UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K


 

 

x

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

For the fiscal year ended December 31, 2010

 

 

o

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

For the transition period from        to
Commission File Number 1-12002

 

ACADIA REALTY TRUST

(Exact name of registrant as specified in its charter)


 

 

Maryland

23-2715194

(State of incorporation)

(I.R.S. employer identification no.)

1311 Mamaroneck Avenue, Suite 260
White Plains, NY 10605
(Address of principal executive offices)
(914) 288-8100
(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Common Shares of Beneficial Interest, $.001 par value
(Title of Class)
New York Stock Exchange
(Name of Exchange on which registered)

 

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES o    NO x

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 o    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.    x

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 o     Accelerated Filer x      Non-accelerated Filer o      Smaller Reporting Company o

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)

YES o    NO x

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 $685.6 million, based on a price of $17.08 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 28, 2011 was 40,320,306.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Part III – Portions of the registrant’s definitive proxy statement relating to its 2011 Annual Meeting of Shareholders presently scheduled to be held May 10, 2011 to be filed pursuant to Regulation 14A.



TABLE OF CONTENTS

Form 10-K Report

 

 

 

 

Item No.

 

 

Page

 

PART I

 

 

1.

Business

 

4

1A.

Risk Factors

 

12

1B.

Unresolved Staff Comments

 

19

2.

Properties

 

20

3.

Legal Proceedings

 

29

4.

(Removed and Reserved).

 

29

 

 

PART II

 

 

5.

Market for Registrant’s Common Equity, Related Stockholder Matters, Issuer Purchases of Equity Securities and Performance Graph

 

30

6.

Selected Financial Data

 

32

7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

34

7A.

Quantitative and Qualitative Disclosures about Market Risk

 

47

8.

Financial Statements and Supplementary Data

 

48

9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

48

9A.

Controls and Procedures

 

48

9B.

Other Information

 

49

 

 

PART III

 

 

10.

Directors and Executive Officers and Corporate Governance

 

50

11.

Executive Compensation

50

12.

Security Ownership of Certain Beneficial Owners and Management

 

50

13.

Certain Relationships and Related Transactions and Director Independence

 

50

14.

Principal Accountant Fees and Services

 

50

 

 

PART IV

 

 

15.

Exhibits and Financial Statements Schedules

 

50

2


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Annual Report on Form 10-K may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 and as such may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative thereof or other variations thereon or comparable terminology. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to those set forth under the headings “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation” in this Form 10-K. These risks and uncertainties should be considered in evaluating any forward-looking statements contained or incorporated by reference herein.

3


PART I

ITEM 1. BUSINESS.

GENERAL

Acadia Realty Trust (the “Trust”) was formed on March 4, 1993 as a Maryland real estate investment trust (“REIT”). All references to “Acadia,” “we,” “us,” “our,” and “Company” refer to the Trust and its consolidated subsidiaries. We are a fully integrated, self-managed and self-administered equity REIT focused primarily on the ownership, acquisition, redevelopment and management of retail properties, including neighborhood and community shopping centers and mixed-use properties with retail components. We currently operate 79 properties, which we own or have an ownership interest in. These assets are located primarily in the Northeast, Mid-Atlantic and Midwestern regions of the United States and, in total, comprise approximately eight million square feet. We also have private equity investments in other retail real estate related opportunities including investments for which we provide operational support to the operating ventures in which we have a minority equity interest.

All of our investments are held by, and all of our operations are conducted through, Acadia Realty Limited Partnership (the “Operating Partnership”) and entities in which the Operating Partnership owns a controlling interest. As of December 31, 2010, the Trust controlled 99% of the Operating Partnership as the sole general partner. As the general partner, the Trust is entitled to share, in proportion to its percentage interest, in the cash distributions and profits and losses of the Operating Partnership. The limited partners generally represent entities or individuals which contributed their interests in certain assets or entities to the Operating Partnership in exchange for common or preferred units of limited partnership interest (“Common OP Units” or “Preferred OP Units”, respectively, and collectively, “OP Units”). Limited partners holding Common OP Units are generally entitled to exchange their units on a one-for-one basis for our common shares of beneficial interest (“Common Shares”). This structure is referred to as an umbrella partnership REIT or “UPREIT”.

BUSINESS OBJECTIVES AND STRATEGIES
Our primary business objective is to acquire and manage commercial retail properties that will provide cash for distributions to shareholders while also creating the potential for capital appreciation to enhance investor returns. We focus on the following fundamentals to achieve this objective:

 

 

Own and operate a Core Portfolio (as defined in Item 2 of this Form 10-K) of community and neighborhood shopping centers and main street retail located in markets with strong demographics and generate internal growth within the Core Portfolio through aggressive redevelopment, re-anchoring and/or leasing activities.

 

 

Maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth.

 

 

Generate external growth through an opportunistic yet disciplined acquisition program. We target transactions with high inherent opportunity for the creation of additional value through redevelopment and leasing and/or transactions requiring creative capital structuring to facilitate the transactions. These transactions may include other types of commercial real estate besides those which we currently invest in through our Core Portfolio. These may also include joint ventures with private equity investors for the purpose of making investments in operating retailers with significant embedded value in their real estate assets.

Investment Strategy — External Growth through Opportunistic Acquisition Platforms

The requirements that acquisitions be accretive on a long-term basis based on our cost of capital, as well as increase the overall portfolio quality and value, are core to our acquisition program. As such, we constantly evaluate the blended cost of equity and debt and adjust the amount of acquisition activity to align the level of investment activity with capital flows. We may also engage in discussions with public and private entities regarding business combinations. In addition to our direct investments in real estate assets, we have also capitalized on our expertise in the acquisition, redevelopment, leasing and management of retail real estate by establishing discretionary opportunity funds in which we earn, in addition to a pro-rata return based on our equity interest and carried interest (“Promote”), fees and priority distributions for our services. To date, we have launched three opportunity funds (“Opportunity Funds”), Acadia Strategic Opportunity Fund, LP (“Fund I”), Acadia Strategic Opportunity Fund II, LLC (“Fund II”) and Acadia Strategic Opportunity Fund III, LLC (“Fund III”). Due to the level of our control, we consolidate these Opportunity Funds for financial reporting purposes.

Fund I
During September of 2001, we and four of our institutional shareholders formed Fund I, and during August of 2004 formed a limited liability company, Acadia Mervyn Investors I, LLC (“Mervyns I”), in which the investors, including the Operating Partnership, committed a total of $90.0 million for the purpose of acquiring real estate assets. The Operating Partnership is the general partner or managing member with a 22.2% interest. In addition to a pro-rata return on its invested equity, the Operating Partnership is entitled to a Promote based upon certain investment return thresholds. Cash flow was distributed pro-rata to the partners (including the Operating Partnership) until they earned a 9% cumulative return (“Preferred Return”) and of all capital contributions were returned.

4


Fund I investors have received a return of all of their capital invested in Fund I and Mervyns I and their Preferred Return. Accordingly, all cash flow is now distributed 20% to the Operating Partnership as a Promote and 80% to the partners (including the Operating Partnership). The Operating Partnership also earns fees and/or priority distributions for asset management services equal to 1.5% of the allocated invested equity, as well as for property management, leasing, legal and construction services. All such fees and priority distributions are reflected as a reduction in the noncontrolling interest share in income from Opportunity Funds in the Consolidated Financial Statements beginning on page F-1 of this Form 10-K.

As of December 31, 2010, there were 20 assets comprising approximately 0.9 million square feet remaining in Fund I in which the Operating Partnership’s interest in cash flow and income is 37.8% as a result of the Promote.

Fund II

Following our success with Fund I, during June of 2004 we formed a second, larger Opportunity Fund, Fund II, and during August of 2004, formed Acadia Mervyn Investors II, LLC (“Mervyns II”), with the investors from Fund I as well as two additional institutional investors, whereby the investors, including the Operating Partnership, committed capital totaling $300.0 million. The Operating Partnership is the managing member with a 20% interest in Fund II and Mervyns II and can invest the committed equity on a discretionary basis within the parameters defined in the Fund II and Mervyns II operating agreements. The terms and structure of Fund II and Mervyns II are substantially the same as Fund I and Mervyns I with the exception that the Preferred Return is 8%. As of December 31, 2010, $265.2 million of Fund II’s and Mervyns II’s capital was invested and the balance of $34.8 million is expected to be utilized to complete development activities for existing Fund II investments.

Given the market conditions for commercial real estate at the time Fund II was formed, we channeled our acquisition efforts through Fund II in two opportunistic strategies described below – the New York Urban/Infill Redevelopment Initiative and the Retailer Controlled Property Venture, which are more fully described below.

New York Urban/Infill Redevelopment Initiative

During September of 2004, through Fund II, we launched our New York Urban/Infill Redevelopment Initiative. We believe that retailers continue to recognize that many of the nation’s urban markets are underserved from a retail standpoint, and we have capitalized on this situation by investing in redevelopment projects in dense urban areas where retail tenant demand has effectively surpassed the supply of available sites. During 2004, Fund II, together with an unaffiliated partner, P/A Associates, LLC (“P/A”), formed Acadia-P/A Holding Company, LLC (“Acadia-P/A”) for the purpose of acquiring, constructing, developing, owning, operating, leasing and managing certain retail or mixed-use real estate properties in the New York City metropolitan area. P/A agreed to invest 10% of required capital up to a maximum of $2.2 million and Fund II, the managing member, agreed to invest the balance to acquire assets in which Acadia-P/A agreed to invest. See Item 7 of this Form 10-K for further information on the Acadia-P/A Joint Venture as detailed in “Liquidity and Capital Resources – New York Urban/Infill Redevelopment Initiative.” To date, Fund II has invested in nine projects, eight of which are in conjunction with P/A, as discussed further in “—PROPERTY ACQUISITIONS– New York Urban/Infill Redevelopment Initiative” below in this Item 1.

Retailer Controlled Property Venture (the “RCP Venture”)

During 2004, through Funds I and II or affiliates thereof, we entered into an association, known as the RCP Venture, with Klaff Realty, L.P. (“Klaff”) and Lubert-Adler Management, Inc. (“Lubert-Adler”) for the purpose of making investments in surplus or underutilized properties owned by retailers. The RCP Venture is neither a single entity nor a specific investment. Any member of this group has the option of participating, or not, in any individual investment and each individual investment has been made on a stand-alone basis through a separate limited liability company. These investments have been made through different investment vehicles with different affiliated and unaffiliated investors and different economics to us. The initial size of the RCP Venture was expected to be approximately $300.0 million in equity, of which our share would be $60.0 million. Based on the investment opportunities, the size of the RCP Venture could be and was expanded. Mervyns I and II and Fund II have invested a total of $62.2 million in the RCP Venture to date on a non-recourse basis. Investments under the RCP Venture are structured as separate joint ventures as there may be other investors participating in certain investments in addition to Klaff, Lubert-Adler and us. While we are not required to invest any additional capital into any of these investments, should additional capital be required and we elect not to contribute our share, our proportionate share in the investment will be reduced. Cash flow from any RCP Venture investment is distributed to the participants until they have received a 10% cumulative return on and a full return of all capital contributions. Thereafter, remaining cash flow is distributed 20% to Klaff (“Klaff’s Promote”) and 80% to the partners (including Klaff). As the participants have received a return of all of their capital invested and their unpaid cumulative return, all cash flow is now distributed 20% to Klaff as Klaff’s Promote and then 80% to the partners. The Operating Partnership may also earn market-rate fees for property management, leasing and construction services on behalf of the RCP Venture. While we are primarily a passive partner in the investments made through the RCP Venture, historically we have provided our services in reviewing potential acquisitions and operating and redevelopment assistance in areas where we have both a presence and expertise. We continue to seek to invest opportunistically with the RCP Venture primarily in any of the following four ways:

 

 

Invest in operating retailers to control their real estate through private equity joint ventures

5



 

 

Work with financially healthy retailers to create value from their surplus real estate

 

 

Acquire properties, designation rights or other control of real estate or leases associated with retailers in bankruptcy

 

 

Complete sale-leasebacks with retailers in need of capital

Our RCP Venture investments are further discussed in “—PROPERTY ACQUISITIONS – RCP Venture” below in this Item 1.

Fund III

Following the success of Fund I and the full commitment of Fund II, Fund III was formed during 2007, with fourteen institutional investors, including a majority of the investors from Fund I and Fund II, whereby the investors, including the Operating Partnership, committed capital totaling $502.5 million. The Operating Partnership’s share of the committed capital is $100.0 million and it is the sole managing member with a 19.9% interest in Fund III and can invest the committed equity on a discretionary basis within the parameters defined in the Fund III operating agreement. The terms and structure of Fund III are substantially the same as Fund I and Fund II with the exception that the Preferred Return is 6%. As of December 31, 2010, $96.5 million of Fund III’s capital was invested. To date, Fund III has invested in 15 projects as discussed further in “—PROPERTY ACQUISITIONS” below in this Item 1.

Notes Receivable, Preferred Equity and Other Real Estate Related Investments

We may also invest in notes receivable, preferred equity investments, other real estate interests and other investments. As of December 31, 2010, our notes receivable investments aggregated $89.2 million, and were collateralized by either the properties (either first or second mortgage liens) or the borrower’s ownership interest in the properties. In addition, certain notes receivable are personally guaranteed by principals of the borrowers. Interest rates on our notes receivable, mezzanine loan investments and preferred equity investment, ranged from 10% to 24% with maturities that range from demand notes to January 2017.

Capital Strategy — Balance Sheet Focus and Access to Capital

Our primary capital objective is to maintain a strong and flexible balance sheet through conservative financial practices, including moderate leverage levels, while ensuring access to sufficient capital to fund future growth. We intend to continue financing acquisitions and property redevelopment with sources of capital determined by management to be the most appropriate based on, among other factors, availability in the current capital markets, pricing and other commercial and financial terms. The sources of capital may include the issuance of public equity, unsecured debt, mortgage and construction loans, and other capital alternatives including the issuance of OP Units. We manage our interest rate risk primarily through the use of fixed rate debt and, where we use variable rate debt, we use certain derivative instruments, including London Interbank Offered Rate (“LIBOR”) swap agreements and interest rate caps as discussed further in Item 7A of this Form 10-K.

During April 2009, we issued 5.75 million Common Shares and generated net proceeds of approximately $65.0 million. The proceeds were primarily used to purchase a portion of our outstanding convertible notes payable as discussed below and pay down existing lines of credit.

During December of 2006 and January of 2007, we issued $115.0 million of 3.75% unsecured Convertible Notes (the “Notes”). See Note 9 to our Consolidated Financial Statements, which begin on page F-1 of this Form 10-K for a discussion of the terms and conditions of the Notes. The $112.1 million in proceeds, net of related costs, were used to retire variable rate debt, provide for future Opportunity Fund capital commitments and for general working capital purposes. Through December 31, 2010, we purchased $65.2 million in principal amount of the Notes, all at an average discount of approximately 19%.

Operating Strategy — Experienced Management Team with Proven Track Record

Our senior management team has decades of experience in the real estate industry. We believe our management team has demonstrated the ability to create value through anchor recycling, property redevelopment and strategic non-core dispositions. We have capitalized on our expertise in the acquisition, redevelopment, leasing and management of retail real estate by establishing joint ventures, such as the Opportunity Funds, in which we earn, in addition to a return on our equity interest and Promote, fees and priority distributions. In connection with these joint ventures we have launched several successful acquisition platforms including our New York Urban/Infill Redevelopment Initiative and RCP Venture.

Operating functions such as leasing, property management, construction, finance and legal (collectively, the “Operating Departments”) are generally provided by our personnel, providing for fully integrated property management and development. By incorporating the Operating Departments in the acquisition process, acquisitions are appropriately priced giving effect to each asset’s specific risks and returns. Also, because of the Operating Departments involvement with, and corresponding understanding of, the acquisition process, transition time is minimized and management can immediately execute on its strategic plan for each asset.

We typically hold our Core Portfolio properties for long-term investment. As such, we continuously review the existing portfolio and implement programs to renovate and modernize targeted centers to enhance the property’s market position. This in turn strengthens the competitive position of the leasing program to attract and retain quality tenants, increasing cash flow and consequently property

6


value. We also periodically identify certain properties for disposition and redeploy the capital to existing centers or acquisitions with greater potential for capital appreciation. Our Core Portfolio consists primarily of neighborhood and community shopping centers, which are generally dominant centers in high barrier-to-entry supply constrained markets and are principally anchored by supermarkets and necessity-based retailers. We believe these attributes enable our properties to better withstand the current post recessionary period.

During 2010, 2009 and 2008 we sold two non-core properties and redeployed capital to acquire one retail property as further discussed in “—ASSET SALES AND CAPITAL/ASSET RECYCLING” below in this Item 1.

PROPERTY ACQUISITIONS

RCP Venture

Mervyns Department Stores

In September 2004, we made our first RCP Venture investment. Through Mervyns I and Mervyns II, we invested in a consortium to acquire Mervyns consisting of 262 stores (“REALCO”) and its retail operation (“OPCO”) from Target Corporation. Our share of this investment was $23.2 million. Subsequent to the initial acquisition of Mervyns, we made additional investments of $2.9 million. To date, REALCO has disposed of a significant portion of the portfolio. In addition, during November 2007, we sold our interest in, and as a result, have no further investment in OPCO. Through December 31, 2010, we have received distributions from this investment totaling $46.0 million.

Through December 31, 2010, we, through Mervyns I and Mervyns II, made additional investments in locations that are separate from these original investments (“Add-On Investments”) in Mervyns totaling $6.5 million and have received distributions totaling $1.7 million.

Albertson’s

During June of 2006, the RCP Venture made its second investment as part of an investment consortium, acquiring Albertson’s and Cub Foods, of which our share was $20.7 million. Through December 31, 2010, we have received distributions from this investment totaling $77.1 million, including $11.4 million received in 2010.

Through December 31, 2010, we, through Mervyns II, made Add-On Investments in Albertson’s totaling $2.4 million and received distributions totaling $1.2 million.

Other RCP Investments

Through December 31, 2010, we, through Fund II, made investments of $1.1 million in Shopko, $0.7 million in Marsh, and $2.0 million in Add-On Investments in Marsh. As of December 31, 2010, we have received distributions totaling $1.7 million from our Shopko investment and $2.6 million from our Marsh and Marsh Add-On Investments.

During July of 2007, the RCP Venture acquired a portfolio of 87 retail properties from Rex Stores Corporation (“Rex”), in which we invested through Mervyns II. Our share of this investment was $2.7 million. As of December 31, 2010, we have received distributions from Rex totaling $0.8 million.

The following table summarizes the RCP Venture investments from inception through December 31, 2010, and the Operating Partnership’s share of this activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

Operating Partnership Share

 

Investor

 

Investment

 

Year
acquired

 

Invested
Capital

 

Distributions

 

Invested
Capital

 

Distributions

 


 


 


 


 


 


 


 

Mervyns I and Mervyns II

 

Mervyns

 

2004

 

$

26.1

 

$

46.0

 

$

4.9

 

$

11.3

 

Mervyns I and Mervyns II

 

Mervyns Add-On Investments

 

2005/2008

 

 

6.5

 

 

1.7

 

 

1.1

 

 

0.3

 

Mervyns II

 

Albertson’s

 

2006

 

 

20.7

 

 

77.1

 

 

4.2

 

 

15.4

 

Mervyns II

 

Albertson’s Add-On Investments

 

2006/2007

 

 

2.4

 

 

1.2

 

 

0.4

 

 

0.2

 

Fund II

 

Shopko

 

2006

 

 

1.1

 

 

1.7

 

 

0.2

 

 

0.3

 

Fund II

 

Marsh

 

2006

 

 

2.7

 

 

2.6

 

 

0.5

 

 

0.5

 

Mervyns II

 

Rex

 

2007

 

 

2.7

 

 

0.8

 

 

0.5

 

 

0.2

 

 

 

 

 

 

 



 



 



 



 

Total

 

 

 

 

 

$

62.2

 

$

131.1

 

$

11.8

 

$

28.2

 

 

 

 

 

 

 



 



 



 



 

7


New York Urban/Infill Redevelopment Initiative

As of December 31, 2010, we had ten New York Urban/Infill Redevelopment Initiative projects. Construction is substantially complete at seven of the projects, one is under construction and two are in the design phase as follows:

Construction Substantially Complete

Fordham Place — During September of 2004, Acadia-P/A purchased 400 East Fordham Road, Bronx, New York. Construction of a 119,000 square foot retail component and 157,000 square foot office tower are complete. The retail component is 100% occupied and the office component is 30% occupied. Acadia-P/A’s total cost of the project was approximately $134.0 million.

