Document



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2016
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from        to
Commission File Number 1-12002
ACADIA REALTY TRUST
(Exact name of registrant as specified in its charter)
Maryland
23-2715194
(State of incorporation)
(I.R.S. employer identification no.)
411 Theodore Fremd Avenue, Suite 300 Rye, NY 10580
(Address of principal executive offices)
(914) 288-8100
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Common Shares of Beneficial Interest, $.001 par value
(Title of Class)
New York Stock Exchange
(Name of Exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES x    NO o
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Securities Act.
YES o    NO x
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
YES x    NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES x    NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act).
Large Accelerated Filer 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
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $2,623.4 million, based on a price of $35.09 per share, the average sales price for the registrant’s common shares of beneficial interest on the New York Stock Exchange on that date.
The number of shares of the registrant’s common shares of beneficial interest outstanding on February 22, 2017 was 84,704,511.
DOCUMENTS INCORPORATED BY REFERENCE
Part III – Portions of the registrant’s definitive proxy statement relating to its 2017 Annual Meeting of Shareholders presently scheduled to be held May 10, 2017 to be filed pursuant to Regulation 14A.





EXPLANATORY NOTE
This Amendment No. 1 (this “Amendment”) to Acadia Realty Trust’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the U.S. Securities and Exchange Commission on February 24, 2017 (the “Original Form 10-K”), is being filed with the limited purpose of amending the Reports of Independent Registered Public Accounting Firm on pages 56 and F-2 and the Consent of Independent Registered Public Accounting Firm in Exhibit 23.1 of the Original Form 10-K to correct a scrivener’s error with respect to the omission of the city and state thereof.
This Amendment is as of the filing date of the Original Form 10-K and should be read in conjunction with the Original Form 10-K. This Amendment does not reflect any subsequent information or events and no other information included in the Original Form 10-K has been modified or updated in any way, except as described above.


2




TABLE OF CONTENTS

 
 
 
 
Item No.
Description
 
Page
 
 
 
 
 
 
 
8.
 
9A.
 
 
 
 
 
 
 
 
15.
 
 
 



2




PART II

ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements beginning on page F-1 of this Form 10-K/A are incorporated herein by reference.


ITEM 9A.
CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

We conducted an evaluation, under the supervision and with the participation of management including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2016 to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

Management of Acadia Realty Trust is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Securities Exchange Act of 1934 Rule 13(a)-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2016 as required by the Securities Exchange Act of 1934 Rule 13(a)-15(c). In making this assessment, we used the criteria set forth in the framework in Internal Control–Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the "COSO criteria"). Based on our evaluation under the COSO criteria, our management concluded that our internal control over financial reporting was effective as of December 31, 2016 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.

BDO USA, LLP, an independent registered public accounting firm that audited our Financial Statements included in this Annual Report, has issued an attestation report on our internal control over financial reporting as of December 31, 2016, which appears below in this Item 9A.

Acadia Realty Trust
Rye, New York
February 24, 2017




Changes in Internal Control Over Financial Reporting

During the three months ended December 31, 2016, there were no changes in the Company’s internal control over financial reporting that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.


Attestation Report of the Independent Registered Public Accounting Firm

Shareholders and Board of Trustees
Acadia Realty Trust
Rye, New York

We have audited Acadia Realty Trust’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Acadia Realty Trust’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in

3




the accompanying Item 9(a), Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

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

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

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

In our opinion, Acadia Realty Trust maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Acadia Realty Trust as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2016, and our report dated February 24, 2017, expressed an unqualified opinion thereon.

/s/ BDO USA, LLP
New York, New York
February 24, 2017


PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

1.
Financial Statements: See "Index to Financial Statements" at page F-1 below.
2.
Financial Statement Schedule: See "Schedule II—Valuation and Qualifying Accounts" at page F-48 below.
3.
Financial Statement Schedule: See "Schedule III—Real Estate and Accumulated Depreciation" at page F-49 below.
4.
Financial Statement Schedule: See "Schedule IV—Mortgage Loans on Real Estate" at page F-53 below.
5.
Exhibits: The index of exhibits below is incorporated herein by reference.


4




SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
 
 
ACADIA REALTY TRUST
 
 
(Registrant)
 
 
 
 
By:
/s/ John Gottfried
 
 
John Gottfried
 
 
Senior Vice President and
 
 
Chief Financial Officer
 
 
 
Dated: February 27, 2017



5




EXHIBIT INDEX
The following exhibits are filed as part of this amendment No. 1:
Exhibit No.
Description
Method of Filing
23.1
Consent of Registered Public Accounting Firm to incorporation by reference its reports into Forms S-3 and Forms S-8
Filed herewith
31.1
Certification of Chief Executive Officer pursuant to rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
31.2
Certification of Chief Financial Officer pursuant to rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith
101.INS
XBRL Instance Document
Filed herewith
101.SCH
XBRL Taxonomy Extension Schema Document
Filed herewith
101.CAL
XBRL Taxonomy Extension Calculation Document
Filed herewith
101.DEF
XBRL Taxonomy Extension Definitions Document
Filed herewith
101.LAB
XBRL Taxonomy Extension Labels Document
Filed herewith
101.PRE
XBRL Taxonomy Extension Presentation Document
Filed herewith


6




ACADIA REALTY TRUST AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
 
 
Page
 
 
 
Financial Statements:
 
 
 
 
 
 
 
 
 
 
 
 
Financial Statement Schedules:
 
 
 
 
 


F-1




Report of Independent Registered Public Accounting Firm

Shareholders and Board of Trustees
Acadia Realty Trust
Rye, New York

We have audited the accompanying consolidated balance sheets of Acadia Realty Trust (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2016. In connection with our audits of the financial statements, we have also audited the financial statement schedules listed in the accompanying index. These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedules. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Acadia Realty Trust at December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Acadia Realty Trust’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 24, 2017, expressed an unqualified opinion thereon.


/s/ BDO USA, LLP
New York, New York
February 24, 2017


F-2




ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
 
December 31,
(dollars in thousands)
 
2016
 
2015
ASSETS
 
 
 
 
Investments in real estate, at cost
 
 

 
 

Operating real estate, net
 
$
2,551,448

 
$
1,828,006

Real estate under development, at cost
 
543,486

 
609,574

Net investments in real estate
 
3,094,934

 
2,437,580

Notes receivable, net
 
276,163

 
147,188

Investments in and advances to unconsolidated affiliates
 
272,028

 
173,277

Other assets, net
 
192,786

 
123,789

Cash and cash equivalents
 
71,805

 
72,776

Rents receivable, net
 
43,842

 
40,425

Restricted cash
 
22,904

 
37,284

Assets of properties held for sale
 
21,498

 

Total assets
 
$
3,995,960

 
$
3,032,319

 
 
 
 
 
LIABILITIES
 
 

 
 

Mortgage and other notes payable, net
 
$
1,055,728

 
$
1,050,051

Unsecured notes payable, net
 
432,990

 
287,755

Unsecured line of credit
 

 
20,800

Accounts payable and other liabilities
 
208,672

 
101,563

Capital lease obligations
 
70,129

 

Dividends and distributions payable
 
36,625

 
37,552

Distributions in excess of income from, and investments in, unconsolidated affiliates
 
13,691

 
13,244

Total liabilities
 
1,817,835

 
1,510,965

Commitments and contingencies
 


 


EQUITY
 
 

 
 

Acadia shareholders' Equity
 
 
 
 
Common shares, $0.001 par value, authorized 100,000,000 shares, issued and outstanding 83,597,741 and 70,258,415 shares, respectively
 
84

 
70

Additional paid-in capital
 
1,594,926

 
1,092,239

Accumulated other comprehensive loss
 
(798
)
 
(4,463
)
(Distributions in excess of accumulated earnings) retained earnings
 
(5,635
)
 
12,642

Total Acadia shareholders’ equity
 
1,588,577

 
1,100,488

Noncontrolling interests
 
589,548

 
420,866

Total equity
 
2,178,125

 
1,521,354

Total liabilities and equity
 
$
3,995,960

 
$
3,032,319


The accompanying notes are an integral part of these consolidated financial statements

