In March 2005, the Company invested $20.0 million in a preferred equity position (“Preferred Equity Investment”) with Levitz SL, L.L.C. (“Levitz SL”), the owner of fee and leasehold interests in 30 locations (the “Levitz Properties”) totaling 2.5 million square feet, of which the majority are currently leased to Levitz Furniture Stores. Klaff Realty L.P. (“Klaff”) is a managing member of Levitz SL. The Preferred Equity Investment received a return of 10%, plus a minimum return of capital of $2.0 million per annum. During March 2006, the rate of return was reset to the six-month LIBOR plus 644 basis points or approximately 11.5%. In October 2005, Levitz Furniture filed for bankruptcy under Chapter 11.
In June 2006, the Company converted the Preferred Equity Investment to a mortgage loan in the amount of $31.3 million. The loan has a maturity date of May 31, 2008 and has an interest rate of 10.5%. The loan is secured by fee and leasehold mortgages as well as a pledge of the entities owning 19 of the Levitz Properties totaling 1.8 million square feet. During the third quarter of 2006, Levitz SL sold one of the Levitz Properties located in Northridge, California and used $20.4 million of the proceeds to partially pay down the loan. As of September 30, 2006, the loan balance amounted to $10.9 million and is included in Notes Receivable. Management believes that the underlying value of the real estate is sufficient to recover the mortgage and accordingly, no reserve is required at September 30, 2006.
The following table summarizes the notional values and fair values of the Company’s derivative financial instruments as of September 30, 2006. The notional value does not represent exposure to credit, interest rate or market risks.
Back to Index
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On January 12, 2006, in conjunction with the purchase of a property, the Company assumed a loan of $3.8 million which bears interest at a fixed rate of 8.5% and matures on April 11, 2028.
On January 18, 2006, the Company drew an additional $1.8 million on an existing credit facility. On April 21, 2006, the Company paid down $15.0 million on this facility. On June 1, 2006, the Company drew an additional $19.2 million on this facility. On June 22, 2006 the entire existing balance of $30.4 million was paid off by the Company.
On January 24, 2006, in conjunction with the purchase of a partnership interest, the Company assumed a loan of $8.6 million which bears interest at a fixed rate of 6.4% and matures on November 1, 2032.
On February 22, 2006, the Company financed a property within its existing portfolio for $20.5 million. This loan bears interest at a fixed rate of 5.4% and matures on March 1, 2016. A portion of the proceeds were used to pay down $10.9 million on an existing credit facility.
On March 27, 2006, the Company refinanced a property for $30.0 million. This loan bears interest at LIBOR plus 140 basis points and matures on April 1, 2008. A portion of the proceeds were used to pay down the existing $12.1 million of debt on this property.
On May 18, 2006, the Company closed on a construction loan for a property up to $12.0 million. This loan bears interest at LIBOR plus 165 basis points and matures on May 18, 2009. Proceeds from this loan will be drawn down as needed and will be used to fund construction work. As of September 30, 2006, the amount outstanding on this loan is $2.5 million.
On May 31, 2006, the Company borrowed an additional $13.0 million on an existing $65.0 million revolving credit facility. This additional draw was repaid on June 30, 2006. The existing balance as of September 30, 2006 is $22.0 million. This loan bears interest at LIBOR plus 130 basis points and matures on June 1, 2010.
On June 16, 2006, in conjunction with the purchase of a property, the Company assumed a loan of $10.1 million which bears interest at a fixed rate of 5.45% and matures on June 11, 2013.
On July 12, 2006, the Company closed on a construction loan for a property for $19.2 million. This loan bears interest at LIBOR plus 125 basis points and matures on December 31, 2008. Proceeds from this loan will be drawn down as needed and will be used to fund construction work. As of September 30, 2006, the amount outstanding on this loan is $6.1 million.
On September 8, 2006, the Company financed a property for $23.5 million. This loan bears interest at a fixed rate of 6.06% and matures on August 29, 2016.
10. | RELATED PARTY TRANSACTIONS |
In February 2005, the Company issued $4.0 million of Restricted Common OP Units to Klaff for the balance of certain management contract rights as well as the rights to certain potential future revenue streams.
In June 2006, the Company converted its Preferred Equity Investment with Levitz SL, in which Klaff has an interest, into a mortgage loan (Note 7).
The Company also earns fees in connection with its rights to provide asset management, leasing, disposition, development and construction services for an existing portfolio of retail properties and/or leasehold interests in which Klaff has an interest. Net fees earned by the Company in connection with this portfolio were $1.0 million and $1.8 million for the three months ended September 30, 2006 and 2005, respectively, and $3.0 million and $5.1 million for the nine months ended September 30, 2006 and 2005, respectively. The amount is net of the payment of sub-management fees to Klaff of $0.3 million for the nine months ended September 30, 2005.
Lee Wielansky, the Lead Trustee of the Company, was paid a consulting fee of $25,000 for the three months ended September 30, 2006 and 2005, respectively, and $75,000 for the nine months ended September 30, 2006 and 2005, respectively.
17
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ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has two reportable segments: retail properties and multi-family properties. The accounting policies of the segments are the same as those described in the summary of significant accounting policies as discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. The Company evaluates property performance primarily based on net operating income before depreciation, amortization and certain nonrecurring items. The reportable segments are managed separately due to the differing nature of the leases and property operations associated with the retail versus residential tenants. The following tables set forth certain segment information for the Company for continuing operations for the three and nine months ended September 30, 2006 and 2005 and does not include activity related to unconsolidated partnerships:
| | Nine months ended September 30, 2006 | |
| | |
| |
| | Retail
Properties | | Multi-Family
Properties | | All
Other | | Total | |
| |
| |
| |
| |
| |
| | (dollars in thousands) | |
Revenues | | $ | 58,464 | | $ | 5,870 | | $ | 10,231 | | $ | 74,565 | |
Property operating expenses and real estate taxes | | | 15,640 | | | 3,284 | | | — | | | 18,924 | |
Other expenses | | | 12,445 | | | 1,249 | | | 2,178 | | | 15,872 | |
| |
|
| |
|
| |
|
| |
|
| |
Net property income before depreciation, amortization and certain nonrecurring items | | $ | 30,379 | | $ | 1,337 | | $ | 8,053 | | $ | 39,769 | |
| |
|
| |
|
| |
|
| |
|
| |
Depreciation and amortization | | $ | 17,532 | | $ | 1,132 | | $ | 351 | | $ | 19,015 | |
| |
|
| |
|
| |
|
| |
|
| |
Interest expense | | $ | 15,329 | | $ | 1,094 | | $ | — | | $ | 16,423 | |
| |
|
| |
|
| |
|
| |
|
| |
Real estate at cost | | $ | 610,367 | | $ | 42,249 | | $ | — | | $ | 652,616 | |
| |
|
| |
|
| |
|
| |
|
| |
Total assets | | $ | 740,855 | | $ | 39,369 | | $ | — | | $ | 780,224 | |
| |
|
| |
|
| |
|
| |
|
| |
Expenditures for real estate and improvements | | $ | 73,646 | | $ | 615 | | $ | — | | $ | 74,261 | |
| |
|
| |
|
| |
|
| |
|
| |
Reconciliation to net income | | | | | | | | | | | | | |
Net property income before depreciation and amortization | | $ | 39,769 | | | | | | | | | | |
Depreciation and amortization | | | (19,015 | ) | | | | | | | | | |
Income from discontinued operations | | | 1,434 | | | | | | | | | | |
Equity in earnings of unconsolidated affiliates | | | 4,261 | | | | | | | | | | |
Interest expense | | | (16,423 | ) | | | | | | | | | |
Income taxes | | | (174 | ) | | | | | | | | | |
Minority interest | | | 3,471 | | | | | | | | | | |
| |
|
| | | | | | | | | | |
Net income | | $ | 13,323 | | | | | | | | | | |
| |
|
| | | | | | | | | | |
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ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. | SEGMENT REPORTING (continued) |
| | Three months ended September 30, 2006 | |
| | |
| |
| | Retail
Properties | | Multi-Family
Properties | | All
Other | | Total | |
| |
| |
| |
| |
| |
| | (dollars in thousands) | |
