AKR 10-Q 09.30.2014



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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


For the quarterly period ended September 30, 2014

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

For the transition period from _______ to _______

Commission File Number 1-12002

ACADIA REALTY TRUST

(Exact name of registrant in its charter)
MARYLAND
 (State or other jurisdiction of
 incorporation or organization)
 
23-2715194
 (I.R.S. Employer
 Identification No.)
 
 
 
1311 MAMARONECK AVENUE, SUITE 260, WHITE PLAINS, NY
 (Address of principal executive offices)
 10605
 (Zip Code)
(914) 288-8100
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES x
 
NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES x
 
NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer  x
 
Accelerated Filer  o
 
 
 
Non-accelerated Filer  o
 
Smaller Reporting Company  o

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes o No x
As of November 5, 2014 there were 64,201,225 common shares of beneficial interest, par value $.001 per share, outstanding.





ACADIA REALTY TRUST AND SUBSIDIARIES

FORM 10-Q

INDEX

 
 
Page
 
 
 
Part I:
Financial Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part II:
Other Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Part I. Financial Information

Item 1. Financial Statements.
 
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
September 30,
2014
 
December 31,
2013
ASSETS
(unaudited)
 
 
Operating real estate
 
 
 
Land
$
404,582

 
$
336,251

Buildings and improvements
1,304,438

 
1,140,613

Construction in progress
7,977

 
4,836

 
1,716,997

 
1,481,700

Less: accumulated depreciation
251,545

 
229,538

Net operating real estate
1,465,452

 
1,252,162

Real estate under development
398,727

 
337,353

Notes receivable and preferred equity investments, net
94,409

 
126,656

Investments in and advances to unconsolidated affiliates
123,693

 
181,322

Cash and cash equivalents
131,132

 
79,189

Cash in escrow
26,820

 
19,822

Restricted cash
49,281

 
109,795

Rents receivable, net
33,347

 
29,574

Deferred charges, net
29,745

 
30,775

Acquired lease intangibles, net
43,512

 
33,663

Prepaid expenses and other assets
58,533

 
44,212

Assets of discontinued operations

 
20,434

Total assets
$
2,454,651

 
$
2,264,957

 
 
 
 
LIABILITIES
 

 
 

Mortgage and other notes payable
$
1,141,066

 
$
1,039,997

Distributions in excess of income from, and investments in, unconsolidated affiliates
8,416

 
8,701

Accounts payable and accrued expenses
43,196

 
38,050

Dividends and distributions payable
14,864

 
13,455

Acquired lease intangibles, net
24,441

 
22,394

Other liabilities
20,334

 
18,265

Liabilities of discontinued operations

 
2,507

Total liabilities
1,252,317

 
1,143,369

 
 
 
 
EQUITY
 

 
 

Shareholders' Equity
 
 
 
Common shares, $.001 par value, authorized 100,000,000 shares; issued and outstanding 60,081,109 and 55,643,068 shares, respectively
60

 
56

Additional paid-in capital
783,791

 
665,301

Accumulated other comprehensive (loss) income
(1,554
)
 
1,132

Retained earnings
58,954

 
37,747

Total shareholders’ equity
841,251

 
704,236

Noncontrolling interests
361,083

 
417,352

Total equity
1,202,334

 
1,121,588

Total liabilities and equity
$
2,454,651

 
$
2,264,957

See accompanying notes

1


ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

(unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(dollars in thousands, except per share amounts)
2014
 
2013
 
2014
 
2013
Revenues
 
 
 
 
 
 
 
Rental income
$
36,587

 
$
30,604

 
$
106,517

 
$
90,097

Interest income
3,006

 
2,969

 
9,219

 
9,265

Expense reimbursements
7,386

 
7,333

 
24,008

 
20,979

Other
681

 
180

 
4,112

 
3,842

Total revenues
47,660

 
41,086

 
143,856

 
124,183

Operating Expenses
 
 
 
 
 

 
 

Property operating
5,170

 
5,468

 
18,031

 
14,513

Other operating
1,588

 
842

 
3,183

 
2,743

Real estate taxes
5,666

 
5,866

 
16,905

 
15,949

General and administrative
7,123

 
5,335

 
20,898

 
17,263

Depreciation and amortization
12,884

 
10,450

 
36,055

 
29,278

Total operating expenses
32,431

 
27,961

 
95,072

 
79,746

Operating income
15,229

 
13,125

 
48,784

 
44,437

Equity in earnings of unconsolidated affiliates
2,923

 
4,209

 
7,382

 
7,274

Gain on disposition of properties of unconsolidated affiliates
102,855

 

 
102,855

 

Impairment of asset

 

 

 
(1,500
)
Loss on debt extinguishment

 

 
(269
)
 

Gain on disposition of property
190

 

 
13,138

 

Interest and other finance expense
(10,142
)
 
(10,595
)
 
(30,327
)
 
(29,806
)
Income from continuing operations before income taxes
111,055

 
6,739

 
141,563

 
20,405

Income tax benefit (provision)
17

 
(186
)
 
(68
)
 
(57
)
Income from continuing operations
111,072

 
6,553

 
141,495

 
20,348

Discontinued Operations
 
 
 
 
 
 
 
Operating income from discontinued operations

 
2,589

 

 
5,394

Gain on disposition of property

 

 
560

 
4,191

Income from discontinued operations

 
2,589

 
560

 
9,585

Net income
111,072

 
9,142

 
142,055

 
29,933

Noncontrolling interests
 
 
 
 
 

 
 

Continuing operations
(82,508
)
 
2,342

 
(79,971
)
 
6,103

Discontinued operations

 
(1,999
)
 
(461
)
 
(8,171
)
Net (income) loss attributable to noncontrolling interests
(82,508
)
 
343

 
(80,432
)
 
(2,068
)
Net income attributable to Common Shareholders
$
28,564

 
$
9,485

 
$
61,623

 
$
27,865

 
 
 
 
 
 
 
 
Basic Earnings per Share
 
 
 
 
 

 
 

Income from continuing operations
$
0.47

 
$
0.16

 
$
1.04

 
$
0.47

Income from discontinued operations

 
0.01

 

 
0.03

Basic earnings per share
$
0.47

 
$
0.17

 
$
1.04

 
$
0.50

 
 
 
 
 
 
 
 
Diluted Earnings per Share
 
 
 
 
 

 
 

Income from continuing operations
$
0.47

 
$
0.16

 
$
1.04

 
$
0.47

Income from discontinued operations

 
0.01

 

 
0.03

Diluted earnings per share
$
0.47

 
$
0.17

 
$
1.04

 
$
0.50

See accompanying notes

2


ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2014
 
2013
 
2014
 
2013
(dollars in thousands)
 
 
 
 
 
 
 