Pelham Manor Shopping Plaza — During October of 2004, Acadia-P/A entered into a 95-year, inclusive of extension options, ground lease to redevelop a 16-acre site in Pelham Manor, Westchester County, New York. We demolished the existing industrial and warehouse buildings, and completed construction of a 229,000 square foot community retail center and a 90,000 square foot self-storage facility at a total cost of approximately $64.0 million. Home Depot was originally slated to anchor the project, but announced its decision to curtail plans for expansion. As part of our lease termination agreement with Home Depot, we purchased the building that Home Depot had constructed on the site for $10.0 million, representing approximately half of their cost of construction. The retail center is currently 91% leased and anchored by a BJ’s Wholesale Club.

216th Street — During December of 2005, Acadia-P/A acquired a parking garage located at 10th Avenue and 216th Street in the Inwood section of Manhattan. During 2007, we completed the construction of a 60,000 square foot office building and we relocated an agency of the City of New York (“NYC”), which was a tenant at another of our New York Urban/Infill Redevelopment Initiative projects, to this location. Acadia-P/A’s total cost for the project, which also includes a 100-space rooftop parking deck, was approximately $28.0 million.

Liberty Avenue — During December of 2005, Acadia-P/A acquired the remaining 40-year term of a leasehold interest in land located at Liberty Avenue and 98th Street in Ozone Park (Queens), New York. Construction of approximately 30,000 square feet of retail anchored by a CVS drug store and a 98,500 square foot self-storage facility is complete and Acadia-P/A’s total cost of the redevelopment was approximately $15.0 million.

161st Street — During August of 2005, Acadia-P/A purchased 244-268 161st Street located in the Bronx, New York for $49.3 million. The redevelopment plan for this currently 83% occupied, 10-story office building, is to recapture and convert street level office space into retail. Additional redevelopment costs to Acadia-P/A are anticipated to be approximately $17.4 million.

Atlantic Avenue — During May of 2007, we, through Fund II and in partnership with Post Management, LLC (“Storage Post”), acquired a property on Atlantic Avenue in Brooklyn, New York. Storage Post is our unaffiliated partner in our self-storage portfolio (see below) and at two of our other New York Urban/Infill Redevelopment Initiative projects with a self-storage component. During 2009, we completed construction of the 110,000 square feet, six-story storage facility and commenced operations. The total cost of the project was approximately $22.0 million.

Canarsie — During October of 2007, Acadia-P/A acquired a 530,000 square foot warehouse building in Canarsie, Brooklyn for approximately $21.0 million. The development included the construction of a 279,000 square foot mixed-use project consisting of retail and office. The total cost of the redevelopment, including acquisition costs, was approximately $90.0 million. We had executed a lease with Home Depot to anchor the project. However, during 2008, Home Depot terminated their lease and paid us a fee of $24.5 million. Construction was substantially complete in November 2010 and the property is 85% leased. The project is anchored by BJ’s Wholesale Club and the New York City Police Department.

Under Construction

CityPoint — During June of 2007, Acadia-P/A and an unaffiliated joint venture partner, California Urban Investment Partners, LLC (“CUIP”) purchased the leasehold interests in The Gallery at Fulton Street in downtown Brooklyn for approximately $115.0 million, with an option to purchase the fee position, which is owned by the City of New York, at a later date. On June 30, 2010, Acadia-P/A acquired all of CUIP’s interest in CityPoint for a total consideration of $9.2 million and the assumption of CUIP’s share of debt of $19.6 million. The development will proceed in three phases. Construction has commenced on Phase 1, a four-story retail building of approximately 50,000 square feet. Phase 2 will consist of approximately 500,000 square feet of additional retail. Phase 2 is also expected to contain an affordable and market-rate residential component. Phase 3 is anticipated to be a stand-alone mixed use, but primarily residential building, of approximately 700,000 square feet.

In Design

Sherman Plaza — During April of 2005, Acadia-P/A acquired 4650 Broadway located in the Washington Heights/Inwood section of Manhattan. The property, which was occupied by NYC and a commercial parking garage, was acquired for a purchase price of

8


$25.0 million. During 2007 we relocated NYC to Acadia-P/A’s 216th Street redevelopment as discussed above and closed the parking garage. We are currently reviewing various alternatives to redevelop the site to include retail and office components.

Sheepshead Bay — During November of 2007, Fund III acquired a property in Sheepshead Bay, Brooklyn for approximately $20.0 million. The project is currently in the design phase and we have demolished one of two buildings on the existing site and expect to develop a multi-level community shopping center.

Self-Storage Portfolio

On February 29, 2008, Fund III, in conjunction with Storage Post, acquired a portfolio of eleven self-storage properties from Storage Post’s existing institutional investors for approximately $174.0 million. In addition, we, through Fund II, developed three self-storage properties as discussed above. The fourteen self-storage property portfolio, located throughout New York and New Jersey, totals approximately 1,127,000 net rentable square feet, and is operating at various stages of stabilization.

Other Investments

In addition to the RCP Venture, the New York Urban/Infill and Self-Storage Portfolio investments as discussed above, through Fund III, we have also acquired the following:

During February 2011, Fund III, in a joint venture with an unaffiliated partner, acquired a 64,600 square foot single tenant retail property located in Silver Springs, Maryland, for approximately $9.8 million.

During February 2011, Fund III, in a joint venture with an unaffiliated partner, acquired a three property portfolio (the “Portfolio”) for an aggregate purchase price of $51.9 million with $20.6 million of in-place mortgage financing assumed at closing. The Portfolio consists of three street-retail properties, aggregating 61,000 square feet, and is located in South Miami Beach, Florida.

During December 2010, Fund III, in a joint venture with an unaffiliated partner, purchased the White City Shopping Center for $56.0 million. The operating property is a 255,000 square foot shopping center located in Shrewsbury, MA.

During June 2010, Fund III, in a joint venture with an unaffiliated partner, invested in an entity formed for the purpose of providing management services to owners of self-storage properties, including the 14 locations currently owned through Fund II and Fund III. To date, Fund III has invested $2.1 million in this entity.

During January 2009, we purchased Cortlandt Towne Center for $78.0 million. The operating property is a 641,000 square foot shopping center located in Westchester County, New York.

During November 2007, we acquired 125 Main Street, Westport, Connecticut for approximately $17.0 million. Redevelopment efforts have commenced, at an estimated cost of $8.4 million, with the execution of a lease with Gap Inc. to anchor the property. Gap is anticipated to open in the second half of 2011.

9


Core Portfolio

See Item 2. PROPERTIES for the definition of our Core Portfolio.

During April of 2008, the Operating Partnership acquired a 20,000 square foot single tenant retail property located on 17th Street near 5th Avenue in Manhattan, New York for $9.7 million.

During March of 2007, the Operating Partnership purchased a 52,000 square foot single-tenant building located at 1545 East Service Road in Staten Island, New York for $17.0 million and a 10,000 square foot retail commercial condominium at 200 West 54th Street located in Manhattan, New York for $36.4 million.

Notes Receivable, Preferred Equity and Other Real Estate Related Investments

During December 2009, the Operating Partnership made a loan for $8.6 million which bears interest at 14.5% and matures on June 30, 2011.

During June 2008, the Operating Partnership made a $40.0 million preferred equity investment in a portfolio of 18 properties located primarily in Georgetown, Washington D.C. The portfolio consists of 306,000 square feet of principally retail space. During September 2010, this investment was fully liquidated. The Operating Partnership received $40.0 million of invested capital along with $9.4 million of accrued preferred return. The Operating Partnership has an additional Georgetown loan receivable of $8.0 million, collateralized by a 5 property portfolio.

During July 2008, the Operating Partnership made a $34.0 million mezzanine loan, which is collateralized by an interest in a mixed-use retail and residential development at 72nd Street and Broadway on the Upper West Side of Manhattan.

During September 2008, Fund III made a $10.0 million first mortgage loan, which is collateralized by land located on Long Island, New York.

The following table sets forth our notes receivable investments as of December 31, 2010:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Averages

 

 

 

 

 

 

 

 

 

 

 


 

Notes Receivable
(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Underlying third-party
first mortgage loan

 

 

 

 

 

 

 

 

 

Stated
Interest
rate

 

Effective
interest
rate (1)

 

 

 

Extension options (years)

 


 

Investment

 

Principal

 

Accrued interest

 

Total

 

 

 

Maturity
date

 

 

Amount

 

Maturity dates

 





























 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Georgetown - 5 property portfolio

 

$

8,000

 

$

675

 

$

8,675

 

 

9.75

%

 

10.23

%

 

11/2011

 

 

1 year

 

$

9,596

 

 

2012 through
2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

72nd Street

 

 

46,715

 

 

6,137

 

 

52,852

 

 

13.00

%

 

20.85

%

 

7/2011

 

 

1 year

 

 

170,727

 

 

2011 w/ 1 year
extension

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First mortgage and other notes

 

 

18,854

 

 

463

 

 

19,317

 

 

11.93

%

 

12.48

%

 

2011

 

 

 

 

n/a

 

 

n/a

 

Mezzanine notes

 

 

15,633

 

 

330

 

 

15,963

 

 

14.14

%

 

15.43

%

 

2012

 

 

 

 

272,289

 

 

2011 through
2019

 

















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total notes receivable

 

$

89,202

 

$

7,605

 

$

96,807

 

 

12.68

%

 

17.18

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 















 

 

 

 

 

 

 

 

 

 

 

 

 


 

Note:

(1) The effective rate includes points and exit fees

10


ASSET SALES AND CAPITAL/ASSET RECYCLING

Core Portfolio

We periodically identify certain core properties for disposition and redeploy the capital to existing centers or acquisitions with greater potential for capital appreciation. Since January of 2008, we have sold the following Core Portfolio assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property

 

Location

 

Date sold

 

Gross
leasable
area

 

Sales price
(dollars in
thousands)

 


 


 


 


 


 

Blackman Plaza

 

 

Wilkes-Barre, Pennsylvania

 

 

November 2009

 

 

125,264

 

$

2,500

 

Village Apartments

 

 

Winston-Salem, North Carolina

 

 

April 2008

 

 

599,106

 

 

23,300

 

 

 

 

 

 

 

 

 



 



 

Total

 

 

 

 

 

 

 

 

724,370

 

$

25,800

 

 

 

 

 

 

 

 

 



 



 

Proceeds from these sales in part have been used to fund the Core Portfolio acquisitions as discussed in “—PROPERTY ACQUISITIONS” above.

Monetization of Fund I

Given that Fund I was established as a finite life entity, we are currently engaged in the multi-year process of monetizing the Fund’s investments. As of December 31, 2010 there were 20 assets comprising 0.9 million square feet remaining in Fund I as summarized by region below:

 

 

 

 

 

 

 

 

 

 

 

Shopping Center

 

Location

 

Year
acquired

 

GLA

 


 


 


 


 

New York Region

 

 

 

 

 

 

 

 

 

 

New York

 

 

 

 

 

 

 

 

 

 

Tarrytown Centre

 

 

Tarrytown

 

 

2004

 

 

35,291

 

Midwest Region

 

 

 

 

 

 

 

 

 

 

Ohio

 

 

 

 

 

 

 

 

 

 

Granville Centre

 

 

Columbus

 

 

2002

 

 

134,997

 

Various Regions

 

 

 

 

 

 

 

 

 

 

Kroger/Safeway Portfolio

 

 

Various (18 properties)

 

 

2003

 

 

709,400

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

879,688

 

 

 

 

 

 

 

 

 



 

During March 2010, Fund I sold the Sterling Heights Shopping Center for $2.3 million. The proceeds from the sale along with Fund I’s recourse obligation of $0.6 million were used to fully liquidate the outstanding loan obligation.

During February 2009, The Kroger Co. purchased the fee at six locations in Fund I’s Kroger/Safeway Portfolio for $14.6 million, resulting in a $5.6 million gain. The Operating Partnership’s share of the gain was $1.6 million.

During April 2008, Fund I sold Haygood Shopping Center located in Virginia Beach, Virginia, for $24.9 million, resulting in a $6.8 million gain. The Operating Partnership’s share of the gain was $1.3 million.

ENVIRONMENTAL LAWS

For information relating to environmental laws that may have an impact on our business, please see “Item 1A. Risk Factors - Possible liability relating to environmental matters.”

COMPETITION

There are numerous entities that compete with us in seeking properties for acquisition and tenants that will lease space in our properties. Our competitors include other REITs, financial institutions, insurance companies, pension funds, private companies and individuals. Our properties compete for tenants with similar properties primarily on the basis of location, total occupancy costs (including base rent and operating expenses) and the design and condition of the improvements.

11


FINANCIAL INFORMATION ABOUT MARKET SEGMENTS

We have five reportable segments: Core Portfolio, Opportunity Funds, Self-Storage Portfolio, Notes Receivable and Other. Notes Receivable consists of the Company’s notes receivable and related interest income, Other primarily consists of management fees and interest income. The accounting policies of the segments are the same as those described in the summary of significant accounting policies set forth in Note 1 to our Consolidated Financial Statements, which begin on page F-1 of this Form 10-K. We evaluate property performance primarily based on net operating income before depreciation, amortization and certain nonrecurring items. Investments in our Core Portfolio are typically held long-term. Given the contemplated finite life of our Opportunity Funds, these investments are typically held for shorter terms. Fees earned by us as general partner/member of the Opportunity Funds are eliminated in our Consolidated Financial Statements. See Note 3 to our Consolidated Financial Statements, which begin on page F-1 of this Form 10-K for information regarding, among other things, revenues from external customers, a measure of profit and loss and total assets with respect to each of our segments.

CORPORATE HEADQUARTERS AND EMPLOYEES

Our executive offices are located at 1311 Mamaroneck Avenue, Suite 260, White Plains, New York 10605, and our telephone number is (914) 288-8100. As of December 31, 2010, we had 116 employees, of which 92 were located at our executive office and 24 were located at regional property management offices. None of our employees are covered by collective bargaining agreements. Management believes that its relationship with employees is good.

COMPANY WEBSITE

All of our filings with the Securities and Exchange Commission, including our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available free of charge at our website at www.acadiarealty.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. These filings can also be accessed through the Securities and Exchange Commission’s website at www.sec.gov. Alternatively, we will provide paper copies of our filings free of charge upon request. If you wish to receive a copy of the Form 10-K, you may contact Robert Masters, Corporate Secretary, at Acadia Realty Trust, 1311 Mamaroneck Avenue, Suite 260, White Plains, NY 10605. You may also call (914) 288-8100 to request a copy of the Form 10-K. Information included or referred to on our website is not incorporated by reference in or otherwise a part of this Form 10-K.

CODE OF ETHICS AND WHISTLEBLOWER POLICIES

The Board of Trustees adopted a Code of Ethics for Senior Financial Officers that applies to our Chief Executive Officer, Senior Vice President-Chief Financial Officer, Senior Vice President-Chief Accounting Officer, Vice President-Controller, Vice President- Financial Reporting, Vice President of Taxation and Assistant Controllers. The Board also adopted a Code of Business Conduct and Ethics applicable to all employees, as well as a “Whistleblower Policy.” Copies of these documents are available in the Investor Information section of our website. We intend to disclose future amendments to, or waivers from, our Code of Ethics for Senior Financial Officers in the Investor Information section of our website within four business days following the date of such amendment or waiver.

ITEM 1A. RISK FACTORS.

If any of the following risks actually occur, our business, results of operations and financial condition would likely suffer. This section includes or refers to certain forward-looking statements. Refer to the explanation of the qualifications and limitations on such forward-looking statements discussed in the beginning of this Form 10-K.

We rely on revenues derived from major tenants.

We derive significant revenues from certain anchor tenants that occupy space in more than one center. We could be adversely affected in the event of the bankruptcy or insolvency of, or a downturn in the business of, any of our major tenants, or in the event that any such tenant does not renew its leases as they expire or renews at lower rental rates. Vacated anchor space not only would reduce rental revenues if not re-tenanted at the same rental rates but also could adversely affect the entire shopping center because of the loss of the departed anchor tenant’s customer drawing power. Loss of customer drawing power also can occur through the exercise of the right that most anchors have to vacate and prevent re-tenanting by paying rent for the balance of the lease term (“going dark”) as would the departure of a “shadow” anchor tenant that owns its own property. In addition, in the event that certain major tenants cease to occupy a property, such an action may result in a significant number of other tenants having the right to terminate their leases, or pay a reduced rent based on a percentage of the tenant’s sales, at the affected property, which could adversely affect the future income from such property (“co-tenancy”). See “Item 2. Properties—Major Tenants” for quantified information with respect to the percentage of our minimum rents received from major tenants.

12


We may not be able to renew current leases and the terms of re-letting (including the cost of concessions to tenants) may be less favorable to us than current lease terms.

Upon the expiration of current leases for space located in our properties, we may not be able to re-let all or a portion of that space, or the terms of re-letting (including the cost of concessions to tenants) may be less favorable to us than current lease terms. If we are unable to re-let promptly all or a substantial portion of the space located in our properties or if the rental rates we receive upon re-letting are significantly lower than current rates, our net income and ability to make expected distributions to our shareholders will be adversely affected due to the resulting reduction in rent receipts. There can be no assurance that we will be able to retain tenants in any of our properties upon the expiration of their leases. See “Item 2. Properties – Lease Expirations” in this Annual Report on Form 10-K for additional information as to the scheduled lease expirations in our portfolio.

The current economic environment, while improving, may cause us to lose tenants and may impair our ability to borrow money to purchase properties, refinance existing debt or finance our current redevelopment projects.

Our operations and performance depend on general economic conditions, including the health of the consumer. The U.S. economy recently experienced a financial downturn, with a decline in consumer spending, credit tightening and high unemployment. This economic downturn has had, and may continue to have, an adverse affect on the businesses of many of our tenants. We and the Opportunity Funds may experience higher vacancy rates as well as delays in re-leasing vacant space.

The current downturn has had, and may continue to have, an unprecedented impact on the global credit markets. While we currently believe we have adequate sources of liquidity, there can be no assurance that we will be able to obtain mortgage loans to purchase additional properties, obtain financing to complete current redevelopment projects, or successfully refinance our properties as loans become due. To the extent that the availability of credit is limited, it would also adversely impact our notes receivable as counterparties may not be able to obtain the financing required to repay the loans upon maturity.

The bankruptcy of, or a downturn in the business of, any of our major tenants or a significant number of our smaller tenants may adversely affect our cash flows and property values.

The bankruptcy of, or a downturn in the business of, any of our major tenants causing them to reject their leases, or not renew their leases as they expire, or renew at lower rental rates may adversely affect our cash flows and property values. Furthermore, the impact of vacated anchor space and the potential reduction in customer traffic may adversely impact the balance of tenants at a shopping center.

Certain of our tenants have experienced financial difficulties and have filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code (“Chapter 11 Bankruptcy”). Pursuant to bankruptcy law, tenants have the right to reject their leases. In the event the tenant exercises this right, the landlord generally has the right to file a claim for lost rent equal to the greater of either one year’s rent (including tenant expense reimbursements) for remaining terms greater than one year, or 15% of the rent remaining under the balance of the lease term, but not to exceed three years rent. Actual amounts to be received in satisfaction of those claims will be subject to the tenant’s final plan of reorganization and the availability of funds to pay its creditors.

Since January 1, 2010, there has been one significant tenant bankruptcy within our portfolio:

On December 12, 2010, the Great Atlantic & Pacific Tea Company, Inc. (“A&P”) filed for protection under Chapter 11 Bankruptcy. A&P operates in four locations in our Core Portfolio, totaling approximately 198,000 square feet. Rental revenues from A&P at these locations totaled $3.5 million, $3.4 million, and $3.3 million for the years ended December 31, 2010, 2009 and 2008, respectively. In addition, A&P operates in one Fund III location, totaling approximately 65,000 square feet. Rental revenues from A&P at this location totaled $1.0 million for each of the years ended December 31, 2010 and 2009. A&P has availed itself of the statutory maximum time to assume or reject these leases which is July 10, 2011. With respect to two of these leases, A&P has received a bankruptcy court order to close the two locations on or around April 15, 2011 and to exit the locations on or around April 30, 2011.