F-3




ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
 
 
Year Ended December 31,
(dollars in thousands except per share amounts)
 
2016
 
2015
 
2014
Revenues
 
 
Rental income
 
$
152,814

 
$
158,632

 
$
145,103

Expense reimbursements
 
32,282

 
36,306

 
32,642

Other
 
4,843

 
4,125

 
1,936

Total revenues
 
189,939

 
199,063

 
179,681

Operating expenses
 
 

 
 

 
 

Depreciation and amortization
 
70,011

 
60,751

 
49,645

General and administrative
 
40,648

 
30,368

 
27,433

Real estate taxes
 
25,630

 
25,384

 
23,062

Property operating
 
24,244

 
28,423

 
24,833

Other operating
 
7,517

 
4,675

 
3,776

Impairment of asset
 

 
5,000

 

Total operating expenses
 
168,050

 
154,601

 
128,749

Operating income
 
21,889

 
44,462

 
50,932

Equity in earnings and gains of unconsolidated affiliates
 
39,449

 
37,330

 
111,578

Interest income
 
25,829

 
16,603

 
12,607

Other
 

 
1,596

 
2,724

Interest expense
 
(34,645
)
 
(37,297
)
 
(39,426
)
Income from continuing operations before income taxes
 
52,522

 
62,694

 
138,415

Income tax benefit (provision)
 
105

 
(1,787
)
 
(629
)
Income from continuing operations before gain
on disposition of properties
 
52,627

 
60,907

 
137,786

Income from discontinued operations, net of tax
 

 

 
1,222

Gain on disposition of properties, net of tax
 
81,965

 
89,063

 
13,138

Net income
 
134,592

 
149,970

 
152,146

Noncontrolling interests
 
 

 
 

 
 

Continuing operations
 
(61,816
)
 
(84,262
)
 
(80,059
)
Discontinued operations
 

 

 
(1,023
)
Net income attributable to noncontrolling interests
 
(61,816
)
 
(84,262
)
 
(81,082
)
Net income attributable to Acadia
 
$
72,776

 
$
65,708

 
$
71,064

Basic and diluted earnings per share
 
 

 
 

 
 

Income from continuing operations attributable to Acadia
 
$
0.94

 
$
0.94

 
$
1.18

Income from discontinued operations attributable to Acadia
 

 

 

Basic and diluted earnings per share
 
$
0.94

 
$
0.94

 
$
1.18

The accompanying notes are an integral part of these consolidated financial statements

F-4




ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
Year Ended December 31,
(in thousands)
 
2016
 
2015
 
2014
 
 
 
 
 
 
 
Net income
 
$
134,592

 
$
149,970

 
$
152,146

Other comprehensive income (loss):
 

 

 

Unrealized loss on valuation of swap agreements
 
(646
)
 
(5,061
)
 
(9,061
)
Reclassification of realized interest on swap agreements
 
4,576

 
5,524

 
3,776

Other comprehensive income (loss)
 
3,930

 
463

 
(5,285
)
Comprehensive income
 
138,522

 
150,433

 
146,861

Comprehensive income attributable to noncontrolling interests
 
(62,081
)
 
(85,183
)
 
(80,934
)
Comprehensive income attributable to Acadia
 
$
76,441

 
$
65,250

 
$
65,927



The accompanying notes are an integral part of these consolidated financial statements.

F-5

ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

 
Acadia Shareholders
 
 
 
 
(in thousands, except per share amounts)
Common Shares
 
Share Amount
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
(Loss) Income
 
(Distributions in Excess of Accumulated Earnings) Retained Earnings
 
Total
Common
Shareholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
Balance at
January 1, 2014
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
136

 

 
3,181

 

 

 
3,181

 
(3,181
)
 

Issuance of Common Shares, net of issuance costs
12,237

 
12

 
357,447

 

 

 
357,459

 

 
357,459

Issuance of OP Units to acquire real estate

 

 

 

 

 

 
44,051

 
44,051

Dividends declared ($1.23 per Common Share) (a)

 

 

 

 
(77,194
)
 
(77,194
)
 
(5,085
)
 
(82,279
)
Employee and trustee stock compensation, net
93

 

 
1,932

 

 

 
1,932

 
6,528

 
8,460

Noncontrolling interest distributions

 

 

 

 

 

 
(218,152
)
 
(218,152
)
Noncontrolling interest contributions

 

 

 

 

 

 
57,969

 
57,969

Comprehensive (loss) income

 

 

 
(5,137
)
 
71,064

 
65,927

 
80,934

 
146,861

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
101

 

 
2,451

 

 

 
2,451

 
(2,451
)
 

Issuance of Common Shares, net of issuance costs
1,973

 
2

 
64,415

 

 

 
64,417

 

 
64,417

Dividends declared ($1.22 per Common Share) (b)

 

 

 

 
(84,683
)
 
(84,683
)
 
(5,983
)
 
(90,666
)
Acquisition of noncontrolling interests

 

 
(4,409
)
 

 

 
(4,409
)
 
(3,561
)
 
(7,970
)
Issuance of OP Units to acquire real estate

 

 

 

 

 

 

 

Employee and trustee stock compensation, net
75

 

 
1,921

 

 

 
1,921

 
6,723

 
8,644

Noncontrolling interest distributions

 

 

 

 

 

 
(74,950
)
 
(74,950
)
Noncontrolling interest contributions

 

 

 

 

 

 
35,489

 
35,489

Comprehensive (loss) income

 

 

 
(458
)
 
65,708

 
65,250

 
85,183

 
150,433

Balance at
December 31, 2015
70,258


$
70


$
1,092,239


$
(4,463
)

$
12,642


$
1,100,488


$
420,866


$
1,521,354


F-6

ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

 
Acadia Shareholders
 
 
 
 
(in thousands, except per share amounts)
Common Shares
 
Share Amount
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
(Loss) Income
 
(Distributions in Excess of Accumulated Earnings) Retained Earnings
 
Total
Common
Shareholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
Balance at
   January 1, 2016
70,258

 
$
70

 
$
1,092,239

 
$
(4,463
)
 
$
12,642

 
$
1,100,488

 
$
420,866

 
$
1,521,354

Conversion of OP Units to Common Shares by limited partners of the Operating Partnership
351

 
1

 
7,891

 

 

 
7,892

 
(7,892
)
 

Issuance of Common Shares, net of issuance costs
12,961

 
13

 
450,117

 

 

 
450,130

 

 
450,130

Issuance of OP Units to acquire real estate

 

 

 

 

 

 
31,429

 
31,429

Dividends declared ($1.16 per Common Share) (c)

 

 

 

 
(91,053
)
 
(91,053
)
 
(6,753
)
 
(97,806
)
Change in control of previously unconsolidated investment

 

 

 

 

 

 
(75,713
)
 
(75,713
)
Windfall tax benefit

 

 
555

 

 

 
555

 

 
555

Acquisition of noncontrolling interests

 

 
7,546

 

 

 
7,546

 
(25,925
)
 
(18,379
)
Employee and trustee stock compensation, net
28

 

 
926

 

 

 
926

 
12,768

 
13,694

Noncontrolling interest distributions

 

 

 

 

 

 
(80,769
)
 
(80,769
)
Noncontrolling interest contributions

 

 

 

 

 

 
295,108

 
295,108

Reallocation of noncontrolling interests

 

 
35,652

 

 

 
35,652

 
(35,652
)
 

Comprehensive income

 

 

 
3,665

 
72,776

 
76,441

 
62,081

 
138,522

Balance at
December 31, 2016
83,598


$
84


$
1,594,926


$
(798
)

$
(5,635
)

$
1,588,577


$
589,548


$
2,178,125

__________

(a)
Includes a special dividend of $0.30 announced on December 5, 2014 and paid on January 15, 2015.
(b)
Includes a special dividend of $0.25 declared on November 10, 2015 and paid on January 15, 2016.
(c)
Includes a special cash dividend of $0.15 declared on November 8, 2016 and paid on January 13, 2017 (Note 10).