 
Net income
 
$
111,072

 
$
9,142

 
$
142,055

 
$
29,933

Other comprehensive (loss) income
 

 

 
 
 
 
Unrealized (loss) income on valuation of swap agreements
 
(81
)
 
(857
)
 
(5,189
)
 
2,247

Reclassification of realized interest on swap agreements
 
961

 
795

 
2,734

 
2,132

Other comprehensive income (loss)
 
880

 
(62
)
 
(2,455
)
 
4,379

Comprehensive income
 
111,952

 
9,080

 
139,600

 
34,312

Comprehensive (income) loss attributable to noncontrolling interests
 
(82,864
)
 
416

 
(80,663
)
 
(2,886
)
Comprehensive income attributable to Common Shareholders
 
$
29,088

 
$
9,496

 
$
58,937

 
$
31,426

See accompanying notes


3




ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014

(unaudited)
 
Common Shares
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Total
Shareholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
(amounts in thousands, except per share amounts)
Shares
 
Amount
 
 
 
 
 
 
Balance at December 31, 2013
55,643

 
$
56

 
$
665,301

 
$
1,132

 
$
37,747

 
$
704,236

 
$
417,352

 
$
1,121,588

Conversion of OP Units to Common Shares by limited partners of the Operating Partnership
99

 

 
2,267

 

 

 
2,267

 
(2,267
)
 

Issuance of Common Shares, net of issuance costs
4,254

 
4

 
114,637

 

 

 
114,641

 

 
114,641

Issuance of OP Units to acquire real estate

 

 

 

 

 

 
38,937

 
38,937

Dividends declared ($0.69 per Common Share)

 

 

 

 
(40,416
)
 
(40,416
)
 
(2,548
)
 
(42,964
)
Employee and trustee stock compensation, net
85

 

 
1,586

 

 

 
1,586

 
4,968

 
6,554

Noncontrolling interest distributions

 

 

 

 

 

 
(211,339
)
 
(211,339
)
Noncontrolling interest contributions

 

 

 

 

 

 
35,317

 
35,317

 
60,081

 
60

 
783,791

 
1,132

 
(2,669
)
 
782,314

 
280,420

 
1,062,734

Comprehensive (loss) income:
 

 
 

 
 
 
 

 
 

 
 

 
 

 
 

Net income

 

 

 

 
61,623

 
61,623

 
80,432

 
142,055

Unrealized (loss) income on valuation of swap agreements

 

 

 
(5,969
)
 

 
(5,969
)
 
780

 
(5,189
)
Reclassification of realized interest on swap agreements

 

 

 
3,283

 

 
3,283

 
(549
)
 
2,734

Total comprehensive (loss) income

 

 

 
(2,686
)
 
61,623

 
58,937

 
80,663

 
139,600

Balance at September 30, 2014
60,081

 
$
60

 
$
783,791

 
$
(1,554
)
 
$
58,954

 
$
841,251

 
$
361,083

 
$
1,202,334





4




ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 
Nine Months Ended
 
September 30,
(dollars in thousands)
2014
 
2013
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
142,055

 
$
29,933

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

 
 
Depreciation and amortization
36,055

 
32,054

Amortization of financing costs
2,214

 
2,801

Gain on disposition of property
(13,698
)
 
(4,191
)
Impairment of asset

 
1,500

Share-based compensation expense
5,542

 
4,590

Equity in earnings of unconsolidated affiliates
(7,382
)
 
(7,274
)
Gain on disposition of properties of unconsolidated affiliates
(102,855
)
 

Distributions of operating income from unconsolidated affiliates
7,780

 
4,644

Other, net
(2,106
)
 
(3,598
)
Changes in assets and liabilities
 

 
 
Cash in escrow
(7,148
)
 
(3,378
)
Rents receivable, net
(3,707
)
 
(4,315
)
Prepaid expenses and other assets
430

 
(19,894
)
Accounts payable and accrued expenses
4,209

 
5,845

Other liabilities
295

 
2,904

Net cash provided by operating activities
61,684

 
41,621

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

Acquisition of real estate
(136,978
)
 
(140,075
)
Redevelopment and property improvement costs
(105,049
)

(79,549
)
Deferred leasing costs
(2,654
)
 
(4,226
)
Investments in and advances to unconsolidated affiliates
(59,529
)
 
(54,207
)
Return of capital from unconsolidated affiliates
30,604

 
88,403

Proceeds from disposition of properties of unconsolidated affiliates
188,870

 

Consolidation of previously unconsolidated investment

 
1,864

Collection of notes receivable
18,095

 
15,779

Issuance of notes receivable
(23,519
)
 

Proceeds from sale of properties, net
31,188

 
11,815

Net cash used in investing activities
(58,972
)
 
(160,196
)

5




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

 
Nine Months Ended
 
September 30,
(dollars in thousands)
2014
 
2013
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Principal payments on mortgage and other notes
(134,334
)
 
(140,037
)
Proceeds received from mortgage and other notes
229,000

 
360,943

Loan proceeds held as restricted cash
60,514

 
(134,392
)
Purchase of convertible notes payable

 
(550
)
Deferred financing and other costs
(2,120
)
 
(11,018
)
Capital contributions from noncontrolling interests
35,317

 
27,515

Distributions to noncontrolling interests
(213,496
)
 
(30,572
)
Dividends paid to Common Shareholders
(39,399
)
 
(32,471
)
Proceeds from issuance of Common Shares, net of issuance costs of $1,818 and $1,430, respectively
113,749

 
75,765

Net cash provided by financing activities
49,231

 
115,183

Increase (decrease) in cash and cash equivalents
51,943

 
(3,392
)
Cash and cash equivalents, beginning of period
79,189

 
91,813

Cash and cash equivalents, end of period
$
131,132

 
$
88,421

 
 
 
 
Supplemental disclosure of cash flow information
 

 
 

Cash paid during the period for interest, net of capitalized interest of $9,250 and $6,429, respectively
$
34,935

 
$
29,758

Cash paid for income taxes
$
316

 
$
281

 
 
 
 
Supplemental disclosure of non-cash investing activities
 
 
 
Acquisition of real estate through assumption of debt
$
29,794

 
$

Acquisition of real estate through issuance of OP Units
$
38,937

 
$

Acquisition of real estate through conversion of notes receivable
$
38,000

 
$
18,500

Disposition of real estate through cancellation of debt
$
(22,865
)
 
$

 
 
 
 
Consolidation of previously unconsolidated investment
 
 
 
Real estate, net
$

 
$
(118,484
)
Mortgage notes payable

 
166,200

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

 
(10,298
)
Other assets and liabilities

 
(1,605
)
Noncontrolling interest

 
(33,949
)
Cash included in consolidation of previously unconsolidated investment
$

 
$
1,864


See accompanying notes


6

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



1.
ORGANIZATION AND BASIS OF PRESENTATION

Business and Organization

Acadia Realty Trust (the "Trust") and subsidiaries (collectively, the "Company"), is a fully-integrated equity real estate investment trust ("REIT") focused on the acquisition, ownership, management and redevelopment of high-quality retail properties located in key street and urban retail corridors as well as suburban locations within high-barrier-to-entry, densely-populated metropolitan areas in the United States along the East Coast and in Chicago.