There are risks relating to investments in real estate.

Real property investments are subject to multiple risks. Real estate values are affected by a number of factors, including: changes in the general economic climate, local conditions (such as an oversupply of space or a reduction in demand for real estate in an area), the quality and philosophy of management, competition from other available space, the ability of the owner to provide adequate maintenance and insurance and to control variable operating costs. Shopping centers, in particular, may be affected by changing perceptions of retailers or shoppers regarding the safety, convenience and attractiveness of the shopping center and by the overall climate for the retail industry. Real estate values are also affected by such factors as government regulations, interest rate levels, the availability of financing and potential liability under, and changes in, environmental, zoning, tax and other laws. A significant portion of our income is derived from rental income from real property. Our income and cash flow would be adversely affected if a significant number of our tenants were unable to rent our vacant space to viable tenants on economically favorable terms. In the event of default by a tenant, we may experience delays in enforcing, and incur substantial costs to enforce, our rights as a landlord. In addition, certain significant expenditures associated with each equity investment (such as mortgage payments, real estate taxes and maintenance costs) are generally not reduced even though there may be a reduction in income from the investment.

13


Our ability to change our portfolio is limited because real estate investments are illiquid.

Equity investments in real estate are relatively illiquid and, therefore, our ability to change our portfolio promptly in response to changed conditions is limited. Our Board of Trustees may establish investment criteria or limitations as it deems appropriate, but currently does not limit the number of properties in which we may seek to invest or on the concentration of investments in any one geographic region. We could change our investment, disposition and financing policies without a vote of our shareholders.

We could become highly leveraged, resulting in increased risk of default on our obligations and in an increase in debt service requirements, which could adversely affect our financial condition and results of operations and our ability to pay distributions.

We have incurred, and expect to continue to incur, indebtedness to support our activities. Neither our Declaration of Trust nor any policy statement formally adopted by our Board of Trustees limits either the total amount of indebtedness or the specified percentage of indebtedness that we may incur. Accordingly, we could become more highly leveraged, resulting in increased risk of default on our obligations and in an increase in debt service requirements, which could adversely affect our financial condition and results of operations and our ability to make distributions.

Interest expense on our variable rate debt as of December 31, 2010 would increase by $4.4 million annually for a 100 basis point increase in interest rates. We may seek additional variable-rate financing if and when pricing and other commercial and financial terms warrant. As such, we would consider hedging against the interest rate risk related to such additional variable rate debt, primarily through interest rate swaps but can use other means.

We enter into interest rate hedging transactions, including interest rate swaps and cap agreements, with counterparties. There can be no guarantee that the future financial condition of these counterparties will enable them to fulfill their obligations under these agreements.

Competition may adversely affect our ability to purchase properties and to attract and retain tenants.

There are numerous commercial developers, real estate companies, financial institutions and other investors with greater financial resources than we have that compete with us in seeking properties for acquisition and tenants who will lease space in our properties. Our competitors include other REITs, financial institutions, insurance companies, pension funds, private companies and individuals. This competition may result in a higher cost for properties that we wish to pay. In addition, retailers at our properties face increasing competition from outlet malls, discount shopping clubs, Internet commerce, direct mail and telemarketing, which could (i) reduce rents payable to us; (ii) reduce our ability to attract and retain tenants at our properties leading to increased vacancy rates at our properties.

We could be adversely affected by poor market conditions where properties are geographically concentrated.

Our performance depends on the economic conditions in markets in which our properties are concentrated. We have significant exposure to the greater New York region, from which we derive 38% of the annual base rents within our Core Portfolio. Our operating results could be adversely affected if market conditions, such as an oversupply of space or a reduction in demand for real estate, in this area occurs.

We have pursued, and may in the future continue to pursue extensive growth opportunities, which may result in significant demands on our operational, administrative and financial resources.

We are pursuing extensive growth opportunities. This expansion places significant demands on our operational, administrative and financial resources. The continued growth of our real estate portfolio can be expected to continue to place a significant strain on our resources. Our future performance will depend in part on our ability to successfully attract and retain qualified management personnel to manage the growth and operations of our business. In addition, the acquired properties may fail to operate at expected levels due to the numerous factors that may affect the value of real estate. There can be no assurance that we will have sufficient resources to identify and manage the properties.

Our inability to carry out our growth strategy could adversely affect our financial condition and results of operations.

Our earnings growth strategy is based on the acquisition and development of additional properties, including acquisitions through co-investment programs such as our Opportunity Funds. In the context of our business plan, “redevelopment” generally means an expansion or renovation of an existing property. The consummation of any future acquisitions will be subject to satisfactory completion of our extensive valuation analysis and due diligence review and to the negotiation of definitive documentation. We cannot be sure that we will be able to implement our strategy because we may have difficulty finding new properties, negotiating with new or existing tenants or securing acceptable financing.

Acquisitions of additional properties entail the risk that investments will fail to perform in accordance with expectations, including operating and leasing expectations. Redevelopment is subject to numerous risks, including risks of construction delays, cost overruns

14


or uncontrollable events that may increase project costs, new project commencement risks such as the receipt of zoning, occupancy and other required governmental approvals and permits, and incurring development costs in connection with projects that are not pursued to completion.

A component of our growth strategy is through private-equity type investments made through our RCP Venture. These include investments in operating retailers. The inability of the retailers to operate profitably would have an adverse impact on income realized from these investments. Through our investments in joint ventures we have also invested in operating businesses that have operational risk in addition to the risks associated with real estate investments, including among other risks, human capital issues, adequate supply of product and material, and merchandising issues.

We operate through a partnership structure, which could have an adverse effect on our ability to manage our assets.

Our primary property-owning vehicle is the Operating Partnership, of which we are the general partner. Our acquisition of properties through the Operating Partnership in exchange for interests in the Operating Partnership may permit certain tax deferral advantages to limited partners who contribute properties to the Operating Partnership. Since properties contributed to the Operating Partnership may have unrealized gain attributable to the difference between the fair market value and adjusted tax basis in such properties prior to contribution, the sale of such properties could cause adverse tax consequences to the limited partners who contributed such properties. Although we, as the general partner of the Operating Partnership, generally have no obligation to consider the tax consequences of our actions to any limited partner, there can be no assurance that the Operating Partnership will not acquire properties in the future subject to material restrictions designed to minimize the adverse tax consequences to the limited partners who contribute such properties. Such restrictions could result in significantly reduced flexibility to manage our assets.

Exclusivity obligation to our Opportunity Funds.

Under the terms of our Fund III joint venture, which is similar to the terms of Fund I and Fund II, we are required to first offer to Fund III all of our opportunities to acquire retail shopping centers with limited exceptions. We may only pursue opportunities to acquire retail shopping centers directly if (i) the ownership of the acquisition opportunity by Fund III would create a material conflict of interest for us; (ii) we require the acquisition opportunity for a “like-kind” exchange; or (iii) the consideration payable for the acquisition opportunity is our Common Shares, OP Units or other securities. As a result, we may not be able to make attractive acquisitions directly and may only receive a minority interest in such acquisitions through Fund III.

Risks of joint ventures.

Partnership or joint venture investments may involve risks not otherwise present for investments made solely by us, including the possibility that our partner or co-venturer might become bankrupt, and that our partner or co-venturer may take action contrary to our instructions, requests, policies or objectives, including our policy with respect to maintaining our qualification as a REIT. Other risks of joint venture investments include impasse on decisions, such as a sale, because neither we nor a joint venture partner would have full control over the joint venture. Also, there is no limitation under our organizational documents as to the amount of funds that may be invested in joint ventures.

Any disputes that may arise between joint venture partners and us may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business. Consequently, actions by or disputes with joint venture partners might result in subjecting properties owned by the joint venture to additional risk. In addition, we may in certain circumstances be liable for the actions of our third-party joint venture partners.

During 2010, 2009 and 2008, our Fund I and Mervyns I joint ventures provided Promote income. There can be no assurance that the joint ventures will continue to operate profitably and thus provide additional Promote income in the future.

These factors could limit the return that we receive from such investments or cause our cash flows to be lower than our estimates. In addition, a partner or co-venturer may not have access to sufficient capital to satisfy its funding obligations to the joint venture.

Market factors could have an adverse effect on our share price.

One of the factors that may influence the trading price of our Common Shares is the annual dividend rate on our Common Shares as a percentage of its market price. An increase in market interest rates may lead purchasers of our Common Shares to seek a higher annual dividend rate, which could adversely affect the market price of our Common Shares. A decline in our share price, as a result of this or other market factors, could unfavorably impact our ability to raise additional equity in the public markets.

The loss of a key executive officer could have an adverse effect on us.

Our success depends on the contribution of key management members. The loss of the services of Kenneth F. Bernstein, President and Chief Executive Officer, or other key executive-level employees could have a material adverse effect on our results of operations. We have obtained key-man life insurance for Mr. Bernstein. In addition, we have entered into an employment agreement with Mr. Bernstein; however, it could be terminated by Mr. Bernstein. We have not entered into employment agreements with other key

15


executive level employees.

Our Board of Trustees may change our investment policy without shareholder approval.

Our Board of Trustees may determine to change our investment and financing policies, our growth strategy and our debt, capitalization, distribution, acquisition, disposition and operating policies. Our Board of Trustees may establish investment criteria or limitations as it deems appropriate, but currently does not limit the number of properties in which we may seek to invest or on the concentration of investments in any one geographic region. Although our Board of Trustees has no present intention to revise or amend our strategies and policies, it may do so at any time without a vote by our shareholders. Accordingly, the results of decisions made by our Board of Trustees and implemented by management may or may not serve the interests of all of our shareholders and could adversely affect our financial condition or results of operations, including our ability to distribute cash to shareholders or qualify as a REIT.

Distribution requirements imposed by law limit our operating flexibility.

To maintain our status as a REIT for federal income tax purposes, we are generally required to distribute to our shareholders at least 90% of our taxable income for each calendar year. Pursuant to IRS pronouncements, up to 90% of such distribution may be made in Common Shares rather than cash. Our taxable income is determined without regard to any deduction for dividends paid and by excluding net capital gains. To the extent that we satisfy the distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed income. In addition, we will incur a 4% nondeductible excise tax on the amount, if any, by which our distributions in any year are less than the sum of (i) 85% of our ordinary income for that year; (ii) 95% of our capital gain net income for that year and; (iii) 100% of our undistributed taxable income from prior years. We intend to continue to make distributions to our shareholders to comply with the distribution requirements of the Internal Revenue Code and to minimize exposure to federal income and nondeductible excise taxes. Differences in timing between the receipt of income and the payment of expenses in determining our income as well as required debt amortization payments and the capitalization of certain expenses could require us to borrow funds on a short-term basis to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT. The distribution requirements also severely limit our ability to retain earnings to acquire and improve properties or retire outstanding debt.

There can be no assurance we have qualified or will remain qualified as a REIT for federal income tax purposes.

We believe that we have consistently met the requirements for qualification as a REIT for federal income tax purposes beginning with our taxable year ended December 31, 1993, and we intend to continue to meet these requirements in the future. However, qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code, for which there are only limited judicial or administrative interpretations. No assurance can be given that we have qualified or will remain qualified as a REIT. The Internal Revenue Code provisions and income tax regulations applicable to REITs differ significantly from those applicable to other corporations. The determination of various factual matters and circumstances not entirely within our control can potentially affect our ability to continue to qualify as a REIT. In addition, no assurance can be given that future legislation, regulations, administrative interpretations or court decisions will not significantly change the requirements for qualification as a REIT or adversely affect the federal income tax consequences of such qualification. Under current law, if we fail to qualify as a REIT, we would not be allowed a deduction for dividends paid to shareholders in computing our net taxable income. In addition, our income would be subject to tax at the regular corporate rates. We also could be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. Cash available for distribution to our shareholders would be significantly reduced for each year in which we do not qualify as a REIT. In that event, we would not be required to continue to make distributions. Although we currently intend to continue to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause us, without the consent of our shareholders, to revoke the REIT election or to otherwise take action that would result in disqualification.

Limits on ownership of our capital shares.

For the Company to qualify as a REIT for federal income tax purposes, among other requirements, not more than 50% of the value of our capital shares may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) during the last half of each taxable year after 1993, and such capital shares must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year (in each case, other than the first such year). Our Declaration of Trust includes certain restrictions regarding transfers of our capital shares and ownership limits that are intended to assist us in satisfying these limitations. These restrictions and limits may not be adequate in all cases, however, to prevent the transfer of our capital shares in violation of the ownership limitations. The ownership limit discussed above may have the effect of delaying, deferring or preventing someone from taking control of us.

Actual or constructive ownership of our capital shares in excess of the share ownership limits contained in our Declaration of Trust would cause the violative transfer or ownership to be null and void from the beginning and subject to purchase by us at a price equal to the lesser of (i) the price stipulated in the challenged transaction; and (ii) the fair market value of such shares (determined in accordance with the rules set forth in our Declaration of Trust). As a result, if a violative transfer were made, the recipient of the shares would not acquire any economic or voting rights attributable to the transferred shares. Additionally, the constructive ownership

16


rules for these limits are complex and groups of related individuals or entities may be deemed a single owner and consequently in violation of the share ownership limits.

Concentration of ownership by certain investors.

Six institutional shareholders own 5% or more individually, and 53.8% in the aggregate, of our Common Shares. A significant concentration of ownership may allow an investor or a group of investors to exert a greater influence over our management and affairs and may have the effect of delaying, deferring or preventing a change in control of us.

Restrictions on a potential change of control.

Our Board of Trustees is authorized by our Declaration of Trust to establish and issue one or more series of preferred shares without shareholder approval. We have not established any series of preferred shares. However, the establishment and issuance of a series of preferred shares could make more difficult a change of control of us that could be in the best interest of the shareholders.

In addition, we have entered into an employment agreement with our Chief Executive Officer and severance agreements are in place with our executives which provide that, upon the occurrence of a change in control of us and either the termination of their employment without cause (as defined) or their resignation for good reason (as defined), those executive officers would be entitled to certain termination or severance payments made by us (which may include a lump sum payment equal to defined percentages of annual salary and prior years’ average bonuses, paid in accordance with the terms and conditions of the respective agreement), which could deter a change of control of us that could be in our best interest.

Legislative or regulatory tax changes could have an adverse effect on us.

There are a number of issues associated with an investment in a REIT that are related to the federal income tax laws, including, but not limited to, the consequences of a company’s failing to continue to qualify as a REIT. At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended or modified. Any new laws or interpretations may take effect retroactively and could adversely affect us or our shareholders. Reduced tax rates applicable to certain corporate dividends paid to most domestic noncorporate shareholders are not generally available to REIT shareholders since a REITs income generally is not subject to corporate level tax. As a result, investment in non-REIT corporations may be viewed as relatively more attractive than investment in REITs by domestic noncorporate investors. This could adversely affect the market price of the Company’s shares.

Our development and construction activities could affect our operating results.

We intend to continue the selective development and construction of retail properties. As opportunities arise, we expect to delay construction until sufficient pre-leasing is reached and financing is in place. Our development and construction activities include risks that:

 

 

 

 

We may abandon development opportunities after expending resources to determine feasibility;

 

Construction costs of a project may exceed our original estimates;

 

Occupancy rates and rents at a newly completed property may not be sufficient to make the property profitable;

 

Financing for development of a property may not be available to us on favorable terms;

 

We may not complete construction and lease-up on schedule, resulting in increased debt service expense and construction costs; and

 

We may not be able to obtain, or may experience delays in obtaining necessary zoning, land use, building, occupancy and other required governmental permits and authorizations.

Additionally, the time frame required for development, construction and lease-up of these properties means that we may not realize a significant cash return for several years. If any of the above events occur, the development of properties may hinder our growth and have an adverse effect on our results of operations and cash flows. In addition, new development activities, regardless of whether or not they are ultimately successful, typically require substantial time and attention from management.

Redevelopments and acquisitions may fail to perform as expected.

Our investment strategy includes the redevelopment and acquisition of shopping centers in supply contained markets in densely populated areas with high average household incomes and significant barriers to entry. The redevelopment and acquisition of properties entails risks that include the following, any of which could adversely affect our results of operations and our ability to meet our obligations:

 

 

 

 

the property may fail to achieve the returns we have projected, either temporarily or for extended periods;

 

we may not be able to identify suitable properties to acquire or may be unable to complete the acquisition of the properties we identify;

 

we may not be able to integrate an acquisition into our existing operations successfully;

17



 

 

 

 

properties we redevelop or acquire may fail to achieve the occupancy or rental rates we project, within the time frames we project, at the time we make the decision to invest, which may result in the properties’ failure to achieve the returns we projected;

 

our pre-acquisition evaluation of the physical condition of each new investment may not detect certain defects or identify necessary repairs until after the property is acquired, which could significantly increase our total acquisition costs or decrease cash flow from the property; and

 

our investigation of a property or building prior to our acquisition, and any representations we may receive from the seller of such building or property, may fail to reveal various liabilities, which could reduce the cash flow from the property or increase our acquisition cost.

Climate change and catastrophic risk from natural perils.

Some of our current properties could be subject to potential natural or other disasters. We may acquire properties that are located in areas which are subject to natural disasters. Any properties located in coastal regions would therefore be affected by any future increases in sea levels or in the frequency or severity of hurricanes and tropical storms, whether such increases are caused by global climate changes or other factors.

Climate change is a long-term change in the statistical distribution of weather patterns over periods of time that range from decades to millions of years. It may be a change in the average weather conditions or a change in the distribution of weather events with respect to an average, for example, greater or fewer extreme weather events. Climate change may be limited to a specific region, or may occur across the whole Earth.

There may be significant physical effects of climate change that have the potential to have a material effect on our business and operations. These effects can impact our personnel, physical assets, tenants and overall operations.

Physical impacts of climate change may include:

 

 

 

 

Increased storm intensity and severity of weather (e.g., floods or hurricanes);

 

Sea level rise; and

 

Extreme temperatures.

 

 

 

As a result of these physical impacts from climate-related events, we may be vulnerable to the following:

 

 

 

Risks of property damage to our shopping centers;

 

Indirect financial and operational impacts from disruptions to the operations of major tenants located in our shopping centers from severe weather, such as hurricanes or floods;

 

Increased insurance premiums and deductibles, or a decrease in the availability of coverage, for properties in areas subject to severe weather;

 

Increased insurance claims and liabilities;

 

Increase in energy cost impacting operational returns;

 

Changes in the availability or quality of water, or other natural resources on which the tenant’s business depends;

 

Decreased consumer demand for consumer products or services resulting from physical changes associated with climate change (e.g., warmer temperatures or decreasing shoreline could reduce demand for residential and commercial properties previously viewed as desirable);

 

Incorrect long term valuation of an equity investment due to changing conditions not previously anticipated at the time of the investment; and

 

Economic disruptions arising from the above.

Possible liability relating to environmental matters.

Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, as an owner of real property, we may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under our property, as well as certain other potential costs relating to hazardous or toxic substances (including government fines and penalties and damages for injuries to persons and adjacent property). These laws may impose liability without regard to whether we knew of, or were responsible for, the presence or disposal of those substances. This liability may be imposed on us in connection with the activities of an operator of, or tenant at, the property. The cost of any required remediation, removal, fines or personal or property damages and our liability therefore could exceed the value of the property and/or our aggregate assets. In addition, the presence of those substances, or the failure to properly dispose of or remove those substances, may adversely affect our ability to sell or rent that property or to borrow using that property as collateral, which, in turn, could reduce our revenues and affect our ability to make distributions.

A property can also be adversely affected either through physical contamination or by virtue of an adverse effect upon value attributable to the migration of hazardous or toxic substances, or other contaminants that have or may have emanated from other properties. Although our tenants are primarily responsible for any environmental damages and claims related to the leased premises, in the event of the bankruptcy or inability of any of our tenants to satisfy any obligations with respect to the property leased to that tenant, we may be required to satisfy such obligations. In addition, we may be held directly liable for any such damages or claims

18


irrespective of the provisions of any lease.

