9 %
 
                             
 
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, 2006.
 
(2)   Represents total GLA and annualized base rent for our retail properties including our pro-rata share of Joint Venture Properties.
 
(3)   Kroger has sub-leased four of these locations to supermarket tenants, two locations to a non-supermarket tenant and ceased operations at one other location. Kroger is obligated to pay rent through the full term of these leases which expire in 2009.
 
(4)   Safeway has sub-leased seven of these locations to supermarket tenants, one location to a non-supermarket tenant and ceased operations at one other location. Safeway is obligated to pay rent through the full term of all these leases which expire in 2009.

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LEASE EXPIRATIONS
The following table shows scheduled lease expirations for retail tenants in place as of December 31, 2006, assuming that none of the tenants exercise renewal options. Leases related to our joint venture properties are shown separately below before our pro-rata share of annual base rent and GLA (GLA and rent in thousands):
Wholly-Owned Portfolio:
                                         
            Annualized Base Rent (1)     GLA  
Leases   Number of     Current     Percentage of             Percentage  
maturing in   Leases     Annual Rent     Total     Square Feet     of Total  
 
2007
    75       4,082       9 %     360       10 %
2008
    55       4,720       11 %     321       9 %
2009
    66       4,934       11 %     500       14 %
2010
    56       5,530       13 %     484       13 %
2011
    38       2,675       6 %     166       5 %
2012
    9       1,591       4 %     166       5 %
2013
    13       2,206       5 %     151       4 %
2014
    17       1,926       4 %     216       6 %
2015
    14       3,362       8 %     190       5 %
2016
    11       1,348       3 %     65       2 %
Thereafter
    29       11,676       26 %     1,024       27 %
 
                             
Total
    383     $ 44,050       100 %     3,643       100 %
 
                             
Consolidated and Unconsolidated Joint Venture Portfolios:
                                         
            Annualized Base Rent (1)     GLA  
Leases   Number of     Current     Percentage of             Percentage  
maturing in   Leases     Annual Rent     Total     Square Feet     of Total  
 
2007
    109       4,152       9 %     396       11 %
2008
    25       3,110       7 %     198       5 %
2009
    44       10,182       23 %     1,150       32 %
2010
    11       767       2 %     47       1 %
2011
    20       7,538       17 %     422       12 %
2012
    6       697       2 %     53       1 %
2013
    7       2,067       5 %     117       3 %
2014
    13       2,270       5 %     124       3 %
2015
    10       3,218       7 %     166       5 %
2016
    3       514       1 %     66       2 %
Thereafter
    25       9,844       22 %     892       25 %
 
                             
Total
    273     $ 44,359       100 %     3,631       100 %
 
                             
 
Note:
(1)   Base rents do not include percentage rents, additional rents for property expense reimbursements, nor contractual rent escalations due after December 31, 2006.

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GEOGRAPHIC CONCENTRATIONS
The following table summarizes our retail properties by region as of December 31, 2006. (GLA and rent in thousands):
                                                 
                            Annualized     Percentage of Total  
                    Annualized     Base Rent per     Represented by Region  
                    Base     Leased Square             Annualized  
Region   GLA (1)     Occupied % (2)     Rent (2)     Foot     GLA     Base Rent  
Wholly-Owned Portfolio:
                                               
New York Region
    657       96 %   $ 14,512     $ 22.92       16 %     33 %
New England
    1,197       98 %     10,091       9.33       29 %     23 %
Midwest
    742       90 %     8,554       12.81       18 %     19 %
Mid-Atlantic
    1,553       91 %     10,892       8.64       37 %     25 %
 
                                   
Total Wholly-Owned Portfolio
    4,149       94 %   $ 44,049     $ 12.09       100 %     100 %
 
                                   
 
                                               
Consolidated and Unconsolidated Joint Venture Portfolios:                                
Operating Properties
                                               
Midwest (3)
    439       81 %   $ 3,481     $ 9.78       26 %     14 %
Mid-Atlantic (4)
    918       96 %     13,707       15.58       54 %     57 %
New York Region (5)
    346       96 %     6,923       20.79       20 %     29 %
 
                                   
Total Operating Properties
    1,703       92 %     24,111       15.37       100 %     100 %
 
                                   
Redevelopment Properties:
                                               
Midwest (6)
    155       64 %     608       6.13       11 %     5 %
Mid-Atlantic (7)
    466       76 %     3,272       9.27       31 %     27 %
New York Region (8)
    874       68 %     8,355       14.10       58 %     68 %
 
                                   
Total Redevelopment Properties
    1,495       70 %     12,235       11.71       100 %     100 %
 
                                   
Total Joint Venture Portfolio
    3,198       82 %   $ 36,346     $ 13.91       100 %     100 %
 
                                   
 
Notes:
(1)   Property GLA includes a total of 255,000 square feet which is not owned 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 which is currently leased, but for which rent payment has not yet commenced.
 
(3)   We have a 37.78% interest in Fund I which owns three properties and a 20% interest in Fund II which owns one property.
 
(4)   Does not include 50,000 square feet of new space in Phase II of the Brandywine Town Center, which will be paid for by us on an “earn-out basis” only if, and when it is leased.
 
(5)   We have a 49% interest in two partnerships which, together, own the Crossroads Shopping Center and a 38% interest in Fund I which owns 100% of the Tarrytown Shopping Center.
 
(6)   We have a 37.78% interest in Fund I which has a 50% interest in a property.
 
(7)   We have a 22.22% interest in one property and a 38% interest in Fund I which has interests ranging from 20% to 50% in three properties.
 
(8)   We have a 20% interest in Fund II which has a 96% interest in four properties.

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KROGER/SAFEWAY PORTFOLIO
In January of 2003, Fund I formed a joint venture (the “Kroger/Safeway JV”) with an affiliate of real estate developer and investor AmCap Incorporated (“AmCap”) for the purpose of acquiring a portfolio of twenty-five supermarket leases for $48.9 million inclusive of the closing and other related acquisition costs. The portfolio, which aggregates approximately 1.0 million square feet, consists of 25 anchor-only leases with Kroger (12 leases) and Safeway supermarkets (13 leases). The majority of the properties are free-standing and all are triple-net leases. The Kroger/Safeway JV acquired the portfolio subject to long-term ground leases with terms, including renewal options, averaging in excess of 80 years, which are master leased to a non-affiliated entity. The rental options for the supermarket leases at the end of their primary lease term in approximately three years (“Primary Term”) are at an average of $5.13 per square foot. Although there is no obligation for the Kroger/Safeway JV to pay ground rent during the Primary Term, to the extent it exercises an option to renew a ground lease for a property at the end of the Primary Term, it will be obligated to pay an average ground rent of $1.55 per square foot.
The following table sets forth more specific information with respect to the 25 supermarket leases:
                                         
            Gross leasable           Rent upon initial   Lease expiration
            area           option   year/ Last option
Location   Tenant   (“GLA”)   Current rent   commencement   expiration year
Great Bend, KS
  Kroger Co. (1)     48,000     $ 3.33     $ 2.40       2009/2049  
Cincinnati, OH
  Kroger Co.     32,200       7.49       5.36       2009/2049  
Conroe, TX
  Kroger Co. (2)     75,000       6.44       4.60       2009/2049  
Harahan, LA
  Kroger Co. (2)     60,000       6.41       4.61       2009/2049  
Indianapolis, IN
  Kroger Co.     34,000       5.42       3.87       2009/2049  
Irving, TX
  Kroger Co.     43,900       6.05       4.32       2009/2049  
Pratt, KS
  Kroger Co. (1)     38,000       5.26       3.78       2009/2049  
Roanoke, VA
  Kroger Co.     36,700       12.06       8.62       2009/2049  
Shreveport, LA
  Kroger Co.     45,000       9.74       6.96       2009/2049  
Wichita, KS
  Kroger Co. (1)     50,000       10.40       7.48       2009/2049  
Wichita, KS
  Kroger Co. (1)     40,000       9.70       6.97       2009/2049  
Atlanta, TX
  Safeway (3)     31,000       6.79       3.98       2009/2049  
Batesville, AR
  Safeway (1)     29,000       9.74       5.72       2009/2049  
Benton, AR
  Safeway (1)     33,500       8.02       4.71       2009/2049  
Carthage, TX
  Safeway (1)     27,700       7.01       4.12       2009/2049  
Little Rock, AR
  Safeway (1)     36,000       11.22       6.58       2009/2049  
Longview, WA
  Safeway     48,700       7.64       4.48       2009/2049  
Mustang, OK
  Safeway (1)     30,200       7.08       4.15       2009/2049  
Roswell, NM
  Safeway (2)     36,300       10.12       5.94       2009/2049  
Ruidoso, NM
  Safeway (1)     38,600       10.17       5.97       2009/2049  
San Ramon, CA
  Safeway     54,000       8.46       4.96       2009/2049  
Springerville, AZ
  Safeway     30,500       8.24       4.83       2009/2049  
Tucson, AZ
  Safeway     41,800       7.98       4.68       2009/2049  
Tulsa, OK
  Safeway (1)     30,000       8.45       4.96       2009/2049  
Cary, NC
  Kroger Co. (3)     48,000       6.37       4.55       2009/2049  
 
                                       
 
  Total     1,018,100                          
 
                                       
 
Notes:
(1)   The tenant is obligated to pay rent pursuant to the lease and has sub-leased this location to a supermarket sub-tenant.
 
(2)   The tenant is obligated to pay rent pursuant to the lease and has sub-leased this location to a non-supermarket sub-tenant.
 
(3)   The tenant is currently not operating at this location although they continue to pay rent in accordance with the lease.

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MULTI-FAMILY PROPERTIES
We own two multi-family properties located in the Mid-Atlantic and Midwest regions. As of December 31, 2006, the properties had an average occupancy rate of 90%. The following sets forth more specific information with respect to each of our multi-family properties at December 31, 2006:
                                         
            Year   Ownership        
Multi-Family Property   Location   Acquired   Interest   Units   % Occupied
Missouri (1)
Gate House, Holiday House, Tiger Village and
Colony Apartments
  Columbia     1998     Fee     874       92 %
North Carolina
Village Apartments
  Winston Salem     1998     Fee     600       86 %
 
                                       
Totals
                      1,474       90 %
 
                                       
 
Notes:
(1)   We own four contiguous residential complexes in Columbia, Missouri which, although owned in two separate entities, are managed as a single property and therefore reflected as such
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 certainty the amounts involved, management is of the opinion that, when such litigation is resolved, our resulting liability, if any, will not have a significant effect on our consolidated financial position or results of operations.
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 2006.

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PART II
ITEM 5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCK MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
(a) Market Information
The following table shows, for the period indicated, the high and low sales price for the Common Shares as reported on the New York Stock Exchange, and cash dividends paid during the two years ended December 31, 2006 and 2005:
                         
                    Dividend
Quarter Ended   High   Low   Per Share
2006
                       
 
                       
March 31, 2006
  $ 24.21     $ 19.79     $ 0.1850  
June 30, 2006
    23.94       19.51       0.1850  
September 30, 2006
    26.70       22.70       0.1850  
December 31, 2006
    27.13       23.81       0.2000  
2005
                       
 
                       
March 31, 2005
  $ 16.76     $ 15.40     $ 0.1725  
June 30, 2005
    18.68       15.25       0.1725  
September 30, 2005
    20.13       17.38       0.1725  
December 31, 2005
    20.79       16.51       0.1850  
At March 1, 2007, there were 348 holders of record of the Company’s Common Shares.
(b) Dividends
We have determined that for 2006, 100% of the total dividends distributed to shareholders represented ordinary income. There was no unrecaptured section 1250 gain or nontaxable return of capital in 2006. 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.
(c) 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. Through March 1, 2007, we had repurchased 2.1 million Common Shares at a total cost of $11.7 million. All of these Common Shares have been subsequently reissued. 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, 2006.
(d) 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, 2006:
                         
    Equity Compensation Plan Information        
    (a)     (b)     (c)  
    Number of securities to     Weighted- average     Number of securities remaining  
    be issued upon exercise     exercise price of     available for future issuance under  
    of outstanding options,     outstanding options,     equity compensation plans (excluding  
    warrants and rights     warrants and rights     securities reflected in column) (a)  
Equity compensation plans approved by security holders
    550,372     $ 10.01       729,097 (1)
Equity compensation plans not approved by security holders
                 
 
                 
Total
    550,372     $ 10.01       729,097 (1)
 
                 
 
Notes:
(1)   The 1999, 2003 and 2006 Plans authorize the issuance of options equal to up to a total of 12% of the total Common Shares outstanding from time to time on a fully diluted basis. The 2006 Plan authorizes the issuance of a maximum number of 500,000 Common Shares. 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 and 2003 Plans. No participant may receive more than 500,000 Common Shares during the term of the 2006 Plan.

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Remaining Common Shares available is as follows:
         
Outstanding Common Shares as of December 31, 2006
    31,772,952  
Outstanding OP Units as of December 31, 2006
    642,272  
 
       
Total Outstanding Common Shares and OP Units
    32,415,224  
 
       
12% of Common Shares pursuant to the 1999 and 2003 Plans
    3,889,827  
Common Shares pursuant to the 2006 Plan
    500,000  
 
       
Total Common Shares available under equity compensations plans
    4,389,827  
 
       
Less: Issuance of Restricted Shares Granted
    (880,408 )
Issuance of Options Granted
    (2,780,322 )
 
       
Number of Common Shares remaining available
    729,097  
 
       
(e) Share Price Performance Graph
The following graph compares the cumulative total shareholder return for our Common Shares for the period commencing December 31, 2001 through December 31, 2006 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, 2001, and assuming reinvestment of such dividends. The shareholder return as set forth in the table below is not necessarily indicative of future performance.
Comparison of 5 Year Cumulative Total Return among Acadia Realty Trust, the Russell 2000, the NAREIT and the SNL:
(PERFORMANCE GRAPH)
                                                 
    Period Ending
Index   12/31/01   12/31/02   12/31/03   12/31/04   12/31/05   12/31/06
 
Acadia Realty Trust
    100.00       125.41       224.19       305.64       391.01       503.39  
Russell 2000
    100.00       79.52       117.09       138.55       144.86       171.47  
NAREIT All Equity REIT Index
    100.00       103.82       142.37       187.33       210.12       283.78  
SNL Shopping Center REITS Index
    100.00       115.58       163.87       222.64       242.95       327.02  

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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.
                                         
    Years ended December 31,  
    (dollars in thousands, except per share amounts)  
    2006     2005     2004     2003     2002  
OPERATING DATA:
                                       
Revenues
  $ 102,693     $ 100,806     $ 87,082     $ 82,791     $ 57,803  
Operating expenses
    46,101       41,642       36,135       34,530       26,677  
Interest expense
    22,451       18,804       16,687       15,573       8,679  
Depreciation and amortization
    26,637       25,905       22,781       23,672       12,441  
Gain in sale of land
                932       1,187       1,530  
Equity in earnings of unconsolidated partnerships
    2,559       21,280       513       985       542  
Minority interest
    5,223       (13,952 )     (1,466 )     (4,899 )     (1,686 )
Income tax benefit (expense)
    508       (2,140 )                  
 
                             
Income from continuing operations
    15,794       19,643       11,458       6,289       10,392  
Income from discontinued operations
    23,219       983       8,127       1,564       9,007  
 
                             
Net income
  $ 39,013     $ 20,626     $ 19,585     $ 7,853     $ 19,399  
 
                             
Basic earnings per share:
                                       
Income from continuing operations
  $ 0.49     $ 0.62     $ 0.39     $ 0.24     $ 0.41  
Income from discontinued operations
    0.71       0.03       0.28       0.06       0.36  
 
                             
Basic earnings per share
  $ 1.20     $ 0.65     $ 0.67     $ 0.30     $ 0.77  
 
                             
Diluted earnings per share:
                                       
Income from continuing operations
  $ 0.48     $ 0.61     $ 0.38     $ 0.23     $ 0.41  
Income from discontinued operations
    0.70       0.03       0.27       0.06       0.35  
 
                             
Diluted earnings per share
  $ 1.18     $ 0.64     $ 0.65     $ 0.29     $ 0.76  
 
                             
Weighted average number of Common Shares outstanding
                                       
- basic
    32,502       31,949       29,341       26,640       25,321  
- diluted
    33,153       32,214       29,912       27,232       25,806  
Cash dividends declared per Common Share
  $ 0.755     $ 0.7025     $ 0.6525     $ 0.595     $ 0.52  
BALANCE SHEET DATA:
                                       
Real estate before accumulated depreciation
  $ 677,238     $ 709,906     $ 599,558     $ 541,892     $ 375,149  
Total assets
    851,692       841,591       636,731       556,278       442,034  
Total mortgage indebtedness
    347,402       386,600       271,571       277,817       173,074  
Total convertible notes payable
    100,000       24,400                    
Minority interest in Operating Partnership
    8,673       9,204       6,893       7,875       22,745  
Minority interests in partially-owned affiliates
    105,064       137,086       75,244       37,681       12,611  
Total equity
    241,119       220,576       216,924       169,734       161,323  
OTHER:
                                       
Funds from Operations (1)
  $ 39,953     $ 35,842     $ 30,004     $ 27,664     $ 30,162  
Cash flows provided by (used in):
                                       
Operating activities
    39,627       50,239       33,885       31,031       29,422  
Investing activities
    (58,890 )     (135,470 )     (72,860 )     (76,552 )     31,855  
Financing activities
    68,359       159,425       40,050       15,454       (50,215 )
 
Notes:
(1)   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 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. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Reconciliation of Net Income to Funds from Operations” for the reconciliation of net income to FFO.