All of the Company's assets are held by, and all of its operations are conducted through, Acadia Realty Limited Partnership (the "Operating Partnership") and entities in which the Operating Partnership owns an interest. As of September 30, 2014, the Trust controlled approximately 94% of the Operating Partnership as the sole general partner. As the general partner, the Trust is entitled to share, in proportion to its percentage interest, in the cash distributions and profits and losses of the Operating Partnership. The limited partners primarily represent entities or individuals that contributed their interests in certain properties or entities to the Operating Partnership in exchange for common or preferred units of limited partnership interest ("Common OP Units" or "Preferred OP Units") and employees who have been awarded restricted OP units ("LTIP Units") as long-term incentive compensation (Note 12). Limited partners holding Common OP Units are generally entitled to exchange their units on a one-for-one basis for common shares of beneficial interest of the Trust ("Common Shares").

As of September 30, 2014, the Company has ownership interests in 84 properties within its core portfolio, which consist of those properties either wholly owned, or partially owned through joint venture interests, by the Operating Partnership, or subsidiaries thereof, not including those properties owned through its opportunity funds (the "Core Portfolio"). The Company also has ownership interests in 54 properties within its four opportunity funds, Acadia Strategic Opportunity Fund, L.P. ("Fund I"), Acadia Strategic Opportunity Fund II, LLC ("Fund II"), Acadia Strategic Opportunity Fund III LLC ("Fund III") and Acadia Strategic Opportunity Fund IV LLC ("Fund IV" and together with Funds I, II and III, the "Funds"). The 138 Core Portfolio and Fund properties consist of commercial properties, which are primarily high-quality urban and/or street retail properties, community shopping centers and mixed-use properties with a retail component. Fund I and Fund II also include investments in operating companies through Acadia Mervyn Investors I, LLC ("Mervyns I"), Acadia Mervyn Investors II, LLC ("Mervyns II") and, in certain instances, directly through Fund II, all on a non-recourse basis. These investments comprise and are referred to as the Company's Retailer Controlled Property Initiative ("RCP Venture").

The Operating Partnership is the sole general partner or managing member of the Funds, Mervyns I and Mervyns II and earns fees or priority distributions for asset management, property management, construction, redevelopment, leasing and legal services. Cash from the Funds and RCP Venture is distributed pro-rata to the respective partners and members (including the Operating Partnership) until each receives a certain cumulative return ("Preferred Return"), and the return of all capital contributions. Thereafter, remaining cash flow is distributed 20% to the Operating Partnership ("Promote") and 80% to the partners or members (including the Operating Partnership).

Following is a table summarizing the general terms and the Operating Partnership's equity interests in the Funds and Mervyns I and II:

Entity
Formation Date
Operating Partnership Share of Capital
Committed Capital (2)
 
Capital Called as of September 30, 2014 (3)
Equity Interest Held By Operating Partnership
Preferred Return
Total Distributions as of September 30, 2014 (3)
Fund I and Mervyns I (1)
9/2001
22.22
%
$
90.0

 
$
86.6

37.78
%
9
%
$
192.3

Fund II and Mervyns II (2)
6/2004
20.00
%
300.0

 
300.0

20.00
%
8
%
131.6

Fund III
5/2007
19.90
%
475.0

 
372.0

19.90
%
6
%
362.2

Fund IV
5/2012
23.12
%
540.6

 
121.0

23.12
%
6
%
95.9







7

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.    ORGANIZATION AND BASIS OF PRESENTATION (continued)

Notes:

(1) Fund I and Mervyns I have returned all capital and preferred return. The Operating Partnership is now entitled to a Promote on all future cash distributions.
(2) During 2013, a distribution of $47.1 million was made to the Fund II investors, including the Operating Partnership. This amount is subject to recontribution to Fund II until December 2016, if needed to fund the on-going development and construction of existing projects.
(3) Represents the total for the Funds, including the Operating Partnership and noncontrolling interests' shares.


Basis of Presentation

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

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates. Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2014. The information furnished in the accompanying consolidated financial statements reflects all adjustments that, in the opinion of management, are necessary for a fair presentation of the aforementioned consolidated financial statements for the interim periods. Such adjustments consisted of normal recurring items. These consolidated financial statements should be read in conjunction with the Company's 2013 Annual Report on Form 10-K, as filed with the SEC on February 26, 2014.

Reclassifications

Certain reclassifications have been made to the 2013 financial statements to conform to the 2014 presentation.

Real Estate

The Company reviews its long-lived assets for impairment when there is an event or change in circumstances that indicates that the carrying amount may not be recoverable. The Company measures and 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 dispose. Management does not believe that the carrying values of any of its properties are impaired as of September 30, 2014.


8

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.    ORGANIZATION AND BASIS OF PRESENTATION (continued)

Recent Accounting Pronouncements

During June 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-12, "Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period." ASU 2014-12 provides explicit guidance on how to account for share-based payments that require a specific performance target to be achieved which may be achieved after an employee completes the requisite service period. ASU 2014-12 is effective for periods beginning after December 15, 2015 and may be applied either prospectively or retrospectively. ASU 2014-12 is not expected to have a material impact on the Company's financial statements.

During May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers", which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating the impact of its pending adoption of ASU 2014-09 on its consolidated financial statements and has not yet determined the method by which the standard will be adopted in 2017.

During April 2014, the FASB issued ASU No. 2014-08, "Presentation of Financial Statements and Property, Plant and Equipment; Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." ASU 2014-08 modifies the requirements for reporting discontinued operations. Under the amendments in ASU 2014-08, the definition of discontinued operation has been modified to only include those disposals of an entity that represent a strategic shift that has (or will have) a major effect on an entity's operations and financial results. ASU 2014-08 shall be applied prospectively for periods beginning on or after December 15, 2014, with early adoption permitted. The Company adopted ASU 2014-08 for the quarter ended March 31, 2014. The Company has adopted this standard on a prospective basis for transactions that have occurred after the adoption date. The adoption of ASU 2014-08 did not have a material effect on the Company's financial position or results of operations.