The accompanying notes are an integral part of these consolidated financial statements.

F-7


ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Year Ended December 31,
(in thousands)
 
2016
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES
 
 

 
 

 
 

Net income
 
$
134,592

 
$
149,970

 
$
152,146

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

 
 

 
 

Gain on disposition of properties
 
(81,965
)
 
(89,063
)
 
(14,360
)
Depreciation and amortization
 
70,011

 
60,751

 
49,645

Distributions of operating income from unconsolidated affiliates
 
7,256

 
12,291

 
9,579

Equity in earnings and gains of unconsolidated affiliates
 
(39,449
)
 
(37,330
)
 
(111,578
)
Stock compensation expense
 
13,695

 
7,438

 
6,744

Amortization of financing costs
 
3,204

 
3,537

 
3,003

Impairment of asset
 

 
5,000

 

Other, net
 
(8,095
)
 
(6,483
)
 
(3,812
)
Changes in assets and liabilities:
 


 


 


Other liabilities
 
26,532

 
5,354

 
3,099

Prepaid expenses and other assets
 
(11,677
)
 
12,690

 
852

Rents receivable, net
 
(4,847
)
 
(5,673
)
 
(8,097
)
Cash in escrow
 
1,912

 
(6,168
)
 
(686
)
Accounts payable and accrued expenses
 
591

 
1,284

 
(4,016
)
Net cash provided by operating activities
 
111,760

 
113,598

 
82,519

CASH FLOWS FROM INVESTING ACTIVITIES
 
 

 
 

 
 

Acquisition of real estate
 
(495,644
)
 
(338,700
)
 
(256,453
)
Development and property improvement costs
 
(149,434
)
 
(164,315
)
 
(140,118
)
Issuance of notes receivable
 
(157,352
)
 
(48,500
)
 
(31,169
)
Proceeds from the disposition of properties
 
150,378

 
168,895

 
31,188

Investments in and advances to unconsolidated affiliates
 
(72,098
)
 
(24,168
)
 
(156,972
)
Return of capital from unconsolidated affiliates
 
54,444

 
11,892

 
74,371

Proceeds from notes receivable
 
42,819

 
15,984

 
18,095

Proceeds from disposition of properties of unconsolidated affiliates
 
24,586

 
38,392

 
190,356

Deferred leasing costs
 
(7,515
)
 
(8,207
)
 
(3,914
)
Change in control of previously consolidated affiliate
 
(2,578
)
 

 

Deposits for properties under contract
 
1,424

 
(5,776
)
 
6,100

Net cash used in investing activities
 
(610,970
)
 
(354,503
)
 
(268,516
)


F-8


ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Year Ended December 31,
(in thousands)
 
2016
 
2015
 
2014
CASH FLOWS FROM FINANCING ACTIVITIES
 
 

 
 

 
 

Principal payments on mortgage and other notes
 
(936,654
)
 
(383,238
)
 
(176,323
)
Proceeds received on mortgage and other notes
 
888,787

 
507,659

 
284,303

Proceeds from issuance of Common Shares, net of
issuance costs of $9,238, $1,150 and $2,112 respectively
 
450,130

 
63,234

 
357,459

Capital contributions from noncontrolling interests
 
295,108

 
35,489

 
57,970

Distributions to noncontrolling interests
 
(105,994
)
 
(84,610
)
 
(221,330
)
Dividends paid to Common Shareholders
 
(91,334
)
 
(86,353
)
 
(53,210
)
Deferred financing and other costs
 
(11,678
)
 
(4,376
)
 
(3,672
)
Loan proceeds held as restricted cash
 
9,874

 
48,676

 
79,191

Purchase of convertible notes payable
 

 
(380
)
 

Net cash provided by financing activities
 
498,239

 
96,101

 
324,388


 
 
 
 
 
 
(Decrease) increase in cash and cash equivalents
 
(971
)
 
(144,804
)
 
138,391

Cash and cash equivalents, beginning of year
 
72,776

 
217,580

 
79,189

Cash and cash equivalents, end of year
 
$
71,805

 
$
72,776

 
$
217,580

 
 
 
 
 
 
 
Supplemental disclosure of cash flow information
 
 

 
 

 
 

Cash paid during the period for interest, net of
capitalized interest of $21,109, $16,447 and $12,650, respectively
 
$
42,279

 
$
47,960

 
$
46,542

Cash paid for income taxes, net of refunds received
of $0, $0 and $2,045, respectively
 
$
2,036

 
$
2,038

 
$
(1,772
)
 
 
 
 
 
 
 
Supplemental disclosure of non-cash investing activities
 
 

 
 

 
 

Acquisition of real estate through assumption of debt
 
$
120,672

 
$
91,885

 
$
29,794

Acquisition of real estate through issuance of OP Units
 
$
29,336

 
$

 
$
38,937

Acquisition of capital lease obligation
 
$
76,461

 
$

 
$

Mortgage debt financed at time of acquisition
 
$
63,900

 
$

 
$

Assumption of accounts payable and accrued expenses
through acquisition of real estate
 
$
3,587

 
$

 
$

Assumption of prepaid expenses and other assets through acquisition of real estate
 
$
2,226

 
$

 
$

Disposition of air rights through issuance of notes receivable
 
$

 
$
(29,539
)
 
$

Acquisition of real estate through assumption of restricted cash
 
$

 
$
(28,912
)
 
$

Acquisition of real estate through conversion of notes receivable
 
$

 
$
13,386

 
$
38,000

Disposition of real estate through forgiveness of debt
 
$

 
$

 
$
(22,865
)
Investments in and advances to unconsolidated affiliates
through issuance of OP Units
 
$

 
$

 
$
5,114

 
 
 
 
 
 
 
Change in control of previously consolidated investment
 
 
 
 
 
 
Real estate, net
 
$
90,559

 
$

 
$

Investments in and advances to unconsolidated affiliates
 
(21,421
)
 

 

Other assets and liabilities
 
3,997

 

 

Noncontrolling interest
 
(75,713
)
 

 

Cash removed in de-consolidation of previously consolidated investment
 
$
(2,578
)
 
$

 
$

The accompanying notes are an integral part of these consolidated financial statements.

F-9

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    

 




1. Organization, Basis of Presentation and Summary of Significant Accounting Policies

Organization

Acadia Realty Trust and subsidiaries (collectively, the "Company") is a fully-integrated equity real estate investment trust ("REIT") focused on the ownership, acquisition, development, and management of 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 December 31, 2016 and 2015, the Company controlled approximately 95% of the Operating Partnership as the sole general partner and 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 Common OP Units ("LTIP Units") as long-term incentive compensation (Note 13). Limited partners holding Common OP and LTIP Units are generally entitled to exchange their units on a one-for-one basis for common shares of beneficial interest of the Company ("Common Shares"). This structure is referred to as an umbrella partnership REIT or "UPREIT."

As of December 31, 2016, the Company has ownership interests in 117 properties within its core portfolio, which consist of those properties either 100% owned, or partially owned through joint venture interests, by the Operating Partnership, or subsidiaries thereof, not including those properties owned through its funds ("Core Portfolio"). The Company also has ownership interests in 65 properties within its opportunity funds, Acadia Strategic Opportunity Fund I, LP ("Fund I"), Acadia Strategic Opportunity Fund II, LLC ("Fund II"), Acadia Strategic Opportunity Fund III LLC ("Fund III"), Acadia Strategic Opportunity Fund IV LLC, and Acadia Strategic Opportunity Fund V LLC (("Fund V") and together with Funds I, II, III and IV, the "Funds"). The 182 Core Portfolio and Fund properties primarily consist of street and urban retail, and dense suburban shopping centers. In addition, the Company, together with the investors in the Funds, invest in operating companies through Acadia Mervyn Investors I, LLC ("Mervyns I"), Acadia Mervyn Investors II, LLC ("Mervyns II") and Fund II, all on a non-recourse basis. The Company consolidates the Funds as it has (i) the power to direct the activities that most significantly impact their economic performance, (ii) is obligated to absorb their losses and (iii) has the right to receive benefits from the Funds that could potentially be significant.

