10-Q



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, 2015

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

For the transition period from _______ to _______

Commission File Number 1-12002

ACADIA REALTY TRUST

(Exact name of registrant in its charter)
MARYLAND
 (State or other jurisdiction of
 incorporation or organization)
 
23-2715194
 (I.R.S. Employer
 Identification No.)
 
 
 
411 THEODORE FREMD AVENUE, SUITE 300, RYE, NY
 (Address of principal executive offices)
10580
 (Zip Code)
(914) 288-8100
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES x
 
NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES x
 
NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer 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 6, 2015 there were 69,021,576 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,
2015
 
December 31,
2014
ASSETS
(unaudited)
 
 
Operating real estate
 
 
 
Land
$
492,216

 
$
424,661

Buildings and improvements
1,560,761

 
1,329,080

Construction in progress
17,533

 
7,464

 
2,070,510

 
1,761,205

Less: accumulated depreciation
286,797

 
256,015

Net operating real estate
1,783,713

 
1,505,190

Real estate under development
575,195

 
447,390

Notes receivable and preferred equity investments, net
153,351

 
102,286

Investments in and advances to unconsolidated affiliates
162,101

 
184,352

Cash and cash equivalents
72,814

 
217,580

Cash in escrow
27,033

 
20,358

Restricted cash
16,201

 
30,604

Rents receivable, net
37,931

 
36,962

Deferred charges, net
32,824

 
30,679

Acquired lease intangibles, net
49,690

 
44,618

Prepaid expenses and other assets
57,231

 
56,508

Assets of properties held for sale

 
56,073

Total assets
$
2,968,084

 
$
2,732,600

 
 
 
 
LIABILITIES
 

 
 

Mortgage and other notes payable
$
1,111,753

 
$
1,003,381

Unsecured notes payable
205,500

 
127,100

Distributions in excess of income from, and investments in, unconsolidated affiliates
13,406

 
12,564

Accounts payable and accrued expenses
41,461

 
34,026

Dividends and distributions payable
17,744

 
39,339

Acquired lease intangibles, net
31,248

 
29,585

Other liabilities
32,431

 
25,148

Liabilities of properties held for sale

 
25,500

Total liabilities
1,453,543

 
1,296,643

 
 
 
 
EQUITY
 
 
 
Shareholders' Equity
 
 
 
Common shares, $.001 par value, authorized 100,000,000 shares; issued and outstanding 69,020,777 and 68,109,287 shares, respectively
69

 
68

Additional paid-in capital
1,056,587

 
1,027,861

Accumulated other comprehensive loss
(7,346
)
 
(4,005
)
Retained earnings
38,865

 
31,617

Total shareholders’ equity
1,088,175

 
1,055,541

Noncontrolling interests
426,366

 
380,416

Total equity
1,514,541

 
1,435,957

Total liabilities and equity
$
2,968,084

 
$
2,732,600

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)
2015
 
2014
 
2015
 
2014
Revenues
 
 
 
 
 
 
 
Rental income
$
40,722

 
$
36,587

 
$
118,693

 
$
106,517

Interest income
5,728

 
3,006

 
13,121

 
9,219

Expense reimbursements
8,020

 
7,386

 
25,911

 
24,008

Other
2,382

 
681

 
4,769

 
4,112

Total revenues
56,852


47,660


162,494


143,856

Operating Expenses
 
 
 
 
 
 
 
Property operating
6,304

 
5,170

 
20,231

 
18,031

Other operating
396

 
1,588

 
3,115

 
3,183

Real estate taxes
6,153

 
5,666

 
18,864

 
16,905

General and administrative
7,603

 
7,123

 
23,140

 
20,898

Depreciation and amortization
17,461

 
12,884

 
45,022

 
36,055

Impairment of asset

 

 
5,000

 

Total operating expenses
37,917


32,431


115,372


95,072

Operating income
18,935


15,229


47,122


48,784

Equity in earnings of unconsolidated affiliates
2,195

 
2,923

 
12,194

 
7,382

Gain on disposition of property of unconsolidated affiliates
6,938

 
102,855

 
24,043

 
102,855

Loss on debt extinguishment

 

 
(134
)
 
(269
)
Gain on disposition of properties
79

 
190

 
89,063

 
13,138

Interest and other finance expense
(9,345
)
 
(10,142
)
 
(28,130
)
 
(30,327
)
Income from continuing operations before income tax (provision) benefit
18,802


111,055


144,158


141,563

Income tax (provision) benefit
(698
)
 
17

 
(2,059
)
 
(68
)
Income from continuing operations
18,104


111,072


142,099


141,495

Discontinued Operations
 
 
 
 
 
 
 
Gain on disposition of property

 

 

 
560

Income from discontinued operations






560

Net income
18,104


111,072


142,099


142,055

Noncontrolling interests
 
 
 
 
 
 
 
Continuing operations
(4,328
)
 
(82,508
)
 
(85,281
)
 
(79,971
)
Discontinued operations

 

 

 
(461
)
Net income attributable to noncontrolling interests
(4,328
)

(82,508
)

(85,281
)

(80,432
)
Net income attributable to Common Shareholders
$
13,776


$
28,564


$
56,818


$
61,623

 
 
 
 
 
 
 
 