2.    EARNINGS PER COMMON SHARE

Basic earnings per Common Share is computed by dividing net income attributable to Common Shareholders by the weighted average Common Shares outstanding. At September 30, 2014, the Company has unvested LTIP Units (Note 12) which provide for non-forfeitable rights to dividend equivalent payments. Accordingly, these unvested LTIP Units are considered participating securities and are included in the computation of basic earnings per Common Share pursuant to the two-class method.

Diluted earnings per Common Share reflects the potential dilution of the conversion of obligations and the assumed exercises of securities including the effects of restricted share unit ("Restricted Share Units") and share option awards issued under the Company's Share Incentive Plans (Note 12). The effect of the assumed conversion of 188 Series A Preferred OP Units into 25,067 Common Shares would be dilutive and therefore are included in the computation of diluted earnings per share for the three and nine months ended September 30, 2014. Conversely, the assumed conversion of these would be anti-dilutive and are therefore not included in the computation of diluted earnings per share for the three and nine months ended September 30, 2013.

The effect of the conversion of Common OP Units is not reflected in the computation of basic and diluted earnings per share, as they are exchangeable for Common Shares on a one-for-one basis. The income allocable to such units is allocated on this same basis and reflected as noncontrolling interests in the accompanying consolidated financial statements. As such, the assumed conversion of these units would have no net impact on the determination of diluted earnings per share. The conversion of the convertible notes payable is not included in the computation of basic and diluted earnings per share as such conversion, based on the current market price of the Common Shares, would be settled with cash.

The following table sets forth the computation of basic and diluted earnings per share from continuing operations for the periods indicated:


9

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


2.    EARNINGS PER COMMON SHARE (continued)
 
Three Months Ended
Nine Months Ended
 
September 30,
September 30,
(dollars in thousands, except per share amounts)
2014
 
2013
2014
 
2013
Numerator
 
 
 
 
 
 
Income from continuing operations
$
28,564

 
$
8,895

$
61,524

 
$
26,451

Less: net income attributable to participating securities
(490
)
 
(157
)
(1,083
)
 
(468
)
Income from continuing operations, net of income attributable to participating securities
28,074

 
8,738

60,441

 
25,983

 
 
 
 
 
 
 
Denominator
 

 
 

 
 
 
Weighted average shares for basic earnings per share
59,686

 
55,460

57,898

 
54,697

Effect of dilutive securities:
 

 
 



 
 

Employee Restricted Share Units and share options
18

 
26

26

 
41

 Convertible Preferred OP Units
25

 

25

 

Denominator for diluted earnings per share
59,729

 
55,486

57,949

 
54,738

 
 
 
 
 
 
 
Basic earnings per Common Share from continuing operations attributable to Common Shareholders
$
0.47

 
$
0.16

$
1.04

 
$
0.47

Diluted earnings per Common Share from continuing operations attributable to Common Shareholders
$
0.47

 
$
0.16

$
1.04

 
$
0.47

    


3.
SHAREHOLDERS' EQUITY AND NONCONTROLLING INTERESTS

For the nine months ended September 30, 2014, the Company issued 4.3 million Common Shares under its at-the-market ("ATM") equity program, generating gross proceeds of $116.5 million and net proceeds of $114.9 million.

The net proceeds from the Company's ATM equity programs have been, and are anticipated to be, used by the Company primarily to fund acquisitions directly in the Core Portfolio and through its capital contributions to the Funds.

In connection with the acquisition of a property, the Company issued 1.4 million Common OP Units.

Noncontrolling interests represent the portion of equity in entities consolidated in the accompanying consolidated financial statements that the Company does not own. Such noncontrolling interests are reported on the Consolidated Balance Sheets within equity, separately from shareholders' equity, and include third party interests in the Company’s Funds and other entities. It also includes interests in the Operating Partnership which represent (i) the limited partners’ 2,863,331 and 1,457,467 Common OP Units at September 30, 2014 and December 31, 2013; (ii) 188 Series A Preferred OP Units at September 30, 2014 and December 31, 2013; and (iii) 675,367 and 496,047 LTIP Units at September 30, 2014 and December 31, 2013, respectively.



10

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


4.    ACQUISITION OF REAL ESTATE AND DISCONTINUED OPERATIONS

Acquisitions

During 2014, the Company acquired the following properties through its Core Portfolio and Fund IV as follows:

Core Portfolio

(dollars in thousands)
 
 
 
 
 
 
 
Property
GLA

Percent Owned

Type
Month of Acquisition
Purchase Price

Location
Assumption of Debt

11 E. Walton
6,738

100
%
Street Retail
January
$
44,000

Chicago, IL
$

61 Main Street
3,400

100
%
Street Retail
February
7,300

Westport, CT

865 W. North Avenue
16,000

100
%
Street Retail
March
14,750

Chicago, IL

252-256 Greenwich Avenue
9,172

100
%
Street Retail
March
24,450

Greenwich, CT

152-154 Spring Street
2,936

90
%
Street Retail
April
38,000

New York, NY

2520 Flatbush Avenue
29,114

100
%
Urban Retail
May
17,100

Brooklyn, NY

Bedford Green
90,472

100
%
Shopping Center
July
46,750

Bedford Hills, NY
29,794

131-135 Prince Street (1)
3,200

100
%
Street Retail
July
51,359

New York, NY

Total
161,032

 
 
 
$
243,709

 
$
29,794


The Company expensed $3.1 million of acquisition costs for the nine months ended September 30, 2014, related to the Core Portfolio.

Note:

(1) This acquisition was primarily funded with the issuance of 1.4 million Common OP Units.

Fund IV

(dollars in thousands)
 
 
 
 
 
 
Property
GLA

Percent Owned

Type
Month of Acquisition
Purchase Price

Location
Broughton Street Portfolio (1)
218,076

50
%
Street Retail
Various
$
33,856

Savannah, GA
Eden Square (2)
235,508

90
%
Shopping Center
July
25,369

Bear, DE
Total
453,584

 
 
 
$
59,225

 

The Company expensed $3.0 million of acquisition costs for the nine months ended September 30, 2014, related to Fund IV.

Notes:

(1) The Broughton Street Portfolio consists of 24 properties. As the joint venture partner to these investments maintains operating control over the investments, these are accounted for under the equity method. Of the 24 properties, nine of them are accounted for as asset acquisitions as they were purchased vacant and require future development.
(2) As the joint venture partner to this investment maintains operating control over this investment, it is accounted for under the equity method.


11

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


4.    ACQUISITION OF REAL ESTATE AND DISCONTINUED OPERATIONS (continued)

Acquisitions (continued)

Purchase Price Allocations

With the exception of the asset acquisitions within the Broughton Street Portfolio, the above acquisitions have been accounted for as business combinations. The purchase prices were allocated to the acquired assets and assumed liabilities based on their estimated fair values at the dates of acquisition. The preliminary measurements of fair value reflected below are subject to change. The Company expects to finalize the valuations and complete the purchase price allocations within one year from the dates of acquisition.