The Operating Partnership is the sole general partner or managing member of the Funds and Mervyns I and II and earns fees or priority distributions for asset management, property management, construction, development, leasing, and legal services. Cash flows from the Funds and Mervyns I and II are distributed pro-rata to their 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). All transactions between the Funds and the Operating Partnership have been eliminated in consolidation.

The following table summarizes the general terms and Operating Partnership's equity interests in the Funds and Mervyns I and II (dollars in millions):
Entity
Formation Date
Operating Partnership Share of Capital
Fund Size
 
Capital Called as of December 31, 2016 (a)
 
Unfunded Commitment
Equity Interest Held By Operating Partnership
Preferred Return
Total Distributions as of December 31, 2016 (e)
Fund I and Mervyns I (a)
9/2001
22.22%
$
90.0

 
$
86.6

 
$

37.78%
9%
$
194.5

Fund II and
   Mervyns II (b) (c)
6/2004
28.33%
300.0

 
347.1

 

28.33%
8%
131.6

Fund III (d)
5/2007
24.54%
502.5

 
387.5

 
62.5

39.63%
6%
445.7

Fund IV
5/2012
23.12%
540.6

 
179.4

 
361.2

23.12%
6%
101.9

Fund V
8/2016
20.10%
520.1

 

 
520.1

20.10%
6%

__________

(a)
As of December 31, 2015, Fund I had been liquidated.
(b)
During 2013, a distribution of $47.1 million was made to the Fund II investors, including the Operating Partnership. This amount was subject to recontribution to Fund II until December 2016, and was recontributed during 2016.

F-10

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    

 



(c)
During 2016, the Company acquired an additional 8.3% interest in Fund II from a limited partner for $18.4 million, giving the Operating Partnership an aggregate 28.33% interest.
(d)
During 2015, the Company acquired an additional 4.6% interest in Fund III from a limited partner for $7.3 million, giving the Operating Partnership an aggregate 24.54% interest.
(e)
Represents the total for the Funds, including the Operating Partnership and noncontrolling interests' shares.

Basis of Presentation

Segments

At December 31, 2016, the Company had three reportable operating segments: Core Portfolio, Funds and Structured Financing.  The Company’s chief operating decision maker may review operational and financial data on a property basis and does not differentiate properties on a geographical basis for purposes of allocating resources or capital.  The Company evaluates individual property performance primarily based on net operating income before depreciation, amortization and certain nonrecurring items.  Each property is considered a separate operating segment; however, each property on a stand-alone basis represents less than 10% of revenues, profit or loss, and assets of the combined reported operating segment and meets the majority of the aggregations criteria under the applicable standard.  

Principles of Consolidation

The consolidated financial statements include the consolidated accounts of the Company and its investments in partnerships and limited liability companies in which the Company has control in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 810 "Consolidation" ("ASC Topic 810"). The ownership interests of other investors in these entities are recorded as noncontrolling interests. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in entities for which the Company has the ability to exercise significant influence over, but does not have financial or operating control, are accounted for using the equity method of accounting. Accordingly, the Company’s share of the earnings (or losses) of these entities are included in consolidated net income.

Variable interest entities are accounted for within the scope of ASC Topic 810 and are required to be consolidated by their primary beneficiary. The primary beneficiary of a variable interest entity is the enterprise that has the power to direct the activities that most significantly impact the variable interest entity’s economic performance and the obligation to absorb losses or the right to receive benefits of the variable interest entity that could be significant to the variable interest entity. Management has evaluated the applicability of ASC Topic 810 to its investments in certain joint ventures and determined that these joint ventures are not variable interest entities or that the Company is not the primary beneficiary and, therefore, consolidation of these ventures is not required. These investments are accounted for using the equity method of accounting.

At December 31, 2016, the Company had investments in three tenancy-in-common interests in various underlying properties. Consolidation of these investments is not required as such interests do not qualify as variable interest entities or meet the control requirement for consolidation. Accordingly, the Company accounts for these investments using the equity method of accounting because the shared decision-making involved in a tenancy-in-common interest investment provides the Company with significant influence on the operating and financial decisions of these investments. 

Cost Method Investments

The Company has certain investments to which it applies the cost method of accounting. The Company recognizes as income distributions from net accumulated earnings of the investee since the date of acquisition. The net accumulated earnings of an investee subsequent to the date of investment are recognized by the Company only to the extent distributed by the investee. Distributions received in excess of earnings subsequent to the date of investment are considered a return of investment and are recorded as reductions of cost of the investment. For the periods presented, there have been no events or changes in circumstances that may have a significant adverse effect on the fair value of the Company's cost-method investments.

Use of Estimates

Accounting principles generally accepted in the United States of America ("GAAP") require the Company’s management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The most significant assumptions and estimates relate to the valuation of real estate, depreciable lives, revenue recognition and the collectability of notes receivable and rents receivable. Application of these estimates and assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.


F-11

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    

 



Out-of-Period Adjustments

During the year ended December 31, 2016, the Company identified and recorded out-of-period adjustments related to accounting for certain leases whose tenants have early termination and renewal options and for interest expense related to a loan that is in default. The Company's management concluded that these non-cash adjustments are not material to the consolidated financial statements for any of the periods presented. The net impact of the adjustments on the consolidated statement of income for the year ended December 31, 2016 is reflected as a decrease to rental income of $2.1 million, an increase to depreciation and amortization expense of $1.7 million, an increase in interest expense of $0.7 million and an increase to equity in earnings of unconsolidated affiliates of $0.2 million, resulting in a net decrease to net income of $4.2 million, of which $1.6 million was attributable to noncontrolling interests.

During the second quarter of 2016, management determined that certain transactions involving the issuance of Common Shares of the Company and Common OP Units, Preferred OP Units, and LTIP Units of the Operating Partnership, should have resulted in an adjustment to the Operating Partnership’s non-controlling interest ("OPU NCI") and the Company’s Additional Paid-in-Capital ("APIC") to reflect the difference between the fair value of the consideration received or paid and the book value of the Common Shares, Common OP Units, Preferred OP Units, and LTIP Units involving these changes in ownership (the "Rebalancing"). During the year ended December 31, 2016, the Company increased its APIC with an offsetting reduction to the OPU NCI of approximately $35.7 million, of which approximately $31.8 million of this Rebalancing related to prior years. Management concluded that the Rebalancing adjustments were not meaningful to the Company’s financial position for any of the prior years, and the quarterly periods in 2016, and as such, this cumulative change was recorded in the consolidated balance sheet and statement of shareholder’s equity in the second quarter of 2016 as an out-of-period adjustment. The misclassification had no impact on the previously reported consolidated assets, liabilities or total equity or on the consolidated statements of income, comprehensive income, or cash flows.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

Summary of Significant Accounting Policies

Real Estate

Land, buildings, and personal property are carried at cost less accumulated depreciation. Improvements and significant renovations that extend the useful life of the properties are capitalized, while replacements, maintenance, and repairs that do not improve or extend the lives of the respective assets are expensed as incurred. Real estate under development includes costs for significant property expansion and development.

Depreciation is computed on the straight-line basis over estimated useful lives of the assets as follows:

Buildings and improvements         Useful lives, ranging from 30 to 40 years
Furniture and fixtures             Useful lives, ranging from five years to 20 years
Tenant improvements             Shorter of economic life or lease terms

Purchase Accounting – Upon acquisitions of real estate, the Company assesses the fair value of acquired assets and assumed liabilities (including land, buildings and improvements, and identified intangibles such as above- and below-market leases and acquired in-place leases and customer relationships) and acquired liabilities in accordance with ASC Topic 805, "Business Combinations" and ASC Topic 350 "Intangibles – Goodwill and Other," and allocates the acquisition price based on these assessments.

The Company assesses fair value of its tangible assets acquired and assumed liabilities based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information at the measurement period. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property.