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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We currently operate 74 properties, which we own or have an ownership interest in, consisting of 72 neighborhood and community shopping centers and two multi-family properties, which are located primarily in the Northeast, Mid-Atlantic and Midwestern regions of the United States. We receive income primarily from the rental revenue from tenants at our properties, including recoveries from tenants, offset by operating and overhead expenses.
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 portfolio of community and neighborhood shopping centers and mixed-use properties with a retail component located in markets with strong demographics.
 
    Generate internal growth within the portfolio through aggressive redevelopment, re-anchoring and leasing activities.
 
    Generate external growth through an opportunistic yet disciplined acquisition program. The emphasis is on targeting 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.
 
    Partner with private equity investors for the purpose of making investments in operating retailers with significant embedded value in their real estate assets.
 
    Maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth.
RESULTS OF OPERATIONS
Comparison of the year ended December 31, 2006 (“2006”) to the year ended December 31, 2005 (“2005”)
The Brandywine Portfolio operations were consolidated as part of Fund I for the year ended December 31, 2005. Subsequent to the recapitalization and conversion of interests from Fund I to GDC in January 2006, the Brandywine Portfolio is accounted for under the equity method of accounting for the year ended December 31, 2006. In the following tables, we have excluded the Brandywine Portfolio operations for the year ended December 31, 2005 for purposes of comparability with the year ended December 31, 2006.
                                                 
                                    Change from  
            2005 As     Brandywine     2005     2005 Adjusted  
(dollars in millions)   2006     Reported     Portfolio     Adjusted     $     %  
Revenues Minimum rents
  $ 69.7     $ 75.4     $ (14.0 )   $ 61.4     $ 8.3       13 %
Percentage rents
    1.2       1.3       (0.6 )     0.7       0.5       71 %
Expense reimbursements
    15.0       14.9       (2.2 )     12.7       2.3       18 %
Other property income
    1.2       2.3       (0.2 )     2.1       (0.9 )     (43 )%
Management fee income
    5.6       3.6       0.5       4.1       1.5       37 %
Interest income
    8.3       3.3             3.3       5.0       152 %
Other
    1.7                         1.7       100 %
 
                                   
Total revenues
  $ 102.7     $ 100.8     $ (16.5 )   $ 84.3     $ 18.4       22 %
 
                                   

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The increase in minimum rents was attributable to additional rents following our acquisition of Chestnut Hill, Clark Diversey, A&P Shopping Plaza, 2914 Third Avenue and Boonton Shopping Center (60% owned) as well as Fund II acquisitions of Sherman Avenue and 161st Street in New York and a leasehold interest in Chicago (“2005/2006 Acquisitions”).
Expense reimbursements for both common area maintenance (“CAM”) and real estate taxes increased in 2006. CAM expense reimbursement increased $0.4 million as a result of higher tenant reimbursements following the 2005/2006 Acquisitions, offset by a decrease in tenant reimbursements as a result of lower snow removal costs in 2006. Real estate tax reimbursements increased $1.8 million, primarily as a result of the 2005/2006 Acquisitions, as well as general increases in real estate taxes across the portfolio.
The decrease in other property income was the result of receipt of a bankruptcy claim settlement against a former tenant in 2005.
Management fee income increased primarily as a result of fees earned in connection with the acquisition of the Klaff management contract rights in February 2005 and additional management fees earned from our investments in unconsolidated affiliates.
The increase in interest income was attributable to interest income on our advances and notes receivable originated in 2005 and 2006, as well as higher balances in interest earning assets in 2006.
Other income increased as a result of a $1.1 million reimbursement of the Company’s share of certain fees incurred by the institutional investors of Fund I for the Brandywine Portfolio, as well as $0.5 million related to termination of an interest rate swap in 2006.
                                                 
                                    Change from 2005  
            2005 As     Brandywine     2005     Adjusted  
(dollars in millions)   2006     Reported     Portfolio     Adjusted     $     %  
Operating Expenses Property operating
  $ 15.7     $ 16.1     $ (3.4 )   $ 12.7     $ 3.0       24 %
Real estate taxes
    10.6       9.4       (0.8 )     8.6       2.0       23 %
General and administrative
    19.8       16.2             16.2       3.6       22 %
Depreciation and amortization
    26.6       25.9       (2.6 )     23.3       3.3       14 %
 
                                   
 
                                               
Total operating expenses
  $ 72.7     $ 67.6     $ (6.8 )   $ 60.8     $ 11.9       20 %
 
                                   
The increase in property operating expenses was primarily the result of the recovery of approximately $0.5 million related to the settlement of our insurance claim in connection with the flood damage incurred at the Mark Plaza in 2005, increased property operating expenses related to the 2005/2006 Acquisitions and higher bad debt expense in 2006. These increases were offset by lower snow removal costs during 2006.
The increase in real estate taxes was due to general increases in real estate taxes experienced across the portfolio, as well as increased real estate tax expense related to the 2005/2006 Acquisitions.
The increase in general and administrative expense was primarily attributable to increased compensation expense of $2.7 million, including stock-based compensation of $0.9 million, and $0.9 million of other overhead expenses following the expansion of our infrastructure related to increased investment in development-intensive projects in Fund assets and asset management services.
Depreciation expense increased $1.4 million in 2006. This was principally a result of increased depreciation expense related to the 2005/2006 Acquisitions. Amortization expense increased $1.9 million, which was primarily the combination of an increase in amortization related to the 2005/2006 Acquisitions, specifically, amortization of tenant installation costs of $1.0 million, amortization of leasehold interest of $0.5 million and amortization of loan costs of $0.2 million. In addition, amortization expense increased $0.2 million related to the write off of certain Klaff management contracts following the disposition of these assets in 2006.

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                                    Change from 2005
            2005 As   Brandywine   2005   Adjusted
(dollars in millions)   2006   Reported   Portfolio   Adjusted   $   %
Other:
                                               
Equity in earnings of unconsolidated affiliates
  $ 2.6     $ 21.3     $ 0.9     $ 22.2     $ (19.6 )     (88 )%
Interest expense
    (22.5 )     (18.8 )     3.7       (15.1 )     (7.4 )     (49 )%
Minority interest
    5.2       (14.0 )     5.1       (8.9 )     14.1       158 %
Income taxes
    0.5       (2.1 )           (2.1 )     2.6       124 %
Income from discontinued operations
    23.2       1.0             1.0       22.2       (2220 )%
Equity in earnings of unconsolidated affiliates decreased during 2006 primarily as a result of the gains recognized from the sale of Mervyns assets in 2005.
Interest expense increased $7.4 million as a result of higher average outstanding borrowings in 2006.
Minority interest variance is attributable to the minority partner’s share of gains from the sale of Mervyns assets in 2005.
The variance in income tax expense relates to taxes at the taxable REIT subsidiary (“TRS”) level on our share of gains from the sale of Mervyns locations during 2005.
Income from discontinued operations represents activity related to properties sold in 2006 and 2005.
Comparison of the year ended December 31, 2005 (“2005”) to the year ended December 31, 2004 (“2004”)
                                 
                    Change  
(dollars in millions)   2005     2004     $     %  
Revenues:
                               
Minimum rents
  $ 75.4     $ 68.9     $ 6.5       9 %
Percentage rents
    1.3       1.3              
Expense reimbursements
    14.9       13.3       1.6       12 %
Other property income
    2.3       0.8       1.5       188 %
Management fee income
    3.6       1.3       2.3       177 %
Interest income
    3.3       1.3       2.0       154 %
Other
          0.2       (0.2 )     (100 )%
                 
Total revenues
  $ 100.8     $ 87.1     $ 13.7       16 %
                 
Minimum rents within our Funds I and II (“Funds”) increased $4.6 million primarily a result of minimum rents from properties we acquired through the Funds during 2004 and 2005 (“2004/2005 Fund Acquisitions”) as discussed in “LIQUIDITY AND CAPITAL RESOURCES” in Item 7 of this Form 10K. $1.9 million of the increase in minimum rents was attributable to additional rents following our purchase of Amboy Road shopping center in July 2005, re-tenanting activities as well as increased occupancy across the remaining balance of our portfolio.
Tenant expense reimbursements within our Funds increased $0.9 million primarily a result of our 2004/2005 Fund Acquisitions. Real estate tax reimbursements within the balance of the portfolio increased $0.5 million primarily as a result of general increases in real estate taxes as well as re-tenanting activities. CAM expense reimbursements within the balance of our portfolio increased $0.5 million as a result of increased tenant reimbursements of higher snow removal costs in 2005.
Management fee income increased primarily as a result of management fees earned related to our acquisition of certain management contract rights from Klaff in January 2004 and February 2005.
The increase in interest income was a combination of additional interest income earned on our notes receivable originated in 2004 and 2005 and additional interest income earned following our preferred equity investment in Levitz SL in 2005.
                                 
                    Change  
(dollars in millions)   2005     2004     $     %  
Operating Expenses:
                               
Property operating
  $ 16.1     $ 17.0     $ (0.9 )     (5 )%
Real estate taxes
    9.4       8.2       1.2       15 %
General and administrative
    16.1       10.9       5.2       48 %
Depreciation and amortization
    25.9       22.8       3.1       14 %
                 
Total operating expenses
  $ 67.5     $ 58.9     $ 8.6       15 %
                 

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Property operating expenses within our Funds decreased $0.6 million primarily as a result of the reduction in the allowance for doubtful accounts as a result of the recovery of amounts due from Penn Traffic following its bankruptcy and the partial recovery of previous years CAM billings previously disputed by tenants. The decrease in property operating expenses within our remaining portfolio was primarily a result of our recovery of $0.5 million in 2005 related to the settlement of our insurance claim in connection with the flood damage incurred at Mark Plaza. A non-recurring charge of approximately $0.7 million related to this flood damage was recorded in 2004. This decrease was partially offset by higher snow removal costs in 2005.
Real estate taxes increased $0.8 million within our Funds primarily as a result of our 2004/2005 Fund Acquisitions. General increases in real estate taxes due to increases in assessments and tax rates were also experienced across our remaining portfolio.
The increase in general and administrative expense was attributable to increased compensation expense and other overhead expenses following the expansion of our infrastructure related to increased investment activity in fund assets and asset management services.
The $1.9 million increase in depreciation and amortization expense in 2005 within our Funds was primarily attributable to our 2004/2005 Fund Acquisitions. Within the balance of our portfolio, depreciation expense increased $0.3 million primarily related to capitalized tenant installation costs in 2004 and 2005. Amortization expense increased primarily as a result of the write-off of acquisition costs totaling $0.5 million allocable to specific Klaff management contracts following the disposition of the related assets.
                                 
                    Change
(dollars in millions)   2005   2004   $   %
Other:
                               
Equity in earnings of unconsolidated partnerships
  $ 21.3     $ 0.5     $ 20.8       4160 %
Interest Expense
    (18.8 )     (16.7 )     (2.1 )     (13 )%
Gain on Sale
          0.9       (0.9 )     (100 )%
Minority Interest
    (14.0 )     (1.4 )     (12.6 )     (900 )%
Income Taxes
    (2.1 )           (2.1 )      
Income from discontinued operations
    1.0       8.1       (7.1 )     (88 )%
Equity in earnings of unconsolidated partnerships increased primarily as a result of our share of gain from the sale of certain Mervyn’s locations.
The increase in interest expense was primarily attributable to our Fund Acquisitions and higher average interest rates on the portfolio mortgage debt in 2005.
The gain on sale of land in 2004 was related to a prior year sale of a contract to purchase land to the Target Corporation. We received additional sales proceeds of $0.9 million which were being held in escrow pending the completion of certain site work by the buyer. Of these proceeds, $0.5 million were distributed to our joint venture partner in the sale and are a component of minority interest in the accompanying financial statements.
Income taxes in 2005 relate to our share of the income taxes on gain from the sale of certain Mervyn’s locations during the third and fourth quarters of 2005.
Income (loss) from discontinued operations represents activity related to properties sold during 2004 and 2005 as well as property held for sale subsequent to 2005.
RECONCILIATION OF NET INCOME TO FUNDS FROM OPERATIONS
                                         
    For the Years Ended December 31,  
    2006     2005     2004     2003     2002  
Net income
  $ 39,013     $ 20,626     $ 19,585     $ 7,853     $ 19,399  
Depreciation of real estate and amortization of leasing costs:
                                       
Consolidated affiliates, net of minority interests’ share
    20,206       16,676       16,026       18,421       15,335  
Unconsolidated affiliates
    1,806       746       714       643       632  
Income attributable to minority interest in operating partnership (1)
    803       416       375       747       2,928  
Gain on sale of properties
    (21,875 )     (2,622 )     (6,696 )           (8,132 )
 
                             
Funds from operations
  $ 39,953     $ 35,842     $ 30,004     $ 27,664     $ 30,162  
 
                             
 
Notes:    
 
(1)   Represents income attributable to Common Operating Partnership Units and does not include distributions paid to Series A and B Preferred OP Unitholders.