The following table summarizes the Company's preliminary allocations of the purchase prices of assets acquired and liabilities assumed during 2014 which have yet to be finalized:

(dollars in thousands)
Preliminary Purchase Price Allocations
Land
$
73,459

Buildings and improvements
220,375

Total consideration
$
293,834


During 2013, the Company acquired properties and recorded the preliminary allocations of the purchase prices to the assets acquired and liabilities assumed based on provisional measurements of fair value. During 2014, the Company finalized the allocations of the purchase prices and made certain measurement period adjustments. The following table summarizes the preliminary allocations of the purchase prices of these properties as recorded as of December 31, 2013, and the finalized allocations as adjusted as of September 30, 2014:

(dollars in thousands)
Purchase Price Allocations as Originally Reported
Adjustments
Finalized Purchase Price Allocations
Land
$
52,029

$
14,356

$
66,385

Buildings and improvements
173,605

(28,988
)
144,617

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

19,574

19,574

Acquisition-related intangible liabilities (in Acquired lease intangibles, net)

(4,942
)
(4,942
)
Total consideration
$
225,634

$

$
225,634



12

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


4.    ACQUISITION OF REAL ESTATE AND DISCONTINUED OPERATIONS (continued)

Dispositions

During 2014, the Company disposed of the following properties:

(dollars in thousands)
 
 
 
 
 
Dispositions
GLA
Sale Price
Gain/Loss on Sale
Month Sold
Owner
Walnut Hill (1)
297,905

$

$
12,402

March
Core
Sheepshead Bay
96,418

20,200

1,399

April
Fund III
City Point (2)

26,300

561

June
Fund II
Other post-sale adjustments


(854
)
-
Fund II
Union Plaza

340

190

July
Core
Lincoln Road Portfolio (3)
61,443

141,800

86,600

August
Fund III
Lincoln Road Portfolio (3)
54,453

200,200

54,642

August
Fund IV
Total
510,219

$
388,840

$
154,940

 
 

Notes:

(1) This property was subject to $22.9 million of non-recourse debt and was foreclosed upon by the lender during March 2014, resulting in a $12.4 million gain.
(2) Represents the sale of a portion of the residential air rights known as "Tower 2" associated with the Company's City Point development project.
(3) Both the Fund III and Fund IV Lincoln Road Portfolios were unconsolidated and as such, the Company's share of gains related to these sales are included in gain on disposition of properties of unconsolidated affiliates in the 2014 Consolidated Statement of Income.

Discontinued Operations

Prior to the Company's adoption of ASU 2014-08, it reported properties held for sale or sold during the periods presented as discontinued operations. The results of discontinued operations are reflected as a separate component within the accompanying Consolidated Balance Sheets and Consolidated Statements of Income for all periods presented. As of September 30, 2014, Sheepshead Bay, a Fund III asset, which was previously reported as a discontinued operation was sold. As a result of the adoption of ASU 2014-08, the sale of operating real estate is no longer considered a discontinued operation so long as it is in the normal course of business and does not reflect a separate component of business. Therefore, the Company has no current assets or liabilities of discontinued operations.

The combined assets and liabilities and the results of operations of the properties classified as discontinued operations are summarized for each period presented as follows:


13

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


4.    ACQUISITION OF REAL ESTATE AND DISCONTINUED OPERATIONS (continued)

Discontinued Operations (continued)
(dollars in thousands)
 
BALANCE SHEET
December 31, 2013
ASSETS
 
Net real estate
$
17,991

Rents receivable, net
565

Deferred charges, net
38

Prepaid expenses and other assets
1,840

Total assets of discontinued operations
$
20,434

LIABILITIES
 
Accounts payable and accrued expenses
$
1,473

Other liabilities
1,034

Total liabilities of discontinued operations
$
2,507



 
Three Months Ended
 
Nine Months Ended
(dollars in thousands) 
September 30,
 
September 30,
STATEMENTS OF INCOME
2014
 
2013
 
2014
 
2013
Total revenues
$

 
$
3,641

 
$

 
$
15,854

Total expenses

 
1,052

 

 
10,460

Operating income

 
2,589

 

 
5,394

Gain on disposition of property

 

 
560

 
4,191

Income from discontinued operations

 
2,589

 
560

 
9,585

Income from discontinued operations attributable to noncontrolling interests

 
(1,999
)
 
(461
)
 
(8,171
)
Income from discontinued operations attributable to Common Shareholders
$

 
$
590

 
$
99

 
$
1,414





14

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


5.    INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

Core Portfolio

The Company owns a 49% interest in a 311,000 square foot shopping center located in White Plains, New York ("Crossroads"), a 50% interest in an approximately 28,000 square foot retail portfolio located in Georgetown, Washington D.C. (the "Georgetown Portfolio") and a 22.22% interest in an approximately 20,000 square foot retail property located in Wilmington, Delaware ("Route 202 Shopping Center"). As the Company does not maintain financial or operational control, these investments are accounted for under the equity method.

Funds

RCP Venture

The Funds, together with two unaffiliated partners formed an investment group, the RCP Venture, for the purpose of making investments in surplus or underutilized properties owned by retailers and, in some instances, the retailers' operating company. The RCP Venture is neither a single entity nor a specific investment and the Company has no control or rights with respect to the formation and operation of these investments. The Company has made these investments through its subsidiaries, Mervyns I, Mervyns II and Fund II, (together the "Acadia Investors"), all on a non-recourse basis. Through September 30, 2014, the Acadia Investors have made investments in Mervyns Department Stores ("Mervyns") and Albertsons including additional investments in locations that are separate from these original investments ("Add-On Investments"). Additionally, they have invested in Shopko, Marsh and Rex Stores Corporation (collectively "Other RCP Investments"). The Company accounts for its investments in Mervyns and Albertsons on the equity method as it has the ability to exercise significant influence, but does not have any rights with respect to financial or operating control. The Company accounts for its investments in its Add-On Investments and Other RCP Investments on the cost method as it does not have any influence over such entities' operating and financial policies nor any rights with respect to the control and operation of these entities. During the nine months ended September 30, 2014, the Company received distributions from Rex Stores of $1.2 million, Mervyns I of $0.7 million and Mervyns II of $0.8 million, of which the Operating Partnership's aggregate share was $0.5 million.