Revenues | | $ | 20,149 | | $ | 1,870 | | $ | 4,097 | | $ | 26,116 | |
Property operating expenses and real estate taxes | | | 5,328 | | | 1,197 | | | — | | | 6,525 | |
Other expenses | | | 4,615 | | | 235 | | | 936 | | | 5,786 | |
| |
|
| |
|
| |
|
| |
|
| |
Net property income before depreciation, amortization and certain nonrecurring items | | $ | 10,206 | | $ | 438 | | $ | 3,161 | | $ | 13,805 | |
| |
|
| |
|
| |
|
| |
|
| |
Depreciation and amortization | | $ | 5,952 | | $ | 380 | | $ | 117 | | $ | 6,449 | |
| |
|
| |
|
| |
|
| |
|
| |
Interest expense | | $ | 5,219 | | $ | 365 | | $ | — | | $ | 5,584 | |
| |
|
| |
|
| |
|
| |
|
| |
Real estate at cost | | $ | 610,367 | | $ | 42,249 | | $ | — | | $ | 652,616 | |
| |
|
| |
|
| |
|
| |
|
| |
Total assets | | $ | 740,855 | | $ | 39,369 | | $ | — | | $ | 780,224 | |
| |
|
| |
|
| |
|
| |
|
| |
Expenditures for real estate and improvements | | $ | 24,749 | | $ | 244 | | $ | — | | $ | 24,993 | |
| |
|
| |
|
| |
|
| |
|
| |
Reconciliation to net income | | | | | | | | | | | | | |
Net property income before depreciation and amortization | | $ | 13,805 | | | | | | | | | | |
Depreciation and amortization | | | (6,449 | ) | | | | | | | | | |
Income from discontinued operations | | | 374 | | | | | | | | | | |
Equity in earnings (losses) of unconsolidated affiliates | | | (2,878 | ) | | | | | | | | | |
Interest expense | | | (5,584 | ) | | | | | | | | | |
Income taxes | | | 638 | | | | | | | | | | |
Minority interest | | | 4,216 | | | | | | | | | | |
| |
|
| | | | | | | | | | |
Net income | | $ | 4,122 | | | | | | | | | | |
| |
|
| | | | | | | | | | |
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ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. | SEGMENT REPORTING (continued) |
| | Nine months ended September 30, 2005 | |
| | |
| |
| | Retail
Properties | | Multi-
Family
Properties | | All
Other | | Total | |
| | |
| |
| |
| |
| |
| | (dollars in thousands) | |
Revenues | | $ | 65,211 | | $ | 5,683 | | $ | 4,998 | | $ | 75,892 | |
Property operating expenses and real estate taxes | | | 17,326 | | | 3,092 | | | — | | | 20,418 | |
Other expenses | | | 9,038 | | | 788 | | | 693 | | | 10,519 | |
| |
|
| |
|
| |
|
| |
|
| |
Net property income before depreciation, amortization and certain nonrecurring items | | $ | 38,847 | | $ | 1,803 | | $ | 4,305 | | $ | 44,955 | |
| |
|
| |
|
| |
|
| |
|
| |
Depreciation and amortization | | $ | 17,696 | | $ | 1,094 | | $ | 333 | | $ | 19,123 | |
| |
|
| |
|
| |
|
| |
|
| |
Interest expense | | $ | 12,438 | | $ | 994 | | $ | — | | $ | 13,432 | |
| |
|
| |
|
| |
|
| |
|
| |
Real estate at cost | | $ | 657,831 | | $ | 41,387 | | $ | — | | $ | 699,218 | |
| |
|
| |
|
| |
|
| |
|
| |
Total assets | | $ | 778,572 | | $ | 40,422 | | $ | — | | $ | 818,994 | |
| |
|
| |
|
| |
|
| |
|
| |
Expenditures for real estate and improvements | | $ | 101,090 | | $ | 772 | | $ | — | | $ | 101,862 | |
| |
|
| |
|
| |
|
| |
|
| |
Reconciliation to net income | | | | | | | | | | | | | |
Net property income before depreciation and amortization | | $ | 44,955 | | | | | | | | | | |
Depreciation and amortization | | | (19,123 | ) | | | | | | | | | |
Income from discontinued operations | | | 803 | | | | | | | | | | |
Equity in earnings of unconsolidated affiliates | | | 18,915 | | | | | | | | | | |
Interest expense | | | (13,432 | ) | | | | | | | | | |
Income taxes | | | (1,627 | ) | | | | | | | | | |
Minority interest | | | (14,476 | ) | | | | | | | | | |
| |
|
| | | | | | | | | | |
Net income | | $ | 16,015 | | | | | | | | | | |
| |
|
| | | | | | | | | | |
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ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. | SEGMENT REPORTING (continued) |
| | Three months ended September 30, 2005 | |
| |
| |
| | Retail
Properties | | Multi-
Family
Properties | | All
Other | | Total | |
| |
| |
| |
| |
| |
| | (dollars in thousands) | |
Revenues | | $ | 23,786 | | $ | 1,911 | | $ | 2,121 | | $ | 27,818 | |
Property operating expenses and real estate taxes | | | 5,411 | | | 1,191 | | | — | | | 6,602 | |
Other expenses | | | 3,192 | | | 114 | | | 277 | | | 3,583 | |
| |
|
| |
|
| |
|
| |
|
| |
Net property income before depreciation, amortization and certain nonrecurring items | | $ | 15,183 | | $ | 606 | | $ | 1,844 | | $ | 17,633 | |
| |
|
| |
|
| |
|
| |
|
| |
Depreciation and amortization | | $ | 6,454 | | $ | 370 | | $ | 116 | | $ | 6,940 | |
| |
|
| |
|
| |
|
| |
|
| |
Interest expense | | $ | 4,771 | | $ | 375 | | $ | — | | $ | 5,146 | |
| |
|
| |
|
| |
|
| |
|
| |
Real estate at cost | | $ | 657,831 | | $ | 41,387 | | $ | — | | $ | 699,218 | |
| |
|
| |
|
| |
|
| |
|
| |
Total assets | | $ | 778,572 | | $ | 40,422 | | $ | — | | $ | 818,994 | |
| |
|
| |
|
| |
|
| |
|
| |
Expenditures for real estate and improvements | | $ | 69,902 | | $ | 327 | | $ | — | | $ | 70,229 | |
| |
|
| |
|
| |
|
| |
|
| |
Reconciliation to net income | | | | | | | | | | | | | |
Net property income before depreciation and amortization | | $ | 17,633 | | | | | | | | | | |
Depreciation and amortization | | | (6,940 | ) | | | | | | | | | |
Income from discontinued operations | | | 511 | | | | | | | | | | |
Equity in earnings of unconsolidated affiliates | | | 18,528 | | | | | | | | | | |
Interest expense | | | (5,146 | ) | | | | | | | | | |
Income taxes | | | (1,627 | ) | | | | | | | | | |
Minority interest | | | (15,734 | ) | | | | | | | | | |
| |
|
| | | | | | | | | | |
Net income | | $ | 7,225 | | | | | | | | | | |
| |
|
| | | | | | | | | | |
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ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. | DISCONTINUED OPERATIONS |
SFAS No. 144 “Accounting for the Impairment or Disposal of Long Lived Assets” (“SFAS 144”) requires discontinued operations presentation for disposals of a “component” of an entity. In accordance with SFAS No. 144, the Company reflects the income and expenses and assets and liabilities for properties which became held for sale, as discontinued operations.
The combined results of operations of properties held for sale are reported separately as discontinued operations for the three and nine months ended September 30, 2006 and 2005. These are related to the Soundview Marketplace, Bradford Towne Centre, Greenridge Plaza, Luzerne Street Shopping Center and the Pittston Plaza which the Company was marketing for sale as of September 30, 2006. The three and nine months ended September 30, 2005 also included the Berlin Shopping Center, which was sold on July 7, 2005.
The combined results of operations and assets and liabilities of the properties classified as discontinued operations are summarized as follows:
| | September 30,
2006 | | December 31,
2005 | |
| |
| |
| |
| | (dollars in thousands) | |
ASSETS | | | | | | | |
Net real estate | | $ | 34,767 | | $ | 35,539 | |
Cash and cash equivalents | | | — | | | 9 | |
Cash in escrow | | | (2 | ) | | 292 | |
Rents receivable, net | | | 1,956 | | | 2,214 | |
Prepaid expenses | | | 649 | | | 311 | |
Deferred charges, net | | | 814 | | | 946 | |
Other assets | | | 415 | | | 415 | |
| |
|
| |
|
| |
Total assets of discontinued operations | | $ | 38,599 | | $ | 39,726 | |
| |
|
| |
|
| |
LIABILITIES | | | | | | | |
Mortgage notes payable | | $ | 13,599 | | $ | 13,800 | |
Accounts payable and accrued expenses | | | 724 | | | 653 | |
Other liabilities | | | 760 | | | 611 | |
| |
|
| |
|
| |
Total liabilities of discontinued operations | | $ | 15,083 | | $ | 15,064 | |
| |
|
| |
|
| |
| | For the three months ended
September 30, | | For the nine months ended
September 30, | |
| |
| |
| |
| | 2006 | | 2005 | | 2006 | | 2005 | |
| |
| |
| |
| |
| |
| | (dollars in thousands) | |
Total revenues | | $ | 2,133 | | $ | 2,310 | | $ | 6,813 | | $ | 7,329 | |
Total expenses | | | 1,752 | | | 1,739 | | | 5,351 | | | 5,694 | |
| |
|
| |
|
| |
|
| |
|
| |
| | | 381 | | | 571 | | | 1,462 | | | 1,635 | |
Impairment of real estate | | | — | | | — | | | — | | | (770 | ) |
Loss on sale of property | | | — | | | (50 | ) | | — | | | (50 | ) |
Minority interest | | | (7 | ) | | (10 | ) | | (28 | ) | | (12 | ) |
| |
|
| |
|
| |
|
| |
|
| |
Income from discontinued operations | | $ | 374 | | $ | 511 | | $ | 1,434 | | $ | 803 | |
| |
|
| |
|
| |
|
| |
|
| |
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ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. | STOCK-BASED COMPENSATION |
The Company adopted the fair value method of recording stock-based compensation contained in SFAS No. 123R, “Accounting for Stock-Based Compensation” as of January 1, 2002. As such, stock based compensation awards granted after December 31, 2001 have been expensed over the vesting period based on the fair value at the date the stock-based compensation was granted.