From time to time, in connection with the conduct of our business, and prior to the acquisition of any property from a third party or as required by our financing sources, we authorize the preparation of Phase I environmental reports and, when necessary, Phase II environmental reports, with respect to our properties. Based upon these environmental reports and our ongoing review of our properties, we are currently not aware of any environmental condition with respect to any of our properties that we believe would be reasonably likely to have a material adverse effect on us. There can be no assurance, however, that the environmental reports will reveal all environmental conditions at our properties or that the following will not expose us to material liability in the future:

 

 

The discovery of previously unknown environmental conditions;

Changes in law;

Activities of tenants; and

Activities relating to properties in the vicinity of our properties.

Changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of our tenants, which could adversely affect our financial condition or results of operations.

Uninsured losses or a loss in excess of insured limits could adversely affect our financial condition.

We carry comprehensive general liability, fire, extended coverage, loss of rent insurance, and environmental liability on most of our properties, with policy specifications and insured limits customarily carried for similar properties. However, with respect to those properties where the leases do not provide for abatement of rent under any circumstances, we generally do not maintain loss of rent insurance. In addition, there are certain types of losses, such as losses resulting from wars, terrorism or acts of God that generally are not insured because they are either uninsurable or not economically insurable. Should an uninsured loss or a loss in excess of insured limits occur, we could lose capital invested in a property, as well as the anticipated future revenues from a property, while remaining obligated for any mortgage indebtedness or other financial obligations related to the property. Any loss of these types would adversely affect our financial condition.

Future terrorist attacks or civil unrest could harm the demand for, and the value of, our properties.

Future terrorist attacks or civil unrest, such as the attacks that occurred in New York, Pennsylvania and Washington, D.C. on September 11, 2001, and other acts of terrorism or war, could harm the demand for, and the value of, our properties. Terrorist attacks could directly impact the value of our properties through damage, destruction, loss or increased security costs, and the availability of insurance for such acts may be limited or may be subject to substantial cost increases. To the extent that our tenants are impacted by future attacks, their ability to continue to honor obligations under their existing leases could be adversely affected. A decrease in retail demand could make it difficult for us to renew or re-lease our properties at lease rates equal to or above historical rates. These acts might erode business and consumer confidence and spending, and might result in increased volatility in national and international financial markets and economies. Any one of these events might decrease demand for real estate, decrease or delay the occupancy of our properties, and limit our access to capital or increase our cost of raising capital.

Outages, computer viruses and similar events could disrupt our operations.

We rely on information technology networks and systems, some of which are owned and operated by third parties, to process, transmit and store electronic information. Any of these systems may be susceptible to outages due to fire, floods, power loss, telecommunications failures, terrorist attacks and similar events. Despite the implementation of network security measures, our systems and those of third parties on which we rely may also be vulnerable to computer viruses and similar disruptions. If we and the third parties on whom we rely are unable to prevent such outages and breaches, our operations could be disrupted.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

19


ITEM 2. PROPERTIES.

SHOPPING CENTER PROPERTIES

The discussion and tables in this Item 2 include properties held through our Core Portfolio and our Opportunity Funds. We define our Core Portfolio as those properties either 100% owned by, or partially owned through joint venture interests by, the Operating Partnership, or subsidiaries thereof, not including those properties owned through our Opportunity Funds. The discussion of the Opportunity Funds does not include our investment in a portfolio of self-storage properties, which are detailed separately within this Item 2.

As of December 31, 2010, excluding two properties under redevelopment, there are 32 operating properties in our Core Portfolio totaling approximately 4.8 million square feet of gross leasable area (“GLA”). The Core Portfolio properties are located in 12 states and are generally well-established community and neighborhood shopping centers anchored by supermarkets or value-oriented retail. The properties are diverse in size, ranging from approximately 10,000 to 875,000 square feet and as of December 31, 2010, were, in total, 92% occupied.

As of December 31, 2010, we owned and operated 27 properties totaling 2.5 million square feet of GLA in our Opportunity Funds, excluding five properties under redevelopment. In addition to shopping centers, the Opportunity Funds have invested in mixed-use properties, which generally include retail activities and self-storage properties. The Opportunity Fund properties are located in 13 states and as of December 31, 2010, were, in total, 87% occupied.

Within our Core Portfolio and Opportunity Funds, we had approximately 550 leases as of December 31, 2010. A majority of our rental revenues were from national tenants. A majority of the income from the properties consists of rent received under long-term leases. These leases generally provide for the payment of fixed minimum rent monthly in advance and for the payment by tenants of a pro-rata share of the real estate taxes, insurance, utilities and common area maintenance of the shopping centers. Minimum rents and expense reimbursements accounted for approximately 85% of our total revenues for the year ended December 31, 2010.

Certain of our leases also provided for the payment of percentage rents either in addition to, or in place of, minimum rents. These arrangements generally provide for payment to us of a certain percentage of a tenant’s gross sales in excess of a stipulated annual amount. Percentage rents accounted for less than 1% of the total 2010 revenues of the Company.

Four of our Core Portfolio properties and 21 of our Opportunity Fund properties are subject to long-term ground leases in which a third party owns and has leased the underlying land to us. We pay rent for the use of the land and are responsible for all costs and expenses associated with the building and improvements at all 25 locations.

No individual property contributed in excess of 10% of our total revenues for the years ended December 31, 2010, 2009 or 2008. Reference is made to Note 8 to our Consolidated Financial Statements, which begin on page F-1 of this Form 10-K, for information on the mortgage debt pertaining to our properties. The following sets forth more specific information with respect to each of our shopping centers at December 31, 2010:

20



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shopping Center

 

Location

 

Year
Constructed
(C)
Acquired
(A)

 

Ownership
Interest

 

GLA

 

Occupancy
%
12/31/10 (1)

 

Annual
Base
Rent

 

Annual
Base
Rent
PSF

 

Anchor Tenants
Current Lease
Expiration/
Lease Option
Expiration


 


 


 


 


 


 


 




Core Portfolio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Connecticut

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

239 Greenwich Avenue

 

Greenwich

 

1998 (A)

 

Fee/JV

 

 

16,834

(2)

100

%

$

1,554,663

 

$

92.35

 

Restoration Hardware 2014/2024 Coach 2016/2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New Jersey

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Elmwood Park Shopping Center

 

Elmwood Park

 

1998 (A)

 

Fee

 

 

149,491

 

92

%

 

3,397,955

 

 

24.75

 

A&P 2017/2052 Walgreen’s 2022/2062

A&P Shopping Plaza

 

Boonton

 

2006 (A)

 

Fee/JV

 

 

62,908

 

90

%

 

1,166,305

 

 

20.58

 

A&P 2024/2054

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Village Commons Shopping Center

 

Smithtown

 

1998 (A)

 

Fee

 

 

87,330

 

75

%

 

2,065,110

 

 

31.60

 

 

Branch Shopping Plaza

 

Smithtown

 

1998 (A)

 

LI (3)

 

 

125,712

 

99

%

 

2,681,144

 

 

21.46

 

A&P 2013/2028 CVS 2020/—

Amboy Road

 

Staten Island

 

2005 (A)

 

LI (3)

 

 

60,090

 

100

%

 

1,605,791

 

 

26.72

 

King Kullen 2028/2043 Duane Reade 2013/2018

Bartow Avenue

 

Bronx

 

2005 (C)

 

Fee

 

 

14,676

 

89

%

 

439,249

 

 

33.43

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pacesetter Park Shopping Center

 

Pomona

 

1999 (A)

 

Fee

 

 

96,380

 

91

%

 

1,108,621

 

 

12.67

 

Stop & Shop 2020/2040

West Shore Expressway

 

Staten Island

 

2007 (A)

 

Fee

 

 

55,000

 

100

%

 

1,265,000

 

 

23.00

 

LA Fitness 2021/2036

West 54th Street

 

Manhattan

 

2007 (A)

 

Fee

 

 

9,693

 

100

%

 

2,564,844

 

 

264.61

 

Stage Deli 2013/—

East 17th Street

 

Manhattan

 

2008 (A)

 

Fee

 

 

19,622

 

100

%

 

625,000

 

 

31.85

 

Barnes & Noble 2013/2018

Crossroads Shopping Center

 

White Plains

 

1998 (A)

 

Fee/JV (4)

 

 

309,487

 

94

%

 

6,093,005

 

 

21.00

 

A&P 2012/2032
Kmart 2012/2032
B. Dalton 2012/2022
Modell’s 2014/2019
Pier 1 2012/—Home Goods 2018/2033

 

 

 

 

 

 

 

 



 


 



 



 

 

Total New York Region

 

 

 

 

 

 

 

 

1,007,223

 

93

%

$

24,566,687

 

$

26.24

 

 

 

 

 

 

 

 

 

 



 


 



 



 

 

21



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shopping Center

 

Location

 

Year
Constructed
(C)
Acquired
(A)

 

Ownership
Interest

 

GLA

 

Occupancy
%
12/31/10 (1)

 

Annual
Base
Rent

 

Annual
Base
Rent
PSF

 

Anchor Tenants
Current Lease
Expiration/
Lease Option
Expiration


 


 


 


 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core Portfolio, continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New England

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Connecticut

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Town Line Plaza

 

Rocky Hill

 

1998 (A)

 

Fee

 

 

206,346

(5)

98

%

$

1,632,831

 

$

15.55

 

Stop & Shop 2024/2064 Wal-Mart(5)

Massachusetts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Methuen Shopping Center

 

Methuen

 

1998 (A)

 

Fee

 

 

130,021

 

100

%

 

958,689

 

 

7.37

 

Demoulas Market 2015/— Wal-Mart 2012/2052

Crescent Plaza

 

Brockton

 

1984 (A)

 

Fee

 

 

218,141

 

91

%

 

1,585,619

 

 

8.02

 

Supervalu 2012/2042 Home Depot 2021/2056

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New Loudon Center

 

Latham

 

1982 (A)

 

Fee

 

 

255,673

 

74

%

 

1,535,346

 

 

8.06

 

Price Chopper 2015/2035 Marshall’s 2014/2029 Raymour and Flanigan 2019/2034 AC Moore 2014/2024

Rhode Island

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Walnut Hill Plaza

 

Woonsocket

 

1998 (A)

 

Fee

 

 

284,717

 

94

%

 

2,354,928

 

 

8.84

 

Supervalu 2013/2028 Sears 2013/2033 CVS 2011/2014

Vermont

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Gateway Shopping Center

 

South Burlington

 

1999 (A)

 

Fee

 

 

101,784

 

92

%

 

1,798,042

 

 

19.16

 

Supervalu 2024/2053

 

 

 

 

 

 

 

 



 


 



 



 

 

Total New England Region

 

 

 

 

 

 

 

 

1,196,682

 

90

%

$

9,865,455

 

$

10.03

 

 

 

 

 

 

 

 

 

 



 


 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Midwest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Illinois

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hobson West Plaza

 

Naperville

 

1998 (A)

 

Fee

 

 

99,126

 

92

%

$

1,087,179

 

 

11.92

 

Garden Fresh Markets 2012/2032

Clark Diversey

 

Chicago

 

2006 (A)

 

Fee

 

 

19,265

 

92

%

 

799,766

 

 

45.34

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Indiana

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Merrillville Plaza

 

Merrillville

 

1998 (A)

 

Fee

 

 

235,904

 

93

%

 

2,859,030

 

 

13.08

 

TJ Maxx 2019/2029 JC Penney 2013/2018 OfficeMax 2013/2028 Pier 1 2014/—K&G Fashion 2017/2027 David’s Bridal 2011/2021

Michigan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bloomfield Town Square

 

Bloomfield Hills

 

1998 (A)

 

Fee

 

 

234,095

 

98

%

 

2,841,021

 

 

12.37

 

TJ Maxx 2019/2029 Marshalls 2011/2026 Home Goods 2011/2021 OfficeMax 2011/2026 Best Buy 2021/2041

Ohio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mad River Station

 

Dayton

 

1999 (A)

 

Fee

 

 

125,984

 

88

%

 

1,397,908

 

 

12.66

 

Babies ‘R’ Us 2015/2020 Office Depot 2015/— Pier 1 2015/—

 

 

 

 

 

 

 

 



 


 



 



 

 

Total Midwest Region

 

 

 

 

 

 

 

 

714,374

 

93

%

$

8,984,904

 

$

13.46

 

 

 

 

 

 

 

 

 

 



 


 



 



 

 

22



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shopping Center

 

Location

 

Year
Constructed
(C)
Acquired
(A)

 

Ownership
Interest

 

GLA

 

Occupancy
%
12/31/10 (1)

 

Annual
Base
Rent

 

Annual
Base
Rent
PSF

 

Anchor Tenants
Current Lease
Expiration/
Lease Option
Expiration


 


 


 


 


 


 


 


 


Core Portfolio, continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-Atlantic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New Jersey

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketplace of Absecon

 

Absecon

 

1998 (A)

 

Fee

 

 

104,718

 

72

%

 

1,128,904

 

 

15.05

 

Rite Aid 2020/2040 Dollar Tree 2015/2030

Delaware

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Brandywine Town Center

 

Wilmington

 

2003 (A)

 

Fee/JV (7)

 

 

874,989

 

94

%

 

12,901,436

 

 

15.68

 

Bed, Bath & Beyond 2014/2029 Dick’s Sporting Goods 2013/2028 Lowe’s Home Centers 2018/2048 Target 2018/2058

Market Square Shopping Center

 

Wilmington

 

2003 (A)

 

Fee/JV (7)

 

 

102,047

 

100

%

 

2,450,846

 

 

24.02

 

TJ Maxx 2011/2021 Trader Joe’s 2019/2034

Route 202 Shopping Center

 

Wilmington

 

2006 (C)

 

LI/JV (3) (7)

 

 

19,970

 

55

%

 

558,340

 

 

50.89

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pennsylvania

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark Plaza

 

Edwardsville

 

1968 (C)

 

LI/Fee (3)

 

 

216,401

 

86

%

 

829,922

 

 

4.46

 

Redner’s Markets 2018/2028 Kmart 2014/2049

Plaza 422

 

Lebanon

 

1972 (C)

 

Fee

 

 

156,279

 

100

%

 

795,852

 

 

5.09

 

Home Depot 2028/2058 Dunham’s 2016/2031

Route 6 Mall

 

Honesdale

 

1994 (C)

 

Fee

 

 

175,519

 

100

%

 

1,171,690

 

 

6.68

 

Kmart 2020/2070 Rite Aid 2011/2026

Chestnut Hill

 

Philadelphia

 

2006 (A)

 

Fee (8)

 

 

40,570

 

23

%

 

325,483

 

 

35.57

 

 

 

Abington Towne Center

 

Abington

 

1998 (A)

 

Fee

 

 

216,369

(6)

99

%

 

1,093,775

 

 

19.16

 

TJ Maxx 2016/2026 Target (6)

 

 

 

 

 

 

 

 



 


 



 



 

 

Total Mid-Atlantic Region

 

 

 

 

 

 

 

 

1,906,862

 

92

%

$

21,256,248

 

$

13.33

 

 

 

 

 

 

 

 

 

 



 


 



 



 

 

Total Core Operating Properties

 

 

 

 

 

 

 

 

4,825,141

 

92

%

$

64,673,294

 

$

15.46

 

 

 

 

 

 

 

 

 

 



 


 



 



 

 

Properties under Redevelopment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2914 Third Avenue

 

Bronx

 

2006 (A)

 

Fee

 

 

42,400

 

24

%

 

180,000

 

 

17.45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ledgewood Mall

 

Ledgewood

 

1983 (A)

 

Fee

 

 

517,151

 

79

%

 

3,466,745

 

 

8.44

 

Wal-Mart 2019/2049 Macy’s 2015/2025 The Sports Authority 2012/2037 Marshalls 2014/2035 Ashley Furniture 2015/2020 Barnes and Noble 2015/2035

 

 

 

 

 

 

 

 



 


 



 



 

 

Total Core Properties

 

 

 

 

 

 

 

 

5,384,692

 

90

%

$

68,320,039

 

$

14.84

 

 

 

 

 

 

 

 

 

 



 


 



 



 

 

23



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shopping Center

 

Location

 

Year
Constructed
(C)
Acquired
(A)

 

Ownership
Interest

 

GLA

 

Occupancy
%
12/31/10 (1)

 

Annual
Base
Rent

 

Annual
Base
Rent
PSF

 

Anchor Tenants
Current Lease
Expiration/
Lease Option
Expiration


 


 


 


 


 


 


 


 


Opportunity Fund Portfolio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fund I Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ohio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granville Centre

 

Columbus

 

2002 (A)

 

Fee

 

 

134,997

 

36

%

 

593,022

 

 

12.37

 

Lifestyle Family Fitness 2017/2027

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tarrytown Shopping Center

 

Tarrytown

 

2004 (A)

 

Fee

 

 

34,979

 

85

%

 

891,483

 

 

29.97

 

Walgreen’s 2080/—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

VARIOUS REGIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kroger/Safeway Portfolio

 

Various

 

2003 (A)

 

LI/JV (3)

 

 

709,400

 

100

%

 

3,560,326

 

 

5.02

 

18 Kroger/Safeway Supermarkets Various

 

 

 

 

 

 

 

 



 


 



 



 

 

Total Fund I Properties

 

 

 

 

 

 

 

 

879,376

 

90

%

$

5,044,831

 

$

6.41

 

 

 

 

 

 

 

 

 

 



 


 



 



 

 

Fund II Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pelham Plaza

 

Pelham Manor

 

2004 (A)

 

LI/JV (3)

 

 

228,521

 

78

%

 

4,751,941

 

 

26.67

 

BJ’s Wholesale Club 2033/2053 Michaels 2013/2033

Fordham Place

 

Bronx

 

2004(A)

 

Fee/JV

 

 

119,446

 

100

%

 

5,519,760

 

 

46.21

 

Best Buy 2019/2039 Sears 2023/2033

Liberty Avenue

 

New York

 

2005 (A)

 

LI/JV (3)

 

 

26,125

 

83

%

 

730,377

 

 

33.72

 

CVS 2032/2052

Canarsie Plaza

 

Brooklyn

 

2007 (A)

 

Fee/JV

 

 

278,737

 

64

%

 

5,100,000

 

 

28.79

 

BJ’s Wholesale Club 2030/2055

216th Street

 

New York

 

2005 (A)

 

Fee/JV

 

 

60,000

 

100

%

 

2,460,000

 

 

41.00

 

NYC 2027/2032

 

 

 

 

 

 

 

 



 


 



 



 

 

Total Fund II Properties

 

 

 

 

 

 

 

 

712,829

 

78

%

$

18,562,078

 

$

33.36

 

 

 

 

 

 

 

 

 

 



 


 



 



 

 

Fund III Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cortlandt Towne Center

 

Mohegan Lake

 

2009 (A)

 

Fee

 

 

641,254

 

91

%

 

9,139,440

 

 

15.72

 

Walmart 2018/2048 A&P 2022/2047 Best Buy 2017/2032

Massachusetts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

White City Shopping Center

 

Shrewsbury

 

2010 (A)

 

Fee/JV

 

 

255,199

 

93

%

 

4,880,720

 

 

20.51

 

Shaw’s 2018/2033 Michaels 2012/2022 Core Fitness 2016/2021

 

 

 

 

 

 

 

 



 


 



 



 

 

Total Fund III Properties

 

 

 

 

 

 

 

 

896,453

 

91

%

$

14,020,160

 

$

17.11

 

 

 

 

 

 

 

 

 

 



 


 



 



 

 

Total Opportunity Fund Operating Properties

 

 

 

 

 

 

 

 

2,488,658

 

87

%

$

37,627,069

 

$

17.40

 

 

 

 

 

 

 

 

 

 



 


 



 



 

 

Properties under Redevelopment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sherman Plaza

 

New York

 

2005 (A)

 

Fee/JV

 

 

 

 

 

 

 

 

 

CityPoint

 

Brooklyn

 

2007 (A)

 

LI/JV

 

 

 

 

 

 

 

 

 

Westport

 

Westport

 

2007 (A)

 

Fee/JV

 

 

 

 

 

 

 

 

 

Sheepshead Bay

 

Brooklyn

 

2007 (A)

 

Fee/JV

 

 

 

 

 

 

 

 

 

161st Street

 

Bronx

 

2005 (A)

 

Fee/JV

 

 

230,218

 

83

%

 

4,384,824

 

 

23.07

 

City of New York 2011/—

 

 

 

 

 

 

 

 



 


 



 



 

 

Total Redevelopment Properties

 

 

 

 

 

 

 

 

230,218

 

83

%

$

4,384,824

 

$

23.07

 

 

 

 

 

 

 

 

 

 



 


 



 



 

 

24



 

 

Notes:

(1)

Does not include space for which lease term had not yet commenced as of December 31, 2010.