The following table summarizes activity related to the RCP Venture investments from inception through September 30, 2014:
(dollars in thousands)
 
Investment Group Share
 
Operating Partnership Share
Investment
Year Acquired
Invested
Capital
and Advances
 
 
Distributions
 
Invested
Capital
and Advances
 
 
Distributions
Mervyns
2004
$
26,058

 
$
48,547

 
$
4,901

 
$
11,801

Mervyns Add-On investments
2005/2008
7,547

 
5,789

 
1,252

 
1,284

Albertsons
2006
20,717

 
81,594

 
4,239

 
16,318

Albertsons Add-On investments
2006/2007
2,416

 
4,864

 
388

 
972

Shopko
2006
1,110

 
2,460

 
222

 
492

Marsh and Add-On investments
2006/2008
2,667

 
2,639

 
533

 
528

Rex Stores
2007
2,701

 
1,956

 
535

 
392

 
 
$
63,216

 
$
147,849

 
$
12,070

 
$
31,787



15

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


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

Other Fund Investments

During 2014, Fund IV, entered into a joint venture (the "Broughton Street Portfolio") with an unaffiliated entity, to acquire and operate properties located in Savannah, Georgia. Fund IV invested $7.8 million of equity and made a loan commitment of up to $69.0 million of which $25.9 million was funded to the joint venture as of September 30, 2014. As of September 30, 2014, the joint venture had acquired 24 properties for an aggregate purchase price of $33.9 million.

In addition, Fund IV, through a joint venture with an unaffiliated entity, purchased a shopping center in Bear, Delaware for $25.4 million.

During the third quarter of 2014, an unconsolidated joint venture between Fund III and an unaffiliated entity sold three properties located on Lincoln Road in Miami, Florida for an aggregate sales price of $141.8 million. In addition, an unconsolidated joint venture between Fund IV and an unaffiliated entity sold three properties located on Lincoln Road in Miami, Florida for an aggregate sales price of $200.2 million during the third quarter of 2014. The sales of the Fund III and Fund IV Lincoln Road portfolios resulted in gains of $86.7 million and $54.6 million, respectively.

The unaffiliated partners in Fund II's investment in Albee Tower I Owners, Fund III's investments in Parkway Crossing, Arundel Plaza and the White City Shopping Center as well as Fund IV's investments in 1701 Belmont Avenue, 2819 Kennedy Boulevard, Promenade at Manassas, Eden Square and the Broughton Street Portfolio, maintain control over these entities. The Company accounts for these investments under the equity method as it has the ability to exercise significant influence, but does not have any rights with respect to financial or operating control.

Self-Storage Management, a Fund III investment, was determined to be a variable interest entity. Management has evaluated the applicability of ASC Topic 810 to this joint venture and determined that the Company is not the primary beneficiary and, therefore, consolidation of this venture is not required. The Company accounts for this investment using the equity method of accounting.

Summary of Investments in Unconsolidated Affiliates

The following Combined and Condensed Balance Sheets and Statements of Income summarize the financial information of the Company’s investments in unconsolidated affiliates:


(dollars in thousands)
September 30,
2014
 
December 31,
2013
Combined and Condensed Balance Sheets
 
 
 
Assets
 
 
 
Rental property, net
$
235,949

 
$
380,268

Real estate under development
49,866

 
5,573

Investment in unconsolidated affiliates
11,154

 
63,745

Other assets
41,107

 
66,895

Total assets
$
338,076

 
$
516,481

Liabilities and partners’ equity
 

 
 

Mortgage notes payable
$
208,326

 
$
265,982

Other liabilities
51,611

 
43,733

Partners’ equity
78,139

 
206,766

Total liabilities and partners’ equity
$
338,076

 
$
516,481

Company’s investment in and advances to unconsolidated affiliates
$
123,693

 
$
181,322

Company's share of distributions in excess of income from, and investments in, unconsolidated affiliates
$
(8,416
)
 
$
(8,701
)


16

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


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

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(dollars in thousands)
2014
 
2013
 
2014
 
2013
Combined and Condensed Statements of Income
 
 
 
 
 
 
 
Total revenues
$
10,280

 
$
13,731

 
$
34,632

 
$
35,577

Operating and other expenses
(3,840
)
 
(4,139
)
 
(13,158
)
 
(13,117
)
Interest and other finance expense
(1,808
)
 
(2,359
)
 
(7,308
)
 
(6,446
)
Equity in earnings (losses) of unconsolidated affiliates

 
1,284

 
(328
)
 
7,154

Depreciation and amortization
(2,275
)
 
(3,200
)
 
(8,456
)
 
(7,888
)
Loss on debt extinguishment

 

 
(187
)
 

Gain on disposition of property
142,377

 

 
142,615

 

Net income
$
144,734

 
$
5,317

 
$
147,810

 
$
15,280

 

 

 

 

Company’s share of net income
$
105,876

 
$
4,307

 
$
110,531

 
$
7,568

Amortization of excess investment
(98
)
 
(98
)
 
(294
)
 
(294
)
Company’s equity in earnings of unconsolidated affiliates
$
105,778

 
$
4,209

 
$
110,237

 
$
7,274




17

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


6.    NOTES RECEIVABLE AND PREFERRED EQUITY INVESTMENTS, NET

As of September 30, 2014, the Company’s notes receivable and preferred equity investments, net, aggregated $94.4 million, and were collateralized either by underlying properties, the borrowers' ownership interests in the entities that own properties and/or by the borrowers' personal guarantee subject, as applicable, to senior liens, as follows:
(dollars in thousands)
 
 
 
Description
Effective interest rate (1)
First Priority liens
Net Carrying Amounts of Notes Receivable as of September 30, 2014
 
Net Carrying Amounts of Notes Receivable as of December 31, 2013
Maturity date
First Mortgage Loan
6.0%

$

 
$
6,400

Demand
Mezzanine Loan (2)
10.0%
83,686

7,895

 
9,089

Demand
First Mortgage Loan
5.5%

4,000

 
42,000

4/1/2016
Zero Coupon Loan (3)
24.0%
166,200

4,847

 
4,431

1/3/2016
Mezzanine Loan
15.0%

30,879

 
30,879

11/9/2020
Mezzanine Loan
15.0%


 
3,834

Upon Capital Event
Preferred Equity
8.1%
20,855

13,000

 
13,000

9/1/2017
Construction Loan
7.7%

12,000

 
12,000

1/1/2015
Mezzanine Loan
12.7%
18,900

8,000

 

10/3/2015
Preferred Equity
13.5%

4,000

 

5/9/2016
Other
LIBOR + 2.5%

4,000

 
3,000

12/30/2020
Other
18.0%

3,157

 

7/1/2017
Individually less than 3%  (4)
2.7% to 11.6%

2,631

 
2,023

12/31/20 to 5/1/2024
Total
 
 
$
94,409

 
$
126,656

 
Notes:

(1) Includes origination and exit fees
(2) Comprised of three cross-collateralized loans from one borrower, which are non-performing
(3) The principal balance for this accrual-only loan is increased by the interest accrued
(4) Consists of three loans as of September 30, 2014

During January 2014, the Company received a repayment of $6.4 million, representing the full principal amount on a note receivable.