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LIQUIDITY AND CAPITAL RESOURCES
USES OF LIQUIDITY
Our principal uses of liquidity are expected to be for distributions to our shareholders and OP unit holders, debt service and loan repayments, and property investment which include the funding of our joint venture commitments, acquisition, redevelopment, expansion and re-tenanting activities.
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 first three quarters during 2006, we paid a quarterly dividend of $0.185 per Common Share and Common OP Unit. In December of 2006, our Board of Trustees approved and declared an 8.1% increase in our quarterly dividend to $0.20 per Common Share and Common OP Unit for the fourth quarter of 2006, which was paid January 16, 2007.
Acadia Strategic Opportunity Fund, LP (“Fund I”)
In September 2001, the Operating Partnership committed $20.0 million to a newly formed joint venture 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.
On January 4, 2006, we recapitalized a one million square foot retail portfolio located in Wilmington, Delaware (“Brandywine Portfolio”) through a merger of interests with affiliates of GDC Properties (“GDC”). The Brandywine Portfolio was recapitalized through a “cash out” merger of the 77.8% interest, which was previously held by the institutional investors in Fund I (the “Investors”) to affiliates of GDC at a valuation of $164.0 million. The Operating Partnership, through a subsidiary, retained our existing 22.2% interest and continue to operate the Brandywine Portfolio and earn fees for such services. At the closing, the Investors, excluding the Operating Partnership, received a return of all their capital invested in Fund I and preferred return, thus triggering the Operating Partnership’s Promote distribution in all future Fund I distributions and increasing the Operating Partnership’s interest in cash flow and income from 22.2% to 37.8% as a result of the Promote. In June 2006, the Investors received $36.0 million of additional proceeds from this transaction following the replacement of bridge financing provided by them with permanent mortgage financing
As of December 31, 2006, we have a total of 32 properties totaling 2.0 million square feet as further discussed in “PROPERTY ACQUISITIONS” in Item 1 of this Form 10-K.
Acadia Strategic Opportunity Fund II, LLC (“Fund II”)
On June 15, 2004, we closed our second acquisition fund, Fund II, which includes all of the investors from Fund I as well as two additional institutional investors. With $300.0 million of committed discretionary capital, Fund II expects to be able to acquire up to $900.0 million of real estate assets on a leveraged basis. 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 exceptions that the preferred return is 8%. As of December 31, 2006, $122.6 million has been contributed to Fund II, of which the Operating Partnership’s share is $24.5 million.
Fund II has invested in the RCP Venture and the New York Urban/Infill Redevelopment initiatives and other investments as further discussed in “PROPERTY ACQUISITIONS” in Item 1 of Form 10-K .
New York Urban/ Infill Redevelopment Initiative
In September 2004, we, through Fund II, launched our New York Urban Infill Redevelopment initiative. As retailers continue to recognize that many of the nation’s urban markets are underserved from a retail standpoint, Fund II’s intent is to capitalize on this trend 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, formed Acadia-P/A for the purpose of acquiring, constructing, developing, owning, operating, leasing and managing certain retail real estate properties in the New York City metropolitan area. P/A has agreed to invest 10% of required capital up to a maximum of $2.2 million and Fund II, the managing member, has 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, respectively. 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, in conjunction with P/A, invested in seven projects through Fund II as follows:

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                            Redevelopment (dollars in millions)  
                            Anticipated             Square  
            Year     Purchase     additional     Estimated     feet upon  
Property   Location     acquired     price     costs     completion     completion  
Liberty Avenue (1)
  Queens     2005     $     $ 15.0     1st half 2007     125,000  
216th Street
  Manhattan     2005       7.0       18.0     2nd half 2007     60,000  
Pelham Manor Shopping Center (1)
  Westchester     2004             40.0     2nd half 2008     320,000  
161st Street
  Bronx     2005       49.0       16.0     2nd half 2008     232,000  
400 East Fordham Road
  Bronx     2004       30.0       85.0     1st half 2009     276,000  
Canarsie Plaza (2)
  Brooklyn     2007             60.0     1st half 2009     323,000  
4650 Broadway
  Manhattan     2005       25.0       30.0     2nd half 2009     175,000  
 
                                         
 
                                               
Total
                  $ 111.0     $ 264.0               1,511,000  
 
                                         
 
Notes:     
 
(1)   Fund II acquired a leasehold interest at this property.
 
(2)   Closing is anticipated in 2007, although such closing cannot be assured.
Other Investments
During 2005 and 2006, we made the following other investments as further discussed in “PROPERTY ACQUISITIONS” in Item 1 of this Form 10-K:
(i) $16.8 million in Amboy Road
(ii) $4.0 million for Klaff’s management rights
(iii) $9.8 million for Clark/Diversey
(iv) $3.2 million for Boonton Shopping Center
(v) $16.0 million for Chestnut Hill and
(vi) $18.5 million for 2914 Third Avenue.
Property Development, 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.
During 2006, the Company commenced the redevelopment and re-tenanting of the Bloomfield Town Square, located in Bloomfield Hills, Michigan. A former outparcel building, occupied by Chrysler Dodge, was demolished and replaced with a 17,500 square foot building occupied by Drexel Heritage and Panera Bread. The new tenants opened and commenced paying rent during the third and fourth quarters of 2006, and are paying base rent at a 127% increase over that of Chrysler Dodge. In addition, the Company has re-tenanted approximately 26,000 square feet to Circuit City which is anticipated to open and commence paying rent in the fourth quarter of 2007 at a 79% increase over that of the former tenants. Total costs for this project are anticipated to be $3.3 million.
Additionally, for the year ending December 31, 2007, we currently estimate that capital outlays of approximately $4.8 million to $6.5 million will be required for tenant improvements, related renovations and other property improvements.
Share Repurchase
Repurchases of our Common Shares is an additional use of liquidity as discussed in Item 5 of this Form 10-K.
SOURCES OF LIQUIDITY
We intend on using Fund II as the primary vehicle for our future acquisitions, including investments in the RCP Venture and New York Urban/Infill Redevelopment initiative. Sources of capital for funding property acquisitions, redevelopment, expansion and re-tenanting, as well as future repurchases of Common Shares are expected to be obtained primarily from issuance of public equity or debt instruments, cash on hand, additional debt financings, unrelated member capital contributions and future sales of existing properties. As of December 31, 2006, we had a total of approximately $162.2 million of additional capacity under existing debt facilities, cash and cash equivalents on hand of $139.6 million, and eight properties that are unencumbered and available as potential collateral for future borrowings. In addition, on February 26, 2007, we through our RCP Venture, received a cash distribution totaling approximately $42.5 million from our ownership position in Albertsons. The Operating Partnership’s share of this distribution amounted to approximately $8.5 million and is subject to income tax considerations. The distribution resulted from

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cash proceeds obtained by Albertsons in connection with its disposition of certain operating stores and a refinancing of the remaining assets held in the entity. We anticipate that cash flow from operating activities will continue to provide adequate capital for all of our debt service payments, recurring capital expenditures and REIT distribution requirements.
Issuance of Convertible Notes
In December 2006, we issued $100.0 million of 3.75% Convertible Notes. These Notes were issued at par and are due in 2026. In January 2007, an option was exercised to issue an additional $15.0 million of Convertible Notes. The $112.1 million in proceeds, net of related costs, were used to retire variable rate debt, fund capital commitments and general company purposes.
Issuance of Equity
During January 2007, we filed a shelf registration on Form S-3 providing offerings for up to a total of $300.0 million of Common Shares, Preferred Shares and debt securities. To date, we have not issued any securities pursuant to this shelf registration.
During November 2004, we issued 1,890,000 Common Shares (the “Offering”). The Offering was made under shelf registration statements filed under the Securities Act of 1933, as amended, and previously declared effective by the Securities and Exchange Commission. The $28.3 million in proceeds from the Offering, net of related costs, were used to retire above-market, fixed-rate indebtedness as well as to invest in real estate assets. Following this transaction, we have $46.7 million of remaining capacity to issue equity under our primary shelf registration statement.
Financing and Debt
At December 31, 2006, mortgage and convertible notes payable aggregated $445.2 million, net of unamortized premium of $2.2 million, and were collateralized by 52 properties and related tenant leases. Interest rates on our outstanding indebtedness ranged from 3.75% to 8.5% with maturities that ranged from July 2007 to November 2032. Taking into consideration $16.0 million of notional principal under variable to fixed-rate swap agreements currently in effect, $351.0 million of the portfolio, or 79%, was fixed at a 5.2% weighted average interest rate and $94.2 million, or 21% was floating at a 6.7% weighted average interest rate. There is $54.9 million of debt maturing in 2007 at weighted average interest rates of 6.3%. We intend to refinance the indebtedness or select other alternatives based on market conditions at that time.
Reference is made to Note 6 and Note 7 in the Notes to Consolidated Financial Statements that begin on page F-9 of this Form 10-K for a summary of the financing and refinancing transactions since December 31, 2005.
Asset Sales
Asset sales are an additional source of liquidity for us. During the fourth quarter of 2006, we sold the Soundview Marketplace, Bradford Towne Center, Greenridge Plaza, Luzerne Street Shopping Center and Pittston Plaza. During 2005 and 2004, we sold the Berlin Shopping Center and East End Centre. These sales are discussed in “ASSET SALES AND CAPITAL/ASSET RECYCLING” in Item 1 of this Form 10-K.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
At December 31, 2006, maturities on our mortgage notes ranged from July 2007 to November 2032. In addition, we have non-cancelable ground leases at seven of our shopping centers. We lease space for its White Plains corporate office for a term expiring in 2010. The following table summarizes our debt maturities and obligations under non-cancelable operating leases of December 31, 2006:
                                         
    Payments due by period  
            Less than     1 to 3     3 to 5     More than  
(amounts in millions)   Total     1 year     years     years     5 years  
Contractual obligation
                                       
Future debt maturities
  $ 445.2     $ 60.0     $ 57.1     $ 154.3     $ 173.8  
Interest obligations on debt
    137.6       24.0       37.9       32.8       42.9  
Operating lease obligations
    120.8       3.6       7.6       8.6       101.0  
 
                             
Total
  $ 703.6     $ 87.6     $ 102.6     $ 195.7     $ 317.7  
 
                             

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OFF BALANCE SHEET ARRANGEMENTS
We have investments in the following 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 non-controlling interest. As such, our financial statements reflect our share of income from but not the assets and liabilities of these joint ventures.
    We own a 49% interest in two partnerships which own the Crossroads Shopping Center (“Crossroads”). Our pro rata share of Crossroads mortgage debt as of December 31, 2006 was $31.4 million. This fixed-rate debt bears interest at 5.4% and matures in December 2014.
 
    We own a 22.2% investment in various entities which own the Brandywine Portfolio. Our pro-rata share of Brandywine debt as of December 31, 2006, was $36.9 million with a fixed interest rate of 5.99%. These loans mature on July 1, 2016.
 
    We have 50% interests in two Fund I investments of which our pro-rata share of mortgage debt (net of the Fund I minority interest share) as of December 31, 2006, was $2.6 million with a weighted average interest rate of 6.97%. Both of these loans mature during August 2010.
In addition, we have arranged for the provision of five separate letters of credit in connection with certain leases and investments. As of December 31, 2006, there was no balance outstanding under any of the letters of credit. If the letters of credit were fully drawn, the combined maximum amount of exposure would be approximately $3.1 million.
HISTORICAL CASH FLOW
The following discussion of historical cash flow compares our cash flow for the year ended December 31, 2006 with our cash flow for the year ended December 31, 2005.
Cash and cash equivalents were $139.6 million and $90.5 million at December 31, 2006 and 2005, respectively. The increase of $49.1 million was a result of the following increases and decreases in cash flows:
                         
    Years Ended December 31,  
(amounts in millions)   2006     2005     Variance  
Net cash provided by operating activities
  $ 39.6     $ 50.2     $ (10.6 )
Net cash used in investing activities
    (58.9 )     (135.5 )     76.6  
Net cash provided by financing activities
    68.4       159.4       (91.0 )
 
                 
Totals
  $ 49.1     $ 74.1     $ (25.0 )
 
                 
The variance in net cash provided by operating activities resulted from a decrease of $22.0 million in operating income before non-cash expenses in 2006, which was primarily due to $20.9 million of distributions of operating income from unconsolidated affiliates as a result of the distributions from Mervyns in 2005, as well as those factors discussed within Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations. In addition, a net increase of $11.4 million resulted from changes in operating assets and liabilities, primarily rents receivable, prepaid expenses and other assets.
The decrease in net cash used in investing activities was primarily the result of a $44.1 million decrease in cash used for real estate acquisitions, development and tenant installations, $34.5 million of additional proceeds from the sale of properties in 2006, a net decrease of $28.1 million related to the 2005 Levitz preferred equity investment (Note 4) and the 2006 Levitz note receivable (Note 4) activity and $5.6 million of additional return of capital from unconsolidated affiliates in 2006. These net decreases were offset by $26.2 million of additional investments in unconsolidated partnerships, primarily the Albertsons investment in 2006 and $8.1 million of additional notes issued in 2006.
The decrease in net cash provided by financing activities resulted primarily from $148.2 million of additional cash used for the net repayment of debt in 2006 and $36.1 million of additional distributions to partners and members in 2006, primarily relating to the Mervyns investment. These net decreases were partially offset by $100.0 million of proceeds from the Convertible Debt issuance in 2006.

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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. 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 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 year ended December 31, 2006, no impairment loss was recognized. For the year ended December 31, 2005, an impairment loss of $0.8 million was recognized related to a property that was sold in July of 2005. Management does not believe that the value of any properties in its portfolio was impaired as of December 31, 2006 or 2005.
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 payment on unbilled rents including estimated expense recoveries and straight-line rent. As of December 31, 2006, we had recorded an allowance for doubtful accounts of $3.3 million. 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.
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 the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our primary market risk exposure is to changes in interest rates related to our mortgage debt. See the consolidated financial statements and notes thereto included in this Annual Report on 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, 2006, we had total mortgage debt of $445.2 million of which $351.0 million, or 79%, was fixed-rate, inclusive of interest rate swaps, and $94.2 million, or 21%, was variable-rate based upon LIBOR plus certain spreads. As of December 31, 2006, we were a party to two interest rate swap transactions to hedge our exposure to changes in interest rates with respect to $16.0 million of LIBOR-based variable-rate debt. We also have one forward-starting interest rate swap which commences during 2007 and matures in 2012 that will hedge our exposure to changes in interest rates with respect to $8.4 million of refinanced LIBOR-based variable rate debt with the matching maturities.
The following table sets forth information as of December 31, 2006 concerning our long-term debt obligations, including principal cash flows by scheduled maturity and weighted average interest rates of maturing amounts (amounts in millions):
Consolidated mortgage debt:
                                   
                              Weighted  
      Scheduled                     average  
Year     amortization     Maturities     Total     interest rate  
2007
    $ 5.2     $ 54.9     $ 60.1       6.3 %
2008
      9.1       34.9       44.0       6.7 %
2009
      10.6       2.5       13.1       7.0 %
2010
      3.5       14.7       18.2       7.6 %
2011
      21.3       114.8       136.1       4.2 %
Thereafter
      24.8       148.9       173.7       5.7 %
 
                           
 
    $ 74.5     $ 370.7     $ 445.2          
 
                           
Mortgage debt in unconsolidated partnerships (at our pro rata share):
                                 
                            Weighted  
    Scheduled                     average  
Year   amortization     Maturities     Total     interest rate  
2007
  $ 0.4     $     $ 0.4       n/a  
2008
    0.4             0.4       n/a  
2009
    0.5             0.5       n/a  
2010
    0.5       2.5       3.0       7.0 %
2011
    0.5             0.5       n/a  
Thereafter
    1.7       64.3       66.0       5.7 %
 
                         
 
  $ 4.0     $ 66.8     $ 70.8          
 
                         
Of our total consolidated and our pro-rata share of unconsolidated outstanding debt, $54.9 million and $34.9 million will become due in 2007 and 2008, respectively. 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 $0.9 million annually if the interest rate on the refinanced debt increased by 100 basis points. Interest expense on our variable debt of $94.2 million as of December 31, 2006 would increase $0.9 million if LIBOR increased by 100 basis points. 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, 2006, the fair value of our total outstanding debt would decrease by approximately $16.4 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 $17.7 million.