In determining the value of above- and below-market leases, the Company estimates the present value difference between contractual rent obligations and estimated market rate of leases at the time of the transaction. To the extent there were fixed-rate options at below-market rental rates, the Company included these along with the current term below-market rent in arriving at the fair value of the acquired leases. The discounted difference between contract and market rents is being amortized to rental income over the remaining applicable lease term, inclusive of any option periods.

F-12

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    

 




In determining the value of acquired in-place leases and customer relationships, the Company considers market conditions at the time of the transaction and values the costs to execute similar leases during the expected lease-up period from vacancy to existing occupancy, including carrying costs. The value assigned to in-place leases and tenant relationships is amortized over the estimated remaining term of the leases. If a lease were to be terminated prior to its scheduled expiration, all unamortized costs relating to that lease would be written off.

The Company estimates the value of any assumption of mortgage debt based on market conditions at the time of acquisitions including prevailing interest rates, terms and ability to obtain financing for a similar asset. Mortgage debt discounts or premiums are amortized into interest expense over the remaining term of the related debt instrument.

Real Estate Under Development – The Company capitalizes certain costs related to the development of real estate. Interest and real estate taxes incurred during the period of the construction, expansion or development of real estate are capitalized and depreciated over the estimated useful life of the building. The Company will cease the capitalization of these costs when construction activities are substantially completed and the property is available for occupancy by tenants, but no later than one year from the completion of major construction activity at which time the project is placed in service and depreciation commences. If the Company suspends substantially all activities related to development of a qualifying asset, the Company will cease capitalization of interest and taxes until activities are resumed.

Real Estate Impairment – The Company reviews its real estate and real estate under development for impairment when there is an event or a change in circumstances that indicates that the carrying amount may not be recoverable. In cases where the Company does not expect to recover its carrying costs on properties held for use, the Company reduces its carrying costs to fair value. The determination of anticipated undiscounted cash flows is inherently subjective, requiring significant estimates made by management, and considers the most likely expected course of action at the balance sheet date based on current plans, intended holding periods and available market information. If the Company is evaluating the potential sale of an asset, the undiscounted future cash flows analysis is probability-weighted based upon management’s best estimate of the likelihood of the alternative courses of action as of the balance sheet date. Such cash flow projections consider factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other factors. If an impairment is indicated, an impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value.

The Company did not record any impairment charges during the years ended December 31, 2016 or 2014. During the year ended December 31, 2015, as a result of the loss of a key anchor tenant at a property located in Wilmington, Delaware, the Company recorded an impairment charge of $5.0 million, which is included in the statement of income for the year ended December 31, 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 matured July 1, 2016 and is currently in default.

Dispositions of Real Estate – The Company recognizes property sales in accordance with ASC Topic 970 "Real Estate." Sales of real estate include the sale of land, operating properties and investments in real estate joint ventures. Gains from dispositions are recognized using the full accrual or partial sale methods, provided that various criteria relating to the terms of sale and any subsequent involvement by the Company with the asset sold are met. 

Real Estate Held for Sale – The Company generally considers assets to be held for sale when it has entered into a contract to sell the property, all material due diligence requirements have been satisfied, and management believes it is probable that the disposition will occur within one year. Assets that are classified as held for sale are recorded at the lower of their carrying amount or fair value, less cost to sell.

Notes Receivable

Notes receivable include certain loans that are held for investment and are collateralized by real estate-related investments and may be subordinate to other senior loans. Notes receivable are recorded at stated principal amounts or at initial investment less accretive yield for loans purchased at a discount, which is accreted over the life of the note. The Company defers loan origination and commitment fees, net of origination costs, and amortizes them over the term of the related loan. The Company evaluates the collectability of both principal and interest based upon an assessment of the underlying collateral value to determine whether it is impaired. A reserve is recorded when, based upon current information and events, it is probable that the Company will be unable to collect all amounts due according to the existing contractual terms. The amount of the reserve is calculated by comparing the recorded investment to the value of the underlying collateral. As the underlying collateral for a majority of the notes receivable is real estate-related investments, the same valuation techniques are used to value the collateral as those used to determine the fair value of real estate investments for impairment purposes. Given the small number of notes outstanding, the Company does not provide for an additional reserve based on the grouping of loans, as the Company believes the characteristics of its notes are not

F-13

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    

 



sufficiently similar to allow an evaluation of these notes as a group for a possible loan loss allowance. As such, all of the Company’s notes are evaluated individually for this purpose. Interest income on performing notes is accrued as earned. A note is placed on non-accrual status when, based upon current information and events, it is probable that the Company will not be able to collect all amounts due according to the existing contractual terms. Recognition of interest income on an accrual basis on non-performing notes is resumed when it is probable that the Company will be able to collect amounts due according to the contractual terms.

Investments in and Advances to Unconsolidated Joint Ventures

Some of the Company’s joint ventures obtain non-recourse third-party financing on their property investments, contractually limiting the Company’s exposure to losses. The Company recognizes income for distributions in excess of its investment where there is no recourse to the Company and no intention or obligation to contribute additional capital. For investments in which there is recourse to the Company or an obligation or intention to contribute additional capital exists, distributions in excess of the investment are recorded as a liability.

When characterizing distributions from equity investees within the Company's consolidated statements of cash flows, all distributions received are first applied as returns on investment to the extent there are cumulative earnings related to the respective investment and are classified as cash inflows from operating activities. If cumulative distributions are in excess of cumulative earnings, distributions are considered return of investment. In such cases, the distribution is classified as cash inflows from investing activities.

To the extent that the Company’s carrying basis in an unconsolidated affiliate is different from the basis reflected at the joint venture level, the basis difference is amortized over the life of the related assets and included in the Company’s share of equity in net income (loss) of investments in unconsolidated affiliates the joint venture.

The Company periodically reviews its investments in unconsolidated joint ventures for other-than-temporary losses in investment value. Any decline that is not expected to be recovered based on the underlying assets of the investment, is considered other than temporary and an impairment charge is recorded as a reduction in the carrying value of the investment. During the years ended December 31, 2016, 2015 and 2014, there were no impairment charges related to the Company’s investments in unconsolidated joint ventures.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed the limits insured by the Federal Deposit Insurance Corporation.

Restricted Cash

Restricted cash consists principally of cash held for real estate taxes, construction costs, property maintenance, insurance, minimum occupancy and property operating income requirements at specific properties as required by certain loan agreements.

Deferred Costs

Fees and costs paid in the successful negotiation of leases are deferred and amortized on a straight-line basis over the terms of the respective leases. Fees and costs incurred in connection with obtaining financing are deferred and amortized as a component of interest expense over the term of the related debt obligation on a straight-line basis, which approximates the effective interest method. The Company capitalizes salaries, commissions and benefits related to time spent by leasing and legal department personnel involved in originating leases.

Derivative Instruments and Hedging Activities

The Company measures derivative instruments at fair value and record them as assets or liabilities, depending on its rights or obligations under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. For a derivative designated and that qualified as a cash flow hedge, the effective portion of the change in fair value of the derivative is recognized in Other comprehensive (loss) income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings. The ineffective portion of the change in fair value of the derivative is recognized directly in earnings.


F-14

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    

 



Although the Company's derivative contracts are subject to master netting arrangements, which serve as credit mitigants to both the Company and its counterparties under certain situations, the Company does not net its derivative fair values or any existing rights or obligations to cash collateral on the consolidated balance sheets. The Company does not use derivatives for trading or speculative purposes. For the periods presented, all of the Company's derivatives qualified and were designated as cash flow hedges, and none of its derivatives were deemed ineffective.

Noncontrolling Interests

Noncontrolling interests represent the portion of equity that the Company does not own in those entities it consolidates. The Company identifies its noncontrolling interests separately within the equity section on the Company’s consolidated balance sheets. The amounts of consolidated net earnings attributable to the Company and to the noncontrolling interests are presented separately on the Company’s consolidated statements of income. Noncontrolling interests also include amounts related to common and preferred OP Units issued to unrelated third parties in connection with certain property acquisitions. In addition, the Company periodically issues common OP Units to certain employees of the Company under its share-based incentive program. Unit holders generally have the right to redeem their units for shares of the Company's common stock subject to blackout and other limitations. Common and restricted OP Units are included in the caption Noncontrolling interest within the equity section on the Company’s consolidated balance sheets.