Basic and diluted earnings per share
$
0.20


$
0.47


$
0.82


$
1.04

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,
 
 
2015
 
2014
 
2015
 
2014
(dollars in thousands)
 
 
 
 
 
 
 
 
Net income
 
$
18,104

 
$
111,072

 
$
142,099

 
$
142,055

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
Unrealized loss on valuation of swap agreements
 
(5,671
)
 
(81
)
 
(7,328
)
 
(5,189
)
Reclassification of realized interest on swap agreements
 
1,026

 
961

 
4,478

 
2,734

Other comprehensive (loss) income
 
(4,645
)
 
880

 
(2,850
)
 
(2,455
)
Comprehensive income
 
13,459

 
111,952

 
139,249

 
139,600

Comprehensive income attributable to noncontrolling interests
 
(3,743
)
 
(82,864
)
 
(85,772
)
 
(80,663
)
Comprehensive income attributable to Common Shareholders
 
$
9,716

 
$
29,088

 
$
53,477

 
$
58,937

See accompanying notes


3




ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

(unaudited)
 
Common Shares
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Retained
Earnings
 
Total
Shareholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
(amounts in thousands, except per share amounts)
Shares
 
Amount
 
 
 
 
 
 
Balance at December 31, 2014
68,109

 
$
68

 
$
1,027,861

 
$
(4,005
)
 
$
31,617

 
$
1,055,541

 
$
380,416

 
$
1,435,957

Conversion of OP Units to Common Shares by limited partners of the Operating Partnership
67

 

 
1,655

 

 

 
1,655

 
(1,655
)
 

Issuance of Common Shares, net of issuance costs
809

 
1

 
26,932

 

 

 
26,933

 

 
26,933

Dividends declared ($0.72 per Common Share)

 

 

 

 
(49,570
)
 
(49,570
)
 
(3,542
)
 
(53,112
)
Employee and trustee stock compensation, net
36

 

 
801

 

 

 
801

 
5,136

 
5,937

Acquisition of noncontrolling interests

 

 
(662
)
 

 

 
(662
)
 

 
(662
)
Noncontrolling interest distributions

 

 

 

 

 

 
(74,656
)
 
(74,656
)
Noncontrolling interest contributions

 

 

 

 

 

 
34,895

 
34,895

 
69,021

 
69

 
1,056,587

 
(4,005
)
 
(17,953
)
 
1,034,698

 
340,594

 
1,375,292

Comprehensive (loss) income:
 

 
 

 
 
 
 

 
 

 
 

 
 

 
 

Net income

 

 

 

 
56,818

 
56,818

 
85,281

 
142,099

Unrealized loss on valuation of swap agreements

 

 

 
(6,032
)
 

 
(6,032
)
 
(1,296
)
 
(7,328
)
Reclassification of realized interest on swap agreements

 

 

 
2,691

 

 
2,691

 
1,787

 
4,478

Total comprehensive (loss) income

 

 

 
(3,341
)
 
56,818

 
53,477

 
85,772

 
139,249

 Balance at September 30, 2015
69,021

 
$
69

 
$
1,056,587

 
$
(7,346
)
 
$
38,865

 
$
1,088,175

 
$
426,366

 
$
1,514,541


See accompanying notes


4




ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 
Nine Months Ended
 
September 30,
(dollars in thousands)
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
142,099

 
$
142,055

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

 
 
Depreciation and amortization
45,022

 
36,055

Amortization of financing costs
2,577

 
2,214

Gain on disposition of properties
(89,063
)
 
(13,698
)
Impairment of asset
5,000

 

Share compensation expense
5,669

 
5,542

Equity in earnings of unconsolidated affiliates
(12,194
)
 
(7,382
)
Gain on disposition of property of unconsolidated affiliates
(24,043
)
 
(102,855
)
Distributions of operating income from unconsolidated affiliates
11,747

 
7,780

Other, net
(5,103
)
 
(2,106
)
Changes in assets and liabilities
 

 
 
Cash in escrow
(6,757
)
 
(7,148
)
Rents receivable, net
(2,454
)
 
(3,707
)
Prepaid expenses and other assets
1,901

 
430

Accounts payable and accrued expenses
7,738

 
4,209

Other liabilities
3,203

 
295

Net cash provided by operating activities
85,342

 
61,684

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

Acquisition of real estate
(292,671
)
 
(136,978
)
Redevelopment and property improvement costs
(159,360
)

(105,049
)
Deferred leasing costs
(5,931
)
 
(2,654
)
Investments in and advances to unconsolidated affiliates
(10,581
)
 
(59,529
)
Return of capital from unconsolidated affiliates
9,574

 
30,604

Proceeds from disposition of property of unconsolidated affiliates
38,392

 
188,870

Proceeds from notes receivable
15,984

 
18,095

Issuance of notes receivable
(48,350
)
 
(23,519
)
Proceeds from sale of properties, net
198,434

 
31,188

Net cash used in investing activities
(254,509
)
 
(58,972
)

5




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

 
Nine Months Ended
 
September 30,
(dollars in thousands)
2015
 
2014
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Principal payments on mortgage and other notes
(92,468
)
 
(50,584
)
Principal payments on unsecured debt
(174,815
)
 
(83,750
)
Proceeds received from mortgage and other notes
85,859

 
146,600

Proceeds received from unsecured debt
253,200

 
82,400

Loan proceeds held as restricted cash
43,315

 
60,514

Deferred financing and other costs
(3,155
)
 