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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, 2006.
(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 13a-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, 2006 as required by the Securities Exchange Act of 1934 Rule 13a-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. Based on our evaluation under the framework in Internal Control–Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2006.
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 management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006 which appears in this item 9A.
Acadia Realty Trust
White Plains, New York
March 1, 2007

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(b) Attestation report of the independent registered public accounting firm
The Shareholders and Trustees of
Acadia Realty Trust
We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Acadia Realty Trust and subsidiaries maintained effective internal control over financial reporting as of December 31, 2006, 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. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the 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, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and 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, management’s assessment that Acadia Realty Trust and subsidiaries maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Acadia Realty Trust maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, 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, 2006 and 2005 and the related consolidated statements of income, shareholders’ equity, and cash flows for the years then ended December 31, 2006 and 2005 and our report dated March 1, 2007 expressed an unqualified opinion thereon.
/s/ BDO Seidman, LLP
New York, New York
March 1, 2007
(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, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None

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PART III
ITEM 10. DIRECTORS; EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
This item is incorporated by reference from the definitive proxy statement for the 2007 Annual Meeting of Shareholders presently scheduled to be held May 15, 2007, to be filed pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION.
This item is incorporated by reference from the definitive proxy statement for the 2007 Annual Meeting of Shareholders presently scheduled to be held May 15, 2007, to be filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
This item is incorporated by reference from the definitive proxy statement for the 2007 Annual Meeting of Shareholders presently scheduled to be held May 15, 2007, to be filed pursuant to Regulation 14A.
The information under Item 5 under the heading “(d) Securities authorized for issuance under equity compensation plans” is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE:
This item is incorporated by reference from the definitive proxy statement for the 2007 Annual Meeting of Shareholders presently scheduled to be held May 15, 2007, to be filed pursuant to Regulation 14A.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
This item is incorporated by reference from the definitive proxy statement for the 2007 Annual Meeting of Shareholders presently scheduled to be held May 15, 2007, to be filed pursuant to Regulation 14A.
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-41 below.
3. Exhibits:

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Exhibit No.   Description
3.1
  Declaration of Trust of the Company, as amended (1)
 
   
3.2
  Fourth Amendment to Declaration of Trust (4)
 
   
3.3
  Amended and Restated By-Laws of the Company (22)
 
   
4.1
  Voting Trust Agreement between the Company and Yale University dated February 27, 2002 (14)
 
   
10.1
  1999 Share Option Plan (8) (20)
 
   
10.2
  2003 Share Option Plan (16) (20)
 
   
10.3
  Form of Share Award Agreement (17) (21)
 
   
10.4
  Form of Registration Rights Agreement and Lock-Up Agreement (18)
 
   
10.5
  Registration Rights and Lock-Up Agreement (RD Capital Transaction) (11)
 
   
10.6
  Registration Rights and Lock-Up Agreement (Pacesetter Transaction) (11)
 
   
10.7
  Contribution and Share Purchase Agreement dated as of April 15, 1998 among Mark Centers Trust, Mark Centers Limited Partnership, the Contributing Owners and Contributing Entities named therein, RD Properties, L.P. VI, RD Properties, L.P. VIA and RD Properties, L.P. VIB (9)
 
   
10.8
  Agreement of Contribution among Acadia Realty Limited Partnership, Acadia Realty Trust and Klaff Realty, LP and Klaff Realty, Limited (18)
 
   
10.9
  Employment agreement between the Company and Kenneth F. Bernstein dated October 1998 (6) (21)
 
   
10.11
  Amendment to employment agreement between the Company and Kenneth F. Bernstein dated January 19, 2007 (26) (21)
 
   
10.12
  First Amendment to Employment Agreement between the Company and Kenneth Bernstein dated as of January 1, 2001 (12) (21)
 
   
10.14
  Letter of employment offer between the Company and Michael Nelsen, Sr. Vice President and Chief Financial Officer dated February 19, 2003 (15) (21)
 
   
10.15
  Severance Agreement between the Company and Joel Braun, Sr. Vice President, dated April 6, 2001 (13) (21)
 
   
10.16
  Severance Agreement between the Company and Joseph Hogan, Sr. Vice President, dated April 6, 2001 (13) (21)
 
   
10.17
  Severance Agreement between the Company and Joseph Napolitano, Sr. Vice President dated April 6, 2001 (18) (21)
 
   
10.18
  Severance Agreement between the Company and Robert Masters, Sr. Vice President and General Counsel dated January 2001 (18) (21)
 
   
10.19
  Severance Agreement between the Company and Michael Nelsen, Sr. Vice President and Chief Financial Officer dated February 19, 2003 (15) (21)
 
   
10.20
  Secured Promissory Note between RD Absecon Associates, L.P. and Fleet Bank, N.A. dated February 8, 2000 (7)
 
   
10.21
  Promissory Note between 239 Greenwich Associates, L.P. and Greenwich Capital Financial Products, Inc. dated May 30, 2003 (18)
 
   
10.22
  Open-End Mortgage, Assignment of Leases and Rents, and Security Agreement between 239 Greenwich Associates, L.P. and Greenwich Capital Financial Products, Inc. dated May 30, 2003 (18)
 
   
10.23
  Promissory Note between Merrillville Realty, L.P. and Sun America Life Insurance Company dated July 7, 1999 (7)
 
   
10.24
  Secured Promissory Note between Acadia Town Line, LLC and Fleet Bank, N.A. dated March 21, 1999 (7)
 
   
10.25
  Promissory Note between RD Village Associates Limited Partnership and Sun America Life Insurance Company Dated September 21, 1999 (7)
 
   
10.26
  First Amendment to Severance Agreements between the Company and Joel Braun Executive Vice President and Chief Investment Officer, Michael Nelsen, Senior Vice President and Chief Financial Officer, Robert Masters, Senior Vice President, General Counsel, Chief Compliance Officer and Secretary and Joseph Hogan, Senior Vice President and Director of Construction dated January 19, 2007 (21) (26)
 
   
10.33
  Term Loan Agreement between Acadia Realty L.P. and The Dime Savings Bank of New York, dated March 30, 2000 (10)
 
   
10.34
  Mortgage Agreement between Acadia Realty L.P. and The Dime Savings Bank of New York, dated March 30, 2000 (10)
 
   
10.35
  Promissory Note between RD Whitegate Associates, L.P. and Bank of America, N.A. dated December 22, 2000 (10)
 
   
10.36
  Promissory Note between RD Columbia Associates, L.P. and Bank of America, N.A. dated December 22, 2000 (10)
 
   
10.44
  Prospectus Supplement Regarding Options Issued under the Acadia Realty Trust 1999 Share Incentive Plan and 2003 Share Incentive Plan (19) (21)
 
   
10.45
  Acadia Realty Trust 1999 Share Incentive Plan and 2003 Share Incentive Plan Deferral and Distribution Election Form (19) (21)
 
   
10.46
  Amended, Restated And Consolidated Promissory Note between Acadia New Loudon, LLC and Greenwich Capital Financial Products, Inc. dated August 13, 2004 (19)

 


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Exhibit No.   Description
10.47
  Amended, Restated And Consolidated Mortgage, Assignment Of Leases And Rents And Security Agreement between Acadia New Loudon, LLC and Greenwich Capital Financial Products, Inc. dated August 13, 2004 (19)
 
   
10.51
  Mortgage, Assignment of Leases and Rents and Security Agreement between Acadia Crescent Plaza, LLC and Greenwich Capital Financial Products, Inc. dated August 31, 2005 (22)
 
   
10.52
  Mortgage, Assignment of Leases and Rents and Security Agreement between Pacesetter/Ramapo Associates and Greenwich Capital Financial Products, Inc. dated October 17, 2005 (22)
 
   
10.53
  Loan Agreement between RD Elmwood Associates, L.P. and Bear Stearns Commercial Finance Mortgage, Inc. dated December 9, 2005 (22)
 
   
10.54
  Mortgage and Security Agreement between RD Elmwood Associates, L.P. and Bear Stearns Commercial Finance Mortgage, Inc. dated December 9, 2005 (22)
 
   
10.55
  Agreement and Plan Of Merger Dated as of December 22, 2005 by and among Acadia Realty Acquisition I, LLC, Ara Btc LLC, ARA MS LLC, ARA BS LLC, ARA BC LLC and ARA BH LLC, Acadia Investors, Inc., AII BTC LLC, AII MS LLC, AII BS LLC, AII BC LLC And AII BH LLC, Samuel Ginsburg 2000 Trust Agreement #1, Martin Ginsburg 2000 Trust Agreement #1, Martin Ginsburg, Samuel Ginsburg and Adam Ginsburg, and GDC SMG, LLC, GDC Beechwood, LLC, Aspen Cove Apartments, LLC and SMG Celebration, LLC (23)
 
   
10.56
  Amended and Restated Loan Agreement between Acadia Realty Limited Partnership, as lender, and Levitz SL Woodbridge, L.L.C., Levitz SL St. Paul, L.L.C., Levitz SL La Puente, L.L.C., Levitz SL Oxnard, L.L.C., Levitz SL Willowbrook, L.L.C., Levitz SL Northridge, L.L.C., Levitz SL San Leandro, L.L.C., Levitz SL Sacramento, L.L.C., HL Brea, L.L.C., HL Deptford, L.L.C., HL Hayward, L.L.C., HL San Jose, L.L.C., HL Scottsdale, L.L.C., HL Torrance, L.L.C., HL Irvine 1, L.L.C., HL West Covina, L.L.C., HL Glendale, L.L.C. and HL Northridge, L.L.C., each a Delaware limited liability company, Levitz SL Langhorne, L.P. and HL Fairless Hills, L.P., each a Delaware limited partnership (each, together with its permitted successors and assigns, a “Borrower” , and collectively, together with their respective permitted successors and assigns, “ Borrowers ”), dated June 1, 2006 (24)
 
   
10.57
  Consent and Assumption Agreement between Thor Chestnut Hill, LP, Thor Chestnut Hill II, LP, Acadia Chestnut, LLC, Acadia Realty Limited Partnership and Wells Fargo Bank, N.A. dated June 9, 2006, original Mortgage and Security Agreement between Thor Chestnut Hill, LP and Thor Chestnut Hill II, LP and Column Financial, Inc. dated June 5, 2003 and original Assignment of Leases and Rents from Thor Chestnut Hill, LP and Thor Chestnut Hill II, LP to Column Financial, Inc. dated June 2003. (24)
 
   
10.58
  Loan Agreement and Promissory Note between RD Woonsocket Associates, L.P. and Merrill Lynch Mortgage Lending, Inc. dated September 8, 2006 (25)
 
   
10.59
  Amended and Restated Revolving Loan Agreement dated as of December 19, 2006 by and among RD Abington Associates LP, Acadia Town Line, LLC, RD Methuen Associates LP, RD Absecon Associates, LP, RD Bloomfield Associates, LP, RD Hobson Associates, LP, and RD Village Associates LP, and Bank of America, N.A. and the First Amendment to Amended and Restated Revolving Loan Agreement dated February, 2007. (26)
 
   
10.60
  Loan Agreement between Bank of America, N.A. and RD Branch Associates, LP dated December 19, 2006. (26)
 
   
21
  List of Subsidiaries of Acadia Realty Trust (27)
 
   
23.1
  Consent of Registered Public Accounting Firm to Form S-3 and Form S-8 (27)
 
   
23.2
  Consent of former Registered Public Accounting Firm to Form S-3 and Form S-8 (27)
 
   
31.1
  Certification of Chief Executive Officer pursuant to rule 13a–14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (26)
 
   
31.2
  Certification of Chief Financial Officer pursuant to rule 13a–14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (26)
 
   
32.1
  Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (26)
 
   
32.2
  Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (26)
 
   
99.1
  Amended and Restated Agreement of Limited Partnership of the Operating Partnership (11)
 
   
99.2
  First and Second Amendments to the Amended and Restated Agreement of Limited Partnership of the Operating Partnership (11)
 
   
99.3
  Third Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership (18)
 
   
99.4
  Fourth Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership (18)
 
   
99.5
  Certificate of Designation of Series A Preferred Operating Partnership Units of Limited Partnership Interest of Acadia Realty Limited Partnership (2)
 
   
99.6
  Certificate of Designation of Series B Preferred Operating Partnership Units of Limited Partnership Interest of Acadia Realty Limited Partnership (18)

 


Table of Contents

 
Notes:    
 
(1)   Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal Year ended December 31, 1994
 
(2)   Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended June 30, 1997
 
(3)   Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 1998
 
(4)   Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 1998
 
(5)   Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Registration Statement on Form S-11 (File No.33-60008)
 
(6)   Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form10-K filed for the fiscal year ended December 31, 1998
 
(7)   Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form10-K filed for the fiscal year ended December 31, 1999
 
(8)   Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Registration Statement on Form S-8 filed September 28, 1999
 
(9)   Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Form 8-K filed on April 20, 1998
 
(10)   Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Form 10-K filed for the fiscal year ended December 31, 2000
 
(11)   Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Registration Statement on Form S-3 filed on March 3, 2000
 
(12)   Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 2001
 
(13)   Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2001
 
(14)   Incorporated by reference to the copy thereof filed as an Exhibit to Yale University’s Schedule 13D filed on September 25, 2002
 
(15)   Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2002
 
(16)   Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Definitive Proxy Statement on Schedule 14A filed April 29, 2003.
 
(17)   Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Current Report on Form 8-K filed on July 2, 2003
 
(18)   Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2003
 
(19)   Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2004.
 
(20)   Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2004.
 
(21)   Management contract or compensatory plan or arrangement.
 
(22)   Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2005.
 
(23)   Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Current Report on Form 8-K filed on January 4, 2006
 
(24)   Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended June 30, 2006
 
(25)   Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 2006
 
(26)   Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Current Report on Form 8-K filed on January 19, 2007
 
(27)   Filed herewith.

 


Table of Contents

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    
 
      Sr. Vice President and    
 
      Chief Financial Officer    
 
           
 
  By:   /s/ Jonathan W. Grisham    
 
      Jonathan W. Grisham    
 
      Vice President and    
 
      Chief Accounting Officer    
Dated: March 1, 2007
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
/s/ Kenneth F. Bernstein
(Kenneth F. Bernstein)
  Chief Executive Officer,
President and Trustee
(Principal Executive Officer)
  March 1, 2007
 
       
/s/ Michael Nelsen
(Michael Nelsen)
  Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
  March 1, 2007
 
       
/s/ Jonathan W. Grisham
(Jonathan W. Grisham)
  Vice President
and Chief Accounting Officer
(Principal Accounting Officer)
  March 1, 2007
 
       
/s/ Douglas Crocker II
Douglas Crocker II
  Trustee   March 1, 2007
 
       
/s/ Alan S. Forman
(Alan S. Forman)
  Trustee   March 1, 2007
 
       
/s/ Suzanne Hopgood
(Suzanne Hopgood)
  Trustee   March 1, 2007
 
       
/s/ Lorrence T. Kellar
Lorrence T. Kellar
  Trustee   March 1, 2007
 
       
/s/ Wendy Luscombe
(Wendy Luscombe)
  Trustee   March 1, 2007
 
       
/s/ Lee S. Wielansky
(Lee S. Wielansky)
  Trustee   March 1, 2007

 


Table of Contents

EXHIBIT INDEX
The following is an index to all exhibits filed with the Annual Report on Form 10-K other than those incorporated by reference herein:
     
Exhibit No.   Description
 
10.59
  Amended and Restated Revolving Loan Agreement dated as of December 19, 2006 by and among RD Abington Associates LP, Acadia Town Line, LLC, RD Methuen Associates LP, RD Absecon Associates, LP, RD Bloomfield Associates, LP, RD Hobson Associates, LP, and RD Village Associates LP, and Bank of America, N.A. and the First Amendment to Amended and Restated Revolving Loan Agreement dated February, 2007.
 