Revenue Recognition and Accounts Receivable

Minimum rents from tenants are recognized using the straight-line method over the non-cancelable lease term of the respective leases. Lease termination fees are recognized upon the effective termination of a tenant’s lease when the Company has no further obligations under the lease. As of December 31, 2016 and 2015, unbilled rents receivable relating to the straight-lining of rents of $31.7 million and $31.3 million, respectively, are included in Rents Receivable, net on the accompanying consolidated balance sheets. Certain of these leases also provide for percentage rents based upon the level of sales achieved by the tenant. Percentage rent is recognized in the period when the tenants’ sales breakpoint is met. In addition, leases typically provide for the reimbursement to the Company of real estate taxes, insurance and other property operating expenses. These reimbursements are recognized as revenue in the period the related expenses are incurred.

The Company makes estimates of the uncollectability of its accounts receivable related to tenant revenues. An allowance for doubtful accounts has been provided against certain tenant accounts receivable that are estimated to be uncollectible. Once the amount is ultimately deemed to be uncollectible, it is written off. Rents receivable at December 31, 2016 and 2015 are shown net of an allowance for doubtful accounts of $5.7 million and $7.5 million, respectively.

Stock-Based Compensation

Stock-based compensation expense for all equity-classified stock-based compensation awards is based on the grant date fair value estimated in accordance with current accounting guidance for share-based payments. The Company recognizes these compensation costs for only those shares or units expected to vest on a straight-line or graded-vesting basis, as appropriate, over the requisite service period of the award. The Company includes stock-based compensation within the Additional paid-in capital caption of equity.

Income Taxes

The Company has made an election to be taxed, and believes it qualifies, as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). To maintain REIT status for Federal income tax purposes, the Company is generally required to distribute at least 90% of its REIT taxable income to its shareholders as well as comply with certain other income, asset and organizational requirements as defined in the Code. Accordingly, the Company is generally not subject to Federal corporate income tax to the extent that it distributes 100% of its REIT taxable income each year.

In connection with the REIT Modernization Act, the Company is permitted to participate in certain activities and still maintain its qualification as a REIT, so long as these activities are conducted in entities that elect to be treated as taxable subsidiaries under the Code. As such, the Company is subject to Federal and state income taxes on the income from these activities. The Protecting Americans from Tax Hikes Act (PATH Act) was enacted in December 2015, and included numerous law changes applicable to REITs. The provisions have various effective dates beginning as early as 2016. These changes did not materially impact the Company's operations or consolidated financial statements.


F-15

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    

 



Although it may qualify for REIT status for Federal income tax purposes, the Company is subject to state income or franchise taxes in certain states in which some of its properties are located. In addition, taxable income from non-REIT activities managed through the Company’s taxable REIT subsidiaries ("TRS") is fully subject to Federal, state and local income taxes.

The Company accounts for TRS income taxes under the liability method as required by ASC Topic 740, "Income Taxes." Under the liability method, deferred income taxes are recognized for the temporary differences between the GAAP basis and tax basis of the TRS income, assets and liabilities.

The Company records net deferred tax assets to the extent it believes it is more likely than not that these assets will be realized and would record a valuation allowance to reduce deferred tax assets when it has determined that an uncertainty exists regarding their realization, which would increase the provision for income taxes. In making such determination, the Company considers all available positive and negative evidence, including forecasts of future taxable income, the reversal of other existing temporary differences, available net operating loss carry-forwards, tax planning strategies and recent results of operations. Several of these considerations require assumptions and significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates that the Company is utilizing to manage its business. To the extent facts and circumstances change in the future, adjustments to the valuation allowances may be required.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers." ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 does not apply to the Company's lease revenues, but will apply to reimbursed tenant costs. Additionally, this guidance modifies disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued ASU 2015-14, which defers the effective date of ASU 2014-09 for all entities by one year, until years beginning in 2018, with early adoption permitted but not before 2017. Entities may adopt ASU 2014-09 using either a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients or a retrospective approach with the cumulative effect recognized at the date of adoption. While the Company is still completing the assessment of the impact of this standard to its consolidated financial statements, management believes the majority of the Company's revenue falls outside of the scope of this guidance.  The Company intends to implement the standard retrospectively with the cumulative effect recognized in retained earnings at the date of application.

In February 2016, the FASB issued ASU No. 2016-02, "Leases." ASU 2016-02 outlines a new model for accounting by lessees, whereby their rights and obligations under substantially all leases, existing and new, would be capitalized and recorded on the balance sheet. For lessors, however, the accounting remains largely unchanged from the current model, with the distinction between operating and financing leases retained, but updated to align with certain changes to the lessee model and the new revenue recognition standard discussed above. The new guidance requires that internal leasing costs be expensed as incurred, as opposed to capitalized and deferred. ASU 2016-02 will also require extensive quantitative and qualitative disclosures and is effective beginning after December 15, 2018, but early adoption is permitted. The Company is evaluating the impact of the new standard and has not yet determined if it will have a material impact on its consolidated financial statements; however, the Company capitalized internal leasing costs of $1.1 million, $1.4 million and $0.9 million during the years ended December 31, 2016, 2015 and 2014, respectively.

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments – Credit Losses." ASU 2016-13 introduces a new model for estimating credit losses for certain types of financial instruments, including loans receivable, held-to-maturity debt securities, and net investments in direct financing leases, amongst other financial instruments. ASU 2016-13 also modifies the impairment model for available-for-sale debt securities and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for losses. ASU 2016-13 is effective for periods beginning after December 15, 2019, with adoption permitted for fiscal years beginning after December 15, 2018. Retrospective adjustments shall be applied through a cumulative-effect adjustment to retained earnings. The adoption of ASU 2016-13 is not expected to have a material impact on the Company's consolidated financial statements.

In August 2016, the FASB issued No. 2016-15, "Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments." ASU 2016-15 provides guidance on certain specific cash flow issues, including, but not limited to, debt prepayment or extinguishment costs, contingent consideration payments made after a business combination and distributions received from equity method investees. ASU 2016-15 is effective for periods beginning after December 15, 2017, with early adoption permitted and shall be applied retrospectively where practicable. The adoption of ASU 2016-15 is not expected to have a material impact on the Company's consolidated financial statements.


F-16

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    

 



In January 2017, the FASB issued ASU No. 2017-01 "Business Combinations – Clarifying the Definition of a Business." ASU 2017-01 clarifies that to be considered a business, the elements must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. The new standard illustrates the circumstances under which real estate with in-place leases would be considered a business and provides guidance for the identification of assets and liabilities in purchase accounting. ASU 2017-01 is effective for periods beginning after December 15, 2017 and early adoption is permitted. The Company is currently evaluating the impact ASU 2014-15 will have on its consolidated financial statements; however, it is expected that the new standard would reduce the number of future real estate acquisitions that will be accounted for as business combinations and, therefore, reduce the amount of acquisition costs that will be expensed.

In January 2017, the FASB issued ASU No. 2017-03 "Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323)." ASU 2017-03 amends certain SEC guidance in the FASB Accounting Standards Codification in response to SEC staff announcements made during 2016 EITF meetings which addressed (i) the additional qualitative disclosures that a registrant is expected to provide when it cannot reasonably estimate the impact that ASUs 2014-09, 2016-02 and 2016-13 will have in applying the guidance in SAB Topic 11.M and (ii) guidance in ASC 323 related to the amendments made by ASU 2014-01 regarding use of the proportional amortization method in accounting for investments in qualified affordable housing projects (announcement made at the November 17, 2016, EITF meeting. The adoption of ASU 2017-03 is not expected to have a material impact on the Company's consolidated financial statements.

Recently Adopted Accounting Pronouncements

On January 1, 2016, the Company adopted 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. The adoption did not have a material impact on the Company's consolidated financial statements.