(2,120
)
Capital contributions from noncontrolling interests
34,895

 
35,317

Distributions to noncontrolling interests
(79,575
)
 
(213,496
)
Dividends paid to Common Shareholders
(69,788
)
 
(39,399
)
Proceeds from issuance of Common Shares, net of issuance costs of $655 and $1,818, respectively
26,933

 
113,749

Net cash provided by financing activities
24,401

 
49,231

(Decrease) increase in cash and cash equivalents
(144,766
)
 
51,943

Cash and cash equivalents, beginning of period
217,580

 
79,189

Cash and cash equivalents, end of period
$
72,814

 
$
131,132

 
 
 
 
Supplemental disclosure of cash flow information
 

 
 

Cash paid during the period for interest, net of capitalized interest of $11,847 and $9,250, respectively
$
34,146

 
$
34,935

Cash paid for income taxes
$
2,543

 
$
316

 
 
 
 
Supplemental disclosure of non-cash investing activities
 
 
 
Acquisition of real estate through assumption of debt
$
90,765

 
$
29,794

Disposition of real estate through cancellation of debt
$

 
$
(22,865
)
Acquisition of real estate through issuance of OP Units
$

 
$
38,937

Acquisition of real estate through conversion of notes receivable
$
6,886

 
$
38,000

Acquisition of real estate through assumption of restricted cash
$
28,192

 
$

Disposition of air rights through issuance of notes receivable
$
(29,539
)
 
$


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 ownership, acquisition, redevelopment and management of high-quality retail properties located primarily in high-barrier-to-entry, supply-constrained, densely-populated metropolitan areas in the United States.

All of the Company's assets are held by, and all of its operations are conducted through, Acadia Realty Limited Partnership (the "Operating Partnership") and entities in which the Operating Partnership owns an interest. As of September 30, 2015, the Trust controlled approximately 95% 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, 2015, the Company has ownership interests in 90 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 52 properties within its 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 142 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
Fund Size
Capital Called as of September 30, 2015 (3)
Unfunded Commitment
Equity Interest Held By Operating Partnership
Preferred Return
Total Distributions as of September 30, 2015 (3)
Fund I and Mervyns I (1)
9/2001
22.22%
$90.0
$86.6
$—
37.78%
9%
$194.4
Fund II and Mervyns II (2)
6/2004
20.00%
300.0
300.0
47.1
20.00%
8%
131.6
Fund III
5/2007
19.90%
502.5
387.5
62.5
19.90%
6%
445.7
Fund IV
5/2012
23.12%
540.6
179.4
361.2
23.12%
6%
101.9








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, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2015. 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 2014 Annual Report on Form 10-K, as filed with the SEC on February 20, 2015.

Reclassifications

Certain reclassifications have been made to the 2014 financial statements to conform to the 2015 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. During the quarter ended June 30, 2015, as a result of the loss of a key anchor tenant, one of the properties in the Company's Brandywine Portfolio, in which an unaffiliated third party has a 77.78% noncontrolling interest, did not generate sufficient cash flow to meet the full debt service requirements leading to a default on the mortgage loan. Management performed an analysis and determined that the carrying amount of this property was not recoverable. Accordingly, the Company recorded an impairment charge of $5.0 million, which is included in the statement of income for the nine months ended September 30, 2015. The Operating Partnership's share of this charge, net of the noncontrolling interest, was $1.1 million. The property is collateral for $26.3 million of non-recourse mortgage debt which matures July 1, 2016. Management does not believe that the carrying values of any of its other properties are impaired as of September 30, 2015.


8

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.    ORGANIZATION AND BASIS OF PRESENTATION (continued)

Recent Accounting Pronouncements

During September 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-16, "Business Combinations - Simplifying the Accounting for Measurement-Period Adjustments." ASU 2015-16 requires an entity to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined as if the accounting had been completed at the acquisition date. ASU 2015-16 also requires an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for periods beginning after December 15, 2015, with early adoption permitted and shall be applied prospectively. ASU 2015-16 is not expected to have a material impact on the Company's consolidated financial statements.

During August 2015, the FASB issued ASU No. 2015-14, "Revenues from Contracts with Customers - Deferral of the Effective Date." ASU 2015-14 defers the effective date of ASU No. 2014-09 "Revenues from Contracts with Customers" from annual reporting periods beginning after December 15, 2016 to annual reporting periods beginning after December 15, 2017. Early adoption of ASU 2014-09 is permitted only for annual reporting periods beginning after December 15, 2016.

During April 2015, the FASB issued ASU No. 2015-05, "Intangibles - Goodwill and Other - Internal-Use Software." ASU 2015-05 provides guidance to help an entity evaluate the accounting for fees paid in a cloud computing arrangement. ASU 2015-05 is effective for periods beginning after December 15, 2015, with early adoption permitted and may be applied either prospectively or retrospectively. ASU 2015-05 is not expected to have a material impact on the Company's consolidated financial statements.