During January 2014, the Company also received a payment of $1.4 million for a mezzanine loan with a carrying value, net of reserves, of $0.7 million. The Company recognized income of approximately $0.7 million relating to the payoff, which is included in Other, a component of revenue in the accompanying 2014 Consolidated Statement of Income for the nine months ended September 30, 2014.

During April 2014, the Company made a $13.0 million loan, which is collateralized by a property and bears interest at 12.7% and matures October 2015. During July 2014, the borrower repaid $5.0 million of the loan. The outstanding balance at September 30, 2014 was $8.0 million.

During April 2014, the Company made a $1.9 million loan, which is collateralized by a property, bears interest at LIBOR plus 375 basis points and matures May 2024.

During April 2014, the Company converted a $38.0 million loan into an equity interest in 152-154 Spring Street (Note 4).



18

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


6.    NOTES RECEIVABLE AND PREFERRED EQUITY INVESTMENTS, NET (continued)

During April 2014, the Company received payment of $10.3 million representing principal and accrued interest on a mezzanine loan for which the Company had a carrying value of $8.5 million, net of a $2.0 million reserve. Following the full collection of all amounts due under this note, the Company recognized income of approximately $2.0 million, which is included in Other, a component of revenue in the accompanying 2014 Consolidated Statement of Income for the nine months ended September 30, 2014.

During May 2014, the Company made a $4.0 million preferred equity investment in an entity which owns a property located in the Bronx. The investment has a preferred return of 13.5% and matures May 9, 2016.

During July 2014, the Company made an additional $1.0 million loan, which is collateralized by Common OP Units, to an existing borrower, bringing the total outstanding amount to $4.0 million. This loan bears interest at LIBOR plus 250 basis points and matures December 2020.

During July 2014, the Company made a $4.8 million loan, which is collateralized by the borrower's interest in a property, bears interest at 18.0% and matures July 2017. As of September 30, 2014, $3.2 million has been drawn down on the loan.

During September 2014, the Company received payment of $1.9 million on a note, representing $0.7 million of accrued interest and $1.2 million of principal.

The Company monitors the credit quality of its notes receivable on an ongoing basis and considers indicators of credit quality such as loan payment activity, the estimated fair value of the underlying collateral, the seniority of the Company's loan in relation to other debt secured by the collateral and the prospects of the borrower. As of September 30, 2014, the Company held three non-performing notes aggregating $7.9 million for which payment was delinquent. Based primarily on the indicators noted above, the Company has established a reserve of $0.1 million as of September 30, 2014 related to these notes. The following table reconciles the allowance for notes receivable from December 31, 2013 to September 30, 2014:

(dollars in thousands)
Allowance for Notes Receivable
Balance at December 31, 2013
$
3,681

Additional reserves
88

Recoveries
(3,681
)
Charge-offs and reclassifications

Balance at September 30, 2014
$
88




19

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

7.
DERIVATIVE FINANCIAL INSTRUMENTS

As of September 30, 2014, the Company's derivative financial instruments consisted of 12 interest rate swaps with an aggregate notional value of $191.5 million, which effectively fix the London Inter-Bank Offer Rate ("LIBOR") at rates ranging from 0.70% to 3.77% and mature between May 2015 and April 2023. The Company also has four derivative financial instruments with a notional value of $139.9 million which cap LIBOR at rates ranging from 3.00% to 4.25% and mature between July 2015 and April 2018. The fair value of these derivative instruments that represent liabilities are included in Other liabilities in the Consolidated Balance Sheets and totaled $2.6 million and $2.0 million at September 30, 2014 and December 31, 2013, respectively. The fair value of these derivative instruments representing assets are included in Prepaid expenses and other assets in the Consolidated Balance Sheets and totaled $1.1 million and $3.1 million at September 30, 2014 and December 31, 2013, respectively. The notional value does not represent exposure to credit, interest rate, or market risks.

These derivative instruments have been designated as cash flow hedges and hedge the future cash outflows of variable-rate interest payments on mortgage debt. Such instruments are reported at their fair values as stated above. As of September 30, 2014 and December 31, 2013, unrealized (losses)/income totaling $(1.6) million and $1.1 million, respectively, were reflected in Accumulated other comprehensive (loss) income on the Consolidated Balance Sheets.

As of September 30, 2014 and December 31, 2013, no derivatives were designated as fair value hedges, hedges of net investments in foreign operations or considered to be ineffective. Additionally, the Company does not use derivatives for trading or speculative purposes.




ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

8.
MORTGAGE AND OTHER NOTES PAYABLE

The Company completed the following transactions related to mortgage and other notes payable and credit facilities during the nine months ended September 30, 2014:

Secured Mortgages:

(dollars in thousands)
 
 
Borrowings
 
Repayments
Property
Date
Description
Amount
Interest Rate
Maturity Date
Amount
Interest Rate
664 N. Michigan
January
New Borrowing
$
45,000

LIBOR + 1.65%
6/28/2018
$

 
New Hyde Park Shopping Center
January
Additional Draw
1,500

LIBOR + 2.25%
11/10/2015

 
Heritage Shops
February
Refinancing
24,500

LIBOR + 1.55%
2/28/2016
20,900

LIBOR + 2.25%
654 Broadway
March
New Borrowing
9,000

LIBOR + 1.88%
3/7/2017

 
Paramus Plaza
March
New Borrowing
12,600

LIBOR + 1.70%
2/20/2019

 
Clark Diversey
April
Repayment

 
7/1/2014
4,200

6.35%
Lake Montclair
April
New Borrowing
15,500

LIBOR + 2.15%
5/1/2019

 
New Hyde Park Shopping Center
April
Refinancing
12,000

LIBOR + 1.85%
5/1/2017
7,700

LIBOR + 2.25%
938 W. North
May
New Borrowing
12,500

LIBOR + 2.35%
5/1/2017

 
1151 Third Ave
June
New Borrowing
12,500

LIBOR + 1.75%
6/3/2017

 
New Loudon Center
June
Repayment

 
9/6/2014
13,300

5.64%
Bedford Green
July
Assumption
29,794

5.10%
9/5/2017

 
City Point (1)
Various
Additional Draw
60,514

 
 
 
 
Total
 
 
$
235,408

 
 
$
46,100

 

Note:

(1) As of September 30, 2014, $198.5 million of funds have been released under the Company's EB-5 loan relating to its City Point project into a restricted cash account. $149.2 million has been drawn to fund construction activities, with $49.3 million remaining in the restricted cash account at September 30, 2014.