On January 1, 2016, the Company adopted ASU No. 2015-02, "Consolidation – Amendments to the Consolidation Analysis," which modified the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIE's"), particularly those with fee arrangements and related party relationships. Consolidated VIE's are those where the Company is considered to be the primary beneficiary of a VIE. The primary beneficiary is the entity that has a controlling financial interest in the VIE, which is defined by the entity having both of the following characteristics: (i) the power to direct the activities that, when taken together, most significantly impact the VIE’s performance and (ii) the obligation to absorb losses or the right to receive the returns from the VIE that could potentially be significant to the VIE. The Company reviewed all of its entities in accordance with ASU 2015-02 and concluded that certain of its legal entities, including the Operating Partnership and the Funds, which have always been consolidated, are now VIE's. There were no entities qualifying under the scope of the revised guidance that were consolidated as a result of the adoption. As a result of the classification of the Operating Partnership as a VIE, substantially all of the Company's assets and liabilities are assets and liabilities of a VIE. Accordingly, the adoption of ASU 2015-02 had no other impact on the Company's consolidated financial statements.

F-17

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    

 



2. Real Estate

The Company's consolidated real estate is comprised of the following (in thousands):
 
 
December 31,
 
 
2016
 
2015
Land
 
$
693,252

 
$
514,120

Buildings and improvements
 
1,916,288

 
1,457,351

Tenant improvements
 
132,220

 
135,999

Construction in progress
 
19,789

 
19,239

Properties under capital lease
 
76,965

 

Total
 
2,838,514

 
2,126,709

Less: Accumulated depreciation
 
(287,066
)
 
(298,703
)
Operating real estate, net
 
2,551,448

 
1,828,006

Real estate under development at cost
 
543,486

 
609,574

Net investment in real estate
 
$
3,094,934

 
$
2,437,580


Acquisitions

During 2016 and 2015, the Company acquired the following consolidated retail properties (dollars in thousands):
Property
Percent Acquired
Date of Acquisition
Purchase Price
 
Debt Assumed
2016 Acquisitions
 
 
 
 
 
Core Portfolio:
 
 
 
 
 
991 Madison Avenue - New York, NY (a)
100%
Mar 26, 2016
$
76,628

 
$

165 Newbury Street - Boston, MA
100%
May 13, 2016
6,250

 

Concord & Milwaukee - Chicago, IL
100%
Jul 28, 2016
6,000

 
2,902

151 North State Street - Chicago, IL
100%
Aug 10, 2016
30,500

 
14,556

State & Washington - Chicago, IL
100%
Aug 22, 2016
70,250

 
25,650

North & Kingsbury - Chicago, IL
100%
Aug 29, 2016
34,000

 
13,409

Sullivan Center - Chicago, IL
100%
Aug 31, 2016
146,939

 

California & Armitage - Chicago, IL
100%
Sep 12, 2016
9,250

 
2,692

555 9th Street - San Francisco, CA
100%
Nov 2, 2016
139,775

 
60,000

  Subtotal Core Portfolio
 
 
519,592

 
119,209

 
 
 
 
 
 
Fund IV:
 
 
 
 
 
Restaurants at Fort Point - Boston, MA
100%
Jan 14, 2016
11,500

 

1964 Union Street - San Francisco, CA
90%
Jan 28, 2016
2,250

 
1,463

Wake Forest Crossing - Wake Forest, NC
100%
Sep 27, 2016
36,600

 

Airport Mall - Bangor, ME
100%
Oct 28, 2016
10,250

 

Colonie Plaza - Albany, NY
100%
Oct 28, 2016
15,000

 

Dauphin Plaza - Harrisburg, PA
100%
Oct 28, 2016
16,000

 

JFK Plaza - Waterville, ME
100%
Oct 28, 2016
6,500

 

Mayfair Shopping Center - Philadelphia, PA
100%
Oct 28, 2016
16,600

 

Shaw's Plaza - Waterville, ME
100%
Oct 28, 2016
13,800

 

Wells Plaza - Wells, ME
100%
Oct 28, 2016
5,250

 

717 N Michigan - Chicago, IL
100%
Dec 1, 2016
103,500

 

Subtotal Fund IV
 
 
237,250

 
1,463

Total 2016 Acquisitions
 
 
$
756,842

 
$
120,672

 
 
 
 
 
 

F-18

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    

 



Property
Percent Acquired
Date of Acquisition
Purchase Price
 
Debt Assumed
2015 Acquisitions
 
 


 


Core Portfolio:
 
 
 
 
 
City Center - San Francisco, CA
100%
Mar 13, 2015
$
155,000

 
$

163 Highland Avenue - Needham, MA
100%
Mar 26, 2015
24,000

 
9,765

Route 202 Shopping Center - Wilmington, DE
100%
Apr 1, 2015
5,643

 

Roosevelt Galleria - Chicago, IL
100%
Sep 11, 2015
19,600

 

Subtotal Core Portfolio
 
 
204,243

 
9,765

 
 
 
 
 
 
Fund II:
 
 
 
 
 
City Point Tower I - Brooklyn, NY (a)
95%
 
100,800

 
81,000

 
 
 
 
 
 
Fund IV:
 
 
 
 
 
1035 Third Avenue - New York, NY
100%
Jan 28, 2015
51,036

 

801 Madison Avenue - New York, NY
100%
Apr 1, 2015
33,000

 

650 Bald Hill Road - Warwick, RI (a)
90%
Sep 30, 2015
9,216

 

2208-2216 Fillmore Street - San Francisco, CA
90%
Oct 22, 2015
8,625

 

146 Geary Street - San Francisco, CA
100%
Nov 12, 2015
38,000

 

2207 Fillmore Street - San Francisco, CA
90%
Nov 19, 2015
2,800

 
1,120

1861 Union Street - San Francisco, CA
90%
Dec 2, 2015
3,500

 

Subtotal Fund IV
 
 
146,177

 
1,120

Total 2015 Acquisitions
 
 
$
451,220

 
$
91,885

__________

(a)
These acquisitions were accounted for as asset acquisitions.

All of the above acquisitions were deemed to be business combinations except 991 Madison Avenue, 1964 Union Street, City Point Tower I, and 650 Bald Hill Road. The Company expensed $5.5 million, $1.3 million and $4.8 million of acquisition costs for the years ended December 31, 2016, 2015 and 2014, respectively, related to the Core Portfolio; $0.2 million of acquisition costs for the year ended December 31, 2014 related to Fund III; and $2.7 million, $3.5 million and $2.7 million of acquisition costs for the years ended December 31, 2016, 2015 and 2014, respectively, related to Fund IV.

Purchase Price Allocations

With the exception of the asset acquisitions noted above, the above acquisitions have been accounted for as business combinations. The purchase prices for the business combinations 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. During 2016 and 2015, the Company acquired properties and recorded the preliminary allocation of the purchase price to the assets acquired based on provisional measurements of fair value. During 2016, the Company made certain measurement period adjustments related to its 2015 acquisitions.