During April 2015, the FASB issued ASU No. 2015-03, "Interest - Imputation of Interest - Simplifying the Presentation of Debt Issuance Costs." ASU 2015-03 modifies the treatment of debt issuance costs from a deferred charge to a deduction of the carrying value of the financial liability. ASU 2015-03 is effective for periods beginning after December 15, 2015, with early adoption permitted and retrospective application. During August 2015, the FASB issued ASU No. 2015-15 which clarifies that under ASU 2015-03, the SEC staff would not object to an entity deferring and presenting debt issuance costs relating to line-of-credit arrangements as assets. The Company will adopt ASU 2015-15 simultaneously with ASU 2015-03. Neither ASU 2015-03 nor ASU 2015-15 are expected to have a material impact on the Company's consolidated financial statements.

During February 2015, the FASB issued ASU No. 2015-02, "Consolidation - Amendments to the Consolidation Analysis." ASU 2015-02 (i) modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIE’s"), (ii) eliminates the presumption that a general partner should consolidate a limited partnership and (iii) affects the consolidation analysis of reporting entities that are involved with VIE’s, particularly those with fee arrangements and related party relationships. ASU 2015-02 is effective for periods beginning after December 15, 2015, with early adoption permitted. The Company is in the process of evaluating the impact the adoption of ASU 2015-02 will have on the consolidated financial statements.

During January 2015, the FASB issued ASU No. 2015-01, "Income Statement - Extraordinary and Unusual Items." ASU 2015-01 eliminates the concept of extraordinary items. However, the presentation and disclosure requirements for items that are either unusual in nature or infrequent in occurrence remain and will be expanded to include items that are both unusual in nature and infrequent in occurrence. ASU 2015-01 is effective for periods beginning after December 15, 2015. ASU 2015-01 is not expected to have a material impact on the Company's consolidated financial statements.



9

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


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, 2015, 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 months ended September 30, 2014 and for each of the nine months ended September 30, 2015 and 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 months ended September 30, 2015.

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 following table sets forth the computation of basic and diluted earnings per share from continuing operations for the periods indicated:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(dollars in thousands, except per share amounts)
2015
 
2014
 
2015
 
2014
Numerator
 
 
 
 
 
 
 
Income from continuing operations
$
13,776

 
$
28,564

 
$
56,818

 
$
61,524

Less: net income attributable to participating securities
(196
)
 
(490
)
 
(810
)
 
(1,083
)
Income from continuing operations, net of income attributable to participating securities
13,580

 
28,074

 
56,008

 
60,441

 
 
 
 
 
 
 
 
Denominator
 

 
 

 
 
 
 
Weighted average shares for basic earnings per share
68,943

 
59,686

 
68,690

 
57,898

Effect of dilutive securities:
 

 
 

 


 
 

Employee Restricted Share Units and share options
14

 
18

 
24

 
26

 Convertible Preferred OP Units

 
25

 
25

 
25

Denominator for diluted earnings per share
68,957

 
59,729

 
68,739

 
57,949

 
 
 
 
 
 
 
 
Basic and diluted earnings per Common Share from continuing operations attributable to Common Shareholders
$
0.20

 
$
0.47

 
$
0.82

 
$
1.04




10

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

3.
SHAREHOLDERS' EQUITY AND NONCONTROLLING INTERESTS

For the nine months ended September 30, 2015, the Company issued 0.8 million Common Shares under its $200.0 million at-the-market ("ATM") equity program, generating gross proceeds of $27.6 million and net proceeds of $26.9 million. As of September 30, 2015, there is $165.4 million remaining under this program.

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

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’ 2,961,517 and 2,988,277 Common OP Units at September 30, 2015 and December 31, 2014; (ii) 188 Series A Preferred OP Units at September 30, 2015 and December 31, 2014; and (iii) 929,169 and 675,367 LTIP Units at September 30, 2015 and December 31, 2014, respectively.


4.    ACQUISITION AND DISPOSITION OF REAL ESTATE AND PROPERTIES HELD FOR SALE

Acquisitions

During 2015, the Company acquired the following properties through its Core Portfolio, Fund II, and Fund IV:

(dollars in thousands)
 
 
 
 
 
 
 
Property
GLA

Percent Owned

Type
Month of Acquisition
Purchase Price

Location
Assumption of Debt

Core Portfolio:
 
 
 
 
 
 
 
City Center
205,000

100
%
Urban Retail Center
March
$
155,000

San Fransisco, CA
$

163 Highland Avenue
40,500

100
%
Suburban Shopping Center
March
24,000

Needham, MA
9,765

Route 202 Shopping Center (1)
20,000

100
%
Suburban Shopping Center
April
5,643

Wilmington, DE

Roosevelt Galleria
40,300

100
%
Urban Retail Center
September
19,600

Chicago, IL

Total Core Portfolio
305,800

 
 
 
$
204,243

 
$
9,765

 
 
 
 
 
 
 
 
Fund II:
 
 
 
 
 
 
 
City Point - Tower I (2)

95
%
Urban Development
May
$
100,800

Brooklyn, NY
$
81,000

Total Fund II

 
 
 
$
100,800

 
$
81,000

 
 
 
 
 
 
 
 
Fund IV:
 
 
 
 
 
 
 
1035 Third Avenue (3)
53,294

100
%
Street Retail
January
$
51,036

New York, NY
$

801 Madison Avenue
6,375

100
%
Street Retail
April
33,000

New York, NY

Total Fund IV
59,669

 
 
 
$
84,036

 
$

 
 
 
 
 
 
 
 
Total
365,469

 
 
 
$
389,079

 
$
90,765



11

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


4.    ACQUISITION AND DISPOSITION OF REAL ESTATE AND PROPERTIES HELD FOR SALE(continued)

Acquisitions (continued)

Notes:

(1) Purchase price represents the 77.78% interest acquired from an unaffiliated third party.
(2) Fund II previously held a 52% interest in this unconsolidated affiliate. In connection with the disposition of Phase III of this project discussed below, Fund II acquired an additional 43% interest in Tower I of this development project. In total, Fund II now owns 95% of this investment, which is a residential project anticipated to include 250 residential units.
(3) GLA includes a portion of office space and a below-grade operator controlled parking garage.