On January 6, 2006 (the “Grant Date”), the Company issued 62,630 options to officers (“Officers”) and employees (“Employees”) of the Company. The options, which have an exercise price of $20.65, are for ten-year terms and vest one third as of the Grant Date and one third on each of the next two anniversaries thereof. The Company has determined a value of $3.03 per option using the binomial method for valuing such options. In prior periods, the Company utilized the Black-Scholes method for valuing options granted and believes that the binomial method more accurately reflects the value of the options. This change had no material effect on the value of the unvested options or the Company’s consolidated financial statements. Accordingly, compensation expense of $0.1 million has been recognized in the accompanying consolidated financial statements related to the options for the nine months ended September 30, 2006.
On the Grant Date, the Company also issued 121,233 Restricted Common Shares (“Restricted Shares”) to Officers and 13,136 Restricted Shares (net of subsequent forfeitures) to Employees of the Company. In general, the Restricted Shares carry all the rights of Common Shares including voting and dividend rights, but may not be transferred, assigned or pledged until the recipients have a vested non-forfeitable right to such shares. Vesting with respect to the Restricted Shares issued to Officers, which is subject to the recipients’ continued employment with the Company through the applicable vesting dates, is over five years with 30% vesting on the Grant Date and 17.5% vesting on each of the next four anniversaries thereafter. In addition, vesting on 50% of the unvested Restricted Shares is also subject to certain total shareholder returns on the Company’s Common Shares. Vesting with respect to the Restricted Shares issued to Employees, which is subject to the recipients’ continued employment with the Company through the applicable vesting dates, is over five years with 30% vesting on the Grant Date and 17.5% vesting on each of the next four anniversaries thereafter. In addition, vesting on 25% of the unvested Restricted Shares is also subject to certain total shareholder returns on the Company’s Common Shares.
The total value of the above Restricted Share awards on the date of grant was $2.7 million, of which $2.0 million will be recognized in compensation expense over the vesting period. Compensation expense of $0.1 million and $0.8 million has been recognized in the accompanying consolidated financial statements related to these Restricted Shares for the three and nine months ended September 30, 2006.
On the Grant Date, the Company also issued 224,901 Restricted Shares to Officers and 28,706 Restricted Shares to Employees in connection with a special, one-time performance bonus recognizing management’s outstanding achievements in enhancing shareholder values over the past five years, including, but not limited to, total shareholder return and the recent recapitalization of the Brandywine Portfolio. The Restricted Shares will vest over a period of five years with 50% vesting on the third anniversary and 25% vesting on the following two anniversaries of the Grant Date. The total value of this special bonus was $5.1 million and is being recognized in compensation expense over the vesting period. Compensation expense of $0.1 million and $0.6 million has been recognized in the accompanying consolidated financial statements related to this special bonus for the three and nine months ended September 30, 2006.
On May 15, 2006, the Company issued 18,000 options and 4,801 unrestricted shares to Trustees of the Company in connection with Trustee fees. The options vest immediately. Trustee fee expense of $0.2 million has been recognized in the accompanying consolidated financial statements related to these options and unrestricted shares.
14. | DIVIDENDS AND DISTRIBUTIONS PAYABLE |
On August 11, 2006, the Board of Trustees of the Company approved and declared a cash dividend for the quarter ended September 30, 2006 of $0.185 per Common Share and Common OP Unit. The dividend was paid on October 13, 2006 to shareholders of record as of September 30, 2006.
On November 3, 2006, the Company completed the sale of the Bradford Towne Center, a property which had been classified as a discontinued operation, for $16.5 million. The Company intends to defer the taxable gain from this transaction by utilizing the provisions of Section 1031 of the Internal Revenue Code of 1986, as amended. As part of the transaction, the Company provided financing of $2.5 million to the purchaser. The loan matures on November 2, 2007 and bears interest at 10%.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion is based on the consolidated financial statements of the Company as of September 30, 2006 and 2005 and for the three and nine months then ended. This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results performance or achievements expressed or implied by such forward-looking statements. Such factors are set forth in our Form 10-K for the year ended December 31, 2005 and include, among others, the following: general economic and business conditions, which will, among other things, affect demand for rental space, the availability and creditworthiness of prospective tenants, lease rents and the availability of financing; adverse changes in our real estate markets, including, among other things, competition with other companies; risks of real estate development and acquisition; governmental actions and initiatives; and environmental/safety requirements.
OVERVIEW
We currently operate 76 properties, which we own or have an ownership interest in, consisting of 74 neighborhood and community shopping centers and two multi-family properties, which are located primarily in the Northeast, Mid-Atlantic and Midwestern regions of the United States. We receive income primarily from the rental revenue received from tenants at our properties, including recoveries, offset by operating and overhead expenses.
Our primary business objective is to acquire and manage commercial retail properties that will provide cash for distributions to shareholders while also creating the potential for capital appreciation to enhance investor returns. We focus on the following fundamentals to achieve this objective:
• | Own and operate a portfolio of community and neighborhood shopping centers and mixed-use properties with a retail component located in markets with strong demographics. |
• | Maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth. |
• | Generate internal growth within the portfolio through aggressive redevelopment, re-anchoring and leasing activities. |
• | Generate external growth through an opportunistic yet disciplined acquisition program. The emphasis is on targeting transactions with high inherent opportunity for the creation of additional value through redevelopment and leasing and/or transactions requiring creative capital structuring to facilitate the transactions. |
CRITICAL ACCOUNTING POLICIES
Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management bases its 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 both properties held for use and for sale for indicators of impairment. 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, and for properties held for sale, we reduce our carrying value to the fair value less costs to sell. Management does not believe that the value of any properties in our portfolio were impaired as of September 30, 2006.
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Bad Debts
We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make payments on arrearages in billed rents, as well as the likelihood that tenants will not have the ability to make payment on unbilled rents including estimated expense recoveries and straight-line rent. As of September 30, 2006, we have recorded an allowance for doubtful accounts of $2.4 million. If the financial condition of our tenants were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 2006 (“2006”) to the three months ended September 30, 2005 (“2005”)
Effective January 1, 2006, we account for our Funds I and II and Mervyns I and II investments on a consolidated basis pursuant to EITF 04-5. We utilized the retrospective approach in the application of EITF 04-5 and have presented all historical periods prior to 2006 on a consistent basis with 2006 and thereafter.
In addition, the Brandywine Portfolio operations were consolidated as part of Fund I for the three and nine months ended September 30, 2005. Subsequent to the recapitalization and conversion of interests from Fund I to GDC in January 2006, the Brandywine Portfolio is accounted for under the equity method of accounting for the three and nine months ended September 30, 2006. In the following tables, we have excluded the Brandywine Portfolio operations for the three and nine months ended September 30, 2005 for purposes of comparability with the three and nine months ended September 30, 2006.
(dollars in millions) | | 2006 | | 2005 As
Reported | | Brandywine
Portfolio | | 2005
Adjusted | | Change from 2005
Adjusted | |
|
$ | | % |
| |
| |
| |
| |
| |
| |
| |
Revenues | | | | | | | | | | | | | | | | | | |
Minimum rents | | $ | 17.1 | | $ | 20.2 | | $ | (3.7 | ) | $ | 16.5 | | $ | 0.6 | | 4 | % |
Percentage rents | | | 0.7 | | | 1.0 | | | (0.3 | ) | | 0.7 | | | — | | — | |
Expense reimbursements | | | 3.9 | | | 3.3 | | | (0.4 | ) | | 2.9 | | | 1.0 | | 34 | % |
Other property income | | | 0.3 | | | 1.2 | | | (0.2 | ) | | 1.0 | | | (0.7 | ) | (70 | )% |
Management fee income | | | 1.8 | | | 0.9 | | | 0.1 | | | 1.0 | | | 0.8 | | 80 | % |
Interest income | | | 2.3 | | | 1.2 | | | — | | | 1.2 | | | 1.1 | | 92 | % |
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|
| |
|
| |
|
| |
|
| |
|
| |
| |
Total revenues | | $ | 26.1 | | $ | 27.8 | | $ | (4.5 | ) | $ | 23.3 | | $ | 2.8 | | 12 | % |
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| |
The increase in minimum rents was attributable to additional rents following our acquisition of Chestnut Hill, Clark and Diversey and A&P Shopping Plaza as well as Fund II acquisitions of 161st Street in New York and a leasehold interest in Chicago (“2005/2006 Acquisitions”).
Expense reimbursements for both common area maintenance (“CAM”) and real estate taxes increased in 2006. CAM expense reimbursement increased $0.3 million as a result of the 2005/2006 Acquisitions. Real estate tax reimbursements increased $0.7 million, primarily as a result of the 2005/2006 Acquisitions as well as general increases in real estate taxes.
The decrease in other property income was the result of receipt of a bankruptcy claim settlement against a former tenant in 2005.
Management fee income increased primarily as a result of fees earned in connection with the acquisition of the Klaff management contract rights in January 2004 and February 2005 and additional management fees earned from our investments in unconsolidated affiliates.