   
10.60
  Loan Agreement between Bank of America, N.A. and RD Branch Associates, LP dated December 19, 2006.
 
   
21
  List of Subsidiaries of Acadia Realty Trust
 
   
23.1
  Consent of Registered Public Accounting Firm to Form S-3 and Form S-8
 
   
23.2
  Consent of former Registered Public Accounting Firm to Form S-3 and Form S-8
 
   
31.1
  Certification of Chief Executive Officer pursuant to rule 13a – 14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
   
31.2
  Certification of Chief Financial Officer pursuant to rule 13a – 14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
   
32.1
  Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
   
32.2
  Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 


Table of Contents

ACADIA REALTY TRUST AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
         
    F-2  
    F-3  
    F-4  
    F-5  
    F-6  
    F-7  
    F-9  
    F-41  

F-1


Table of Contents

Report of Independent Registered Public Accounting Firm
The Shareholders and Trustees of
Acadia Realty Trust
We have audited the accompanying consolidated balance sheets of Acadia Realty Trust and subsidiaries (the “Company”) as of December 31, 2006 and 2005 and the related consolidated statements of income, stockholders’ equity, and cash flows for the years then ended. Our audits also included the financial statement schedule listed on page F-1. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
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 the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Acadia Realty Trust and subsidiaries at December 31, 2006 and 2005 and the consolidated results of their operations and their cash flows for years then ended, in conformity with generally accepted accounting principles in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Acadia Realty Trust and subsidiaries’ internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2007 expressed an unqualified opinion thereon.
As explained in Note 1 to the financial statements, effective January 1, 2006, Acadia Realty Trust and subsidiaries adopted the provisions of Staff Accounting Bulletin 108, Considering the Effects of Prior Year Misstatements when Qualifying Misstatements in Current Year Financial Statements.
/s/ BDO Seidman, LLP
New York, New York
March 1, 2007

F-2


Table of Contents

Report of Independent Registered Public Accounting Firm
The Shareholders and Trustees of
Acadia Realty Trust
We have audited the accompanying consolidated statements of income, shareholders’ equity, and cash flows of Acadia Realty Trust and subsidiaries (the “Company”) for the year ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements 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 the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of Acadia Realty Trust and subsidiaries’ operations and their cash flows for the year ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
November 30, 2006

F-3


Table of Contents

ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
                 
    December 31,  
    2006     2005  
    (dollars in thousands)  
ASSETS
               
Real estate:
               
Land
  $ 152,930     $ 141,319  
Buildings and improvements
    497,638       564,779  
Construction in progress
    26,670       3,808  
 
           
 
    677,238       709,906  
Less: accumulated depreciation
    142,071       127,819  
 
           
Net real estate
    535,167       582,087  
Cash and cash equivalents
    139,571       90,475  
Restricted cash
    549       548  
Cash in escrow
    7,639       7,789  
Investment in management contracts, net of accumulated amortization of $3,277 and $1,938, respectively
    1,839       3,178  
Investments in and advances to unconsolidated affiliates
    31,049       17,863  
Rents receivable, net
    12,949       13,000  
Notes receivable and preferred equity investment
    38,322       34,733  
Prepaid expenses
    1,865       4,980  
Deferred charges, net
    33,255       23,739  
Acquired lease intangibles
    11,653       8,119  
Other assets
    37,834       15,354  
Assets of discontinued operations
          39,726  
 
           
 
  $ 851,692     $ 841,591  
 
           
 
               
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Mortgage and other notes payable
  $ 347,402     $ 411,000  
Convertible notes payable
    100,000        
Acquired leases and other intangibles
    4,919       6,812  
Accounts payable and accrued expenses
    10,548       18,302  
Dividends and distributions payable
    6,661       6,088  
Share of distributions in excess of share of income and investment in unconsolidated affiliates
    21,728       10,315  
Other liabilities
    5,578       7,144  
Liabilities of discontinued operations
          15,064  
 
           
Total liabilities
    496,836       474,725  
 
           
 
               
Minority interest in Operating Partnership
    8,673       9,204  
Minority interests in partially-owned affiliates
    105,064       137,086  
 
           
Total minority interests
    113,737       146,290  
 
           
Shareholders’ equity:
               
Common shares, $.001 par value, authorized 100,000,000 shares, issued and outstanding 31,772,952 and 31,542,942 shares, respectively
    31       31  
Additional paid-in capital
    227,555       223,199  
Accumulated other comprehensive loss
    (234 )     (12 )
Retained earnings (deficit )
    13,767       (2,642 )
 
           
Total shareholders’ equity
    241,119       220,576  
 
           
 
  $ 851,692     $ 841,591  
 
           
The accompanying notes are an integral part of these consolidated financial statements

F-4


Table of Contents

ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
                         
    Years ended December 31,  
    2006     2005     2004  
    (dollars in thousands except per share amounts)  
Revenues
                       
Minimum rents
  $ 69,663     $ 75,441     $ 68,899  
Percentage rents
    1,192       1,272       1,348  
Expense reimbursements
    15,048       14,944       13,336  
Other property income
    1,206       2,269       785  
Management fee income from related parties, net
    5,625       3,564       1,259  
Interest income
    8,311       3,316       1,245  
Other income
    1,648             210  
 
                 
Total revenues
    102,693       100,806       87,082  
 
                 
Operating Expenses Property operating
    15,672       16,087       17,007  
Real estate taxes
    10,647       9,402       8,187  
General and administrative
    19,782       16,153       10,941  
Depreciation and amortization
    26,637       25,905       22,781  
 
                 
Total operating expenses
    72,738       67,547       58,916  
 
                 
Operating income
    29,955       33,259       28,166  
Equity in earnings of unconsolidated affiliates
    2,559       21,280       513  
Interest expense
    (22,451 )     (18,804 )     (16,687 )
Gain on sale of land
                932  
Minority interest
    5,223       (13,952 )     (1,466 )
 
                 
 
                 
Income from continuing operations before income taxes
    15,286       21,783       11,458  
Income tax benefit (expense)
    508       (2,140 )      
 
                 
Income from continuing operations
    15,794       19,643       11,458  
 
                 
Discontinued operations:
                       
Operating income from discontinued operations
    2,703       1,823       1,596  
Impairment of real estate
          (770 )      
Gain (loss) on sale of properties
    20,974       (50 )     6,696  
Minority interest
    (458 )     (20 )     (165 )
 
                 
Income from discontinued operations
    23,219       983       8,127  
 
                 
Net income
  $ 39,013     $ 20,626     $ 19,585  
 
                 
Basic earnings per share Income from continuing operations
  $ 0.49     $ 0.62     $ 0.39  
Income from discontinued operations
    0.71       0.03       0.28  
 
                 
Basic earnings per share
  $ 1.20     $ 0.65     $ 0.67  
 
                 
Diluted earnings per share Income from continuing operations
  $ 0.48     $ 0.61     $ 0.38  
Income from discontinued operations
    0.70       0.03       0.27  
 
                 
Diluted earnings per share
  $ 1.18     $ 0.64     $ 0.65  
 
                 
The accompanying notes are an integral part of these consolidated financial statements

F-5


Table of Contents

ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
                                                 
                            Accumulated              
                    Additional     Other     Retained     Total  
    Common Stock     Paid-in     Comprehensive     Earnings     Shareholders’  
    Shares     Amount     Capital     Loss     (Deficit)     Equity  
Balance at December 31, 2003
    27,409     $ 27     $ 177,891     $ (5,505 )   $ (2,679 )   $ 169,734  
Conversion of 746,762 OP Units to Common Shares by limited partners of the Operating Partnership
    747       1       6,395                   6,396  
Shares issued to trustees and employees
    5             443                   443  
Employee restricted share award
    22             394                   394  
Settlement of vested options
                (67 )                 (67 )
Dividends declared ($0.6525 per Common Share)
                            (19,548 )     (19,548 )
Employee and trustee exercise of 1,262,000 options
    1,262       1       9,265                   9,266  
Common Shares issued under Employee Stock Purchase Plan
    6             84                   84  
Issuance of 1,890,000 Common Shares, net of issuance costs
    1,890       2       28,310                   28,312  
 
Unrealized gain on valuation of swap agreements
                      2,325             2,325  
Net income
                            19,585       19,585  
 
                                   
Total comprehensive income
                                            21,910  
 
                                   
Balance at December 31, 2004
    31,341       31       222,715       (3,180 )     (2,642 )     216,924  
Conversion of 796 Series A Preferred OP Units to Common Shares by limited partners of the Operating Partnership
    92             696                   696  
Employee restricted share awards
    52             1,030                   1,030  
Dividends declared ($0.69 per Common Share)
                (1,691 )           (20,626 )     (22,317 )
Employee and trustee exercise of 51,200 options
    51             345                   345  
Common Shares issued under Employee Stock Purchase Plan
    7             104                   104  
 
Unrealized gain on valuation of swap agreements
                      3,168             3,168  
Net income
                            20,626       20,626  
 
                                   
Total comprehensive income
                                            23,794  
 
                                   
Balance at December 31, 2005
    31,543       31       223,199       (12 )     (2,642 )     220,576  
Cumulative effect of straight-line rent adjustment
                            1,796       1,796  
Conversion of 696 Series A Preferred OP Units to Common Shares by limited partners of the Operating Partnership
    93             696                   696  
Employee restricted share awards
    122             3,530                   3,530  
Dividends declared ($0.755 per Common Share)
                            (24,400 )     (24,400 )
Employee exercise of 7,500 options
    8             43                   43  
Common Shares issued under Employee Stock Purchase Plan
    4             112                   112  
Redemption of 11,105 restricted Common OP Units
                (101 )                 (101 )
Issuance of Common Stock to Trustees
    3             76                   76  
 
Unrealized loss on valuation of swap agreements
                      (222 )           (222 )
Net income
                            39,013       39,013  
 
                                   
Total comprehensive income
                                            38,791  
 
                                   
Balance at December 31, 2006
    31,773     $ 31     $ 227,555     $ (234 )   $ 13,767     $ 241,119  
 
                                   
The accompanying notes are an integral part of these consolidated financial statements.

F-6


Table of Contents

ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
                         
    Years ended December 31,  
    2006     2005     2004  
    (dollars in thousands)  
CASH FLOWS FROM OPERATING ACTIVITIES:
                       
Net income
  $ 39,013     $ 20,626     $ 19,585  
Adjustments to reconcile net income to net cash provided by operating activities:
                       
Depreciation and amortization
    27,178       27,747       25,030  
Gain on sale of land
                (932 )
(Gain) loss on sale of property
    (20,974 )     50       (6,696 )
Impairment of real estate
          770        
Minority interests
    (4,765 )     13,972       1,631  
Amortization of lease intangibles
    1,080       980       (519 )
Amortization of mortgage note premium
    (144 )     (530 )     (524 )
Equity in earnings of unconsolidated affiliates
    (2,559 )     (21,280 )     (513 )
Elimination of fees received from unconsolidated partnerships
    467              
Distributions recognized as income from unconsolidated affiliates
    2,810       21,498       720  
Amortization of derivative settlement included in interest expense
    440       460       125  
Provision for bad debts
    41       305       1,254  
Changes in assets and liabilities:
                       
Restricted cash
    (1 )     701       (709 )
Funding of escrows, net
    (1,389 )     (1,827 )     (2,063 )
Rents receivable
    219       (3,309 )     (1,998 )
Prepaid expenses
    2,769       (783 )     (442 )
Other assets
    (1,801 )     (8,785 )     (3,204 )
Accounts payable and accrued expenses
    (1,669 )     (2,826 )     3,546  
Due to/from related parties
                (344 )
Other liabilities
    (1,088 )     2,470       (62 )
 
                 
 
                       
Net cash provided by operating activities
    39,627       50,239       33,885  
 
                 
 
                       
CASH FLOWS FROM INVESTING ACTIVITIES:
                       
Expenditures for real estate and improvements
    (87,009 )     (131,077 )     (48,611 )
Deferred acquisition and leasing costs
    (6,941 )     (5,670 )     (3,014 )
Investments in and advances to unconsolidated affiliates
    (26,697 )     (455 )     (30,803 )
Return of capital from unconsolidated affiliates
    28,423       22,847       15,136  
Collections of notes receivable
    20,948       1,868       3,929  
Advances of notes receivable
    (45,091 )     (7,914 )     (10,429 )
Preferred equity investment
    19,000       (19,000 )      
Proceeds from sale of property and land
    38,477       3,931       932  
 
                 
 
                       
Net cash used in investing activities
    (58,890 )     (135,470 )     (72,860 )
 
                 

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ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
                         
    Years ended December 31,  
    2006     2005     2004  
    (dollars in thousands)  
CASH FLOWS FROM FINANCING ACTIVITIES:
                       
Principal payments on mortgage notes payable
    (168,082 )     (44,784 )     (106,639 )
Proceeds received on mortgage notes payable
    159,617       184,466       94,251  
Proceeds from issuance of convertible debt
    100,000              
Payment of deferred financing and other costs
    (7,026 )     (2,801 )     (2,338 )
Capital contributions from partners and members
    44,481       44,122       40,302  
Distributions to partners and members
    (36,120 )           (3,238 )
Dividends paid
    (23,823 )     (21,869 )     (18,507 )
Distributions to minority interests in Operating Partnership
    (487 )     (380 )     (416 )
Distributions on preferred Operating Partnership Units
    (254 )     (342 )     (283 )
Distributions to minority interests in partially-owned affiliates
    (232 )     (436 )     (1,031 )
Contributions from minority interests in partially-owned affiliates
    300       1,000       1,587  
Redemption of Operating Partnership Units
    (246 )            
Common Shares issued under Employee Stock Purchase Plan
    188       104       84  
Settlement of options to purchase Common Shares
                (67 )
Exercise of options to purchase Common Shares
    43       345       9,340  
Termination of derivative instrument
                (1,307 )
Issuance of Common Shares
                28,312  
 
                 
 
                       
Net cash provided by financing activities
    68,359       159,425       40,050  
 
                 
 
                       
Increase in cash and cash equivalents
    49,096       74,194       1,075  
Cash and cash equivalents, beginning of period
    90,475       16,281       15,206  
 
                 
 
                       
Cash and cash equivalents, end of period
  $ 139,571     $ 90,475     $ 16,281  
 
                 
 
                       
Supplemental disclosure of cash flow information:
                       
Cash paid during the period for interest, including capitalized interest of $79, $260, and $304, respectively
  $ 22,843     $ 18,799     $ 19,167  
 
                 
Cash paid for income taxes
  $ 1,039     $ 1,512     $  
 
                 
Supplemental disclosure of non-cash investing and financing activities:
                       
Acquisition of management contract rights through issuance of Common and Preferred Operating Partnership Units
  $     $ 4,000     $ 4,000  
 
                 
 
                       
Accrued earn-out liability on acquired real estate
  $     $     $ 12,241  
 
                 
 
                       
Acquisition of real estate through assumption of debt
  $ 22,583     $     $  
 
                 
 
                       
Acquisition of property through issuance of Preferred Operating Partnership Units
  $     $ 200     $  
 
                 
 
                       
Conversion of common equity interest into preferred equity interest in in the Hitchcock and Pine Log investments
  $     $ 3,255     $  
 
                 
 
                       
Deconsolidation of the Brandywine Portfolio:
                       
Real estate, net
  $ 124,962     $     $  
Other assets and liabilities
    (11,413 )            
Mortgage debt
    (66,984 )            
Minority interests
    (36,504 )            
Investment in unconsolidated affiliates
    (10,428 )            
 
                 
Cash included in investments and advances to unconsolidated affiliates
  $ (367 )   $     $  
 
                 
 
                       
Acquisition of remaining interest in Tarrytown
                       
Real estate, net
  $ (9,260 )   $     $  
Other assets and liabilities
    5,901              
Investment in unconsolidated affiliates
    3,469              
 
                 
Cash included in expenditures for real estate and improvements
  $ 110     $     $  
 
                 
The accompanying notes are an integral part of these consolidated financial statements.