 

 

(2)

In addition to the 16,834 square feet of retail GLA, this property also has 21 apartments comprising 14,434 square feet.

 

 

(3)

We are a ground lessee under a long-term ground lease.

 

 

(4)

We have a 49% investment in this property.

 

 

(5)

Includes a 97,300 square foot Wal-Mart which is not owned by us.

 

 

(6)

Includes a 157,616 square foot Target Store that is not owned by us.

 

 

(7)

We have a 22% investment in this property.

 

 

(8)

Property consists of two buildings.

MAJOR TENANTS

No individual retail tenant accounted for more than 5.7% of minimum rents for the year ended December 31, 2010 or occupied more than 6.8% of total leased GLA as of December 31, 2010. The following table sets forth certain information for the 20 largest retail tenants based upon minimum rents in place as of December 31, 2010. The amounts below include our pro-rata share of GLA and annualized base rent for the Operating Partnership’s partial ownership interest in properties, including the Opportunity Funds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of
Stores in
Portfolio

 

Total GLA

 

Annualized Base
Rent (1)

 

Percentage of Total
Represented by Retail Tenant

 

 

 

 

 

 


 

Retail Tenant

 

 

 

 

Total Portfolio
GLA (2)

 

Annualized Base
Rent (2)

 


 


 


 


 


 


 

A&P (A&P, Pathmark)

 

 

5

 

 

191,899

 

$

3,468,080

 

 

3.8

%

 

5.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supervalu (Shaw’s)

 

 

4

 

 

186,500

 

 

2,563,590

 

 

3.7

%

 

4.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TJX Companies (T.J. Maxx, Marshalls, Homegoods)

 

 

10

 

 

249,771

 

 

2,161,722

 

 

5.0

%

 

3.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wal-Mart

 

 

3

 

 

235,991

 

 

1,713,365

 

 

4.7

%

 

2.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sears (Kmart, Sears)

 

 

5

 

 

341,708

 

 

1,654,280

 

 

6.8

%

 

2.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BJ’s Wholesale Club

 

 

2

 

 

54,223

 

 

1,476,000

 

 

1.1

%

 

2.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ahold (Stop & Shop)

 

 

2

 

 

117,911

 

 

1,363,237

 

 

2.3

%

 

2.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LA Fitness

 

 

1

 

 

55,000

 

 

1,265,000

 

 

1.1

%

 

2.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restoration Hardware

 

 

1

 

 

12,293

 

 

1,166,090

 

 

0.2

%

 

1.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Barnes & Noble

 

 

4

 

 

43,259

 

 

1,146,079

 

 

0.9

%

 

1.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home Depot

 

 

2

 

 

211,003

 

 

1,099,996

 

 

4.2

%

 

1.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stage Deli

 

 

1

 

 

4,211

 

 

999,996

 

 

0.1

%

 

1.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Walgreens

 

 

3

 

 

22,692

 

 

854,313

 

 

0.5

%

 

1.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sleepy’s

 

 

5

 

 

34,543

 

 

848,761

 

 

0.7

%

 

1.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Price Chopper

 

 

1

 

 

87,709

 

 

836,660

 

 

1.7

%

 

1.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

King Kullen

 

 

1

 

 

37,266

 

 

745,320

 

 

0.7

%

 

1.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pier 1 Imports

 

 

4

 

 

25,454

 

 

646,154

 

 

0.5

%

 

1.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Safeway

 

 

12

 

 

123,626

 

 

630,177

 

 

2.5

%

 

1.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CVS

 

 

3

 

 

36,476

 

 

619,808

 

 

0.7

%

 

1.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payless Shoesource

 

 

9

 

 

28,466

 

 

561,220

 

 

0.6

%

 

0.9

%

 

 



 



 



 



 



 

Total

 

 

78

 

 

2,100,001

 

$

25,819,848

 

 

41.8

%

 

42.5

%

 

 



 



 



 



 



 


 

 

Notes:

(1)

Base rents do not include percentage rents, additional rents for property expense reimbursements and contractual rent escalations due after December 31, 2010.

 

 

(2)

Represents percentage of total GLA and annualized base rent for our retail properties including the Operating Partnership’s pro-rata share of joint venture properties, including the Opportunity Funds.

25


LEASE EXPIRATIONS

The following table shows scheduled lease expirations for retail tenants in place as of December 31, 2010, assuming that none of the tenants exercise renewal options. (GLA and Annualized Base Rent in thousands):

Core Portfolio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annualized Base Rent (1)

 

GLA

 

 

 

 

 

 





Leases maturing in

 

Number of
Leases

 

 

Current Annual
Rent

 

Percentage of
Total

 

Square
Feet

 

Percentage
of Total

 














Month to Month

 

13

 

 

$

466

 

1

%

34

 

1

%

2011

 

61

 

 

 

7,798

 

11

%

446

 

10

%

2012

 

57

 

 

 

6,706

 

10

%

561

 

12

%

2013

 

63

 

 

 

10,109

 

15

%

553

 

12

%

2014

 

61

 

 

 

8,192

 

12

%

497

 

11

%

2015

 

44

 

 

 

7,685

 

11

%

572

 

12

%

2016

 

12

 

 

 

1,852

 

3

%

133

 

3

%

2017

 

18

 

 

 

4,633

 

7

%

202

 

4

%

2018

 

24

 

 

 

5,639

 

8

%

401

 

9

%

2019

 

20

 

 

 

2,746

 

4

%

286

 

6

%

Thereafter

 

39

 

 

 

12,494

 

18

%

921

 

20

%

 

 













Total

 

412

 

 

$

68,320

 

100

%

4,606

 

100

%

 

 













Opportunity Funds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annualized Base Rent (1)

 

GLA

 

 

 

 

 

 





Leases maturing in

 

Number of
Leases

 

 

Current Annual
Rent

 

Percentage of
Total

 

Square
Feet

 

Percentage
of Total

 















Month to Month

 

3

 

 

$

156

 

0

%

17

 

1

%

2011

 

29

(2)

 

 

7,699

 

18

%

882

 

37

%

2012

 

21

 

 

 

2,421

 

6

%

107

 

5

%

2013

 

10

 

 

 

2,321

 

6

%

105

 

4

%

2014

 

14

 

 

 

2,310

 

5

%

115

 

5

%

2015

 

11

 

 

 

980

 

2

%

49

 

2

%

2016

 

9

 

 

 

1,107

 

3

%

48

 

2

%

2017

 

5

 

 

 

1,586

 

4

%

97

 

4

%

2018

 

9

 

 

 

3,185

 

8

%

258

 

11

%

2019

 

9

 

 

 

2,588

 

6

%

62

 

3

%

Thereafter

 

23

 

 

 

17,659

 

42

%

613

 

26

%

 

 













Total

 

143

 

 

$

42,012

 

100

%

2,353

 

100

%

 

 














 

 

Note:

(1)

Base rents do not include percentage rents, additional rents for property expense reimbursements, nor contractual rent escalations.

(2)

Includes the master lease term for all 18 Kroger/Safeway leases representing annualized base rent of $3,560 and GLA of 709 square feet. The underlying operating leases at fourteen of these locations representing 547 square feet and rents aggregating $2,743 expire during 2014. The operating leases at two locations, representing 92 square feet and rents aggregating $426, expire during 2019. Reference is made to page 28 below for a discussion of the Kroger/Safeway portfolio.

26


GEOGRAPHIC CONCENTRATIONS

The following table summarizes our retail properties by region as of December 31, 2010. The amounts below also reflect properties that we invest in through joint ventures and that are held in our Opportunity Funds (GLA and Annualized Base Rent in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of Total
Represented by
Region

 

 

 

 

 

 

 

 

 

 

 


 

Region

 

GLA (1)

 

Occupied %
(2)

 

Annualized
Base
Rent (2)

 

Annualized Base
Rent per
Occupied Square
Foot

 

GLA

 

Annualized
Base Rent

 

 

 


 


 


 


 


 


 

Core Properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York Region

 

1,007

 

93

%

$

24,567

 

$

26.24

 

20

%

38

%

New England

 

1,197

 

90

%

 

9,865

 

 

10.03

 

25

%

15

%

Midwest

 

714

 

93

%

 

8,985

 

 

13.46

 

15

%

14

%

Mid-Atlantic

 

1,907

 

92

%

 

21,256

 

 

13.33

 

40

%

33

%

 

 


 


 



 



 


 


 

Total Core Operating Properties

 

4,825

 

92

%

$

64,673

 

$

15.46

 

100

%

100

%

 

 


 


 



 



 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redevelopment Properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-Atlantic

 

517

 

79

%

$

3,467

 

$

8.44

 

92

%

95

%

New York Region

 

42

 

24

%

 

180

 

 

17.45

 

8

%

5

%

 

 


 


 



 



 


 


 

Total Core Redevelopment Properties

 

559

 

75

%

$

3,647

 

$

8.66

 

100

%

100

%

 

 


 


 



 



 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Opportunity Funds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Midwest

 

135

 

36

%

$

593

 

$

12.37

 

5

%

2

%

New York Region

 

1,389

 

84

%

 

28,593

 

 

24.49

 

56

%

76

%

Various (Kroger/Safeway Portfolio)

 

709

 

100

%

 

3,560

 

 

5.02

 

29

%

9

%

New England

 

255

 

93

%

 

4,881

 

 

20.51

 

10

%

13

%

 

 


 


 



 



 


 


 

Total Opportunity Fund Operating Properties

 

2,488

 

87

%

$

37,627

 

$

17.40

 

100

%

100

%

 

 


 


 



 



 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redevelopment Properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York Region

 

230

 

83

%

$

4,385

 

$

23.07

 

100

%

100

%

 

 


 


 



 



 


 


 


 

 

Notes:

(1)

Property GLA includes a total of 255,000 square feet, which is not owned by us. This square footage has been excluded for calculating annualized base rent per square foot.

 

 

(2)

The above occupancy and rent amounts do not include space that is currently leased, but for which payment of rent had not commenced as of December 31, 2010.

27


SELF-STORAGE PORTFOLIO

During February 2008, we, through Fund III, acquired a 95% controlling interest in a portfolio of eleven self-storage properties from Storage Post’s existing institutional investors for approximately $174.0 million. In addition, we, through Fund II, developed three self-storage properties. The fourteen self-storage property portfolio, located throughout New York and New Jersey, totals 1,127,490 net rentable square feet, and is operating at various stages of stabilization as detailed in the table below. The portfolio is operated by Self Storage Management, a joint venture entity formed by Fund III and an unaffiliated partner.

 

 

 

 

 

 

 

 

 

 

Owner

 

Operating Properties

 

Location

 

Net
Rentable
Square
Feet

 

Occupancy
as of
December 31,
2010

 











 

 

Stabilized

 

 

 

 

 

 

 

Fund III

 

Suffern

 

Suffern, New York

 

78,950

 

 

 

Fund III

 

Yonkers

 

Westchester, New York

 

100,643

 

 

 

Fund III

 

Jersey City

 

Jersey City, New Jersey

 

76,920

 

 

 

Fund III

 

Webster Ave

 

Bronx, New York

 

36,175

 

 

 

Fund III

 

Linden

 

Linden, New Jersey

 

84,035

 

 

 

Fund III

 

Bruckner Blvd

 

Bronx, New York

 

89,473

 

 

 

Fund III

 

New Rochelle

 

Westchester, New York

 

42,158

 

 

 

Fund III

 

Lawrence

 

Lawrence, New York

 

97,743

 

 

 

 

 

 

 

 

 


 

 

 

 

 

Subtotal Stabilized

 

 

 

606,097

 

87.5

%

 

 

 

 

 

 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

Redeveloped - in Lease-up

 

 

 

 

 

 

 

Fund III

 

Long Island City

 

Queens, New York

 

135,558

 

 

 

 

 

 

 

 

 


 

 

 

 

 

Subtotal in Lease-up

 

 

 

135,558

 

75.3

%

 

 

 

 

 

 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

Total Operating Properties

 

 

 

741,655

 

85.3

%

 

 

 

 

 

 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

In Initial Lease-up

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fund III

 

Fordham Road

 

Bronx, New York

 

85,155

 

 

 

Fund III

 

Ridgewood

 

Queens, New York

 

88,789

 

 

 

Fund II

 

Liberty Avenue

 

Queens, New York

 

72,925

 

 

 

Fund II

 

Pelham Plaza

 

Pelham Manor, New York

 

62,020

 

 

 

Fund II

 

Atlantic Avenue

 

Brooklyn, New York

 

76,946

 

 

 

 

 

 

 

 

 


 

 

 

 

 

Subtotal in Initial Lease-up

 

 

 

385,835

 

66.1

%

 

 

 

 

 

 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

Total Self-Storage Portfolio

 

 

 

1,127,490

 

 

 

 

 

 

 

 

 


 

 

 

KROGER/SAFEWAY PORTFOLIO

At December 31, 2010, Fund I, together with an unaffiliated joint venture partner (“Kroger/Safeway JV”), owns interests, through two master leases with an unaffiliated entity (“Master Lessee”), in 18 triple-net Kroger and Safeway supermarket leases (“Operating Leases”) aggregating approximately 0.7 million square feet. There are six Kroger and twelve Safeway locations in eleven states averaging approximately 39,000 square feet at rents ranging from approximately $3.70 to $7.00 per square foot. The master leases expire in January 2011 with the Master Lessee having the option of extending the term of either or both of the master leases. The Master Lessee exercised the option to cancel the master lease in the first quarter of 2011. As a result, the Kroger/Safeway JV became the operating landlord of the locations. The Kroger/Safeway JV holds its interest through long-term ground leases, which have a term in excess of 80 years, inclusive of multiple renewal options. Although there is no obligation for the Kroger/Safeway JV to pay ground rent during the initial term of the master lease, to the extent it exercises an option to renew a ground lease for a property thereafter, it will be obligated to pay an average ground rent of approximately $2.00 per square foot.

The Kroger Co. purchased six locations comprising 277,700 square feet, or 28% of the portfolio, during February of 2009 for $14.6 million, resulting in a gain of approximately $5.6 million.

The initial Operating Leases expired during 2009. Options on these leases provide for extensions through 2049 at an average rent of approximately $5.00 per square foot upon the commencement of the initial option period during 2009. Of the remaining 18 locations, 15 are currently occupied and paying rent, one is unoccupied and paying rent, and two remain vacant.

28


ITEM 3. LEGAL PROCEEDINGS.

We are involved in other various matters of litigation arising in the normal course of business. While we are unable to predict with any certainty the amounts involved, management is of the opinion that, when such litigation is resolved, our resulting exposure to loss contingencies, if any, will not have a significant effect on our consolidated financial position, results of operations, or liquidity.

During September 2008, we, and certain of our subsidiaries, and other unrelated entities were named as defendants in an adversary proceeding brought by Mervyn’s LLC (“Mervyns”) in the United States Bankruptcy Court for the District of Delaware. This lawsuit involves five claims alleging fraudulent transfers. The first claim is that, at the time of the sale of Mervyns by Target Corporation to a consortium of investors including Acadia, a transfer of assets was made in an effort to defraud creditors. We believe this aspect of the case is without merit. There are four other claims relating to transfers of assets of Mervyns at various times. We believe there are substantial defenses to these claims. The matter is in the early stages of discovery and we believe the lawsuit will not have a material adverse effect on our results of operations, consolidated financial condition, or liquidity.

During August 2009, we terminated the employment of a former Senior Vice President (the “Former Employee”) for engaging in conduct that fell within the definition of “cause” in his severance agreement with us. Had the Former Employee not been terminated for “cause,” he would have been eligible to receive approximately $0.9 million under the severance agreement. Because we terminated him for “cause,” we did not pay the Former Employee any severance benefits under the agreement. The Former Employee has brought a lawsuit against us in New York State Supreme Court, alleging breach of the severance agreement. The suit is in the pre-trial discovery stage. We believe we have meritorious defenses to the suit.

ITEM 4. REMOVED AND RESERVED.

29



PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

(a) Market Information, dividends and record holders of our Common Shares

The following table shows, for the period indicated, the high and low sales price for our Common Shares as reported on the New York Stock Exchange, and cash dividends declared during the two years ended December 31, 2010 and 2009:

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended
2010

 

High

 

Low

 

Dividend
Per Share

 


 


 


 


 

March 31, 2010

 

$

18.40

 

$

14.88

 

$

0.1800

 

June 30, 2010

 

 

19.80

 

 

16.22

 

 

0.1800

 

September 30, 2010

 

 

19.77

 

 

15.87

 

 

0.1800

 

December 31, 2010

 

 

20.17

 

 

17.72

 

 

0.1800

 

 

 

 

 

 

 

 

 

 

 

 

2009

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

March 31, 2009

 

$

14.69

 

$

8.50

 

$

0.2100

 

June 30, 2009

 

 

15.44

 

 

10.37

 

 

0.1800

 

September 30, 2009

 

 

16.51

 

 

11.55

 

 

0.1800

 

December 31, 2009

 

 

17.69

 

 

13.31

 

 

0.1800

 

At February 28, 2011, there were 309 holders of record of our Common Shares.

We have determined for income tax purposes that 100% of the total dividends distributed to shareholders during 2010 represented ordinary income. The dividend for the quarter ended December 31, 2010 was paid on February 1, 2011 and will be taxable in 2011. Our cash flow is affected by a number of factors, including the revenues received from rental properties, our operating expenses, the interest expense on our borrowings, the ability of lessees to meet their obligations to us and unanticipated capital expenditures. Future dividends paid by us will be at the discretion of the Trustees and will depend on our actual cash flows, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Trustees deem relevant. In addition, we have the ability to pay dividends in cash, Common Shares or in any combination of cash (minimum 10%) and Common Shares (maximum 90%).

(b) Issuer purchases of equity securities

We have an existing share repurchase program that authorizes management, at its discretion, to repurchase up to $20.0 million of our outstanding Common Shares. The program may be discontinued or extended at any time and there is no assurance that we will purchase the full amount authorized. There were no Common Shares repurchased by us during the year ended December 31, 2010.

30


(c) Securities authorized for issuance under equity compensation plans

The following table provides information related to our 1999 Share Incentive Plan (the “1999 Plan”), 2003 Share Incentive Plan (the “2003 Plan”) and the 2006 Share Incentive Plan (the “2006 Plan”) as of December 31, 2010:

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity Compensation Plan Information

 

 

 

 

 

(a)

 

(b)

 

(c)

 

 

 

Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights

 

Weighted - average
exercise price of
outstanding options,
warrants and rights

 

Number of securities
remaining available
for future issuance under
equity compensation plans
(excluding securities
reflected in column (a))

 

 

 


 


 


 

Equity compensation plans approved by security holders

 

 

152,283

 

$

18.20

 

 

763,444

(1)

Equity compensation plans not approved by security holders

 

 

 

 

 

 

 

 

 



 



 



 

Total

 

 

152,283

 

$

18.20

 

 

763,444

(1)

 

 



 



 



 


 

 

Notes:

(1)

The 1999 Plan authorizes the issuance of options equal to up to 8% of the total Common Shares outstanding from time to time on a fully diluted basis. However, not more than 4,000,000 of the Common Shares in the aggregate may be issued pursuant to the exercise of options and no participant may receive more than 5,000,000 Common Shares during the term of the 1999 Plan. The 2003 Plan authorizes the issuance of options equal to up to 4% of the total Common Shares outstanding from time to time on a fully diluted basis. However, no participant may receive more than 1,000,000 Common Shares during the term of the 2003 Plan. The 2006 Plan authorizes the issuance of a maximum number of 500,000 Common Shares. No participant may receive more than 500,000 Common Shares during the term of the 2006 Plan. We have also issued LTIP Units, which are generally exchangeable on a one-for-one basis for our Operating Partnership Units which in turn are convertible into Common Shares. Reference is made to Note 15 to our Consolidated Financial Statements, which begin on Page F-1 of this Form 10-K, for a summary of our Share Incentive Plans.