In addition, during the second quarter, the Company acquired the remaining 10% interest in a property from an unaffiliated joint venture partner in exchange for $4.2 million, including the conversion of a $1.9 million note receivable (Note 6).

For the nine months ended September 30, 2015, the Company expensed $1.1 million and $2.2 million of acquisition costs related to the Core Portfolio and Fund IV, respectively.

Purchase Price Allocations

With the exception of the acquisition of City Point - Tower I, which was an asset acquisition, 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 2015 which have yet to be finalized:

(dollars in thousands)
Preliminary Purchase Price Allocations
Land
$
70,659

Buildings and improvements
219,232

Debt assumed (included in Mortgage and other notes payable)
(9,765
)
Total consideration
$
280,126



12

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


4.    ACQUISITION AND DISPOSITION OF REAL ESTATE AND PROPERTIES HELD FOR SALE(continued)

Acquisitions (continued)

During 2014, 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 2015, 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, 2014, and the finalized allocations as adjusted as of September 30, 2015:
(dollars in thousands)
Purchase Price Allocations as Originally Reported
Adjustments
Finalized Purchase Price Allocations
Land
$
84,707

$
(1,603
)
$
83,104

Buildings and improvements
224,011

(68,510
)
155,501

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

79,030

79,030

Acquisition-related intangible liabilities (in Acquired lease intangibles, net)
(6,434
)
(9,308
)
(15,742
)
Below market debt assumed (in Mortgage and other notes payable)
(2,100
)
391

(1,709
)
Total consideration
$
300,184

$

$
300,184


Dispositions

During 2015, the Company disposed of the following properties:
(dollars in thousands)
 
 
 
 
 
 
Property
GLA
Sale Price
Gain on Sale
Month Sold
Owner
 
Lincoln Park Centre
61,761

$
64,000

$
27,143

January
Fund III
 
White City Shopping Center (1)
249,549

96,750

17,105

April
Fund III
 
City Point - Air Rights (2)

115,600

49,884

May
Fund II
 
Liberty Avenue
26,117

24,000

11,957

May
Fund II
 
Parkway Crossing (1)
260,241

27,275

6,938

July
Fund III
 
Kroger-Safeway (3)
97,500

278

79

August
Fund I
 
Total
695,168

$
327,903

$
113,106

 
 
 

Note:

(1) Fund III's White City Shopping Center and Parkway Crossing were unconsolidated and as such, the Company's share of gains related to these sales is included in gain on disposition of properties of unconsolidated affiliates in the 2015 Consolidated Statement of Income.
(2) Represents the disposition of air rights at Phase III of Fund II's City Point project.
(3) During the third quarter of 2015, Fund I terminated its ground lease interests at 2 of the 3 remaining properties in the portfolio and sold its ground lease interest in the third location.

Properties Held For Sale

At September 30, 2015, no assets were held for sale. At December 31, 2014, The Company had two properties classified as held-for-sale.




13

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 88.43% tenancy-in-common interest in an 87,000 square foot retail property located in Chicago, Illinois ("840 N. Michigan"). 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.

During the three months ended June 30, 2015, the Company acquired the remaining 77.78% outstanding interest of an approximately 20,000 square foot retail property located in Wilmington, Delaware ("Route 202 Shopping Center") that was previously accounted for under the equity method from an unaffiliated partner. As a result of the transaction, the Company now consolidates this investment.

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, 2015, 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, 2015, the Company received distributions from its RCP Venture of $5.9 million, of which the Operating Partnership's aggregate share was $1.2 million.

The following table summarizes activity related to the RCP Venture investments from inception through September 30, 2015:

(dollars in thousands)
 
Fund 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

 
9,272

 
1,252

 
2,017

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

 
3,358

 
222

 
672

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

 
2,941

 
533

 
588

Rex Stores
2007
2,701

 
4,927

 
535

 
986

 
 
$
63,216

 
$
155,503

 
$
12,070

 
$
33,354


Other Fund Investments

During April 2015, Fund III's White City Shopping Center was sold for $96.8 million. Fund III's $17.1 million share of the gain was recognized in gain on disposition of property of unaffiliated affiliates within the Consolidated Statements of Income.


14

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


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

During July 2015, Fund III's Parkway Crossing was sold for $27.3 million. Fund III's $6.9 million share of the gain was recognized in gain on disposition of property of unaffiliated affiliates within the Consolidated Statements of Income.