The increase in interest income was attributable to additional interest income on our advances and notes receivable originated in 2005 and 2006 as well as higher balances in interest earning assets in 2006.
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(dollars in millions) | | 2006 | | 2005 As
Reported | | Brandywine
Portfolio | | 2005
Adjusted | | Change from 2005
Adjusted | |
|
$ | | % |
| |
| |
| |
| |
| |
| |
| |
Operating Expenses | | | | | | | | | | | | | | | | | | |
Property operating | | $ | 3.8 | | $ | 3.8 | | $ | (0.6 | ) | $ | 3.2 | | $ | 0.6 | | 19 | % |
Real estate taxes | | | 2.7 | | | 2.8 | | | (0.2 | ) | | 2.6 | | | 0.1 | | 4 | % |
General and administrative | | | 5.8 | | | 3.6 | | | — | | | 3.6 | | | 2.2 | | 61 | % |
Depreciation and amortization | | | 6.4 | | | 6.9 | | | (0.7 | ) | | 6.2 | | | 0.2 | | 3 | % |
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Total operating expenses | | $ | 18.7 | | $ | 17.1 | | $ | (1.5 | ) | $ | 15.6 | | $ | 3.1 | | 20 | % |
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The increase in property operating expenses was primarily the result of increased property operating expenses following the 2005/2006 Acquisitions and higher bad debt expense in 2006.
The increase in real estate taxes was due to general increases in real estate taxes experienced across the portfolio as well as increased real estate tax expense related to the 2005/2006 Acquisitions.
The increase in general and administrative expense was primarily attributable to increased compensation expense of $1.3 million, including stock-based compensation of $0.3 million, and $0.1 million of other overhead expenses following the expansion of our infrastructure related to increased activity in Fund assets and asset management services. In addition, general and administrative expense for 2006 included the reclassification within our income statement of certain construction related activities totaling $0.8 million which had the effect of increasing our construction fee income as well as reducing income allocated to minority interest along with a corresponding increase in general and administrative expense.
Depreciation expense increased $0.2 million in 2006. This was principally a result of increased depreciation expense following the 2005/2006 Acquisitions. Amortization expense remained unchanged, which was primarily the combination of an increase in amortization related to the 2005/2006 Acquisitions, specifically, amortization of tenant installation costs of $0.2 million and amortization of leasehold interest of $0.1 million offset by a decrease in amortization expense of $0.3 million related to the write off of certain Klaff management contracts following the disposition of these assets in 2005.
(dollars in millions) | | 2006 | | 2005 As
Reported | | Brandywine
Portfolio | | 2005
Adjusted | | Change from 2005
Adjusted | |
|
$ | | % |
| |
| |
| |
| |
| |
| |
| |
Other | | | | | | | | | | | | | | | | | | |
Equity in (losses) earnings of unconsolidated affiliates | | $ | (2.9 | ) | $ | 18.5 | | $ | 0.3 | | $ | 18.8 | | $ | (21.7 | ) | (115 | )% |
Interest expense | | | (5.6 | ) | | (5.1 | ) | | 0.9 | | | (4.2 | ) | | (1.4 | ) | (33 | )% |
Minority interest | | | 4.2 | | | (15.8 | ) | | 1.8 | | | (14.0 | ) | | 18.2 | | 130 | % |
Income taxes | | | 0.6 | | | (1.6 | ) | | — | | | (1.6 | ) | | 2.2 | | 138 | % |
Income from discontinued operations | | | 0.4 | | | 0.5 | | | — | | | 0.5 | | | (0.1 | ) | (20 | )% |
Equity in (losses) earnings of unconsolidated affiliates decreased primarily as a result of the Mervyns I and Mervyns II share of gains from the sale of Mervyns assets in 2005.
Interest expense increased $1.4 million in 2006 as a result of higher average outstanding borrowings in 2006.
Minority interest variance is attributable to the minority partner’s share of gains from the sale of Mervyns assets in 2005.
The variance in income tax expense relates to our share of gains, through Mervyns I and Mervyns II, from the sale of Mervyns locations during 2005.
Income from discontinued operations represents activity related to properties held for sale in 2006 and a property sold in 2005.
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RESULTS OF OPERATIONS
Comparison of the nine months ended September 30, 2006 (“2006”) to the nine months ended September 30, 2005 (“2005”)
(dollars in millions) | | 2006 | | 2005 As
Reported | | Brandywine
Portfolio | | 2005
Adjusted | | Change from 2005
Adjusted | |
|
$ | | % |
| |
| |
| |
| |
| |
| |
| |
Revenues | | | | | | | | | | | | | | | | | | |
Minimum rents | | $ | 51.4 | | $ | 57.0 | | $ | (10.1 | ) | $ | 46.9 | | $ | 4.5 | | 10 | % |
Percentage rents | | | 1.0 | | | 1.3 | | | (0.4 | ) | | 0.9 | | | 0.1 | | 11 | % |
Expense reimbursements | | | 11.1 | | | 10.9 | | | (1.6 | ) | | 9.3 | | | 1.8 | | 19 | % |
Other property income | | | 0.8 | | | 1.7 | | | (0.2 | ) | | 1.5 | | | (0.7 | ) | (47 | )% |
Management fee income | | | 4.3 | | | 2.4 | | | 0.4 | | | 2.8 | | | 1.5 | | 54 | % |
Interest income | | | 6.0 | | | 2.6 | | | — | | | 2.6 | | | 3.4 | | 131 | % |
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| |
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| |
|
| |
|
| |
| |
Total revenues | | $ | 74.6 | | $ | 75.9 | | $ | (11.9 | ) | $ | 64.0 | | $ | 10.6 | | 17 | % |
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| |
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| |
The increase in minimum rents was attributable to the 2005/2006 Acquisitions as well as re-tenanting activities and increased occupancy across the portfolio.
Expense reimbursements for both common area maintenance (“CAM”) and real estate taxes increased in 2006. CAM expense reimbursement increased $0.3 million as a result of higher tenant reimbursements following the 2005/2006 Acquisitions offset by a decrease in tenant reimbursements as a result of lower snow removal costs in 2006. Real estate tax reimbursements increased $1.5 million, primarily as a result of the 2005/2006 Acquisitions as well as general increases in real estate taxes and re-tenanting activities throughout the portfolio.
Management fee income increased primarily as a result of fees earned in connection with the acquisition of the Klaff management contract rights in January 2004 and February 2005 and additional management fees earned from our investments in unconsolidated affiliates.
The increase in interest income was a combination of additional interest income on our advances and notes receivable originated in 2005 and 2006 as well as higher balances in interest earning assets in 2006.
(dollars in millions) | | 2006 | | 2005 As
Reported | | Brandywine
Portfolio | | 2005
Adjusted | | Change from 2005
Adjusted | |
| |
$ | | % | |
| |
| |
| |
| |
| |
| |
| |
Operating Expenses | | | | | | | | | | | | | | | | | | |
Property operating | | $ | 11.1 | | $ | 13.0 | | $ | (2.3 | ) | $ | 10.7 | | $ | 0.4 | | 4 | % |
Real estate taxes | | | 7.8 | | | 7.5 | | | (0.6 | ) | | 6.9 | | | 0.9 | | 13 | % |
General and administrative | | | 15.9 | | | 10.5 | | | — | | | 10.5 | | | 5.4 | | 51 | % |
Depreciation and amortization | | | 19.0 | | | 19.1 | | | (1.9 | ) | | 17.2 | | | 1.8 | | 10 | % |
| |
|
| |
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| |
|
| |
|
| |
| |
Total operating expenses | | $ | 53.8 | | $ | 50.1 | | $ | (4.8 | ) | $ | 45.3 | | $ | 8.5 | | 19 | % |
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| |
The increase in property operating expenses was primarily the result of the recovery of approximately $0.5 million related to the settlement of our insurance claim in connection with the flood damage incurred at the Mark Plaza in 2005 and increased property operating expenses related to the 2005/2006 Acquisitions. These increases were offset by lower snow removal costs during 2006.
The increase in real estate taxes was due to general increases in real estate taxes experienced across the portfolio as well as increased real estate tax expense related to the 2005/2006 Acquisitions.
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The increase in general and administrative expense was attributable to increased compensation expense of $4.5 million to existing and new employees, including stock based compensation of $1.5 million, and $0.9 million of other overhead expenses following the expansion of our infrastructure related to increased activity in Fund assets and asset management services.