Remaining Common Shares available under our share incentive plans is as follows:

 

 

 

 

 

Outstanding Common Shares as of December 31, 2010

 

 

40,254,525

 

Outstanding OP Units as of December 31, 2010

 

 

360,114

 

 

 



 

Total Outstanding Common Shares and OP Units

 

 

40,614,639

 

 

 

 

 

 

12% of Common Shares and OP Units pursuant to the 1999 and 2003 Plans

 

 

4,873,757

 

Common Shares pursuant to the 2006 Plan

 

 

500,000

 

 

 



 

Total Common Shares available under equity compensation plans

 

 

5,373,757

 

 

 

 

 

 

Less: Issuance of Restricted Shares and LTIP Units Granted

 

 

(1,834,794

)

          Issuance of Options Granted

 

 

(2,775,519

)

 

 



 

Number of Common Shares remaining available

 

 

763,444

 

 

 



 

(d) Share Price Performance Graph (1)

The following graph compares the cumulative total shareholder return for our Common Shares for the period commencing December 31, 2005 through December 31, 2010 with the cumulative total return on the Russell 2000 Index (“Russell 2000”), the NAREIT All Equity REIT Index (the “NAREIT”) and the SNL Shopping Center REITs (the “SNL”) over the same period. Total return values for the Russell 2000, the NAREIT, the SNL and the Common Shares were calculated based upon cumulative total return assuming the investment of $100.00 in each of the Russell 2000, the NAREIT, the SNL and our Common Shares on December 31, 2005, and assuming reinvestment of dividends. The shareholder return as set forth in the table below is not necessarily indicative of future performance.

Note:
(1) The information in this section is not “soliciting material,” is not deemed “filed” with the SEC, and is not to be incorporated by reference into any filing of the Trust under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing.

31


Comparison of 5 Year Cumulative Total Return among Acadia Realty Trust, the Russell 2000, the NAREIT and the SNL:

(BAR CHART)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period Ended

 

 


Index

 

12/31/05

 

12/31/06

 

12/31/07

 

12/31/08

 

12/31/09

 

12/31/10 














Acadia Realty Trust

 

100.00

 

128.74

 

137.06

 

83.20

 

103.95

 

116.96 

Russell 2000

 

100.00

 

118.37

 

116.51

 

77.15

 

98.11

 

124.46 

NAREIT All Equity REIT Index

 

100.00

 

135.06

 

113.87

 

70.91

 

90.76

 

116.12 

SNL REIT Retail Shopping Ctr Index

 

100.00

 

134.61

 

110.82

 

66.72

 

65.86

 

85.53 



ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth, on a historical basis, our selected financial data. This information should be read in conjunction with our audited Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing elsewhere in this Form 10-K. Funds from operations (“FFO”) amounts for the year ended December 31, 2010 have been adjusted as set forth in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Reconciliation of Net Income to Funds from Operations and Adjusted Funds From Operations.”

32



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years ended December 31,

 

 

 


 

(dollars in thousands, except per share amounts)

 

2010

 

2009

 

2008

 

2007

 

2006

 

 

 


 


 


 


 


 

OPERATING DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

151,958

 

$

145,703

 

$

133,566

 

$

88,259

 

$

85,577

 

Operating expenses, excluding depreciation and reserves

 

 

69,379

 

 

70,963

 

 

61,215

 

 

46,090

 

 

40,227

 

Interest expense

 

 

34,471

 

 

32,154

 

 

28,893

 

 

24,564

 

 

19,929

 

Depreciation and amortization

 

 

40,115

 

 

36,634

 

 

32,749

 

 

24,529

 

 

22,431

 

Gain on sale of land

 

 

 

 

 

 

763

 

 

 

 

 

Equity in earnings (losses) of unconsolidated partnerships

 

 

10,971

 

 

(1,529

)

 

19,906

 

 

6,619

 

 

2,559

 

Impairment of investment in unconsolidated affiliate

 

 

 

 

(3,768

)

 

 

 

 

 

 

Reserve for notes receivable

 

 

 

 

(1,734

)

 

(4,392

)

 

 

 

 

Other interest income

 

 

408

 

 

642

 

 

3,370

 

 

5,833

 

 

2,318

 

Gain from bargain purchase

 

 

33,805

 

 

 

 

 

 

 

 

 

Gain on debt extinguishment

 

 

 

 

7,057

 

 

1,523

 

 

 

 

 

Income tax expense (benefit)

 

 

2,890

 

 

1,541

 

 

3,362

 

 

297

 

 

(508

)

 

 















 

Income from continuing operations

 

 

50,287

 

 

5,079

 

 

28,517

 

 

5,231

 

 

8,375

 

Income from discontinued operations

 

 

380

 

 

7,627

 

 

8,920

 

 

7,486

 

 

25,780

 

Income from extraordinary item (1)

 

 

 

 

 

 

 

 

27,844

 

 

 

 

 















 

Net income

 

 

50,667

 

 

12,706

 

 

37,437

 

 

40,561

 

 

34,155

 

 

 















 

(Income) loss attributable to noncontrolling interests in subsidiaries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

 

(20,307

)

 

23,472

 

 

(11,438

)

 

9,750

 

 

6,039

 

Discontinued operations

 

 

(303

)

 

(5,045

)

 

(931

)

 

(798

)

 

(1,274

)

Extraordinary item

 

 

 

 

 

 

 

 

(24,167

)

 

 

 

 















 

Net (income) loss attributable to noncontrolling interests in subsidiaries

 

 

(20,610

)

 

18,427

 

 

(12,369

)

 

(15,215

)

 

4,765

 

 

 















 

Net income attributable to Common Shareholders

 

$

30,057

 

$

31,133

 

$

25,068

 

$

25,346

 

$

38,920

 

 

 















 

Supplemental Information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations attributable to Common Shareholders

 

$

29,980

 

$

28,551

 

$

17,079

 

$

14,981

 

$

14,414

 

Income from discontinued operations attributable to Common Shareholders

 

 

77

 

 

2,582

 

 

7,989

 

 

6,688

 

 

24,506

 

Income from extraordinary item attributable to Common Shareholders

 

 

 

 

 

 

 

 

3,677

 

 

 

 

 















 

Net income attributable to Common Shareholders

 

$

30,057

 

$

31,133

 

$

25,068

 

$

25,346

 

$

38,920

 

 

 















 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.75

 

$

0.75

 

$

0.51

 

$

0.45

 

$

0.43

 

Income from discontinued operations

 

 

 

 

0.07

 

 

0.23

 

 

0.20

 

 

0.72

 

Income from extraordinary item

 

 

 

 

 

 

 

 

0.11

 

 

 

 

 















 

Basic earnings per share

 

$

0.75

 

$

0.82

 

$

0.74

 

$

0.76

 

$

1.15

 

 

 















 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.74

 

$

0.75

 

$

0.50

 

$

0.44

 

$

0.42

 

Income from discontinued operations

 

 

 

 

0.07

 

 

0.23

 

 

0.19

 

 

0.71

 

Income from extraordinary item

 

 

 

 

 

 

 

 

0.11

 

 

 

 

 















 

Diluted earnings per share

 

$

0.74

 

$

0.82

 

$

0.73

 

$

0.74

 

$

1.13

 

 

 















 

Weighted average number of Common Shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    - basic

 

 

40,136

 

 

38,005

 

 

33,813

 

 

33,600

 

 

33,789

 

    - diluted

 

 

40,406

 

 

38,242

 

 

34,267

 

 

34,282

 

 

34,440

 

Cash dividends declared per Common Share (3)

 

$

0.7200

 

$

0.7500

 

$

0.8951

 

$

1.0325

 

$

0.7550

 

BALANCE SHEET DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate before accumulated depreciation

 

$

1,386,299

 

$

1,200,483

 

$

1,085,072

 

$

810,697

 

$

606,905

 

Total assets

 

 

1,524,806

 

 

1,382,464

 

 

1,291,383

 

 

998,783

 

 

851,396

 

Total mortgage indebtedness

 

 

806,212

 

 

732,287

 

 

653,543

 

 

399,997

 

 

315,147

 

Total convertible notes payable

 

 

48,712

 

 

47,910

 

 

100,403

 

 

105,790

 

 

90,256

 

Total Common Shareholders’ equity

 

 

318,212

 

 

312,185

 

 

227,722

 

 

249,717

 

 

250,567

 

Noncontrolling interests in subsidiaries

 

 

269,310

 

 

220,292

 

 

214,506

 

 

171,111

 

 

113,737

 

Total equity

 

 

587,522

 

 

532,477

 

 

442,228

 

 

420,828

 

 

364,304

 

OTHER:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Funds from Operations, adjusted for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

extraordinary item (1) (2)

 

 

50,440

 

 

49,613

 

 

37,964

 

 

42,094

 

 

39,860

 

Cash flows provided by (used in):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

 

44,377

 

 

47,462

 

 

66,517

 

 

105,294

 

 

39,627

 

Investing activities

 

 

(60,745

)

 

(123,380

)

 

(302,265

)

 

(208,998

)

 

(58,890

)

Financing activities

 

 

43,152

 

 

83,035

 

 

199,096

 

 

87,476

 

 

68,359

 


 

 

Notes:

(1)

The extraordinary item relates to 2007 and represents our share of an extraordinary gain from our investment in Albertson’s. We consider this to be a private-equity style investment in an operating businesses as opposed to real estate. Accordingly, all gains and losses from this investment is included in FFO, which we believe provides a more accurate reflection of our operating performance.

33



 

 

(2)

We consider funds from operations (“FFO”) as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) to be an appropriate supplemental disclosure of operating performance for an equity REIT due to its widespread acceptance and use within the REIT and analyst communities. FFO is presented to assist investors in analyzing our performance. It is helpful as it excludes various items included in net income that are not indicative of the operating performance, such as gains (losses) from sales of depreciated property and depreciation and amortization. However, our method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. FFO does not represent cash generated from operations as defined by generally accepted accounting principles (“GAAP”) and is not indicative of cash available to fund all cash needs, including distributions. It should not be considered as an alternative to net income for the purpose of evaluating our performance or to cash flows as a measure of liquidity. Consistent with the NAREIT definition, we define FFO as net income (computed in accordance with GAAP), excluding gains (losses) from sales of depreciated property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.

(3)

In addition to the $0.8951 cash dividends declared in 2008, we declared a Common Share dividend of $0.4949.

ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

OVERVIEW

As of December 31, 2010, we operated 79 properties, which we own or have an ownership interest in, within our Core Portfolio or within our three Opportunity Funds. Our Core Portfolio consists of those properties either 100% owned by, or partially owned through joint venture interests by the Operating Partnership, or subsidiaries thereof, not including those properties owned through our Opportunity Funds. These 79 properties consist of commercial properties, primarily neighborhood and community shopping centers, self-storage and mixed-use properties with a retail component. The properties we operate are located primarily in the Northeast, Mid-Atlantic and Midwestern regions of the United States. Excluding two properties under redevelopment, there are 32 properties in our Core Portfolio totaling approximately 4.8 million square feet. Fund I has 20 properties comprising approximately 0.9 million square feet. Fund II has 10 properties, eight of which (representing 1.2 million square feet) are currently operating, one is under construction, and one is in the design phase. Three of the properties also include self-storage facilities. We expect the Fund II portfolio will have approximately 2.0 million square feet upon completion of all current construction and anticipated redevelopment activities. Fund III has 15 properties totaling approximately 1.8 million square feet, of which 11 locations representing 0.9 million net rentable square feet are self-storage facilities and one is in the design phase. The majority of our operating income is derived from rental revenues from these 79 properties, including recoveries from tenants, offset by operating and overhead expenses. As our RCP Venture invests in operating companies, we consider these investments to be private-equity style, as opposed to real estate, investments. Since these are not traditional investments in operating rental real estate but investments in operating businesses, the Operating Partnership invests in these through a taxable REIT subsidiary (“TRS”).

Our primary business objective is to acquire and manage commercial retail properties that will provide cash for distributions to shareholders while also creating the potential for capital appreciation to enhance investor returns. We focus on the following fundamentals to achieve this objective:

– Own and operate a Core Portfolio of community and neighborhood shopping centers and main street retail located in markets with strong demographics and generate internal growth within the Core Portfolio through aggressive redevelopment, re-anchoring and/or leasing activities
– Maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth
– Generate external growth through an opportunistic yet disciplined acquisition program. We target transactions with high inherent opportunity for the creation of additional value through redevelopment and leasing and/or transactions requiring creative capital structuring to facilitate the transactions. These transactions may include other types of commercial real estate besides those which we currently invest in through our Core Portfolio. These may also include joint ventures with private equity investors for the purpose of making investments in operating retailers with significant embedded value in their real estate assets

BUSINESS OUTLOOK

The U.S. economy is currently in a post recessionary period, which has resulted in a significant decline in retail sales due to reduced consumer spending. Although the occupancy and net operating income within our portfolio has not been materially adversely affected through December 31, 2010, should retailers continue to experience deteriorating sales performance, the likelihood of additional tenant bankruptcy filings may increase, which would negatively impact our results of operations. In addition to the impact on retailers, this period has had an unprecedented impact on the U.S. credit markets. Traditional sources of financing, such as the commercial-mortgage backed security market, have become severely curtailed. If these conditions continue, our ability to finance new acquisitions or refinance existing debts as they mature will be adversely affected. Accordingly, our ability to generate external growth in income, as well as maintain existing operating income, could be limited.

See the “Item 1A. Risk Factors,” including the discussions under the headings “The current economic environment, while improving, may cause us to lose tenants and may impair our ability to borrow money to purchase properties, refinance existing debt or finance our current redevelopment projects” and “The bankruptcy of, or a downturn in the business of, any of our major tenants or a significant number of our smaller tenants may adversely affect our cash flows and property values.”

34



RESULTS OF OPERATIONS

Reference is made to Note 3 to the Notes to Consolidated Financial Statements beginning on page F-1 of this Form 10-K for an overview of our five reportable segments.

Comparison of the year ended December 31, 2010 (“2010”) to the year ended December 31, 2009 (“2009”)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

2010

 

2009

 

 


 


(dollars in millions)

 

Core
Portfolio

 

Opportunity
Funds

 

Self-Storage
Portfolio

 

Notes
Receivable
and Other

 

Core
Portfolio

 

Opportunity
Funds

 

Self-
Storage
Portfolio

 

Notes
Receivable
and Other

 

 


 


 


 


 


 


 


 


Rental income

 

$

48.3

 

$

39.0

 

$

19.6

 

$

 

$

51.2

 

$

34.7

 

$

9.8

 

$

Mortgage interest income

 

 

 

 

 

 

 

 

19.2

 

 

 

 

 

 

 

 

19.7

Expense reimbursements

 

 

13.3

 

 

8.7

 

 

 

 

 

 

13.7

 

 

7.2

 

 

 

 

Lease termination income

 

 

0.3

 

 

 

 

 

 

 

 

2.8

 

 

 

 

 

 

Management fee income (1)

 

 

 

 

 

 

 

 

1.4

 

 

 

 

 

 

 

 

2.0

Other

 

 

0.3

 

 

0.2

 

 

1.7

 

 

 

 

1.9

 

 

1.4

 

 

1.3

 

 

 

 



 



 



 



 



 



 



 



Total revenues

 

$

62.2

 

$

47.9

 

$

21.3

 

$

20.6

 

$

69.6

 

$

43.3

 

$

11.1

 

$

21.7

 

 



 



 



 



 



 



 



 



Note:

 

 

(1)

Fees earned by us as general partner/managing member of the Opportunity Funds are eliminated in consolidation and adjust the loss (income) attributable to noncontrolling interests and are not reflected above. The balance reflected in the table represents third party fees that are not eliminated in consolidation.

The decrease in rental income in the Core Portfolio was primarily attributable to tenant vacancies at Chestnut Hill and Third Avenue. The increase in rental income in the Opportunity Funds primarily related to additional rents following the acquisition of Cortlandt Towne Center (“2009 Fund Acquisition”) of $1.0 million and additional rents at Fordham Place, Pelham Manor and Canarsie for leases that commenced in 2009 and 2010 (“Fund Redevelopment Properties”). The increase in rental income in the Storage Portfolio related to the full amortization of acquired lease intangible costs during 2009, increased occupancy in the Storage Portfolio as well as our discontinued practice of reporting the Storage Portfolio one month in arrears which was based on the historical unavailability of timely financial information. Based on improvements in the Storage Portfolio accounting systems, we report this activity on a current basis. Accordingly, the year ended December 31, 2010 reflects thirteen months of storage activity while the year ended December 31, 2009 reflects twelve months of storage activity (“Storage Portfolio Activity”).

Expense reimbursements in the Opportunity Funds increased for both real estate taxes and common area maintenance primarily as a result of the 2009 Fund Acquisition and Fund Redevelopment Properties.

Lease termination income in the Core Portfolio for 2009 related to termination fee income received from a former tenant at Absecon Marketplace.

Other in the Core Portfolio in 2009 included $1.7 million resulting from a forfeited sales contract deposit.

Other in the Opportunity Funds during 2009 included $0.9 million received by Fund II in settlement of litigation in connection with a property acquisition.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses 

 

2010

 

2009

 

 

 


 


 

(dollars in millions)

 

Core
Portfolio

 

Opportunity
Funds

 

Self-
Storage
Portfolio

 

Notes
Receivable
and Other

 

Core
Portfolio

 

Opportunity
Funds

 

Self-
Storage
Portfolio

 

Notes
Receivable
and Other

 

 

 


 


 


 


 


 


 


 


 

Property operating

 

$

10.5

 

$

11.8

 

$

10.2

 

$

(1.5

)

$

12.1

 

$

10.1

 

$

8.7

 

$

(1.2

)

Real estate taxes

 

 

9.0

 

 

6.3

 

 

2.9

 

 

 

 

9.3

 

 

5.3

 

 

2.2

 

 

 

General and administrative

 

 

22.4

 

 

13.5

 

 

0.1

 

 

(15.8

)

 

24.0

 

 

13.5

 

 

0.1

 

 

(15.6

)

Depreciation and amortization

 

 

16.2

 

 

19.4

 

 

5.1

 

 

(0.6

)

 

17.2

 

 

16.5

 

 

4.4

 

 

(1.5

)

Abandonment of project costs

 

 

 

 

 

 

 

 

 

 

 

 

2.5

 

 

 

 

 

Reserve for notes receivable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.7

 

 

 



 



 



 



 



 



 



 



 

Total operating expenses

 

$

58.1

 

$

51.0

 

$

18.3

 

$

(17.9

)

$

62.6

 

$

47.9

 

$

15.4

 

$

(16.6

)

 

 



 



 



 



 



 



 



 



 

The decrease in property operating expenses in the Core Portfolio was primarily attributable to a decrease in bad debt expense in 2010. The increase in property operating expenses in the Opportunity Funds was primarily attributable to the 2009 Fund Acquisition and Fund Redevelopment Properties. The increase in property operating expenses in the Storage Portfolio primarily related to higher

35


operating costs in 2010 following increased occupancy as well as the Storage Portfolio Activity.

The increase in real estate taxes in the Opportunity Funds was primarily attributable to the 2009 Fund Acquisition as well as Fund Redevelopment Properties.

The decrease in general and administrative expense in the Core Portfolio was primarily attributable to reduced compensation expense following staff reductions in 2009.

Depreciation and amortization expense in the Core Portfolio decreased as a result of the write-off of lease intangible costs in connection with a terminated lease in 2009. Depreciation expense in the Opportunity Funds increased $0.3 million as result of the 2009 Acquisition. Amortization expense in the Opportunity Funds increased $2.6 million primarily due to the write-off of deferred financing costs related to refinanced debt in 2010. Depreciation and amortization expense in the Storage Portfolio increased $0.7 million primarily as a result of two self storage properties placed in service during the second quarter 2009.

The $2.5 million abandonment of project costs in the Opportunity Funds in 2009 was attributable to our determination that we most likely would not participate in a specific future development project.