The unaffiliated partners in Fund III's investments in Arundel Plaza 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,
2015
 
December 31,
2014
Combined and Condensed Balance Sheets
 
 
 
Assets
 
 
 
Rental property, net
$
299,577

 
$
387,739

Real estate under development

 
60,476

Investment in unconsolidated affiliates
7,548

 
11,154

Other assets
62,563

 
62,862

Total assets
$
369,688

 
$
522,231

Liabilities and partners’ equity
 

 
 

Mortgage notes payable
$
224,425

 
$
315,897

Other liabilities
12,568

 
66,116

Partners’ equity
132,695

 
140,218

Total liabilities and partners’ equity
$
369,688

 
$
522,231

Company’s investment in and advances to unconsolidated affiliates
$
162,101

 
$
184,352

Company's share of distributions in excess of income from, and investments in, unconsolidated affiliates
$
(13,406
)
 
$
(12,564
)


15

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)
2015
 
2014
 
2015
 
2014
Combined and Condensed Statements of Income
 
 
 
 
 
 
 
Total revenues
$
10,712

 
$
10,280

 
$
32,727

 
$
34,632

Operating and other expenses
(3,022
)
 
(3,840
)
 
(9,855
)
 
(13,158
)
Interest and other finance expense
(2,183
)
 
(1,808
)
 
(7,080
)
 
(7,308
)
Equity in earnings (losses) of unconsolidated affiliates

 

 
66,655

 
(328
)
Depreciation and amortization
(2,791
)
 
(2,275
)
 
(7,828
)
 
(8,456
)
Loss on debt extinguishment

 

 

 
(187
)
Gain on disposition of property
7,416

 
142,377

 
32,623

 
142,615

Net income
$
10,132

 
$
144,734

 
$
107,242

 
$
147,810

 

 

 
 
 

Company’s share of net income
$
9,231

 
$
105,876

 
$
36,531

 
$
110,531

Amortization of excess investment
(98
)
 
(98
)
 
(294
)
 
(294
)
Company’s equity in earnings of unconsolidated affiliates
$
9,133

 
$
105,778

 
$
36,237

 
$
110,237




16

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


6.    STRUCTURED FINANCING PORTFOLIO, NET

As of September 30, 2015, the Company’s structured financing portfolio, net consisted of notes receivable and preferred equity investments, aggregating $153.4 million. These investments 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
 
Notes
 
Effective interest rate (1)
 
First Priority liens
 
Net Carrying Amounts of Structured Financing Portfolio as of September 30, 2015
 
Net Carrying Amounts of Structured Financing Portfolio as of December 31, 2014
 
Maturity date
 
Extension Options
Mezzanine Loan
 
(2)
 
12.7%
 
18,900

 
$

 
$
8,000

 
10/3/2015
 
 
First Mortgage Loan
 
 
 
8.8%
 
 
 
7,500

 
7,500

 
10/31/2015
 
1 x 12 Months
Zero Coupon Loan
 
(3) (4)
 
24.0%
 
166,200

 

 
4,986

 
1/3/2016
 
 
First Mortgage Loan
 
 
 
5.5%
 
 
 
4,000

 
4,000

 
4/1/2016
 
1 x 6 Months
First Mortgage Loan
 
(5)
 
6.0%
 
 
 
15,000

 

 
5/1/2016
 
1 x 12 Months
Preferred Equity
 
 
 
13.5%
 
 
 
4,000

 
4,000

 
5/9/2016
 
 
Other
 
(6)
 
17.0%
 
 
 
6,500

 

 
6/1/2016
 
 
Other
 
 
 
18.0%
 
 
 
3,757

 
3,307

 
7/1/2017
 
 
Preferred Equity
 
 
 
8.1%
 
20,855

 
13,000

 
13,000

 
9/1/2017
 
 
First Mortgage Loan
 
(7)
 
LIBOR + 7.1%
 
 
 
26,000

 

 
6/25/2018
 
1 x 12 Months
Zero Coupon Loan
 
(3) (8)
 
2.5%
 
 
 
30,046

 

 
5/31/2020
 
 
Mezzanine Loan
 
 
 
15.0%
 
 
 
30,879

 
30,879

 
11/9/2020
 
 
Other
 
 
 
LIBOR + 2.5%
 
 
 

 
4,000

 
12/30/2020
 
 
Mezzanine Loan
 
(9)
 
10.0%
 
87,477

 

 
7,983

 
Demand
 
 
First Mortgage Loan
 
(10)
 
7.7%
 
 
 
12,000

 
12,000

 
Demand
 
 
Individually less than 3%
 
(11) (12)
(13)
 
11.6%
 
 
 
669

 
2,631

 
12/31/2015
 
 
Total
 
 
 
 
 
 
 
$
153,351

 
$
102,286

 
 

 
Notes:

(1) Includes origination and exit fees
(2) During July 2015, the Company received repayment in full of this $8.0 million note.
(3) The principal balance for this accrual-only loan is increased by the interest accrued.
(4) During April 2015, the Company converted a $5.6 million loan into an equity interest in a shopping center (Note 4).
(5) During May 2015, the Company made a $15.0 million loan, which is collateralized by a property, bears interest at 6.0% and matures May 1, 2016.
(6) During June 2015, the Company made a $6.5 million loan, which bears interest at 17.0% and matures June 1, 2016. Subsequent to September 30, 2015, this loan was converted into an equity interest in a shopping center (Note 13).
(7) During June 2015, the Company made a $26.0 million loan, which is collateralized by a property, bears interest at LIBOR + 7.1% and matures June 25, 2018.