Depreciation expense increased $0.8 million in 2006. This was principally a result of increased depreciation expense following the 2005/2006 Acquisitions. Amortization expense increased $1.0 million, which was primarily the result of the 2005/2006 Acquisitions, specifically, loan amortization of $0.1 million, amortization of tenant installation costs of $0.7 million and amortization of leasehold interest of $0.4 million. These increases were offset by a decrease in amortization expense of $0.2 million, which was the result of the write off of certain Klaff management contracts following the disposition of these assets in 2005.
| | | | | | | | | | Change from 2005
Adjusted | |
| | | | | | | | | |
| |
(dollars in millions) | | 2006 | | 2005 As
Reported | | Brandywine
Portfolio | | 2005
Adjusted | | $ | | % | |
| |
| |
| |
| |
| |
| |
| |
Other | | | | | | | | | | | | | | | | | | |
Equity in earnings (losses) of unconsolidated affiliates | | $ | 4.3 | | $ | 18.9 | | $ | 0.5 | | $ | 19.4 | | $ | (15.1 | ) | (78 | )% |
Interest expense | | | (16.4 | ) | | (13.4 | ) | | 2.8 | | | (10.6 | ) | | (5.8 | ) | (55 | )% |
Minority interest | | | 3.5 | | | (14.5 | ) | | 3.8 | | | (10.7 | ) | | 14.2 | | 133 | % |
Income taxes | | | (0.2 | ) | | (1.6 | ) | | — | | | (1.6 | ) | | 1.4 | | 88 | % |
Income from discontinued operations | | | 1.4 | | | 0.8 | | | — | | | 0.8 | | | 0.6 | | 75 | % |
Equity in (losses) earnings of unconsolidated affiliates decreased primarily as a result of the Mervyns I and Mervyns II share of gains from the sale of Mervyns assets in 2005.
Interest expense increased $5.8 million as a result of higher average outstanding borrowings in 2006, $0.1 million resulting from higher average interest rates on the portfolio mortgage debt in 2006 as well as lower capitalized interest of $0.1 million in 2006.
Minority interest variance is attributable to the minority partner’s share of the gains from the sale of Mervyns assets in 2005.
The variance in income tax expense relates to our share of gains, through Mervyns I and Mervyns II, from the sale of Mervyns locations during 2005.
Income from discontinued operations represents activity related to properties held for sale in 2006 and properties sold in 2005.
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Funds from Operations
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 (or 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, FFO may not be comparable to the FFO of other REITs. FFO does not represent cash generated from operations as defined by 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 (or losses) from sales of depreciated property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. The reconciliation of net income to FFO for the three and nine months ended September 30, 2006 and 2005 is as follows:
| | Three months ended
September 30, | | Nine months ended
September 30, | |
| |
| |
| |
(dollars in millions) | | 2006 | | 2005 | | 2006 | | 2005 | |
| |
| |
| |
| |
| |
Net income | | $ | 4.1 | | $ | 7.2 | | $ | 13.3 | | $ | 16.0 | |
Depreciation of real estate and amortization of leasing costs (net of minority interests’ share): | | | | | | | | | | | | | |
Consolidated affiliates | | | 4.9 | | | 3.5 | | | 15.3 | | | 10.5 | |
Unconsolidated affiliates | | | .4 | | | 1.1 | | | 1.2 | | | 2.3 | |
Income attributable to Minority interest in Operating Partnership (1) | | | .1 | | | .1 | | | .3 | | | .3 | |
Gain (loss) on sale (net of minority share and income taxes) | | | .4 | | | (2.1 | ) | | (.4 | ) | | (2.1 | ) |
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| |
Funds from operations | | $ | 9.9 | | $ | 9.8 | | $ | 29.7 | | $ | 27.0 | |
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| |
Cash flows provided by (used in): | | | | | | | | | | | | | |
Operating activities | | | | | | | | $ | 21.7 | | $ | 21.0 | |
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| |
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| |
Investing activities | | | | | | | | $ | (80.0 | ) | $ | (138.2 | ) |
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| |
Financing activities | | | | | | | | $ | 36.8 | | $ | 142.9 | |
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| |
Notes:
(1) | Does not include distributions paid to Series A and B Preferred OP Unitholders. |
USES OF LIQUIDITY
Our principal uses of liquidity are expected to be for distributions to our shareholders and OP unit holders, debt service and loan repayments, and property investment, which includes the funding of our joint venture commitments, acquisition, redevelopment, expansion and re-tenanting activities.
Reference is made to Note 1 in the Notes to Consolidated Financial Statements in Part 1, Item 1 in this Form 10-Q for an overview of Funds I and II and Mervyns I and II.
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 quarter ended September 30, 2006, we paid a quarterly dividend of $0.185 per Common Share and Common OP Unit on October 13, 2006.
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Fund I and Mervyns I
On January 4, 2006, Fund I recapitalized a one million square foot retail portfolio located in Wilmington Delaware (“Brandywine Portfolio”) through a merger of interests with affiliates of GDC Properties (“GDC”). The Brandywine Portfolio was recapitalized through a “cash-out” merger of the 77.8% interest, which was previously held by the institutional investors in Fund I to affiliates of GDC at a valuation of $164.0 million. We, through a subsidiary, retained our existing 22.2% interest and continue to operate the Brandywine Portfolio and earn fees for such services. At the closing, the Fund I investors, excluding us, received a return of all of their capital invested in Fund I and preferred return, thus triggering our Promote distribution in all future Fund I distributions. In June 2006, the Fund I investors received $36.0 million of additional proceeds from this transaction following the replacement of bridge financing provided by us and the investors with permanent mortgage financing.
Following the recapitalization of the Brandywine Portfolio, there are 32 assets comprising approximately 2 million square feet remaining in Fund I, in which our interest in cash flow and income has increased from 22.2% to 37.8% as a result of the Promote as follows:
Shopping Center | | Location | | Year
acquired | | GLA | |
| |
| |
| |
| |
New York Region | | | | | | | |
New York | | | | | | | |
Tarrytown Shopping Center | | Westchester | | 2004 | | 35,291 | |
Mid-Atlantic Region | | | | | | | |
South Carolina | | | | | | | |
Hitchcock Plaza | | Aiken | | 2004 | | 233,886 | |
Pine Log Plaza | | Aiken | | 2004 | | 35,064 | |
Virginia | | | | | | | |
Haygood Shopping Center | | Virginia Beach | | 2004 | | 178,335 | |
Midwest Region | | | | | | | |
Ohio | | | | | | | |
Amherst Marketplace | | Cleveland | | 2002 | | 79,945 | |
Granville Centre | | Columbus | | 2002 | | 134,997 | |
Sheffield Crossing | | Cleveland | | 2002 | | 112,534 | |
Michigan | | | | | | | |
Sterling Heights Shopping Center | | Detroit | | 2004 | | 154,835 | |
Various Regions | | | | | | | |
Kroger/Safeway Portfolio | | Various | | 2003 | | 1,018,100 | |
| | | | | |
| |
Total | | | | | | 1,982,987 | |
| | | | | |
| |
In addition, we, along with the investors have invested in Mervyns as discussed further below.
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.
Retailer Controlled Property Venture (“RCP Venture”)
On January 27, 2004, along with our investors in Funds I and II, we entered into the RCP Venture with Klaff Realty, L.P. (“Klaff”) and Klaff’s long time capital partner Lubert-Adler Management, Inc. (“Lubert-Adler”) for the purpose of making investments in retailers or surplus or underutilized properties owned by retailers. The initial size of the RCP Venture is expected to be approximately $300.0 million in equity based on anticipated investments of approximately $1.0 billion. Each participant in the RCP Venture has the right to opt out of any potential investment. Each investment through the RCP Venture is a separate joint venture as it potentially involves different investment consortium partners. As of September 30, 2006, affiliates of Funds I and II (including us) have invested a total of $46.8 million in the RCP Venture. Fund II anticipates investing the remaining portion of the original 20% of the equity of the RCP Venture. Cash flow is to be distributed to the partners until they have received a 10% cumulative return and a full return of all contributions. Thereafter, remaining cash flow is to be distributed 20% to Klaff and 80% to the partners (including Klaff). We will also earn market-rate fees for property management, leasing and construction services on behalf of the RCP Venture.
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In September 2004, we made our first RCP Venture investment with our participation in the acquisition of Mervyns. Affiliates of Fund I and Fund II, through separately organized, newly formed limited liability companies on a non-recourse basis, invested in the acquisition of Mervyns through the RCP Venture, which, as part of an investment consortium with Sun Capital and Cerberus, acquired Mervyns from Target Corporation. The total acquisition price was approximately $1.2 billion subject to debt of approximately $800.0 million. Affiliates of Funds I and II invested a total of $24.6 million on a non-recourse basis. Our share of equity amounted to $5.2 million. During 2005, the consortium sold a portion of the portfolio as well as refinanced existing mortgage debt and distributed cash to the investors, of which a total of $42.7 million was distributed to affiliates of Fund I and Fund II of which our share amounted to $10.2 million. During the nine months ended September 30, 2006, the consortium distributed an additional $3.4 million to affiliates of Fund I and Fund II of which $1.0 million was our share.
During 2006, the RCP Venture made its second investment with its participation in the acquisition of Albertson’s. Affiliates of Fund II, through the same limited liability companies which were formed for the investment in Mervyns, invested $22.2 million in the acquisition of Albertson’s through the RCP Venture, along with others as part of an investment consortium. Our share of the invested capital was $4.4 million.