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ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Basis of Presentation and Summary of Significant Accounting Policies
Acadia Realty Trust (the “Trust”) and subsidiaries (collectively, the “Company”) is a fully integrated, self-managed and self-administered equity real estate investment trust (“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.
As of December 31, 2006, the Company operated 74 properties, which it owns or has an ownership interest in, principally located in the Northeast, Mid-Atlantic and Midwest regions of the United States.
All of the Company’s assets are held by, and all of its operations are conducted through, Acadia Realty Limited Partnership (the “Operating Partnership”) and entities in which the Operating Partnership owns a controlling interest. As of December 31, 2006, 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 represent entities or individuals who 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”). 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”). This structure is commonly referred to as an umbrella partnership REIT or “UPREIT”.
In 2001, the Company formed a partnership, Acadia Strategic Opportunity Fund I, LP (“Fund I”), and in 2004 formed a limited liability company, Acadia Mervyn I, LLC (“Mervyns I”), with four institutional investors. The Operating Partnership committed a total of $20.0 million to Fund I and Mervyns I, and the four institutional shareholders committed $70.0 million, for the purpose of acquiring a total of approximately $300.0 million in investments. As of December 31, 2006, the Operating Partnership has contributed $16.2 million to Fund I and $2.7 million to Mervyns I.
The Operating Partnership is the sole general partner of Fund I and managing member of Mervyns I, with a 22.2% interest in both Fund I and Mervyns I and is also entitled to a profit participation in excess of its invested capital based on certain investment return thresholds. Decisions made by the general partner, as it relates to purchasing, financing, and disposition of properties, are subject to the unanimous disapproval of the Advisory Committee of Fund I, which is comprised of representatives from each of the four institutional investors. Cash flow is distributed pro-rata to the partners (including the Operating Partnership) until they receive a 9% cumulative return, and the return of all capital contributions. Thereafter, remaining cash flow (which is net of distributions and fees to the Operating Partnership for management, asset management, leasing and construction services) was to be distributed 80% to the partners (including the Operating Partnership) and 20% to the Operating Partnership as a carried interest (“Promote”). Following the recapitalization of the Brandywine Portfolio in January 2006, all capital contributions and the required 9% cumulative preferred return were distributed to the institutional investors. Accordingly, the Operating Partnership is now entitled to a Promote on all future earnings and distributions.
In June 2004, the Company formed a limited liability company, Acadia Strategic Opportunity Fund II, LLC (“Fund II”), and in August 2004 formed another limited liability company, Mervyn II, LLC (“Mervyns II”), with the investors from Fund I as well as two additional institutional investors. With $300.0 million of committed discretionary capital, Fund II and Mervyns II expect to be able to acquire up to $900.0 million of investments on a leveraged basis. The Operating Partnership’s share of committed capital is $60.0 million. The Operating Partnership is the sole managing member with a 20% interest in both Fund II and Mervyns II and is also entitled to a profit participation in excess of its invested capital based on certain investment return thresholds. 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, 2006, the Operating Partnership has contributed $17.1 million to Fund II and $7.4 million to Mervyns II.
Principles of Consolidation
The consolidated financial statements include the consolidated accounts of the Company and its controlling investments in partnerships and limited liability companies in which the Company is presumed to have control in accordance with Emerging Issues Task Force Issue No. 04-5. The ownership interests of other investors in these entities are recorded as minority interests. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in entities for which the Company has the ability to exercise significant influence over, but does not have financial or operating control, are accounted for using the equity method of accounting. Accordingly, the Company’s share of the earnings (or loss) of these entities are included in consolidated net income.

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ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Basis of Presentation and Summary of Significant Accounting Policies, continued
Principles of Consolidation, continued
Variable interest entities within the scope of Financial Accounting Statements Board (“FASB”) Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46-R”) are required to be consolidated by their primary beneficiary. The primary beneficiary of a variable interest entity is determined to be the party that absorbs a majority of the entity’s expected losses, receives a majority of its expected returns, or both. Management has evaluated the applicability of FIN 46-R to its investments in certain joint ventures and determined that these joint ventures do not meet the requirements of a variable interest entity and, therefore, consolidation of these ventures is not required. Accordingly, these investments are accounted for using the equity method.
On January 4, 2006, Fund I recapitalized its investment in a one million square foot shopping center portfolio located in Wilmington, Delaware (“Brandywine Portfolio”). The recapitalization was effected through the conversion of the 77.8% interest which was previously held by the institutional investors in Fund I to affiliates of GDC Properties (“GDC”) through a merger of interests in exchange for cash. The Operating Partnership has retained its existing 22.2% interest in the Brandywine Portfolio in partnership with GDC and continues to operate the portfolio and earn fees for such services. Following the January 2006 recapitalization of the Brandywine Portfolio, the Company no longer has a controlling interest in this investment and, accordingly, currently accounts for this investment under the equity method of accounting.
Investments in and Advances to Unconsolidated Joint Ventures
The Company accounts for its investments in unconsolidated joint ventures using the equity method as it does not exercise control over significant asset decisions such as buying, selling or financing nor is it the primary beneficiary under FIN 46R, as discussed above. Under the equity method, the Company increases its investment for its proportionate share of net income and contributions to the joint venture and decreases its investment balance by recording its proportionate share of net loss and distributions. The Company recognizes income for distributions in excess of its investment where there is no recourse to the Company. For investments in which there is recourse to the Company, distributions in excess the investment are recorded as a liability.
The Company periodically reviews its investment in unconsolidated joint ventures for other 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. No impairment charges were recognized in the years ended December 31, 2006, 2005 and 2004.
Use of Estimates
Accounting principles generally accepted in the United States of America (“GAAP”) require the Company’s management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The most significant assumptions and estimates relate to the valuation of real estate, depreciable lives, revenue recognition and the collectability of trade accounts receivable. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.
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 shopping center expansion and redevelopment. Depreciation is computed on the straight-line basis over estimated useful lives of 30 to 40 years for buildings and the shorter of the useful life or lease term for improvements, furniture, fixtures and equipment. Expenditures for maintenance and repairs are charged to operations as incurred.
Upon acquisitions of real estate, the Company assesses the fair value of acquired assets (including land, buildings and improvements, and identified intangibles such as above and below market leases and acquired in-place leases and customer relationships) and acquired liabilities in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” and SFAS No. 142,” Goodwill and Other Intangible Assets”, and allocates purchase price based on these assessments. The Company assesses 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.

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The Company reviews its long-lived assets used in operations for impairment when there is an event, or change in circumstances that indicates impairment in value. The Company records impairment losses and reduces 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 the Company does not expect to recover its carrying costs on properties held for use, the Company reduces its carrying cost to fair value, and for properties held for sale, the Company reduces its carrying value to the fair value less costs to sell. During the year ended December 31, 2005, an impairment loss of $0.8 million was recognized related to a property that was sold in July of 2005. Management does not believe that the values of its properties within the portfolio are impaired as of December 31, 2006.
Sale of Real Estate Assets
The Company recognizes property sales in accordance with SFAS No. 66, “Accounting for Sales of Real Estate.” The Company generally records the sales of operating properties and outparcels using the full accrual method at closing when the warnings process is deemed to be complete. Sales not qualifying for full recognition at the time of sale are accounted for under other appropriate deferral methods.
Investment in Real Estate –Held-for Sale
The Company evaluates the held-for-sale classification of its real estate each quarter. Assets that are classified as held-for-sale are recorded at the lower of their carrying amount or fair value less cost to sell. Assets are generally classified as held-for-sale once management commits to a plan to sell the properties and has initiated an active program to market them for sale. The results of operations of these real estate properties are reflected as discontinued operations in all periods reported.
On occasion, the Company will receive unsolicited offers from third parties to buy individual Company properties. Under these circumstances, the Company will classify the properties as held-for-sale when a sales contract is executed with no contingencies and the prospective buyer has funds at risk to ensure performance.
Deferred Costs
Fees and costs paid in the successful negotiation of leases have been deferred and are being amortized on a straight-line basis over the terms of the respective leases. Fees and costs incurred in connection with obtaining financing have been deferred and are being amortized over the term of the related debt obligation.
Management Contracts
Income from management contracts, net of sub-management fees of $0.3 million and $1.6 million for the years ended December 31, 2005 and 2004 respectively, is recognized on an accrual basis as such fees are earned. The initial acquisition cost of the management contracts is being amortized over the estimated lives of the contracts acquired.

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ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Basis of Presentation and Summary of Significant Accounting Policies, continued
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. As of December 31, 2006 and 2005 unbilled rents receivable relating to straight-lining of rents were $6.2 million and $8.8 million, respectively and deferred rents related to the straight lining of rents were $2.9 million and $2.5 million, respectively. Certain of these leases also provide for percentage rents based upon the level of sales achieved by the tenant. Percentage rents are recognized in the period when the tenants’ sales breakpoint is met. In addition, leases typically provide for the reimbursement to the Company of real estate taxes, insurance and other property operating expenses. These reimbursements are recognized as revenue in the period the expenses are incurred.
The Company makes estimates of the uncollectability of its accounts receivable related to base rents, expense reimbursements and other revenues. An allowance for doubtful accounts has been provided against certain tenant accounts receivable that are estimated to be uncollectible. Once the amount is ultimately deemed to be uncollectible, it is written off. Rents receivable at December 31, 2006 and 2005 are shown net of an allowance for doubtful accounts of $3.3 million and $3.2 million, respectively. Interest income from notes receivable is recognized on an accrual basis based on the contractual terms of the notes.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
Restricted Cash and Cash in Escrow
Restricted cash and cash in escrow consists principally of cash held for real estate taxes, property maintenance, insurance, minimum occupancy and property operating income requirements at specific properties as required by certain loan agreements.
Income Taxes
The Company has made an election to be taxed, and believes it qualifies as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). To maintain REIT status for Federal income tax purposes, the Company is generally required to distribute to its stockholders at least 90% of its REIT taxable income as well as comply with certain other requirements as defined by the Code. Accordingly, the Company is not subject to federal corporate income tax to the extent that it distributes 100% of its REIT taxable income each year.
Although it may qualify for REIT status for Federal income tax purposes, the Company is subject to state income or franchise taxes in certain states in which some of its properties are located. In addition, taxable income from non-REIT activities managed through the Company’s taxable REIT subsidiaries (“TRS”) are subject to Federal, state and local income taxes.
TRS income taxes are accounted for under the asset and liability method as required SFAS No. 109, “Accounting for Income Taxes”. Under the asset and liability method, deferred income taxes are recognized for the temporary differences between the financial reporting basis and the tax basis of the TRS assets and liabilities.

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ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Basis of Presentation and Summary of Significant Accounting Policies, continued
Stock-based Compensation
Prior to 2002, the Company accounted for stock options under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations. Effective January 1, 2002, the Company adopted the fair value method of recording stock-based compensation contained in SFAS No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 123R effective June 30, 2005. As such, all stock options granted after December 31, 2001 are reflected as compensation expense in the Company’s consolidated financial statements over their vesting period based on the fair value at the date the stock-based compensation was granted. As provided for in SFAS No. 123, the Company elected the “prospective method” for the adoption of the fair value basis method of accounting for employee stock options. Under this method, the recognition provisions have been applied to all employee awards granted, modified or settled after January 1, 2002. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value based method of accounting for stock-based employee compensation for vested stock options granted prior to January 1, 2002.
         
    Year ended  
    December 31,  
(dollars in thousands)   2004  
Net income:
       
As reported
  $ 19,585  
 
     
Pro forma
  $ 19,561  
 
     
Basic earnings per share:
       
As reported
  $ 0.67  
 
     
Pro forma
  $ 0.67  
 
     
Diluted earnings per share:
       
As reported
  $ 0.65  
 
     
Pro forma
  $ 0.65  
 
     
Recent Accounting Pronouncements
In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments — an amendment of FASB Statements No. 133 and No. 140”. This Statement amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” and resolves issues addressed in SFAS No. 133 Implementation Issue No. D1, “Application of SFAS No. 133 to Beneficial Interests in Securitized Financial Assets.” This Statement (a) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, (b) clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, (c) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, (d) clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives and (e) amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This Statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company is currently evaluating the effect of the adoption of SFAS No. 155.
In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of SFAS No. 109.” (“Interpretation No. 48”), Interpretation No. 48 defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Interpretation No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Interpretation No. 48 is effective for fiscal years beginning after December 15, 2006. The adoption of Interpretation No. 48 on its effective date will not have an effect on the Company’s consolidated financial statements.

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ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Basis of Presentation and Summary of Significant Accounting Policies, continued
In September 2006, the SEC issued Staff Accounting Bulletin (SAB) No. 108 “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” This Bulletin provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. The guidance in this Bulletin must be applied to financial reports covering the first fiscal year ending after November 15, 2006. As a result of the adoption of SAB No. 108, the Company recorded a $1.8 million cumulative effect of straight-line rent adjustment for prior years effective January 1, 2006. This adjustment was the result of changing the calculation of tenants straight-line rent from rent commencement date to the date the tenant took possession of the space. This adjustment is reflected in the Company’s balance sheet as an increase to both rents receivable, net and retained earnings.
In September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements.” This SFAS defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), and expands disclosures about fair value measurements. This Statement applies to accounting pronouncements that require or permit fair value measurements, except for share-based payments transactions under SFAS No. 123. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. As SFAS No. 157 does not require any new fair value measurements or remeasurements of previously computed fair values, the Company does not believe adoption of SFAS No. 157 will have a material effect on its financial statements.
On February 15, 2007, the FASB issued SFAS Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. This Statement permits companies and not-for-profit organizations to make a one-time election to carry eligible types of financial assets and liabilities at fair value, even if fair value measurement is not required under GAAP. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the effect of the adoption of SFAS No. 159.
Comprehensive income
The following table sets forth comprehensive income for the years ended December 31, 2006, 2005 and 2004:
                         
    Years ended December 31,  
(dollars in thousands)   2006     2005     2004  
Net income
  $ 39,013     $ 20,626     $ 19,585  
Other comprehensive income (loss)
    (222 )     3,168       2,325  
 
                 
Comprehensive income
  $ 38,791     $ 23,794     $ 21,910  
 
                 
 
Notes:
Other Comprehensive income relates to the changes in the fair value of derivative instruments accounted for as cash flow hedges.
The following table sets forth the change in accumulated other comprehensive loss for the years ended December 31, 2006, 2005 and 2004:
Accumulated other comprehensive income (loss)
                         
    Years ended December 31,  
(dollars in thousands)   2006     2005     2004  
Beginning balance
  $ (12 )   $ (3,180 )   $ (5,505 )
Unrealized gain (loss) on valuation of derivative instruments
    (222 )     3,168       2,325  
 
                 
Ending balance
  $ (234 )   $ (12 )   $ (3,180 )
 
                 

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ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Acquisition and Disposition of Properties and Discontinued Operations
A. Acquisition and Disposition of Properties
Currently the primary vehicles for the Company’s acquisitions are Funds I and II (Note 1).
Dispositions relate to the sale of shopping centers and land. Gains from these sales are recognized in accordance with the provisions of SFAS No. 66, “Accounting for Sales of Real Estate”.
Acquisitions
On January 12, 2006, the Company closed on a 19,265 square foot retail building in the Lincoln Park district in Chicago. The property was acquired from an affiliate of Klaff (Note 4) for a purchase price of $9.9 million, including the assumption of existing mortgage debt in the principal amount of $3.8 million.
On January 24, 2006, the Company acquired a 60% interest in the A&P Shopping Plaza located in Boonton, New Jersey. The property, which is 100% occupied and located in northeastern New Jersey, is a 63,000 square foot shopping center anchored by a 49,000 square foot A&P Supermarket. A portion of the remaining 40% interest is owned by a principal of P/A Associates, LLC (“P/A”). The interest was acquired for $3.2 million. There is an existing first mortgage debt of $8.6 million encumbering the property.
On June 16, 2006, the Company purchased 8400 and 8625 Germantown Road in Philadelphia, Pennsylvania for $16.0 million. The Company assumed a $10.1 million first mortgage loan which has a maturity date of June 11, 2013. The 40,570 square foot property is 100% occupied.
On September 21, 2006, the Company purchased 2914 Third Avenue in the Bronx, New York for $18.5 million. The 41,305 square foot property is 100% occupied.