The reserve for notes receivable of $1.7 million in 2009 related to the loss of an anchor tenant at the underlying collateral property.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

2010

 

2009

 

 

 


 


 

(dollars in millions)

 

Core
Portfolio

 

Opportunity
Funds

 

Self-
Storage
Portfolio

 

Notes
Receivable
and Other

 

Core
Portfolio

 

Opportunity
Funds

 

Self-
Storage
Portfolio

 

Notes
Receivable
and Other

 

 

 


 


 


 


 


 


 


 


 

 

Equity in earnings (losses) of unconsolidated affiliates

 

$

0.6

 

$

11.8

 

 

(1.4

)

$

 

$

0.7

 

$

(2.2

)

$

 

$

 

Impairment of investment in unconsolidated affiliate

 

 

 

 

 

 

 

 

 

 

 

 

(3.8

)

 

 

 

 

Other interest income

 

 

 

 

 

 

 

 

0.4

 

 

 

 

 

 

 

 

0.6

 

Gain from bargain purchase

 

 

 

 

33.8

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on debt extinguishment

 

 

 

 

 

 

 

 

 

 

7.1

 

 

 

 

 

 

 

Interest and other finance expense

 

 

(17.1

)

 

(13.4

)

 

(4.1

)

 

0.1

 

 

(18.7

)

 

(8.4

)

 

(5.0

)

 

 

Income tax expense

 

 

(3.2

)

 

(0.1

)

 

0.4

 

 

 

 

(1.4

)

 

(0.1

)

 

 

 

 

Income from discontinued operations

 

 

 

 

 

 

 

 

0.4

 

 

 

 

 

 

 

 

7.6

 

(Income) loss attributable to noncontrolling interests in subsidiaries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- Continuing operations

 

 

(0.3

)

 

(22.6

)

 

0.1

 

 

2.5

 

 

(0.4

)

 

22.5

 

 

(0.5

)

 

1.9

 

- Discontinued operations

 

 

 

 

 

 

 

 

(0.3

)

 

 

 

 

 

 

 

(5.0

)

Equity in earnings (losses) of unconsolidated affiliates in the Opportunity Funds increased primarily as a result of an increase in distributions in excess of basis from our Albertson’s investment of $9.5 million in 2010 and an increase in our pro-rata share of income from Mervyns in 2010. Equity in earnings (losses) in the Self Storage Portfolio represents the pro-rata share of losses from our unconsolidated investment in the newly-formed self storage management company.

The $3.8 million impairment of investment in unconsolidated affiliate during 2009 was the result of the reduction in value of the underlying property due to the recession and the related reduction in Fund I’s carrying value of this investment including a partial guarantee of the mortgage debt.

The $33.8 million gain from bargain purchase was attributable to Fund II’s purchase of an unaffiliated membership interest in CityPoint in 2010. Reference is made to Note 2 of the Notes to Consolidated Financial Statements which begin on page F-1 of this Form 10-K for a discussion of this transaction.

The gain on debt extinguishment of $7.1 million was attributable to the purchase of our convertible debt at a discount in 2009.

Total interest expense in the Core Portfolio decreased $1.6 million in 2010. This was the result of a $2.5 million decrease attributable to lower average outstanding borrowings in 2010 offset by a $0.9 million increase attributable to higher average interest rates in 2010. Interest expense in the Opportunity Funds increased $5.0 million in 2010. This was the result of an increase of $2.9 million due to higher average interest rates in 2010, an increase of $1.8 million due to higher average outstanding borrowings in 2010 and $0.3 million of lower capitalized interest in 2010. Interest expense in the Storage Portfolio decreased $0.9 million in 2010. This was

36


primarily attributable to a $1.4 million decrease due to lower average interest rates in 2010. This decrease was offset by $0.3 million of lower capitalized interest in 2010 and an increase of $0.2 million due to higher average outstanding borrowings in 2010.

The variance in the income tax expense in the Core Portfolio primarily related to income taxes at the TRS level for our pro-rata share of income from our Albertson’s investment in 2010.

Income from discontinued operations represents activity related to property held for sale in 2010 and property sales in 2009.

(Income) loss attributable to noncontrolling interests in subsidiaries – Continuing operations and Discontinued operations primarily represents the noncontrolling interests’ share of all the Opportunity Funds variances discussed above.

Comparison of the year ended December 31, 2009 (“2009”) to the year ended December 31, 2008 (“2008”)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

2009

 

2008

 

 

 


 


 

 

(dollars in millions)

 

Core
Portfolio

 

Opportunity
Funds

 

Self-
Storage
Portfolio

 

Notes
Receivable
and Other

 

Core
Portfolio

 

Opportunity
Funds

 

Self-
Storage
Portfolio

 

Notes
Receivable
and Other

 

 

 


 


 


 


 


 


 


 


 

Rental income

 

$

51.2

 

$

34.7

 

$

9.8

 

$

 

$

51.0

 

$

21.4

 

$

4.7

 

$

 

Mortgage interest income

 

 

 

 

 

 

 

 

19.7

 

 

 

 

 

 

 

 

11.2

 

Expense reimbursements

 

 

13.7

 

 

7.2

 

 

 

 

 

 

14.1

 

 

2.7

 

 

 

 

 

Lease termination income

 

 

2.8

 

 

 

 

 

 

 

 

 

 

24.0

 

 

 

 

 

 

Management fee income (1)

 

 

 

 

 

 

 

 

2.0

 

 

 

 

 

 

 

 

3.4

 

Other

 

 

1.9

 

 

1.4

 

 

1.3

 

 

 

 

0.3

 

 

 

 

0.8

 

 

 

 

 



 



 



 



 



 



 



 



 

Total revenues

 

$

69.6

 

$

43.3

 

$

11.1

 

$

21.7

 

$

65.4

 

$

48.1

 

$

5.5

 

$

14.6

 

 

 



 



 



 



 



 



 



 



 

Note:

 

 

(1)

Fees earned by us as general partner/managing member of the Opportunity Funds are eliminated in consolidation and adjust the loss (income) attributable to noncontrolling interests and are not reflected above. The balance reflected in the table represents third party fees that are not eliminated in consolidation.

The increase in rental income in the Opportunity Funds primarily related to additional rents from the 2009 Fund Acquisition of $7.5 million and certain Fund Redevelopment Properties. The increase in rental income in the Storage Portfolio related to the February 2008 acquisition of the Storage Post Portfolio (“Storage Acquisition”) versus a full year of activity for 2009. In addition, the increase in minimum rents in the Storage Portfolio was also attributable to the full amortization of acquired lease intangible costs during 2009.

The increase in mortgage interest income was the result of higher interest earning assets in 2009, primarily from new notes/mezzanine financing investments originated during the second half of 2008.

Expense reimbursements in the Opportunity Funds increased for both real estate taxes and common area maintenance as a result of the 2009 Fund Acquisition as well as certain Fund Redevelopment Properties.

Lease termination income in the Core Portfolio for 2009 related to a termination fee earned from a tenant at Absecon Marketplace. Lease termination income in the Opportunity Funds for 2008 related to a termination fee earned, net of costs, from a tenant at Canarsie Plaza.

Management fee income decreased primarily as a result of lower fees earned of $0.9 million from the CityPoint development project and lower fees from our Klaff management contracts.

Other in the Core Portfolio in 2009 included $1.7 million resulting from a forfeited sales contract deposit.

Other in the Opportunity Funds during 2009 included $0.9 million received by Fund II in settlement of litigation in connection with a property acquisition.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses 

 

2009

 

2008

 

 

 


 


 

 

(dollars in millions)

 

Core
Portfolio

 

Opportunity
Funds

 

Self-
Storage
Portfolio

 

Notes
Receivable
and Other

 

Core
Portfolio

 

Opportunity
Funds

 

Self-
Storage
Portfolio

 

Notes
Receivable
and Other

 

 

 


 


 


 


 


 


 


 


 

Property operating

 

$

12.1

 

$

10.1

 

$

8.7

 

$

(1.2

)

$

12.2

 

$

6.8

 

$

5.3

 

$

(0.4

)

Real estate taxes

 

 

9.3

 

 

5.3

 

 

2.2

 

 

 

 

8.8

 

 

2.0

 

 

1.4

 

 

 

General and administrative

 

 

24.0

 

 

13.5

 

 

0.1

 

 

(15.6

)

 

26.0

 

 

16.1

 

 

0.1

 

 

(17.7

)

Depreciation and amortization

 

 

17.2

 

 

16.5

 

 

4.4

 

 

(1.5

)

 

20.3

 

 

9.5

 

 

3.0

 

 

 

Abandonment of project costs

 

 

 

 

2.5

 

 

 

 

 

 

 

 

0.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reserve for notes receivable

 

 

 

 

 

 

 

 

1.7

 

 

 

 

 

 

 

 

4.4

 

 

 



 



 



 



 



 



 



 



 

Total operating expenses

 

$

62.6

 

$

47.9

 

$

15.4

 

$

(16.6

)

$

67.3

 

$

35.0

 

$

9.8

 

$

(13.7

)

 

 



 



 



 



 



 



 



 



 

37


The increase in property operating expenses in the Opportunity Funds was primarily the result of the 2009 Fund Acquisition and certain Fund Redevelopment Properties. The increase in property operating expenses in the Storage Portfolio related to the Storage Acquisition.

The increase in real estate taxes in the Opportunity Funds was primarily attributable to the 2009 Fund Acquisition.

The decrease in general and administrative expense in the Core Portfolio was primarily attributable to reduced compensation expense following staff reductions in the second half of 2008 and in the first half of 2009. The decrease in general and administrative expense in the Opportunity Funds related to the reduction in Promote expense attributable to Fund I and Mervyns I. The increase in general and administrative expense in Other primarily related to the reduction in Fund I and Mervyns I Promote expense eliminated for consolidated financial statement presentation purposes.

Depreciation expense in the Core Portfolio decreased $2.4 million in 2009. This was principally a result of increased depreciation expense in 2008 resulting from the write-down of tenant improvements at two properties attributable to the bankruptcy of Circuit City. Amortization expense in the Core Portfolio decreased $0.7 million primarily as a result of lower amortization expense in 2009 associated with the Klaff management contracts. Depreciation expense increased $5.0 million and amortization expense increased $2.0 million in the Opportunity Funds primarily due to the 2009 Fund Acquisition and certain Fund Redevelopment Properties. Depreciation expense and amortization expense increased $1.4 million in the Storage Portfolio primarily as a result of the Storage Acquisition. Depreciation and amortization expense decreased $1.5 million in Other as a result of depreciation associated with the elimination of capitalizable costs within the consolidated group.

The $2.5 million abandonment of project costs in 2009 was attributable to our determination that we most likely would not participate in a specific future development project.

The reserve for notes receivable of $1.7 million in 2009 related to the loss of an anchor tenant at the underlying collateral property. The 2008 reserve for notes receivable of $4.4 million related to a mezzanine loan.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

2009

 

2008

 

 

 


 


 

 

(dollars in millions)

 

Core
Portfolio

 

Opportunity
Funds

 

Self-
Storage
Portfolio

 

Notes
Receivable
and Other

 

Core
Portfolio

 

Opportunity
Funds

 

Self-
Storage
Portfolio

 

Notes
Receivable
and Other

 

 

 


 


 


 


 


 


 


 


 

 

Equity in earnings (losses) of unconsolidated affiliates

 

$

0.7

 

$

(2.2

)

$

 

$

 

$

 

$

19.9

 

$

 

$

 

Impairment of investment in unconsolidated affiliate

 

 

 

 

(3.8

)

 

 

 

 

 

 

 

 

 

 

 

 

Other interest income

 

 

 

 

 

 

 

 

0.6

 

 

 

 

 

 

 

 

3.4

 

Gain on debt extinguishment

 

 

7.1

 

 

 

 

 

 

 

 

1.5

 

 

 

 

 

 

 

Interest and other finance expense

 

 

(18.7

)

 

(8.4

)

 

(5.0

)

 

 

 

(19.8

)

 

(5.7

)

 

(3.4

)

 

 

Gain on sale of land

 

 

 

 

 

 

 

 

 

 

0.8

 

 

 

 

 

 

 

Income tax expense

 

 

(1.4

)

 

(0.1

)

 

 

 

 

 

(3.4

)

 

 

 

 

 

 

Income from discontinued operations

 

 

 

 

 

 

 

 

7.6

 

 

 

 

 

 

 

 

8.9

 

(Income) loss attributable to noncontrolling interests in subsidiaries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- Continuing operations

 

 

(0.4

)

 

22.5

 

 

(0.5

)

 

1.9

 

 

0.2

 

 

(15.8

)

 

0.4

 

 

3.6

 

- Discontinued operations

 

 

 

 

 

 

 

 

(5.0

)

 

 

 

 

 

 

 

(0.9

)

Equity in earnings (losses) of unconsolidated affiliates in the Opportunity Funds decreased primarily as a result of our pro-rata share of gains from the sale of Mervyns locations in 2008 of $10.4 million, a decrease in distributions in excess of basis from our Albertson’s investment of $7.9 million in 2009 and our pro-rata share of gain from the sale of the Haygood Shopping Center of $3.4 million in 2008.

The $3.8 million impairment of investment in unconsolidated affiliate during 2009 was the result of the reduction in value of the underlying property due to the recession and the related reduction in Fund I’s carrying value of this investment including a partial guarantee of the mortgage debt.

38


Other interest income decreased in 2009 as a result of lower cash balances during the year and lower average interest rates on cash and cash equivalents.

The gain on debt extinguishment of $7.1 million in 2009 and $1.5 million in 2008 was attributable to the purchase of our convertible debt at a discount.

Interest expense in the Core Portfolio decreased $1.1 million in 2009. This was primarily the result of lower interest expense related to the purchase of the Company’s convertible notes payable offset by a $0.7 million write-off of the unamortized premium related to the repayment of a mortgage note payable during 2008. Interest expense in the Opportunity Funds increased $2.7 million in 2009. This was primarily attributable to an increase of $4.2 million due to higher average outstanding borrowings in 2009 and $0.6 million of lower capitalized interest in 2009. These increases were offset by a $2.2 million decrease related to lower average interest rates in 2009. Interest expense in the Storage Portfolio increased $1.6 million in 2009. This was primarily due to an increase of $0.9 million due to higher average outstanding borrowings in 2009 as well as an increase of $0.8 million due to higher average interest rates in 2009.

The gain on sale of land of $0.8 million in the Core Portfolio related to the sale of a land parcel at Bloomfield Town Square in 2008.

The variance in the income tax expense in the Core Portfolio primarily related to income taxes at the TRS level for our share of income/gains from our Mervyns and Albertson’s investments in 2008.

Income from discontinued operations represents activity related to properties sold in 2009 and 2008.

(Income) loss attributable to noncontrolling interests in subsidiaries – Continuing operations and Discontinued operations primarily represents the noncontrolling interests’ share of all the Opportunity Funds variances discussed above.

RECONCILIATION OF NET INCOME TO FUNDS FROM OPERATIONS AND ADJUSTED FUNDS FROM OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Years Ended December 31,

 

(dollars in thousands)

 

2010

 

2009

 

2008

 

2007

 

2006

 

 

 


 


 


 


 


 

Net income attributable to Common Shareholders

 

$

30,057

 

$

31,133

 

$

25,068

 

$

25,346

 

$

38,920

 

Depreciation of real estate and amortization of leasing costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated affiliates, net of noncontrolling interests’ share

 

 

18,445

 

 

18,847

 

 

18,519

 

 

19,669

 

 

20,206

 

Unconsolidated affiliates

 

 

1,561

 

 

1,604

 

 

1,687

 

 

1,736

 

 

1,806

 

Income attributable to noncontrolling interests in operating partnership (1)

 

 

377

 

 

464

 

 

437

 

 

614

 

 

803

 

Gain on sale of properties (net of noncontrolling interests’ share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated affiliates

 

 

 

 

(2,435

)

 

(7,182

)

 

(5,271

)

 

(20,974

)

Unconsolidated affiliates

 

 

 

 

 

 

(565

)

 

 

 

(901

)

Extraordinary item (net of noncontrolling interests’ share and income taxes) (3)

 

 

 

 

 

 

 

 

(3,677

)

 

 

 

 



 



 



 



 



 

Funds from operations (2)

 

 

50,440

 

 

49,613

 

 

37,964

 

 

38,417

 

 

39,860

 

Add back: Extraordinary item, net (3)

 

 

 

 

 

 

 

 

3,677

 

 

 

 

 



 



 



 



 



 

Funds from operations, adjusted for extraordinary item

 

$

50,440

 

$

49,613

 

$

37,964

 

$

42,094

 

$

39,860

 

 

 



 



 



 



 



 

Adjusted Funds From Operations per Share - Diluted

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of Common Shares and OP Units

 

 

40,876

 

 

38,913

 

 

34,940

 

 

34,924

 

 

35,087

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted funds from operations, per share

 

$

1.23

 

$

1.28

 

$

1.09

 

$

1.21

 

$

1.14

 

 

 



 



 



 



 



 

39


 

 

Notes:

(1)

Represents income attributable to Common OP Units and does not include distributions paid to Series A and B Preferred OP Unitholders.

 

 

(2)

We consider funds from operations (“FFO”) as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) to be an appropriate supplemental disclosure of operating performance for an equity REIT due to its widespread acceptance and use within the REIT and analyst communities. FFO is presented to assist investors in analyzing our performance. It is helpful as it excludes various items included in net income that are not indicative of the operating performance, such as gains (losses) from sales of depreciated property and depreciation and amortization. However, our method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. FFO does not represent cash generated from operations as defined by generally accepted accounting principles (“GAAP”) and is not indicative of cash available to fund all cash needs, including distributions. It should not be considered as an alternative to net income for the purpose of evaluating our performance or to cash flows as a measure of liquidity. Consistent with the NAREIT definition, we define FFO as net income (computed in accordance with GAAP), excluding gains (losses) from sales of depreciated property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.

 

 

(3)

This item represents our share of an extraordinary gain from our investment in Albertson’s, which recorded an extraordinary gain in connection with the allocation of purchase price to assets acquired. We consider this to be a private-equity style investment in an operating businesses as opposed to real estate. Accordingly, all gains and losses from this investment are included in FFO, which we believe provides a more accurate reflection of our operating performance.

LIQUIDITY AND CAPITAL RESOURCES

Uses of Liquidity

Our principal uses of liquidity are (i) distributions to our shareholders and OP unit holders, (ii) investments which include the funding of our capital committed to the Opportunity Funds and property acquisitions and redevelopment/re-tenanting activities within our Core Portfolio, and (iii) debt service and loan repayments, including the repurchase of our Convertible Notes.

Distributions

In order to qualify as a REIT for Federal income tax purposes, we must currently distribute at least 90% of our taxable income to our shareholders. For the year ended December 31, 2010, we paid dividends and distributions on our Common Shares and Common OP Units totaling $29.7 million. In addition, in December of 2008, our Board of Trustees approved a special dividend of approximately $0.55 per share, or $18.0 million in the aggregate, which was associated with taxable gains arising from property dispositions in 2008, which was paid on January 30, 2009, to shareholders of record on December 31, 2008. Ninety percent of the special dividend was paid with the issuance of 1.3 million Common Shares and 10%, or $1.8 million, was paid in cash.

Investments

Fund I and Mervyns I

Fund I and Mervyns I have returned all invested capital and accumulated preferred return thus triggering our Promote in all future Fund I and Mervyns I earnings and distributions. As of December 31, 2010, $86.6 million has been invested in Fund I and Mervyns I, of which the Operating Partnership contributed $19.2 million.

As of December 31, 2010, Fund I currently owned, or had ownership interests in 20 assets comprising approximately 0.9 million square feet as further discussed in “PROPERTY ACQUISITIONS” in Item 1 of this Form 10-K.

In addition, we, along with our Fund I investors have invested in Mervyns as discussed in Item 1. of this Form 10-K.

Fund II and Mervyns II

To date, Fund II’s primary investment focus has been in the New York Urban/Infill Redevelopment Initiative and the Retailer Controlled Property Venture. As of December 31, 2010, $265.2 million has been invested in Fund II, of which the Operating Partnership contributed $53.0 million. The remaining capital balance of $34.8 million is expected to be utilized to complete development activities for existing Fund II investments.

Fund II has invested in the New York Urban/Infill Redevelopment and the RCP Venture initiatives and other investments as further discussed in “PROPERTY ACQUISITIONS” in Item 1, of this Form 10-K.