New York Urban Infill Redevelopment Initiative
In September 2004, we, through Fund II, launched our New York Urban Infill Redevelopment initiative. As retailers continue to recognize that many of the nation’s urban markets are underserved from a retail standpoint, Fund II’s intent is to capitalize on this trend by investing in redevelopment projects in dense urban areas where retail tenant demand has effectively surpassed the supply of available sites. During 2004, Fund II, together with an unaffiliated partner, P/A Associates, LLC (“P/A”), formed Acadia-P/A Holding Company, LLC (“Acadia-P/A”) for the purpose of acquiring, constructing, developing, owning, operating, leasing and managing certain retail real estate properties in the New York City metropolitan area. P/A has agreed to invest 10% of required capital up to a maximum of $2.0 million and Fund II, the managing member, has agreed to invest the balance to acquire assets in which Acadia-P/A agrees to invest. Operating cash flow is generally to be distributed pro-rata to Fund II and P/A until each has received a 10% cumulative return and then 60% to Fund II and 40% to P/A. Distributions of net refinancing and net sales proceeds, as defined, follow the distribution of operating cash flow except that unpaid original capital is returned before the 60%/40% split between Fund II and P/A, respectively. Upon the liquidation of the last property investment of Acadia-P/A, to the extent that Fund II has not received an 18% internal rate of return (“IRR”) on all of its capital contributions, P/A is obligated to return a portion of its previous distributions, as defined, until Fund II has received an 18% IRR. To date, Fund II has, in conjunction with P/A, invested in seven projects through Fund II as follows:
| | | | | | | | Redevelopment ($ in millions) | |
| | | | | | | |
| |
Property | | Location | | Year acquired | | Purchase price | | Anticipated additional costs | | Estimated completion | | Square feet upon completion | |
| |
| |
| |
| |
| |
| |
| |
Liberty Avenue (1) | | Queens | | 2005 | | $ | — | | $ | 15.0 | | 1st half 2007 | | 125,000 | |
216th Street | | Manhattan | | 2005 | | | 7.0 | | | 18.0 | | 2nd half 2007 | | 60,000 | |
Pelham Manor Shopping Center (1) | | Westchester | | 2004 | | | — | | | 35.0 | | 2nd half 2008 | | 325,000 | |
Canarsie Plaza (2) | | Brooklyn | | 2007 | | | — | | | 60.0 | | 2nd half 2008 | | 300,000 | |
161st Street | | Bronx | | 2005 | | | 49.0 | | | 21.0 | | 2nd half 2008 | | 225,000 | |
400 East Fordham Road | | Bronx | | 2004 | | | 30.0 | | | 80.0 | | 1st half 2009 | | 270,000 | |
4650 Broadway | | Manhattan | | 2005 | | | 25.0 | | | 30.0 | | 2nd half 2009 | | 175,000 | |
| | | | | |
|
| |
|
| | | |
| |
Total | | | | | | $ | 111.0 | | $ | 259.0 | | | | 1,480,000 | |
| | | | | |
|
| |
|
| | | |
| |
Notes:
| (1) | Fund II acquired a leasehold interest at this property. |
| (2) | Closing is anticipated in 2007, although such closing cannot be assured. |
Other Investments
During January 2006, we closed on a 20,000 square foot retail building in the Lincoln Park district in Chicago. The property was acquired from an affiliate of Klaff for $9.8 million. Tenants include Starbucks, Nine West, Vitamin Shoppe, The Body Shop, Papyrus and Cold Stone Creamery.
Also during January 2006, we acquired a 60% interest in the A&P Shopping Plaza located in Boonton, New Jersey. The property, which is 100% occupied and located in northeastern New Jersey, is a 63,000 square foot shopping center anchored by a 49,000 square foot A&P Supermarket. The remaining 40% interest is owned by a principal of P/A. Our 60% was acquired for $3.2 million.
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On June 16, 2006, we purchased 8400 and 8625 Germantown Road in Philadelphia, Pennsylvania for $16.0 million. We assumed a $10.1 million first mortgage loan which has a maturity date of June 11, 2013. The 40,570 square foot property is 100% occupied.
In March of 2005, we invested $20.0 million in a preferred equity position (“Preferred Equity Investment”) with Levitz SL, L.L.C. (“Levitz SL”), the owner of fee and leasehold interests in 30 locations (the “Levitz Properties”), totaling 2.5 million square feet, of which the majority are currently leased to Levitz Furniture Stores. Klaff is a managing member of Levitz SL. The Preferred Equity Investment received a return of 10%, plus a minimum return of capital of $2.0 million per annum. During March 2006, the rate of return was reset to the six-month LIBOR plus 644 basis points or 11.5%.
On June 1, 2006, we converted the Preferred Equity Investment to a mortgage loan and advanced additional proceeds bringing the total outstanding amount to $31.3 million. The loan has a maturity date of May 31, 2008 and has an interest rate of 10.5%. The loan is secured by fee and leasehold mortgages as well as a pledge of the entities owning 19 of the above remaining locations totaling 1.8 million square feet. During the third quarter of 2006, Levitz SL sold one of the Levitz Properties located in Northridge, California and used $20.4 million of the proceeds to pay down the loan. As of September 30, 2006, the loan balance amounted to $10.9 million. Although Levitz Furniture is currently operating under Chapter 11 bankruptcy protection, we believe the underlying value of the real estate is sufficient to recover the principal and interest due under the mortgage.
On September 21, 2006, we purchased 2914 Third Avenue in the Bronx, NY for $18.5 million. The 41,305 square foot property is 100% occupied by two tenants.
Property Development, Redevelopment and Expansion
Our redevelopment program focuses on selecting well-located neighborhood and community shopping centers and creating significant value through re-tenanting and property redevelopment. During the nine months ended September 30, 2006, we did not undertake any significant redevelopment projects within our core portfolio.
Additionally, for the year ending December 31, 2006, we currently estimate that capital outlays of approximately $2.0 million to $3.0 million will be required for tenant improvements, related renovations and other property improvements.
Share Repurchase
The repurchase of our Common Shares has historically been an additional use of liquidity. We have an existing share repurchase program that authorizes management, at its discretion, to repurchase up to $20.0 million of our outstanding Common Shares. Through May 5, 2006, we had repurchased 2.1 million Common Shares at a total cost of $11.7 million of which 2.0 million of these Common Shares have been subsequently reissued. The program may be discontinued or extended at any time and there is no assurance that we will purchase the full amount authorized. There were no Common Shares repurchased by us during the quarter ended September 30, 2006.
SOURCES OF LIQUIDITY
We intend on using the Company and Fund II as the primary vehicles for our future acquisitions, including investments in the RCP Venture and New York Urban/Infill Redevelopment initiative. Sources of capital for funding our joint venture commitments, other property acquisitions, redevelopment, expansion and re-tenanting, as well as future repurchases of Common Shares are expected to be obtained primarily from issuance of public equity or debt instruments, cash on hand, additional debt financings and future sales of existing properties. As of September 30, 2006, we had a total of approximately $23.1 million of additional capacity under our three existing debt facilities, $92.1 million under two existing debt facilities in Fund II, cash and cash equivalents on hand, inclusive of balances in Funds I and II, of $69.0 million. We anticipate that cash flow from operating activities will continue to provide adequate capital for all of our debt service payments, recurring capital expenditures and REIT distribution requirements.
Financing
At September 30, 2006, mortgage notes payable aggregated $388.5 million, including net valuation adjustment of debt at date of acquisition of $2.2 million, and were collateralized by 57 properties and related tenant leases. Interest rates on our outstanding mortgage indebtedness ranged from 5.0% to 8.5% with maturities that ranged from July 2007 to November 2032. Taking into consideration $90.9 million of notional principal under variable to fixed-rate swap agreements currently in effect, $326.4 million of the portfolio, or 84%, was fixed at a 5.8% weighted average interest rate and $59.9 million, or 16% was floating at a 6.7% weighted average interest rate. There is no debt scheduled to mature in 2006 and $54.9 million scheduled to mature in 2007 at weighted average interest rates of 6.3%. We will need to refinance this indebtedness or select other alternatives based on market conditions at that time.