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ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Acquisition and Disposition of Properties and Discontinued Operations, continued
Acquisitions, continued
On April 6, 2005, in conjunction with an investment partner, P/A Associates, LLC (“P/A”), Fund II, through Acadia-P/A Holding Company, LLC (“Acadia-P/A”) purchased a 140,000 square foot building located in the Washington Heights section of Manhattan, New York for a purchase price of $25.0 million. In September 2005, Acadia-P/A obtained a mortgage loan of $19.0 million secured by this property which requires monthly payments of interest only at a fixed interest rate of 5.26% and matures September 2007.
During July 2005, Fund II, in conjunction with its partners in the Retailer Controlled Property Venture, invested $1.0 million for a 50% interest in a leasehold located in Rockville, Maryland.
During July of 2005, the Company purchased 4343 Amboy Road located in Staten Island, New York for $16.6 million in cash and $0.2 million in Common OP Units.
On August 5, 2005, Acadia-P/A purchased 260 East 161st Street in the Bronx, New York for $49.4 million, inclusive of closing and other related acquisition costs. Concurrent with the closing, Acadia-P/A obtained a short term loan of $12.1 million which bears interest at LIBOR plus 150 basis points and matured March 2006. In March 2006, the Company obtained a construction loan of $30 million which bears interest at LIBOR plus 140 basis points and matures on April 2008.
On November 3, 2005, Fund II acquired a 36-year ground lease interest for a 112,000 square foot building located at Oakbrook Center in the Chicago Metro Area for $6.9 million, including closing and other acquisition costs. The ground lease expires in July 2017 and has three 10-year-options. The current tenant’s lease expires in October 2011 with four 5-year-options at the current rent plus one 15-year option at fair market value.
In December 2005, Acadia-P/A acquired a 65,000 square foot parking garage located at 10th Avenue in Manhattan, New York for $7.0 million, including closing and other acquisition costs. Concurrent with the closing, Acadia-P/A obtained a $4.9 million short term loan which matured on March 31, 2006 and bore interest at LIBOR plus 125 basis points. In July 2006, the Company obtained a construction loan of $19.2 million which bears interest at LIBOR plus 125 basis points and matures on December 31, 2008. As of December 31, 2006, the amount outstanding on this loan was $6.4 million.
Also in December 2005, Acadia-P/A acquired the remaining 40-year term of a leasehold interest on land located at Liberty Avenue in Queens, New York for $0.3 million.
In March, 2004, the Company, through a newly-formed joint venture with an unaffiliated third-party 10% investor, acquired a $9.6 million first mortgage loan secured by a shopping center in Aiken, South Carolina, which was in default, for $5.5 million and subsequently acquired the fee interest in this property through a deed in lieu of foreclosure. In September, 2004 this joint venture acquired an adjacent property for a cash price of $1.5 million. In the fourth quarter of 2005, the Company exchanged its common equity interest in these properties for a 15% preferred equity position. As a result of the afore-mentioned exchange, as of December 31, 2005, the Company accounts for this investment under the equity method (Note 4).
On September 29, 2004, Acadia-P/A purchased 400 East Fordham Road in the Bronx, New York for $30.2 million, inclusive of closing and other related acquisition costs for cash. Subsequent to the closing, Acadia P/A financed this acquisition with an $18.0 million mortgage loan from a bank which bears interest at LIBOR plus 175 basis points and matures November 2007. On February 25, 2005, Acadia-P/A purchased a parcel of land adjacent to 400 E. Fordham Road for $0.9 million, inclusive of closing and related acquisition costs.
On October 1, 2004, Acadia-P/A entered into a 95-year ground lease to redevelop a 16-acre site in Pelham Manor, Westchester County, New York.

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ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Acquisition and Disposition of Properties and Discontinued Operations, continued
Dispositions
On November 3, 2006, the Company sold Bradford Town Centre, a 257,123 square foot shopping center in Towanda, Pennsylvania, for $16.0 million which resulted in a $5.6 million gain on the sale.
On November 28, 2006, the Company sold three properties, Greenridge Plaza, a 191,767 square foot shopping center in Scranton, Pennsylvania, for $10.6 million which resulted in a $4.7 million gain on the sale, Luzerne Street Center, a 58,035 square foot shopping center in Scranton, Pennsylvania, for $3.6 million which resulted in a $2.5 million gain on the sale and Pittston Plaza, a 79,498 square foot shopping center in Pittston, Pennsylvania, for $6.0 million which resulted in a $0.5 million gain on the sale.
On December 14, 2006, the Company sold Soundview Marketplace, a 183,815 square foot shopping center in Port Washington, New York, for $24.0 million which resulted in a $7.9 million gain on the sale.
On July 7, 2005, the Company sold Berlin Shopping Center for $4.0 million. An impairment loss of $0.8 million was recognized for the year ended December 31, 2005, to reduce the carrying value of this asset to fair value less costs to sell.
On November 22, 2004, the Company sold East End Centre, a 308,000 square foot shopping center in Wilkes-Barre, Pennsylvania, for approximately $12.4 million which resulted in a $6.7 million gain on the sale.
B. Discontinued Operations
SFAS No. 144 requires discontinued operations presentation for disposals of a “component” of an entity. In accordance with SFAS No. 144, for all periods presented, the Company reclassified its consolidated statements of income to reflect income and expenses for properties which became held for sale subsequent to December 31, 2001, as discontinued operations and reclassified its consolidated balance sheets to reflect assets and liabilities related to such properties as assets and liabilities related to discontinued operations.
The combined results of operations of sold properties are reported separately as discontinued operations for the year ended December 31, 2006. These are related to the dispositions listed above.
The combined assets and liabilities and results of operations of the properties classified as discontinued operations are summarized as follows:
         
    December 31,  
(dollars in thousands)   2005  
ASSETS
       
Net real estate
  $ 35,538  
Rent receivable, net
    2,214  
Other assets
    1,974  
 
     
Total assets
  $ 39,726  
 
     
LIABILITIES AND DEFICIT
       
Mortgage notes payable
  $ 13,800  
Accounts payable and accrued expenses
    653  
Other liabilities
    611  
 
     
Total liabilities
    15,064  
 
     
 
       
Surplus
    24,662  
 
     
 
       
Total liabilities and surplus
  $ 39,726  
 
     

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Table of Contents

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Acquisition and Disposition of Properties and Discontinued Operations, continued
B. Discontinued Operations, continued
                         
    Years ended December 31,        
(dollars in thousands)   2006     2005     2004  
Total revenues
  $ 8,466     $ 9,437     $ 11,113  
Total expenses
    5,763       7,614       9,517  
 
                 
 
    2,703       1,823       1,596  
Impairment of real estate
          (770 )      
(Loss) gain on sale of properties
    20,974       (50 )     6,696  
Minority interest
    (458 )     (20 )     (165 )
 
                 
Income from discontinued operations
  $ 23,219     $ 983     $ 8,127  
 
                 
3. Segment Reporting
The Company has two reportable segments: retail properties and multi-family properties. 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. The reportable segments are managed separately due to the differing nature of the leases and property operations associated with the retail versus residential tenants. The following table sets forth certain segment information for the Company, reclassified for discontinued operations, as of and for the years ended December 31, 2006, 2005, and 2004 (does not include unconsolidated affiliates):
2006
                                 
    Retail     Multi-Family     All        
(dollars in thousands)   Properties     Properties     Other     Total  
Revenues
  $ 79,399     $ 7,710     $ 15,584     $ 102,693  
Property operating expenses and real estate taxes
    22,011       4,308             26,319  
Other Expenses
    15,298       1,482       3,002       19,782  
 
                       
Net property income before depreciation and amortization
  $ 42,090     $ 1,920     $ 12,582     $ 56,592  
 
                       
Depreciation and amortization
  $ 24,659     $ 1,510     $ 468     $ 26,637  
 
                       
Interest expense
  $ 21,000     $ 1,451     $     $ 22,451  
 
                       
Real estate at cost
  $ 634,815     $ 42,423     $     $ 677,238  
 
                       
Total assets
  $ 774,905     $ 36,626     $ 40,161     $ 851,692  
 
                       
Expenditures for real estate and improvements
  $ 86,219     $ 790     $     $ 87,009  
 
                       
 
                               
Reconciliation to net income
                               
 
                               
Net property income before depreciation and amortization
  $ 56,592                          
Depreciation and amortization
    (26,637 )                        
Equity in earnings of unconsolidated partnerships
    2,559                          
Interest expense
    (22,451 )                        
Income from discontinued operations
    23,219                          
Income taxes
    508                          
Minority interest
    5,223                          
 
                             
Net income
  $ 39,013                          
 
                             

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Table of Contents

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Segment Reporting, continued
2005
                                 
    Retail     Multi-Family     All        
(dollars in thousands)   Properties     Properties     Other     Total  
Revenues
  $ 86,070     $ 7,688     $ 7,048     $ 100,806  
Property operating expenses and real estate taxes
    21,236       4,253             25,489  
Other Expenses
    9,396       267       6,490       16,153  
 
                       
Net property income before depreciation and amortization
  $ 55,438     $ 3,168     $ 558     $ 59,164  
 
                       
Depreciation and amortization
  $ 23,989     $ 1,465     $ 451     $ 25,905  
 
                       
Interest expense
  $ 17,449     $ 1,355     $     $ 18,804  
 
                       
Real estate at cost
  $ 668,273     $ 41,633     $     $ 709,906  
 
                       
Total assets
  $ 755,691     $ 37,295     $ 48,605     $ 841,591  
 
                       
Expenditures for real estate and improvements
  $ 130,059     $ 1,018     $     $ 131,077  
 
                       
 
                               
Reconciliation to net income
                               
 
                               
Net property income before depreciation and amortization
  $ 59,164                          
Depreciation and amortization
    (25,905 )                        
Equity in earnings of unconsolidated partnerships
    21,280                          
Interest expense
    (18,804 )                        
Income from discontinued operations
    983                          
Income taxes
    (2,140 )                        
Minority interest
    (13,952 )                        
 
                             
Net income
  $ 20,626                          
 
                             
2004
                                 
    Retail     Multi-Family     All        
(dollars in thousands)   Properties     Properties     Other     Total  
Revenues
  $ 76,529     $ 7,596     $ 2,957     $ 87,082  
Property operating expenses and real estate taxes
    21,060       4,134             25,194  
Other expenses
    7,593       490       2,858       10,941  
 
                       
Net property income before depreciation and amortization
  $ 47,876     $ 2,972     $ 99     $ 50,947  
 
                       
Depreciation and amortization
  $ 21,020     $ 1,433     $ 328     $ 22,781  
 
                       
Interest expense
  $ 15,169     $ 1,518     $     $ 16,687  
 
                       
Real estate at cost
  $ 558,943     $ 40,615     $     $ 599,558  
 
                       
Total assets
  $ 579,110     $ 36,872     $ 20,749     $ 636,731  
 
                       
Expenditures for real estate and improvements
  $ 47,769     $ 842     $     $ 48,611  
 
                       
 
                               
Reconciliation to net income
                               
Net property income before depreciation and amortization
  $ 50,947                          
Depreciation and amortization
    (22,781 )                        
Equity in earnings of unconsolidated partnerships
    513                          
Interest expense
    (16,687 )                        
Gain on sale of land
    932                          
Income from discontinued operations
    8,127                          
Minority interest
    (1,466 )                        
 
                             
Net income
  $ 19,585                          
 
                             

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Table of Contents

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Investments
A. Investments In and Advances to Unconsolidated Affiliates
Retailer Controlled Property Venture
On January 27, 2004, the Company entered into the Retailer Controlled Property Venture (“RCP Venture”) with Klaff Realty, L.P. (“Klaff”) and Klaff’s long-time capital partner Lubert-Adler Management, Inc. (“Lubert-Adler”) for the purpose of making investments in surplus or underutilized properties owned by retailers. On September 2, 2004, affiliates of Fund I and Fund II, through separately organized, newly formed limited liability companies on a non-recourse basis, invested in the acquisition of Mervyns through the RCP Venture, which, as part of an investment consortium of Sun Capital and Cerberus, acquired Mervyns from Target Corporation. The total acquisition price was $1.2 billion, with such affiliates’ combined $24.6 million share of the investment divided equally between them. The Operating Partnership’s share of the Mervyns investment totaled $5.2 million. Since inception, Mervyns I and II received distributions totaling $50.8 million and recognized income of $23.1 million. For the year ended December 31, 2006, Mervyns I and II received distributions of $4.6 million and recognized $2.2 million of income representing the excess distribution over its remaining capital.
During 2006, the RCP Venture made its second investment with its participation in the acquisition of Albertsons. Affiliates of Fund II, through the same limited liability companies which were formed for the investment in Mervyns, invested $20.7 million in the acquisition of Albertsons through the RCP Venture, along with others as part of an investment consortium. The Operating Partnership’s share of the invested capital was $4.2 million.
During 2006, Fund II made additional investments of $4.1 million, through the RCP Venture, in two Albertsons investments, Camellia and Newkirk, and in Shopko and Marsh. The Operating Partnership’s share of the additional investments totaled $0.7 million. Consequently, the Company accounts for these investments using the cost method due to the minor ownership percent interest and the inability to exert influence over the partnership’s operating and financial policies.
Brandywine Portfolio
On January 4, 2006, the institutional investors of Fund I transferred their 77.8% interest in the Brandywine Portfolio into affiliates of GDC in exchange for cash. The Operating Partnership transferred its 22.2% share of the Brandywine Portfolio into affiliates of GDC in exchange for a 22.2% interest in such affiliates. Prior to the closing of this transaction, the Operating Partnership provided $17.6 million of mortgage financing secured by certain properties within the Brandywine Portfolio. This financing was repaid in June 2006.
Other Investments
Fund I Investments
Fund I has joint ventures with third party investors in the ownership and operation of Hitchcock Plaza, Pine Log Plaza, Sterling Heights Shopping Center, and Haygood Shopping Center. The Hitchcock Plaza is a 234,000 square foot shopping center located in Aiken, South Carolina. Adjacent to the Hitchcock Plaza is the 35,000 square foot Pine Log Plaza. Sterling Heights Shopping Center is a 155,000 square foot community shopping center located in Detroit, Michigan. Lastly, Haygood Shopping Center is a 178,000 square foot center located in Virginia Beach, Virginia. The investments in these properties are accounted for using the equity method of accounting.
In the fourth quarter 2006, Fund I completed the purchase of the remaining 50% interest in the Tarrytown Centre, a 35,000 square foot center located in Westchester, New York, from its unaffiliated partner. This investment, which had previously been accounted for using the equity method, is now consolidated.
Fund II Investments
Fund II acquired for $1.0 million, a 50% equity interest from its partner in the RCP Venture in the entity which has a leasehold interest in a former Levitz Furniture store located in Rockville, Maryland. The investment in this property is accounted for using the equity method of accounting.
Crossroads
The Company owns a 49% interest in the Crossroads Joint Venture and Crossroads II Joint Venture (collectively, “Crossroads”), which collectively own a 311,000 square foot shopping center in White Plains, New York. The Company accounts for its investment in Crossroads using the equity method. The unamortized excess of the Company’s investment over its share of the net equity in Crossroads at the date of acquisition was $19.6 million. The portion of this excess attributable to buildings and improvements are being amortized over the life of the related property.