Unsecured Credit Facilities:

During the nine months ended September 30, 2014, the Company borrowed $15.0 million on its unsecured credit facility and paid down $15.0 million. As of September 30, 2014, there was no outstanding balance under this facility. During September 2014, the Company amended its unsecured credit facility and its $50.0 million term loan. The amendment extended the maturity date of the unsecured credit facility from January 31, 2016 until January 31, 2018, reduced the interest rate from LIBOR plus 155 basis points to LIBOR plus 140 basis points and reduced the unused fee from 35 basis points to 25 basis points. The amendment also extended the maturity date of the Company's $50.0 million term loan from November 25, 2018 until November 25, 2019 and reduced the interest rate from LIBOR plus 140 basis points to LIBOR plus 130 basis points.

During the nine months ended September 30, 2014, the Company borrowed $67.4 million on its Fund IV subscription line and paid down $68.8 million. The outstanding balance under this facility is $67.4 million as of September 30, 2014.


21

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

9.    FAIR VALUE MEASUREMENTS

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

The following table presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of September 30, 2014:
(dollars in thousands)
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
Derivative financial instruments (Note 7)
$

 
$
1,076

 
$

Liabilities
 
 
 
 
 
Derivative financial instruments (Note 7)
$

 
$
2,618

 
$


In addition to items that are measured at fair value on a recurring basis, the Company also has assets and liabilities on its consolidated balance sheets that are measured at fair value on a nonrecurring basis. As these assets and liabilities are not measured at fair value on a recurring basis, they are not included in the table above. Assets and liabilities that are measured at fair value on a nonrecurring basis include assets acquired and liabilities assumed in business combinations (Note 4).

Financial Instruments

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

The Company has determined the estimated fair values of the following financial instruments within Level 2 of the hierarchy by discounting future cash flows utilizing a discount rate equivalent to the rate at which similar financial instruments would be originated at the reporting date:
(dollars in thousands)
September 30, 2014
 
December 31, 2013
 
Carrying
Amount
 
Estimated Fair Value
 
Carrying
Amount
 
Estimated Fair Value
Notes Receivable and Preferred Equity Investments
$
94,409

 
$
94,409

 
$
126,656

 
$
126,656

Mortgage, Convertible Notes and Other Notes Payable
$
1,141,066

 
$
1,155,499

 
$
1,039,997

 
$
1,056,457


10.    RELATED PARTY TRANSACTIONS

The Company earned property management fees, construction, legal and leasing fees from its investments in unconsolidated affiliates totaling $0.06 million and $0.02 million for the three months ended September 30, 2014 and 2013, respectively, and $0.1 million and $0.06 million for the nine months ended September 30, 2014 and 2013, respectively.

Lee Wielansky, the Lead Trustee of the Company, was paid a consulting fee of $0.025 million for the three months ended September 30, 2013 and $0.075 million for the nine months ended September 30, 2013. The consulting agreement was terminated as of December 31, 2013 and no such fees were incurred during the three or nine months ended September 30, 2014.



22

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

11.    SEGMENT REPORTING

The Company has three reportable segments: Core Portfolio, Funds and Structured Financing. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates property performance primarily based on net operating income before depreciation, amortization and certain nonrecurring items. Investments in the Core Portfolio are typically held long-term. Given the contemplated finite life of the Funds, these investments are typically held for shorter terms. Fees earned by the Company as the general partner/managing member of the Funds are eliminated in the Company's consolidated financial statements. Structured Financing represents the Company's investments in notes receivable and preferred equity. The following tables set forth certain segment information for the Company, reclassified for discontinued operations, as of and for the three months and nine months ended September 30, 2014 and 2013, and does not include unconsolidated affiliates:

Three Months Ended September 30, 2014
(dollars in thousands)
 
Core Portfolio
 
Funds
 
Structured Financing
 
Total
Revenues
 
$
31,291

 
$
13,363

 
$
3,006

 
$
47,660

Property operating expenses, other operating and real estate taxes
 
(8,198
)
 
(4,226
)
 

 
(12,424
)
General and administrative expenses
 
(5,828
)
 
(1,054
)
 
(241
)
 
(7,123
)
Depreciation and amortization
 
(9,330
)
 
(3,554
)
 

 
(12,884
)
Operating income
 
7,935

 
4,529

 
2,765

 
15,229

Equity in earnings of unconsolidated affiliates
 
118

 
2,805

 

 
2,923

Gain on disposition of properties of unconsolidated affiliates
 

 
102,855

 

 
102,855

Gain on disposition of property
 
190

 

 

 
190

Interest and other finance expense
 
(7,274
)
 
(2,868
)
 

 
(10,142
)
Income tax (provision) benefit
 
(71
)
 
88

 

 
17

Net income
 
898

 
107,409

 
2,765


111,072

Noncontrolling interests
 
 
 
 
 
 
 
 
Net income attributable to noncontrolling interests
 
(1,465
)
 
(81,043
)
 

 
(82,508
)
Net (loss) income attributable to Common Shareholders
 
$
(567
)
 
$
26,366

 
$
2,765

 
$
28,564

 
 
 
 
 
 
 
 
 
Real Estate at Cost
 
$
1,280,087

 
$
835,637

 
$

 
$
2,115,724

Total Assets
 
$
1,289,107

 
$
1,071,135

 
$
94,409

 
$
2,454,651

Acquisition of Real Estate
 
$
29,378

 
$

 
$

 
$
29,378

Investment in Redevelopment and Improvements
 
$
650

 
$
36,086

 
$

 
$
36,736



23

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

11.    SEGMENT REPORTING (continued)

Three Months Ended September 30, 2013
(dollars in thousands)
 
Core Portfolio
 
Funds
 
Structured Financing
 
Total
Revenues
 
$
28,115

 
$
10,002

 
$
2,969

 
$
41,086

Property operating expenses, other operating and real estate taxes
 
(7,723
)
 
(4,453
)
 

 
(12,176
)
General and administrative expenses
 
(4,954
)
 
(381
)
 

 
(5,335
)
Depreciation and amortization
 
(7,890
)
 
(2,560
)
 

 
(10,450
)
Operating income
 
7,548

 
2,608

 
2,969

 
13,125

Equity in (losses) earnings of unconsolidated affiliates
 
(49
)
 
4,258

 

 
4,209

Interest and other finance expense
 
(6,683
)
 
(3,912
)
 

 
(10,595
)
Income tax provision
 
(81
)
 
(105
)
 

 
(186
)
Income from continuing operations
 
735

 
2,849

 
2,969

 
6,553

Discontinued operations
 
 
 
 
 
 
 
 
Operating income from discontinued operations
 
171

 
2,418

 

 
2,589

Net income
 
906

 
5,267

 
2,969

 
9,142

Noncontrolling interests
 
 
 
 
 
 
 
 
Loss from continuing operations
 

 
2,342