F-19

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    

 



The following table summarizes the allocation of the purchase price of properties acquired during 2016 and 2015 (in thousands):
 
Year Ended December 31,
 
2016
 
2015

Purchase Price Allocation
 
Preliminary Purchase Price Allocation
 
Adjustments
 
Finalized Purchase Price Allocation
Net assets acquired:
 
 
 
 
 
 
 
Land
$
225,729

 
$
83,890

 
$
4,178

 
$
88,068

Buildings and improvements
458,525

 
258,926

 
(14,023
)
 
244,903

Other assets
3,481

 

 

 

Acquisition-related intangible assets (in Acquired lease intangibles, net)
63,606

 

 
22,660

 
22,660

Acquisition-related intangible liabilities (in Acquired lease intangibles, net)
(72,985
)
 

 
(12,094
)
 
(12,094
)
Above and below market debt assumed (included in Mortgages and other notes payable, net)
(119,601
)
 
(10,885
)
 
(721
)
 
(11,606
)
Net assets acquired
$
558,755

 
$
331,931

 
$

 
$
331,931


Consideration:
 
 
 
 
 
Cash
$
677,964

 
 
 
$
342,816

Debt assumed
(119,209
)
 
 
 
(10,885
)
Total Consideration
$
558,755

 
 
 
$
331,931


Dispositions and Discontinued Operations

During 2016 and 2015, the Company disposed of the following consolidated properties (in thousands):
 
 
 
 
 
 
 
Owner
Date Sold
Sale Price
 
Gain on Sale
2016 Dispositions:
 
 
 
 
 
Cortlandt Town Center - 65% (Note 4)
Fund III
Jan 28, 2016
$
107,250

 
$
65,393

Heritage Shops
Fund III
Apr 26, 2016
46,500

 
16,572

Total 2016 Dispositions
 
 
$
153,750

 
$
81,965

 
 
 
 
 
 
2015 Dispositions:
 
 
 
 
 
Lincoln Park Centre
Fund III
Jan 15, 2015
$
64,000

 
$
27,143

Liberty Avenue
Fund II
May 6, 2015
24,000

 
11,957

City Point - Air Rights
Fund II
May 29, 2015
115,600

 
49,884

Kroger-Safeway
Fund I
Aug 31, 2015
278

 
79

Total 2015 Dispositions
 
 
$
203,878

 
$
89,063



F-20

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    

 



The aggregate rental revenue, expenses and pre-tax income reported within continuing operations for the aforementioned consolidated properties that were sold during 2016 and 2015 were as follows (in thousands):

 
 
Year Ended December 31,
 
 
2016
 
2015
 
2014
 
 
 
 
 
 
 
Rental revenues
 
$
3,503

 
$
21,987

 
$
26,374

Expenses
 
(1,179
)
 
(16,246
)
 
(19,753
)
Gain on disposition of properties
 
81,965

 
89,063

 

Loss on extinguishment of debt
 
(15
)
 
(111
)
 
(181
)
Provision for income taxes
 

 
(2
)
 
(2
)
Income from continuing operations of
   disposed properties, net of income taxes
 
$
84,274

 
$
94,691

 
$
6,438

Amounts attributable to noncontrolling interests
 
$
(64,374
)
 
$
(76,277
)
 
$


In addition, during the year ended December 31, 2014, the Company reported one consolidated property sold within discontinued operations, comprised of a net gain on the disposition of properties of $1.2 million of which $1.0 million was attributable to noncontrolling interests.

Properties Held For Sale

At December 31, 2016, the Company had one property in Fund II classified as held-for-sale with net assets of $21.5 million and subject to a mortgage of $25.5 million, which will be repaid prior to the sale. The property held for sale had net income (loss) of $0.4 million, ($0.3 million) and $0.6 million for the years ended December 31, 2016, 2015 and 2014, respectively. At December 31, 2015 the Company had no properties classified as held for sale.

Pro Forma Financial Information (Unaudited)

The following unaudited pro forma operating data is presented for the year ended December 31, 2016, as if the acquisition of the properties acquired in 2016 were completed on January 1, 2015 and as if the acquisition of the properties acquired in 2015 were completed on January 1, 2014, including recognition of the related acquisition expenses of $8.2 million and $4.8 million, respectively. The unaudited supplemental pro forma operating data is not necessarily indicative of what the actual results of operations of the Company would have been, assuming the transactions had been completed as set forth above, nor do they purport to represent the Company's results of operations for future periods.
 
Year Ended December 31,
 
2016
 
2015
 
2014
Pro forma revenues
$
252,702

 
$
274,972

 
$
215,991

Pro forma income from continuing operations
$
141,612

 
$
150,498

 
$
145,398

Pro forma net income attributable to Acadia
$
79,680

 
$
67,788

 
$
67,888

Pro forma basic and diluted earnings per share
$
0.94

 
$
0.81

 
$
1.03


Real Estate Under Development and Construction in Progress

Real estate under development represents the Company's consolidated properties which have not yet been placed into service while undergoing substantial development or construction. At December 31, 2015, the Company had two properties in Fund II, two properties in Fund III and four properties in Fund IV aggregating $609.6 million under development. During 2016, the Company acquired two properties in Fund IV that were under development. Also during 2016, the Company placed a portion of its City Point property in Fund II aggregating $187.4 million into service and capitalized $98.4 million related to City Point and $22.9 million relating to its other projects. At December 31, 2016, the Company had one Core property, two properties in Fund II, three properties in Fund III and four properties in Fund IV classified as real estate under development with accumulated costs aggregating $543.5 million.

Construction in progress pertains to the Company's operating properties which have already been placed into service.

F-21

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    

 



3. Notes Receivable, Net

The Company’s notes receivable, net were collateralized either by the underlying properties, the borrower’s ownership interest in the entities that own the properties and/or by the borrower’s personal guarantee, and were as follows (dollars in thousands):

 
Number of Instruments December 31, 2016
 
December 31,
 
 
 
 
Description
 
2016
 
2015
 
Maturity Date at December 31, 2016
 
Interest Rate at December 31, 2016
Core Portfolio
10
 
$
216,400

 
$
113,048

 
May 2017 - September 2019
 
6.0% - 9.0%
Fund II
1
 
31,007

 
30,234

 
May 2020
 
2.5%
Fund III
1
 
4,506

 
3,906

 
July 2017
 
18.0%
Fund IV
3
 
24,250

 

 
April 2017 - February 2021
 
6.0% - 15.3%
 
15
 
$
276,163

 
$
147,188

 
 
 
 

During 2016, the Company:

issued one Core note receivable and three Fund IV notes receivable aggregating $47.5 million with a weighted-average effective interest rate of 9.8%, which were collateralized by four mixed-use real estate properties;
received total collections of $42.8 million, including full repayment of five notes issued in prior periods aggregating $29.6 million; and
restructured a $30.9 million Core mezzanine loan, which bore interest at 15.0%, and replaced it with a new $153.4 million loan collateralized by a first mortgage in the borrower's tenancy-in-common interest. The new loan, which was made to our partners in the Brandywine Portfolio, bears interest at 8.1% (Note 4).

During 2015, the Company:

made total investments in six notes receivable of $78.0 million, with a weighted-average effective interest rate of 6.2%, which were collateralized by six mixed-use real estate properties; and
received total collections of $29.4 million, including full repayment of four notes issued in prior periods aggregating $22.9 million.

At December 31, 2016 and 2015, one of the Core notes receivable in the amount of $12.0 million was in default; however, no principal reserve was established because the estimated fair value of the real estate collateral exceeded the carrying value of the note.

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.

Earnings from these notes and mortgages receivable are reported within the Company's Structured Financing segment (Note 12).

F-22

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    

 



4. Investments In and Advances to Unconsolidated Affiliates

The Company accounts for its investments in and advances to unconsolidated affiliates under the equity method of accounting as it has the ability to exercise significant influence, but does not have financial or operating control over the investment, which is maintained by each of the unaffiliated partners who co-invest with the Company. The Company's investments in and advances to unconsolidated affiliates consist of the following (dollars in thousands):

 
 
Nominal Ownership Interest at December 31, 2016
 
December 31,
Fund
Property
 
2016
 
2015
Core:
 
 
 
 
 
 
 
840 N. Michigan (a)
88.43
%
 
$
74,131

 
$
76,898

 
Renaissance Portfolio
20
%
 
36,437

 

 
Gotham
49
%
 
29,421

 

 
Brandywine Portfolio (a)
22.22
%
 
20,755

 

 
Georgetown Portfolio
50
%
 
4,287

 
4,688

 
 
 
 
165,031

 
81,586

 
 
 
 
 
 
 
Mervyns I & II:
KLA/Mervyn's, LLC (b)
10.5
%
 

 

 
 
 
 
 
 
 
Fund III:
 
 
 
 
 
 
 
Fund III Other Portfolio
90
%
 
8,108

 
12,784

 
Self Storage Management (c)
95
%
 
241

 
654

 
 
 
 
8,349

 
13,438

Fund IV:
 
 
 
 
 
 
 
Broughton Street Portfolio
50
%