17

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


6.
STRUCTURED FINANCING PORTFOLIO, NET (continued)

(8) During June 2015, the Company made a $29.8 million loan in connection with the disposition of City Point's Phase III (Note 4), which is collateralized by the purchaser's interest in the property. The loan bears interest at 2.5% and matures May 31, 2020.
(9) Comprised of three cross-collateralized loans from one borrower, which were non-performing. During July 2015, the Company received repayment of these notes in full as well as all accrued interest, default interest and additional penalties.
(10) Loan was non-performing as of September 30, 2015.
(11) Consists of one loan as of September 30, 2015.
(12) During February 2015, the Company advanced an additional $0.4 million on this loan collateralized by a property.
(13) During June 2015, the Company converted a $1.9 million loan into an equity interest in the remaining 10% of 152-154 Spring Street (Note 4).

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, 2015, the Company held one non-performing note.


7.
DERIVATIVE FINANCIAL INSTRUMENTS

As of September 30, 2015, the Company's derivative financial instruments consisted of 14 interest rate swaps with an aggregate notional value of $207.2 million, which effectively fix the London Inter-Bank Offer Rate ("LIBOR") at rates ranging from 1.4% to 3.8% and mature between July 2018 and March 2025. The Company also has two derivative financial instruments with an aggregate notional value of $35.4 million which cap LIBOR at rates ranging from 4.0% to 4.3% and mature between November 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 $8.4 million and $4.6 million at September 30, 2015 and December 31, 2014, 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 $0.2 million at December 31, 2014. 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 and other debt. Such instruments are reported at their fair values as stated above. As of September 30, 2015 and December 31, 2014, unrealized losses totaling $(7.3) million and $(4.0) million, respectively, were reflected in accumulated other comprehensive loss on the Consolidated Balance Sheets.

As of September 30, 2015 and December 31, 2014, 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.


18

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 notes payable during the nine months ended September 30, 2015:

(dollars in thousands)
 
 
Borrowings
 
Repayments
Property
Date
Description
Amount
Interest Rate
Maturity Date
Amount
Interest Rate
1035 Third Avenue
January
New Borrowing
$
42,000

 LIBOR+2.35%
1/27/2021
$

 
Lincoln Park Centre
January
Repayment
 
 

28,000

 LIBOR+1.45%
163 Highland Avenue
March
Assumption
9,765

4.66%
2/1/2024
 
 
Broughton Street Portfolio (1)
May
New Borrowing
20,000

 LIBOR+3.00%
5/5/2016
 
 
City Point
June
Assumption
19,000

1.25%
12/23/2016
 
 
City Point
June
Assumption
62,000

 SIFMA+1.60%
12/23/2016
 
 
City Point
June
Repayment
 
 
 
20,650

 LIBOR+4.00%
17 E. 71st Street
June
New Borrowing
19,000

 LIBOR+1.90%
6/9/2020
 
 
Crescent Plaza
June
Repayment
 
 
 
16,326

4.98%
Pacesetter Park Shopping Center
September
Repayment
 
 
 
11,152

5.13%
Total
 
 
$
171,765

 
 
$
76,128

 

Notes:

(1) This loan is collateralized by properties in an unconsolidated joint venture. Fund IV has fully indemnified the unaffiliated joint venture partner and as such, this loan is included as consolidated debt.




19

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

9.    UNSECURED NOTES PAYABLE

The Company completed the following transactions related to its other notes payable and unsecured credit facilities during the nine months ended September 30, 2015:

Unsecured Debt:

During the nine months ended September 30, 2015, the Company redeemed the remaining $0.4 million of its outstanding convertible notes at par value.

During the nine months ended September 30, 2015, the Company borrowed $33.5 million on its unsecured credit facility. The outstanding balance under this facility is $33.5 million as of September 30, 2015.

During the nine months ended September 30, 2015, the Company repaid $52.1 million on its Fund IV subscription line. The outstanding balance under this facility is $25.0 million as of September 30, 2015.

During July 2015, the Company closed on a $50.0 million unsecured term loan. The facility bears interest at LIBOR+1.30% and matures July 2, 2020.

During May 2015, Fund II closed on a $25.0 million unsecured credit facility. At closing, Fund II drew $12.5 million. The facility bears interest at LIBOR plus 275 basis points and bears an unused fee of 275 basis points if the unused amount is greater than $12.5 million. The loan matures October 19, 2016. Along with a guarantee with respect to customary non-recourse carve outs, the Operating Partnership, as the managing member of Fund II, has provided a guarantee of principal, interest and fees upon a default as a result of Fund II’s breach of certain specified financial covenants.

During March 2015, Fund IV closed on a $50.0 million unsecured credit facility. The current balance outstanding at September 30, 2015 is $34.5 million. The facility bears interest at LIBOR plus 275 basis points, bears an unused fee of 100 basis points if the unused amount is greater than $20.0 million and an unused fee of 275 basis points if the unused amount is less than $20.0 million. The loan matures February 9, 2017 with one 6-month extension option. Along with a guarantee with respect to customary non-recourse carve outs, the Operating Partnership, as the managing member of Fund IV, has provided a guarantee of principal, interest and fees upon a default as a result of Fund IV’s breach of certain specified financial covenants.