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Reference is made to Note 9 in the Notes to Consolidated Financial Statements in Part I, Item 1 in this Form 10-Q for a summary of the financing and refinancing transactions since December 31, 2005:
The following table summarizes our mortgage indebtedness as of September 30, 2006 and December 31, 2005:
(dollars in millions) | | September 30,
2006 | | December 31,
2005 | | Interest Rate
at September 30, 2006 | | Maturity | | Properties Encumbered | | Payment Terms | |
| |
| |
| |
| |
| |
| |
| |
Mortgage notes payable – variable-rate | | | | | | | | | | | | | | | |
Bank of America, N.A. | | $ | 22.0 | | $ | 22.0 | | 6.62% (LIBOR + 1.30%) | | 6/1/2010 | | (1 | ) | (31 | ) |
Washington Mutual Bank, FA | | | 23.2 | | | 23.7 | | 6.82% (LIBOR + 1.50%) | | 4/1/2011 | | (2 | ) | (30 | ) |
Bank of America, N.A. | | | 33.6 | | | 44.5 | | 6.72% (LIBOR + 1.40%) | | 6/29/2012 | | (3 | ) | (33 | ) |
Bank of America, N.A. | | | 10.0 | | | 10.0 | | 6.72% (LIBOR + 1.40%) | | 6/29/2012 | | (4 | ) | (30 | ) |
RBS Greenwich Capital | | | 30.0 | | | — | | 6.72% (LIBOR + 1.40%) | | 4/1/2008 | | (5 | ) | (31 | ) |
Bank of America, N.A. | | | 6.1 | | | 4.9 | | 6.57% (LIBOR + 1.25%) | | 12/31/2008 | | (6 | ) | (31 | ) |
PNC Bank, National Association | | | 2.5 | | | — | | 6.97% (LIBOR + 1.65%) | | 5/18/2009 | | (7 | ) | (40 | ) |
JP Morgan Chase. | | | 5.5 | | | 5.6 | | 7.32% (LIBOR + 2.00%) | | 10/5/2007 | | (8 | ) | (30 | ) |
Bank of China, New York Branch | | | 18.0 | | | 18.0 | | 7.07% (LIBOR + 1.75%) | | 11/1/2007 | | (9 | ) | (31 | ) |
Bank of America, N.A. | | | — | | | 24.4 | | 6.10% (LIBOR + 1.75%) | | 3/1/2008 | | (10 | ) | (31 | ) |
Bank of America, N.A. | | | — | | | 12.1 | | 6.07% (LIBOR + 1.50%) | | 2/1/2006 | | (5 | ) | (31 | ) |
Interest rate swaps | | | (91.0 | ) | | (92.4 | ) | | | | | | | | |
| |
|
| |
|
| | | | | | | | | |
Total variable-rate debt | | | 59.9 | | | 72.8 | | | | | | | | | |
| |
|
| |
|
| | | | | | | | | |
Mortgage notes payable – fixed-rate | | | | | | | | | | | | | | | |
Sun America Life Insurance Company | | | 12.7 | | | 12.9 | | 6.46 | % | 7/1/2007 | | (11 | ) | (30 | ) |
Bank of America, N.A. | | | 15.8 | | | 15.9 | | 7.55 | % | 1/1/2011 | | (12 | ) | (30 | ) |
RBS Greenwich Capital | | | 15.7 | | | 15.9 | | 5.19 | % | 6/1/2013 | | (13 | ) | (31 | ) |
RBS Greenwich Capital | | | 15.0 | | | 15.0 | | 5.64 | % | 9/6/2014 | | (14 | ) | (34 | ) |
RBS Greenwich Capital | | | 17.6 | | | 17.6 | | 4.98 | % | 9/6/2015 | | (15 | ) | (35 | ) |
RBS Greenwich Capital | | | 12.5 | | | 12.5 | | 5.12 | % | 11/6/2015 | | (16 | ) | (36 | ) |
Bear Stearns Commercial | | | 34.6 | | | 34.6 | | 5.53 | % | 1/1/2016 | | (17 | ) | (37 | ) |
Bear Stearns Commercial | | | 20.5 | | | — | | 5.44 | % | 3/1/2016 | | (18 | ) | (31 | ) |
LaSalle Bank, N.A. | | | 3.8 | | | — | | 8.50 | % | 4/11/2028 | | (19 | ) | (30 | ) |
GMAC Commercial | | | 8.6 | | | — | | 6.40 | % | 11/1/2032 | | (20 | ) | (30 | ) |
Column Financial, Inc. | | | 10.0 | | | — | | 5.45 | % | 6/11/2013 | | (21 | ) | (30 | ) |
Merrill Lynch Mortgage Lending, Inc. | | | 23.5 | | | — | | 6.06 | % | 8/29/2016 | | (22 | ) | (38 | ) |
Bank of China | | | 19.0 | | | 19.0 | | 5.26 | % | 9/1/2007 | | (23 | ) | (31 | ) |
Cortlandt Deposit Corp | | | 7.4 | | | 9.9 | | 6.62 | % | 2/1/2009 | | (24 | ) | (39 | ) |
Cortlandt Deposit Corp | | | 7.3 | | | 9.8 | | 6.51 | % | 1/15/2009 | | (25 | ) | (39 | ) |
The Ohio National Life Insurance Co. | | | 4.6 | | | 4.7 | | 8.20 | % | 6/1/2022 | | (26 | ) | (30 | ) |
Canada Life Insurance Company | | | 6.8 | | | 6.9 | | 8.00 | % | 1/1/2023 | | (27 | ) | (30 | ) |
UBS Warburg Real Estate | | | — | | | 30.0 | | 4.69 | % | 2/11/2008 | | (28 | ) | (31 | ) |
UBS Warburg Real Estate | | | — | | | 21.0 | | 7.01 | % | 7/11/2012 | | (28 | ) | (30 | ) |
UBS Warburg Real Estate | | | — | | | 16.0 | | 7.32 | % | 6/11/2012 | | (29 | ) | (30 | ) |
Interest rate swaps | | | 91.0 | | | 92.4 | | 5.77 | % | (41 | ) | | | | |
| |
|
| |
|
| | | | | | | | | |
Total fixed-rate debt | | | 326.4 | | | 334.1 | | | | | | | | | |
| |
|
| |
|
| | | | | | | | | |
Total fixed and variable debt | | | 386.3 | | | 406.9 | | | | | | | | | |
Valuation of debt at date of acquisition, net of amortization | | | 2.2 | | | 4.1 | | | | | | | | | |
| |
|
| |
|
| | | | | | | | | |
Total | | $ | 388.5 | | $ | 411.0 | | | | | | | | | |
| |
|
| |
|
| | | | | | | | | |
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Notes: | | |
(1) | | Bloomfield Town Square |
| | Hobson West Plaza |
| | Marketplace of Absecon |
| | Village Apartments |
(2) | | Ledgewood Mall |
(3) | | Abington Towne Center |
| | Branch Shopping Center |
| | Methuen Shopping Center |
| | Town Line Plaza |
(4) | | Smithtown Shopping Center |
(5) | | 244-268 161 st Street |
(6) | | 216 th Street |
(7) | | Liberty Avenue |
(8) | | Granville Center |
(9) | | 400 East Fordham Road |
(10) | | Acadia Strategic Acquisition Fund II, LLC |
(11) | | Merrillville Plaza |
(12) | | GHT Apartments/Colony Apartments |
(13) | | 239 Greenwich Avenue |
(14) | | New Loudon Center |
(15) | | Crescent Plaza |
(16) | | Pacesetter Park Shopping Center |
(17) | | Elmwood Park Shopping Center |
(18) | | Gateway Shopping Center |
(19) | | Clark-Diversey |
(20) | | Boonton |
(21) | | Chestnut Hill |
(22) | | Walnut Hill |
(23) | | Sherman Avenue |
(24) | | Kroger Portfolio |
(25) | | Safeway Portfolio |
(26) | | Amherst Marketplace |
(27) | | Sheffield Crossing |
(28) | | Brandywine Town Center |
(29) | | Market Square Shopping Center |
(30) | | Monthly principal and interest. |
(31) | | Interest only monthly. |
(32) | | Interest only monthly until fully drawn; monthly principal and interest thereafter. |
(33) | | Annual principal and monthly interest. |
(34) | | Interest only monthly until 9/06; monthly principal and interest thereafter. |
(35) | | Interest only monthly until 9/10; monthly principal and interest thereafter. |
(36) | | Interest only monthly until 11/08; monthly principal and interest thereafter. |
(37) | | Interest only monthly until 1/10; monthly principal and interest thereafter. |
(38) | | Interest only monthly until 11/11; monthly principal and interest thereafter. |
(39) | | Annual principal and semi-annual interest payments. |
(40) | | Interest only upon draw down on construction loan. |
(41) | | Maturing between 10/1/08 and 1/1/11. |
In 2006, we and GDC refinanced the Brandywine Portfolio for $166.2 million. Of the proceeds, $30.0 million was used to repay existing mortgage debt, $18.2 million to repay our bridge financing, $45.3 million to repay bridge financing from the other Fund I investors and $72.0 million distributed to us and GDC. Including the repayment of our bridge financing with interest, our distribution from this financing totaled $34.2 million.
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Asset Sales
Historically, asset sales have been an additional source of our liquidity. We continually review our portfolio to identify non-core assets. We are marketing the Soundview Marketplace, Bradford Towne Centre, Pittston Plaza, Greenridge Plaza and Luzerne Street Shopping Center for sale. We intend to defer the entire taxable gain which will be realized from these transactions by utilizing the provisions of Section 1031 of the Internal Revenue Code of 1986, as amended. If we are unable to defer such gain, it is possible we would either distribute part or all of the gain to our shareholders.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
At September 30, 2006, maturities on our mortgage notes ranged from July 2007 to November 2032. In addition, we have non-cancelable ground leases at five of our shopping centers. We also lease space for our White Plains corporate office for a term expiring in 2010. The following table summarizes our debt maturities and obligations under non-cancelable operating leases as of September 30, 2006:
| | Payments due by period | |
| |
| |
(dollars in millions) | | Total | | Less than
1 year | | 1 to 3
years | | 3 to 5
years | | More than
5 years | |
| |
| |
| |
| |
| |
| |
Future debt maturities | | $ | 386.3 | | $ | .6 | | $ | 105.4 | | $ | 52.3 | | $ | 228.0 | |
Interest obligations on debt | | | 132.6 | | | 5.0 | | | 40.4 | | | 32.0 | | | 55.2 | |
Operating lease obligations | | | 22.9 | | | 1.1 | | | 3.0 | | | 2.9 | | | 15.9 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total | | $ | 541.8 | | $ | 6.7 | | $ | 148.8 | | $ | 87.2 | | $ | 299.1 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
OFF BALANCE SHEET ARRANGEMENTS
We have investments in the following joint ventures for the purpose of investing in operating properties. We account for these investments using the equity method of accounting as we have a non-controlling interest. As such, our financial statements reflect our share of income from but not the assets and liabilities of these joint ventures.