New York Urban/Infill Redevelopment Initiative

40


In September 2004, we, through Fund II, launched our New York Urban/Infill Redevelopment Initiative. During 2004, Fund II, together with an unaffiliated partner, P/A Associates, LLC (“P/A”), formed Acadia P/A Holding Company, LLC (“Acadia-P/A”) for the purpose of acquiring, constructing, developing, owning, operating, leasing and managing certain mixed-use real estate properties in the New York City metropolitan area which include a retail component. To date P/A has invested $2.2 million and Fund II, the managing member, has agreed to invest the balance.

To date, Fund II has invested in nine New York Urban/Infill Redevelopment Initiative construction projects, eight of which were made through Acadia-P/A, as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redevelopment (dollars in millions)

 

 

 

 

 

 

 

 

 

 


 

Property

 

Location

 

Year
acquired

 

 

Costs
to date

 

 

Anticipated
additional
costs

 

Estimated
construction
completion

 

Square
feet upon
completion

 


 


 


 

 


 


 


 


 

Liberty Avenue (1)

 

Queens

 

2005

 

$

15.5

 

$

 

Completed

 

125,000

 

216th Street

 

Manhattan

 

2005

 

 

27.7

 

 

 

Completed

 

60,000

 

Fordham Place

 

Bronx

 

2004

 

 

124.5

 

 

9.8

 

Completed

 

276,000

 

Pelham Manor Shopping Plaza (1)

 

Westchester

 

2004

 

 

61.4

 

 

2.6

 

Completed

 

320,000

 

161st Street (2)

 

Bronx

 

2005

 

 

61.6

 

 

5.1

 

TBD

 

230,000

 

Atlantic Avenue (3)

 

Brooklyn

 

2007

 

 

22.0

 

 

0.1

 

Completed

 

110,000

 

Canarsie Plaza

 

Brooklyn

 

2007

 

 

80.3

 

 

9.8

 

Completed

 

279,000

 

CityPoint (4)

 

Brooklyn

 

2007

 

 

81.8

 

 

118.2

 

TBD

 

550,000

 

Sherman Plaza

 

Manhattan

 

2005

 

 

33.4

 

 

TBD

 

TBD

 

TBD

 

 

 

 

 

 

 



 



 

 

 


 

Total

 

 

 

 

 

$

508.2

 

$

145.6

 

 

 

1,950,000

 

 

 

 

 

 

 



 



 

 

 


 

Notes:
TBD – To be determined
(1) Acadia-P/A acquired a ground lease interest at this property.
(2) Currently operating but redevelopment activities have commenced.
(3) P/A is not a partner in this project.
(4) Fund II acquired a ground lease interest at this property.

On June 30, 2010, Fund II acquired all of CUIP’s 75.25% interests in CityPoint for $9.2 million, consisting of a current cash payment of $2.0 million and deferred payments, potentially through 2020, aggregating $7.2 million, as well as the assumption of CUIP’s share of the first mortgage debt representing $19.6 million. Reference is made to Note 2 in our Consolidated Financial Statements, which begin on Page F-1 of this Form 10-K for a further discussion of this transaction.

RCP Venture

See “Property Acquisitions” in Item 1. of this Form 10-K for a table summarizing the RCP Venture investments from inception through December 31, 2010.

Fund III

During 2007, we formed Fund III with 14 institutional investors, including all of the investors from Fund I and a majority of the investors from Fund II with $502.5 million of committed discretionary capital. As of December 31, 2010, $96.5 million has been invested in Fund III, of which the Operating Partnership contributed $19.2 million.

Fund III has invested in the New York Urban/Infill Redevelopment Initiatives and other investments as further discussed in “PROPERTY ACQUISITIONS” in Item 1 of this Form 10-K. The projects are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property

 

Location

 

Year
acquired

 

Costs
to date

 

Anticipated
additional
costs

 

Estimated
construction
completion

 

Square
feet upon
completion

 















Sheepshead Bay

 

 

Brooklyn, NY

 

 

2007

 

$

22.8

 

$

TBD

 

 

TBD

 

 

TBD

 

125 Main Street

 

 

Westport, CT

 

 

2007

 

 

18.7

 

 

6.7

 

 

2nd half 2011

 

 

26,000

 

 

 

 

 

 

 

 

 






 

 

 

 



 

Total

 

 

 

 

 

 

 

$

41.5

 

$

6.7

 

 

 

 

 

26,000

 

 

 

 

 

 

 

 

 






 

 

 

 



 

Notes:
TBD – To be determined

41


Other Fund III Investments

During February 2008, Acadia, through Fund III, and in conjunction with an unaffiliated partner, Storage Post, acquired a portfolio of eleven self-storage properties from Storage Post’s institutional investors for approximately $174.0 million. The properties are located throughout New York and New Jersey.

During January 2009, Fund III purchased Cortlandt Towne Center for $78.0 million. The property is a 642,000 square foot shopping center located in Westchester County, NY, a trade area with high barriers to entry for regional and national retailers.

During December 2010, Fund III, in a joint venture with an unaffiliated partner, acquired the 255,200 square foot White City Shopping Center in Shrewsbury, Massachusetts for $56.0 million.

During February 2011, Fund III, in a joint venture with an unaffiliated partner, acquired a three property portfolio (the “Portfolio”) for an aggregate purchase price of $51.9 million with $20.6 million of in-place mortgage financing assumed at closing. The Portfolio consists of three street-retail properties, aggregating 61,000 square feet, and is located in South Miami Beach, Florida.

During February 2011, Fund III, in a joint venture with an unaffiliated partner, acquired a 64,600 square foot single tenant retail property located in Silver Springs, Maryland, for approximately $9.8 million.

Notes Receivable

At December 31, 2010, our notes receivable, net aggregated $89.2 million, with accrued interest thereon of $7.6 million, and were collateralized by the underlying properties, the borrower’s ownership interest in the entities that own the properties and/or by the borrower’s personal guarantee. Effective interest rates on our notes receivable ranged from 10.0% to 24.0% with maturities through January 2017.

During December 2009, we made a loan for $8.6 million which bears interest at 14.5% and matures on June 30, 2011.

Other Investments

Acquisitions made during 2010, 2009 and 2008 are discussed in “PROPERTY ACQUISITIONS” in Item 1 of this Form 10-K:

Core Portfolio Property Redevelopment and Expansion

Our Core Portfolio redevelopment program focuses on selecting well-located neighborhood and community shopping centers and creating significant value through re-tenanting and property redevelopment. We currently have two properties in the early stages of redevelopment, Ledgewood Mall and Third Avenue.

Purchase of Convertible Notes

Purchases of the Notes has been another use of our liquidity. During 2009, we purchased an additional $57.0 million in face amount of our outstanding convertible notes for $46.7 million.

Share Repurchase

We have an existing share repurchase program that authorizes management, at its discretion, to repurchase up to $20.0 million of our outstanding Common Shares. The program may be discontinued or extended at any time and there is no assurance that we will purchase the full amount authorized. Under this program we have repurchased 2.1 million Common Shares, none of which were repurchased after December 2001. As of December 31, 2010, management may repurchase up to approximately $7.5 million of our outstanding Common Shares under this program.

SOURCES OF LIQUIDITY

We intend on using Fund III, as well as new funds that we may establish in the future, as the primary vehicles for our future acquisitions, including potential investments in the RCP Venture and New York Urban/Infill Redevelopment Initiative. Additional sources of capital for funding property acquisitions, redevelopment, expansion and re-tenanting and RCP Venture investments, are expected to be obtained primarily from (i) the issuance of public equity or debt instruments, (ii) cash on hand and cash flow from operating activities, (iii) additional debt financings, (iv) noncontrolling interests’ unfunded capital commitments of $325.2 million for Fund III and (v) future sales of existing properties.

During 2010, Fund II received capital contributions of $41.9 million to fund redevelopment projects and partially pay down a line of credit facility.

42


As of December 31, 2010, we had cash and cash equivalents on hand of $120.6 million and $103.9 million of additional capacity under existing debt facilities.

Shelf Registration Statements and Issuance of Equity

During April 2009, we filed a shelf registration on Form S-3 providing for offerings of up to a total of $500.0 million of Common Shares, Preferred Shares and debt securities. During April 2009, we issued 5.75 million Common Shares and generated net proceeds of approximately $65.0 million. The proceeds were primarily used to purchase a portion of our outstanding convertible notes payable and pay down existing lines of credit. Following this issuance, we have remaining capacity under this registration statement to issue up to approximately $430.0 million of these securities.

Asset Sales

Asset sales are an additional source of liquidity for us. In March 2010, we sold the Sterling Heights Shopping Center, which was owned through Fund I, for $2.3 million. During November 2009, we sold Blackman Plaza for $2.5 million, which resulted in a gain on sale of $1.5 million. During February 2009, we sold six locations in our Fund I’s Kroger/Safeway Portfolio for $14.6 million of which Fund I’s share of the sales proceeds amounted to $8.1 million after the repayment of the mortgage debt on these properties. During April 2008, we sold a residential complex located in Winston-Salem, North Carolina. These sales are discussed in “ASSET SALES AND CAPITAL/ASSET RECYCLING” in Item 1 of this Form 10-K.

Notes Receivable and Preferred Equity Repayment

Reference is made to Note 5 in our Consolidated Financial Statements, which begin on Page F-1 of this Form 10-K, for an overview of our notes receivable and preferred equity investment. During 2010, the following payments were received on these investements:

During April 2010, we received a $2.1 million first mortgage loan payment.

During September 2010, we received the full repayment of our $40.0 million preferred equity investment, which was secured by a portfolio of 18 properties located in Georgetown, Washington D.C., along with $9.4 million of preferred return.

Financing and Debt

At December 31, 2010, mortgage and convertible notes payable aggregated $854.9 million, net of unamortized premium of $0.1 million, and unamortized discount of $1.1 million, and were collateralized by 29 properties and related tenant leases. Interest rates on our outstanding indebtedness ranged from 0.86% to 7.34% with maturities that ranged from March 2011 to November 2032. Taking into consideration $71.5 million of notional principal under variable to fixed-rate swap agreements currently in effect, $415.0 million of the portfolio, or 49%, was fixed at a 5.7% weighted average interest rate and $439.9 million, or 51% was floating at a 3.4% weighted average interest rate. There is $385.7 million of debt maturing in 2011 at weighted average interest rates of 2.8%. Of this amount, $4.8 million represents scheduled annual amortization. The loans relating to $159.7 million of the 2011 maturities provide for extension options, which we believe we will be able to exercise. As it relates to maturities, we may not have sufficient cash on hand to repay such indebtedness and, as such, we may have to refinance this indebtedness or select other alternatives based on market conditions at that time.

The following table sets forth certain information pertaining to the Company’s secured credit facilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(dollars in millions)
Borrower

 

Total
available
credit
facilities

 

Amount
borrowed
as of
December 31,
2009

 

2010 net
borrowings
(repayments)

during the year
ended December
31, 2010

 

Amount
borrowed
as of

December 31,
2010

 

Letters
of credit
outstanding
as
of December
31, 2010

 

Amount available
under
credit
facilities
as of December 31, 2010

 


 


 


 


 


 


 


 

Acadia Realty, LP

 

$

64.5

 

$

30.0

 

$

(29.0

)

$

1.0

 

$

8.6

 

$

54.9

 

Acadia Realty, LP

 

 

 

 

2.0

 

 

(2.0

)

 

 

 

 

 

 

Fund II

 

 

40.0

 

 

48.2

 

 

(8.2

)

 

40.0

 

 

 

 

 

Fund III

 

 

221.0

 

 

139.5

 

 

32.0

 

 

171.5

 

 

0.5

 

 

49.0

 

 

 



 



 



 



 



 



 

Total

 

$

325.5

 

$

219.7

 

$

(7.2

)

$

212.5

 

$

9.1

 

$

103.9

 

 

 



 



 



 



 



 



 

Reference is made to Note 8 and Note 9 to our Consolidated Financial Statements, which begin on Page F-1 of this Form 10-K, for a summary of the financing and refinancing transactions since December 31, 2009.

43


CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS

At December 31, 2010, maturities on our mortgage notes ranged from March 2011 to November 2032. In addition, we have non-cancelable ground leases at 24 of our shopping centers. We lease space for our White Plains corporate office for a term expiring in 2015. The following table summarizes our debt maturities, obligations under non-cancelable operating leases and construction commitments as of December 31, 2010:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments due by period

Contractual obligations:

 

Total

 

Less than
1 year

 

1 to 3
years

 

3 to 5
years

 

More than
5 years

 

(dollars in millions)

 


 


 


 


 


 

Future debt maturities (1)

 

$

855.9

 

$

385.7

 

$

156.8

 

$

143.7

 

$

169.7

 

Interest obligations on debt

 

 

120.7

 

 

33.2

 

 

42.1

 

 

28.4

 

 

17.0

 

Operating lease obligations

 

 

171.6

 

 

5.4

 

 

12.0

 

 

11.0

 

 

143.2

 

Construction commitments (2)

 

 

31.1

 

 

31.1

 

 

 

 

 

 

 

 

 



 



 



 



 



 

Total

 

$

1,179.3

 

$

455.4

 

$

210.9

 

$

183.1

 

$

329.9

 

 

 



 



 



 



 



 


 

 

 

Notes:

 

(1) Includes $1.0 million of unamortized discount related to our convertible notes payable.

 

(2) In conjunction with the redevelopment of our Core Portfolio and Opportunity Fund properties, we have entered into construction commitments with general contractors. We intend to fund these requirements with existing liquidity.

OFF BALANCE SHEET ARRANGEMENTS

We have investments in the following joint ventures for the purpose of investing in operating properties. We account for these investments using the equity method of accounting as we have noncontrolling interests. As such, our financial statements reflect our share of income and loss from but not the assets and liabilities of these joint ventures.

Reference is made to Note 4 to our Consolidated Financial Statements, which begin on page F-1 of this Form 10-K, for a discussion of our unconsolidated investments. Our pro-rata share of unconsolidated debt related to those investments is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro-rata share of
mortgage debt
Operating
Partnership

 

 

 

 

 

(dollars in millions)

 

 

Interest rate at
December 31,
2010

 

 

 

 

 

 

 

 

 

Investment

 

 

 

Maturity date

 


 


 




 

Crossroads

 

$

30.1

 

 

5.37

%

 

December 2014

 

Brandywine

 

 

36.9

 

 

5.99

%

 

July 2016

 

White City

 

 

6.7

 

 

2.86

%

 

December 2017

 

 

 



 

 

 

 

 

 

 

Total

 

$

73.7

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

In addition, we have arranged for the provision of three separate letters of credit in connection with certain leases and investments. As of December 31, 2010 there were no outstanding balances under any of the letters of credit. If the letters of credit were fully drawn, the combined maximum amount of exposure would be $9.1 million.

In addition to our derivative financial instruments, one of our unconsolidated affiliates, White City, was a party to an interest rate LIBOR swap with a notional value of $20 million, which effectively fixes the interest rate at 5.5% and expires in December 2017. Our pro-rata share of the fair value of the derivative liability totaled $0.1 million at December 31, 2010.

HISTORICAL CASH FLOW

The following table compares the historical cash flow for the year ended December 31, 2010 (“2010”) with the cash flow for the year ended December 31, 2009 (“2009”).

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31,

 

 

 

2010

 

2009

 

Variance

 

 

 


 


 


 

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

44.4

 

$

47.5

 

$

(3.1

)

Net cash used in investing activities

 

 

(60.7

)

 

(123.4

)

 

62.7

 

Net cash provided by financing activities

 

 

43.1

 

 

83.0

 

 

(39.9

)

 

 



 



 



 

Totals

 

$

26.8

 

$

7.1

 

$

19.7

 

 

 



 



 



 

44


A discussion of the significant changes in cash flow for 2010 versus 2009 is as follows:

The decrease of $3.1 million in net cash provided by operating activities was primarily attributable to the following:

 

 

 

 

Items which contributed to a decrease in cash from operating activities:

 

Additional cash used during 2010 to fund an escrow account with the proceeds from the CityPoint bond financing

 

 

 

 

Items which contributed to an increase in cash from operating activities:

 

An increase in distribution (primarily Albertson’s) of operating income from unconsolidated affiliates during 2010

The decrease of $62.7 million of net cash used in investing activities primarily resulted from the following:

 

 

 

 

Items which contributed to a decrease in cash from investing activities:

 

An additional $13.5 million in investments and advances to unconsolidated affiliates during 2010

 

An additional $12.0 million in proceeds from the sale of properties during 2009

 

 

 

 

Items which contributed to an increase in cash from investing activities:

 

A decrease of $54.3 million in expenditures for real estate, development and tenant installations during 2010

 

An increase of $28.4 million in repayments of notes receivable during 2010

 

A decrease of $9.4 million in advances of notes receivable during 2010

The $39.9 million decrease in net cash provided by financing activities resulted primarily from the following:

 

 

 

 

Items which contributed to a decrease in cash from financing activities:

 

A decrease of $84.2 million in borrowings during 2010

 

$65.2 million of additional cash from the issuance of Common Shares, net of costs, during 2009

 

 

 

 

Items which contributed to an increase in cash from financing activities:

 

A decrease of $54.8 million in repayments of mortgage debt during 2010

 

A decrease of $46.5 million in repayments of convertible notes during 2010

 

$7.9 million of additional contributions from noncontrolling interests during 2010

CRITICAL ACCOUNTING POLICIES

Management’s discussion and analysis of financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these Consolidated Financial Statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect the significant judgments and estimates used by us in the preparation of our Consolidated Financial Statements.

Valuation of Property Held for Use and Sale

On a quarterly basis, we review the carrying value of both properties held for use and for sale. We perform the impairment analysis by calculating and reviewing net operating income on a property-by-property basis. We evaluate leasing projections and perform other analyses to conclude whether an asset is impaired. We record impairment losses and reduce the carrying value of properties when indicators of impairment are present and the expected undiscounted cash flows related to those properties are less than their carrying amounts. In cases where we do not expect to recover our carrying costs on properties held for use, we reduce our carrying cost to fair value. For properties held for sale, we reduce our carrying value to the fair value less costs to sell. For the years ended December 31, 2010, 2009 and 2008, no impairment losses on our properties were recognized. Management does not believe that the value of any properties in its portfolio was impaired as of December 31, 2010.

Investments in and Advances to Unconsolidated Joint Ventures

The Company periodically reviews its investment in unconsolidated joint ventures for other than temporary declines in market value. Any decline that is not expected to be recovered in the next twelve months is considered other than temporary and an impairment charge is recorded as a reduction in the carrying value of the investment. During the year ended December 31, 2009, the Company recorded a $3.8 million impairment reserve related to a Fund I unconsolidated joint venture. No impairment charges related to the Company’s investment in unconsolidated joint ventures were recognized for the years ended December 31, 2010 and 2008.

45


Bad Debts

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make payments on arrearages in billed rents, as well as the likelihood that tenants will not have the ability to make payments on unbilled rents including estimated expense recoveries. We also maintain a reserve for straight-line rent receivables. For the years ended December 31, 2010 and 2009, the allowance for doubtful accounts totaled $7.5 million and $7.0 million, respectively. If the financial condition of our tenants were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Real Estate

Real estate assets are stated at cost less accumulated depreciation. Expenditures for acquisition, development, construction and improvement of properties, as well as significant renovations are capitalized. Interest costs are capitalized until construction is substantially complete. Construction in progress includes costs for significant property expansion and redevelopment. Depreciation is computed on the straight-line basis over estimated useful lives of 30 to 40 years for buildings, the shorter of the useful life or lease term for tenant improvements and five years for furniture, fixtures and equipment. Expenditures for maintenance and repairs are charged to operations as incurred.

Upon acquisitions of real estate, we assess the fair value of acquired assets (including land, buildings and improvements, and identified intangibles such as above and below market leases and acquired in-place leases and customer relationships) and acquired liabilities in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805 “Business Combinations” and ASC Topic 350 “Intangibles – Goodwill and Other,” and allocate purchase price based on these assessments. We assess fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property.

Revenue Recognition and Accounts Receivable

Leases with tenants are accounted for as operating leases. Minimum rents are recognized on a straight-line basis over the term of the respective leases, beginning when the tenant takes possession of the space. 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 us of real estate taxes, insurance and