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Table of Contents

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Investments, continued
A. Investments In and Advances to Unconsolidated Affiliates, continued
The following tables summarize the Company’s investment in unconsolidated subsidiaries as of December 31, 2006, December 31, 2005 and December 31, 2004. The Investment in Mervyns represents the Company’s share of the investment through the RCP Venture.
                                         
    December 31, 2006        
            Brandywine             Other        
(dollars in thousands)   Mervyns     Portfolio     Crossroads     Investments     Total  
Balance Sheets
                                       
Assets
                                       
Rental property, net
  $     $ 127,146     $ 6,017     $ 43,660     $ 176,823  
Investment in unconsolidated affiliates
    385,444                         385,444  
Other assets
          6,747       4,511       6,632       17,890  
 
                             
 
                                       
Total assets
  $ 385,444     $ 133,893     $ 10,528     $ 50,292     $ 580,157  
 
                             
 
                                       
Liabilities and partners’ equity
                                       
Mortgage note payable
  $     $ 166,200     $ 64,000     $ 28,558     $ 258,758  
Other liabilities
          12,709       1,858       8,862       23,429  
Partners equity (deficit)
    385,444       (45,016 )     (55,330 )     12,872       297,970  
 
                             
 
                                       
Total liabilities and partners’ equity
  $ 385,444     $ 133,893     $ 10,528     $ 50,292     $ 580,157  
 
                             
 
                                       
Company’s investment in unconsolidated affiliates
  $ 23,539     $     $     $ 7,510     $ 31,049  
 
                             
 
                                       
Share of distributions in excess of share of income and investment in unconsolidated affiliates
  $     $ (10,541 )   $ (11,187 )   $     $ (21,728 )
 
                             
                                         
    Year ended December 31, 2006        
            Brandywine             Other        
(dollars in thousands)   Mervyns     Portfolio     Crossroads     Investments     Total  
Statements of Operations
                                       
Total revenue
  $     $ 18,324     $ 9,208     $ 3,707     $ 31,239  
Operating and other expenses
          4,800       3,121       2,295       10,216  
Interest expense
          12,066       3,485       1,448       16,999  
Equity in earnings (loss) of affiliates
    (4,554 )                       (4,554 )
Depreciation and amortization
          2,947       580       1,416       4,943  
 
                             
 
                                       
Net income (loss)
  $ (4,554 )   $ (1,489 )   $ 2,022     $ (1,452 )   $ (5,473 )
 
                             
 
                                       
Company’s share of net income
    2,212       (31 )     991       (221 )     2,951  
Amortization of excess investment
                392             392  
 
                             
Company’s share of net income (loss)
  $ 2,212     $ (31 )   $ 599     $ (221 )   $ 2,559  
 
                             

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Table of Contents

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Investments, continued
A. Investments In and Advances to Unconsolidated Affiliates, continued
                                 
    December 31, 2005  
                    Other        
(dollars in thousands)   Mervyns     Crossroads     Investments     Total  
Balance Sheets
                               
Assets
                               
Rental property, net
  $     $ 6,458     $ 31,093     $ 37,551  
Investment in unconsolidated affiliates
    9,401                   9,401  
Other assets
          5,543       8,708       14,251  
 
                       
 
                               
Total assets
  $ 9,401     $ 12,001     $ 39,801     $ 61,203  
 
                       
 
                               
Liabilities and partners’ equity
                               
Mortgage note payable
  $     $ 64,000     $ 16,340     $ 80,340  
Other liabilities
          2,359       5,265       7,624  
Partners equity (deficit)
    9,401       (54,358 )     18,196       (26,761 )
 
                               
Total liabilities and partners’ equity
  $ 9,401     $ 12,001     $ 39,801     $ 61,203  
 
                       
 
                               
Company’s investment in unconsolidated affiliates
  $ 2,722     $     $ 15,141     $ 17,863  
 
                       
 
                               
Share of distributions in excess of share of income and investment in unconsolidated affiliates
  $     $ (10,315 )   $     $ (10,315 )
 
                       
                                 
    Year ended December 31, 2005  
                    Other        
(dollars in thousands)   Mervyns     Crossroads     Investments     Total  
Statements of Operations
                               
Total revenue
  $     $ 8,772     $ 3,778     $ 12,550  
Operating and other expenses
          2,581       2,206       4,787  
Interest expense
          3,632       906       4,538  
Equity in earnings of affiliates
    181,543                   181,543  
 
                       
Depreciation and amortization
          654       927       1,581  
 
                               
Net income (loss)
  $ 181,543     $ 1,905     $ (261 )   $ 183,187  
 
                       
 
                               
Company’s share of net income
    20,902       988       (218 )     21,672  
Amortization of excess investment
          392             392  
 
                       
Company’s share of net income (loss)
  $ 20,902     $ 596     $ (218 )   $ 21,280  
 
                       

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Table of Contents

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Investments, continued
A. Investments In and Advances to Unconsolidated Affiliates, continued
                         
    Year ended December 31, 2004  
            Other        
(dollars in thousands)   Crossroads     Investments     Total  
Statements of Operations
                       
Total revenue
  $ 8,160     $ 380     $ 8,540  
Operating and other expenses
    2,707             2,707  
Interest expense
    2,740       384       3,124  
Depreciation and amortization
    778       416       1,194  
 
                 
 
                       
Net income (loss)
  $ 1,935     $ (420 )   $ 1,515  
 
                 
 
                       
Company’s share of net income
    1,112       (207 )     905  
Amortization of excess investment
    392             392  
 
                 
Company’s share of net income (loss)
  $ 720     $ (207 )   $ 513  
 
                 
B. Notes Receivable and Preferred Equity Investment
In March 2005, the Company invested $20.0 million in a preferred equity position (“Preferred Equity Investment”) with Levitz SL, L.L.C. (“Levitz SL”), the owner of fee and leasehold interests in 30 locations (the “Levitz Properties”) totaling 2.5 million square feet, of which the majority are currently leased to Levitz Furniture Stores (which filed for bankruptcy protection under Chapter 11 in October 2005). Klaff Realty L.P. (“Klaff”) is a managing member of Levitz SL. The Preferred Equity Investment received a return of 10%, plus a minimum return of capital of $2.0 million per annum. During March 2006, the rate of return was reset to the six-month LIBOR plus 644 basis points or 11.5%.
In June 2006, the Company converted the Preferred Equity Investment to a first mortgage loan in the amount of $31.3 million. The loan has a maturity date of May 31, 2008 and has an interest rate of 10.5%. The loan was secured by fee and leasehold mortgages as well as a pledge of the entities owning 19 of the Levitz Properties totaling 1.8 million square feet. During the third quarter of 2006, Levitz SL sold one of the Levitz Properties located in Northridge, California and used $20.4 million of the proceeds to partially pay down the loan. As of December 31, 2006, the loan balance amounted to $10.9 million and is included in Notes Receivable and Preferred Equity Investment on the consolidated balance sheet. Management believes that the underlying value of the real estate is sufficient to recover the mortgage and accordingly, no reserve is required at December 31, 2006.
5. Deferred Charges
Deferred charges consist of the following as of December 31, 2006 and 2005:
                 
    December 31,  
    2006     2005  
(dollars in thousands)                
Deferred financing costs
  $ 15,684     $ 9,631  
Deferred leasing and other costs
    31,848       25,855  
 
           
 
    47,532       35,486  
Accumulated amortization
    (14,277 )     (11,747 )
 
           
 
  $ 33,255     $ 23,739  
 
           

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Table of Contents

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Mortgage and Other Notes Payable
At December 31, 2006, mortgage and other notes payable were collateralized by 52 properties and related tenant leases. Interest rates on our outstanding mortgage indebtedness ranged from 5.0% to 8.5% with maturities that ranged from July 2007 to November 2032. Certain loans are cross-collateralized and cross-defaulted. The loan agreements contain customary representations, covenants and events of default. Certain loan agreements require the Company to comply with certain affirmative and negative covenants, including the maintenance of certain debt service coverage and leverage ratios.
On January 12, 2006, in conjunction with the purchase of a property, the Company assumed a loan of $3.8 million which bears interest at a fixed rate of 8.5% and matures on April 11, 2028.
On January 24, 2006, in conjunction with the purchase of a partnership interest, the Company assumed a loan of $8.6 million which bears interest at a fixed rate of 6.4% and matures on November 1, 2032.
On February 22, 2006, the Company refinanced a property within its existing portfolio for $20.5 million. This loan bears interest at a fixed rate of 5.4% and matures on March 1, 2016.
On March 27, 2006, the Company refinanced a property for $30.0 million. This loan bears interest at LIBOR plus 140 basis points and matures on April 1, 2008. A portion of the proceeds were used to pay down the existing $12.1 million of debt on this property.
On May 18, 2006, the Company closed on a construction loan for a property up to $12.0 million. This loan bears interest at LIBOR plus 165 basis points and matures on May 18, 2009. Proceeds from this loan will be drawn down as needed and will be used to fund construction work. As of December 31, 2006, the amount outstanding on this loan was $5.4 million.
On June 16, 2006, in conjunction with the purchase of a property, the Company assumed a loan of $10.1 million which bears interest at a fixed rate of 5.45% and matures on June 11, 2013.
On July 12, 2006, the Company closed on a construction loan for a property for $19.2 million. This loan bears interest at LIBOR plus 125 basis points and matures on December 31, 2008. Proceeds from this loan will be drawn down as needed and will be used to fund construction work. As of December 31, 2006, the amount outstanding on this loan was $6.4 million.
On September 8, 2006, the Company financed a property for $23.5 million. This loan bears interest at a fixed rate of 6.06% and matures on August 29, 2016.
On November 3, 2006, in conjunction with the sale of a property, the Company paid off $5.3 million of debt. This loan was cross-collateralized with another property. As part of the payoff, the other property mortgage balance was reduced by $1.5 million.
On December 14, 2006, in conjunction with the sale of a property, the Company paid off $8.2 million of debt.
On December 18, 2006, the Company paid off $2.5 million on an existing loan. The remaining balance on this loan is $2.9 million.
On December 19, 2006, the Company modified two existing facilities with the Bank of America which were collateralized by eight of the Company’s properties into a new $75.0 million revolving credit facility collateralized by seven of the properties and a new $16.0 million term loan on the remaining property. Utilizing the proceeds from the issuance of convertible debt (Note 7) the Company paid off the existing facilities balances in December 2006. The new $75.0 million revolving credit facility, which can be increased up to $88.0 million based on collateral performance, bears interest at LIBOR plus 125 basis points and matures on December 1, 2010. As of December 31, 2006, there was no outstanding balance on this facility. The new $16.0 million term loan bears interest at LIBOR plus 130 basis points and matures on December 1, 2011. The above transactions were reflected as a modification of debt in accordance with Emerging Issues Task Force No. 96-19, “Debtors Accounting for Modifications or Exchange of Debt Instruments”.
During March 2005, the Company obtained a secured revolving line of credit with a bank for $70.0 million. The revolving line of credit bears interest rate either at Prime plus 0% or LIBOR plus 0.75% at borrower’s option. The loan matures at the earlier of three years or the date on which capital commitments have been fully drawn. As of December 31, 2005, the outstanding balance on this facility was $24.4 million. On January 18, 2006, the Company drew an additional $1.8 million on this facility. On April 21, 2006, the Company paid down $15.0 million on this facility. On June 1, 2006, the Company drew an additional $19.2 million on this facility. On June 22, 2006, the entire existing balance of $30.4 million was paid off by the Company.

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Table of Contents

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Mortgage and Other Notes Payable, continued
The following table summarizes our mortgage indebtedness as of December 31, 2006 and December 31, 2005:
                                             
    December 31,     December     Interest Rate at           Properties     Payment  
(dollars in thousands)   2006     31, 2005     December 31, 2006   Maturity     Encumbered     Terms  
Mortgage notes payable–variable-rate
                                           
Washington Mutual Bank, FA
  $ 21,524     $ 23,669     6.83% (LIBOR + 1.50%)     4/1/2011       (1 )     (31 )
Bank of America, N.A.
    9,925       10,082     6.73% (LIBOR + 1.40%)     6/29/2012       (2 )     (31 )
RBS Greenwich Capital
    30,000           6.73% (LIBOR + 1.40%)     4/1/2008       (3 )     (32 )
Bank of America, N.A.
    6,424       4,900     6.58% (LIBOR + 1.25%)     12/31/2008       (4 )     (32 )
PNC Bank, National Association
    5,363           6.98% (LIBOR + 1.65%)     5/18/2009       (5 )     (39 )
JP Morgan Chase
    2,939       5,570     7.33% (LIBOR + 2.00%)     10/5/2007       (6 )     (31 )
Bank of China, New York Branch
    18,000       18,000     7.08% (LIBOR + 1.75%)     11/1/2007       (7 )     (32 )
Bank of America, N.A.
    16,000           6.63% (LIBOR + 1.30%)     12/1/2011       (8 )     (31 )
Bank of America, N.A.
              6.58% (LIBOR + 1.25%)     12/1/2010       (9 )     (33 )
Bank of America, N.A.
          22,000     6.63% (LIBOR + 1.30%)     6/1/2010       (10 )     (32 )
Bank of America, N.A.
          44,485     6.73% (LIBOR + 1.40%)     6/29/2012       (11 )     (33 )
Bank of America, N.A.
          12,066     6.83% (LIBOR + 1.50%)     2/1/2006       (3 )     (32 )
Bank of America, N.A.
          24,400                              
 
                                         
Interest rate swaps
    (16,002 )     (92,376 )                            
 
                                       
 
                                           
Total variable-rate debt
    94,173       72,796                              
 
                                       

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Table of Contents

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Mortgage and Other Notes Payable, continued
                                                 
                    Interest Rate at                      
    December 31,     December 31,     December 31,             Properties     Payment  
(dollars in thousands)   2006     2005     2006     Maturity     Encumbered     Terms  
Mortgage notes payable – fixed-rate
                                               
Sun America Life Insurance Company
  $ 12,665     $ 12,936       6.46 %     7/1/2007       (12 )     (31 )
Bank of America, N.A.
    15,686       15,882       7.55 %     1/1/2011       (13 )     (31 )
RBS Greenwich Capital
    15,672       15,894       5.19 %     6/1/2013       (14 )     (31 )
RBS Greenwich Capital
    14,940       15,000       5.64 %     9/6/2014       (15 )     (31 )
RBS Greenwich Capital
    17,600