10.    FAIR VALUE MEASUREMENTS

The FASB's fair value measurements and disclosure guidance requires the valuation of certain of the Company's financial assets and liabilities, based on a three-level fair value hierarchy. Market 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, 2015:
(dollars in thousands)
Level 1
 
Level 2
 
Level 3
Liabilities
 
 
 
 
 
Derivative financial instruments (Note 7)
$

 
$
8,369

 
$


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 as well as any assets that have been impaired (Note 4).


20

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

10.    FAIR VALUE MEASUREMENTS (continued)

During the quarter ended June 30, 2015, the Company determined that the value of one of the properties in its Brandywine Portfolio was impaired and recorded an impairment loss of $5.0 million (Note 1), of which the Operating Partnership's pro-rata share was $1.1 million. The Company estimated the fair value by using projected future cash flows, which it determined were not sufficient to recover the property's net book value. The inputs used to determine this fair value are classified within Level 3 of the hierarchy.

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, 2015
 
December 31, 2014
 
Carrying
Amount
 
Estimated Fair Value
 
Carrying
Amount
 
Estimated Fair Value
Notes receivable and preferred equity investments, net
$
153,351

 
$
153,351

 
$
102,286

 
$
102,286

Mortgage and other notes payable
$
1,317,253

 
$
1,337,999

 
$
1,130,481

 
$
1,141,371


11.    RELATED PARTY TRANSACTIONS

The Company earned property management fees, construction, legal and leasing fees from its investments in unconsolidated affiliates totaling $0.06 million for each of the three months ended September 30, 2015 and 2014, respectively, and $0.25 million and $0.10 million for the nine months ended September 30, 2015 and 2014, respectively.




21

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

12.    SEGMENT REPORTING

The Company has three reportable segments: Core Portfolio, Funds and Structured Financing Portfolio. 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. The Structured Financing Portfolio represents the Company's investments in notes receivable and preferred equity. The following tables set forth certain segment information for the Company, as of and for the three and nine months ended September 30, 2015 and 2014, and does not include unconsolidated affiliates:

Three Months Ended September 30, 2015

(dollars in thousands)
 
Core Portfolio
 
Funds
 
Structured Financing Portfolio
 
Total
Revenues
 
$
37,744

 
$
11,783

 
$
7,325

 
$
56,852

Property operating expenses, other operating and real estate taxes
 
(8,885
)
 
(3,968
)
 

 
(12,853
)
General and administrative expenses
 
(6,963
)
 
(640
)
 

 
(7,603
)
Depreciation and amortization
 
(13,979
)
 
(3,482
)
 

 
(17,461
)
Operating income
 
7,917

 
3,693

 
7,325

 
18,935

Equity in earnings of unconsolidated affiliates
 
434

 
1,761

 

 
2,195

Gain on disposition of property of unconsolidated affiliates
 

 
6,938

 

 
6,938

Gain on disposition of properties
 

 
79

 

 
79

Interest and other finance expense
 
(7,203
)
 
(2,142
)
 

 
(9,345
)
Income tax provision
 
(461
)
 
(237
)
 

 
(698
)
Net income
 
$
687

 
$
10,092

 
$
7,325

 
$
18,104

Noncontrolling interests
 
 
 
 
 
 
 
 
Net income attributable to noncontrolling interests
 
$
(686
)
 
$
(3,642
)
 
$

 
$
(4,328
)
Net income attributable to Common Shareholders
 
$
1

 
$
6,450

 
$
7,325

 
$
13,776

 
 
 
 
 
 
 
 
 
Real Estate at Cost
 
$
1,574,258

 
$
1,071,447

 
$

 
$
2,645,705

Total Assets
 
$
1,656,002

 
$
1,158,731

 
$
153,351

 
$
2,968,084

Acquisition of Real Estate
 
$
19,600

 
$

 
$

 
$
19,600

Investment in Redevelopment and Improvements
 
$
4,486

 
$
49,629

 
$

 
$
54,115



22

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

12.    SEGMENT REPORTING (continued)

Three Months Ended September 30, 2014

(dollars in thousands)
 
Core Portfolio
 
Funds
 
Structured Financing Portfolio
 
Total
Revenues
 
$
31,291

 
$
13,363

 
$
3,006

 
$
47,660

Property operating expenses, other operating and real estate taxes
 
(8,491
)
 
(3,933
)
 

 
(12,424
)
General and administrative expenses
 
(6,586
)
 
(537
)
 

 
(7,123
)
Depreciation and amortization
 
(9,418
)
 
(3,466
)
 

 
(12,884
)
Operating income
 
6,796

 
5,427

 
3,006

 
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
 
(6,891
)
 
(3,251
)
 

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

 

 
17

Net income
 
$
142

 
$
107,924

 
$
3,006

 
$
111,072

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

 
$
(82,508
)
Net (loss) income attributable to Common Shareholders
 
$
(1,323
)
 
$
26,881

 
$
3,006

 
$
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)

12.    SEGMENT REPORTING (continued)

Nine Months Ended September 30, 2015

(dollars in thousands)
 
Core Portfolio
 
Funds
 
Structured Financing Portfolio
 
Total
Revenues
 
$
110,930

 
$
36,846

 
$
14,718

 
$
162,494

Property operating expenses, other operating and real estate taxes
 
(26,811
)
 
(15,399
)
 

 
(42,210
)
General and administrative expenses
 
(21,171
)
 
(1,969
)