We own a 49% interest in two partnerships that own the Crossroads Shopping Center (“Crossroads”). Our pro rata share of Crossroads mortgage debt as of September 30, 2006 was $31.4 million. This fixed-rate debt bears interest at 5.4% and matures in December 2014.
We own a 22.2% investment in various entities that own the Brandywine Portfolio. Our pro-rata share of Brandywine debt as of September 30, 2006, was $36.9 million with a fixed interest rate of 5.99%. These loans mature on July 1, 2016.
We also have a 50% interest in two Fund I investments of which our pro-rata share of mortgage debt (also net of the Fund I minority interest share) as of September 30, 2006, was $2.6 million with a weighted average interest rate of 6.96%. Both of these loans mature during August 2010.
HISTORICAL CASH FLOW
The following discussion of historical cash flow compares our cash flow for the nine months ended September 30, 2006 (“2006”) with our cash flow for the nine months ended September 30, 2005 (“2005”).
Cash and cash equivalents were $69.0 million and $41.8 million at September 30, 2006 and 2005, respectively. The increase of $27.2 million was a result of the following increases and decreases in cash flows:
| | Nine months ended September 30, | |
| |
| |
(dollars in millions) | | 2006 | | 2005 | | Change | |
| |
| |
| |
| |
Net cash provided by operating activities | | $ | 21.7 | | $ | 21.0 | | $ | 0.7 | |
Net cash used in investing activities | | $ | (80.0 | ) | $ | (138.2 | ) | $ | 58.2 | |
Net cash provided by financing activities | | $ | 36.8 | | $ | 142.9 | | $ | (106.1 | ) |
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The variance in net cash provided by operating activities resulted from a decrease of $0.6 million in operating income in 2006, after adjustments for non-cash expenses, which was primarily due to those factors discussed within Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations. In addition, a net increase in cash of $1.3 million resulted from changes in operating assets and liabilities.
The decrease in net cash used in investing activities was primarily the result of a $30.2 million decrease in cash used for real estate acquisitions, development and tenant installations, $24.8 million of additional return of capital from unconsolidated affiliates in 2006, primarily from our investment in the Brandywine Portfolio, and a net decrease of $28.1 million related to the 2005 Levitz preferred equity investment and the 2006 Levitz note receivable activity. These net decreases were offset by a $22.2 million investment in Albertson’s during 2006.
The decrease in net cash provided by financing activities resulted primarily from $34.4 million of additional distributions to minority interests in partially owned affiliates in 2006, primarily relating to the Mervyns investment and $66.0 million of additional cash used for the net repayment of debt in 2006.
INFLATION
Our long-term leases contain provisions designed to mitigate the adverse impact of inflation on our net income. Such provisions include clauses enabling us to receive percentage rents based on tenants’ gross sales, which generally increase as prices rise, and/or, in certain cases, escalation clauses, which generally increase rental rates during the terms of the leases. Such escalation clauses are often related to increases in the consumer price index or similar inflation indexes. In addition, many of our leases are for terms of less than ten years, which permits us to seek to increase rents upon re-rental at market rates if current rents are below the then existing market rates. Most of our leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes, insurance and utilities, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk:
Our primary market risk exposure is to changes in interest rates related to our mortgage debt. See the discussion under Item 2 for certain quantitative details related to our mortgage debt.
Currently, we manage our exposure to fluctuations in interest rates primarily through the use of fixed-rate debt and interest rate swap agreements. We are a party to current and forward-starting interest rate swap and cap transactions to hedge our exposure to changes in LIBOR with respect to $91.0 million, $24.5 million and $30.0 million of notional principal, respectively.
The following table sets forth information as of September 30, 2006 concerning our long-term debt obligations, including principal cash flows by scheduled maturity and weighted average interest rates of maturing amounts:
Consolidated mortgage debt:
(dollars in millions)
Year | | Scheduled
Amortization | | Maturities | | Total | | Weighted
average
interest rate | |
| |
| |
| |
| |
| |
2006 | | $ | 0.6 | | $ | — | | $ | 0.6 | | n/a | |
2007 | | | 7.3 | | | 54.9 | | | 62.2 | | 6.33 | % |
2008 | | | 8.3 | | | 34.9 | | | 43.2 | | 6.70 | % |
2009 | | | 7.4 | | | 2.5 | | | 9.9 | | 6.97 | % |
2010 | | | 5.6 | | | 36.8 | | | 42.4 | | 6.99 | % |
Thereafter | | | 35.2 | | | 192.8 | | | 228.0 | | 5.58 | % |
| |
|
| |
|
| |
|
| | | |
| | $ | 64.4 | | $ | 321.9 | | $ | 386.3 | | | |
| |
|
| |
|
| |
|
| | | |
Mortgage debt in unconsolidated partnerships (at our pro rata share):
(dollars in millions)
Year | | Scheduled
amortization | | Maturities | | Total | | Weighted
average
interest rate | |
| |
| |
| |
| |
| |
2006 | | $ | — | | $ | — | | $ | — | | n/a | |
2007 | | | 0.4 | | | — | | | 0.4 | | n/a | |
2008 | | | 0.4 | | | — | | | 0.4 | | n/a | |
2009 | | | 0.5 | | | — | | | 0.5 | | n/a | |
2010 | | | 0.5 | | | 2.5 | | | 3.0 | | 6.96 | % |
Thereafter | | | 2.2 | | | 64.3 | | | 66.5 | | 5.84 | % |
| |
|
| |
|
| |
|
| | | |
| | $ | 4.0 | | $ | 66.8 | | $ | 70.8 | | | |
| |
|
| |
|
| |
|
| | | |
Of our total outstanding debt, $54.9 million will become due in 2007. As we intend on refinancing some or all of such debt at the then-existing market interest rates which may be greater than the current interest rate, our interest expense would increase by approximately $0.5 million annually if the interest rate on the refinanced debt increased by 100 basis points. Interest expense on our variable debt as of September 30, 2006 would increase by $0.6 million for a 100 basis point increase in LIBOR on our $59.9 million of floating rate debt after taking into account the effect of interest rate swaps which hedge such debt. We may seek additional variable-rate financing if and when pricing and other commercial and financial terms warrant. As such, we would consider hedging against the interest rate risk related to such additional variable-rate debt through interest rate swaps and protection agreements, or other means.
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Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. In accordance with paragraph (b) of Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective.
(b) Internal Control over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings:
There have been no material legal proceedings beyond those previously disclosed in the Company’s filed Annual Report on Form 10-K for the year ended December 31, 2005.
Item 1A. Risk Factors
There have been no material changes in risk factors beyond those previously disclosed in the Company’s filed Annual Report on Form 10-K for the year ended December 31, 2005.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds:
None
Item 3. Defaults Upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
None
Item 5. Other Information:
None
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Part II. Other Information
Item 6. Exhibits:
Exhibit No. | | Description |
| |
|
| | |
3.1 | | Declaration of Trust of the Company, as amended (1) |
| | |
3.2 | | Fourth Amendment to Declaration of Trust (4) |
| | |
3.3 | | Amended and Restated By-Laws of the Company (22) |
| | |
4.1 | | Voting Trust Agreement between the Company and Yale University dated February 27, 2002 (14) |
| | |
10.1 | | 1999 Share Option Plan (8) (20) |
| | |
10.2 | | 2003 Share Option Plan (16) (20) |
| | |
10.3 | | Form of Share Award Agreement (17) (21) |
| | |
10.4 | | Form of Registration Rights Agreement and Lock-Up Agreement (18) |
| | |
10.5 | | Registration Rights and Lock-Up Agreement (RD Capital Transaction) (11) |
| | |
10.6 | | Registration Rights and Lock-Up Agreement (Pacesetter Transaction) (11) |
| | |
10.7 | | Contribution and Share Purchase Agreement dated as of April 15, 1998 among Mark Centers Trust, Mark Centers Limited Partnership, the Contributing Owners and Contributing Entities named therein, RD Properties, L.P. VI, RD Properties, L.P. VIA and RD Properties, L.P. VIB (9) |
| | |
10.8 | | Agreement of Contribution among Acadia Realty Limited Partnership, Acadia Realty Trust and Klaff Realty, L.P. and Klaff Realty, Limited (18) |
| | |
10.9 | | Employment agreement between the Company and Kenneth F. Bernstein (6) (21) |
| | |
10.11 | | Amendment to employment agreement between the Company and Kenneth F. Bernstein (18) (21) |
| | |
10.12 | | First Amendment to Employment Agreement between the Company and Kenneth Bernstein dated as of January 1, 2001 (12) (21) |
| | |
10.14 | | Letter of employment offer between the Company and Michael Nelsen, Sr. Vice President and Chief Financial Officer dated February 19, 2003 (15) (21) |
| | |
10.15 | | Severance Agreement between the Company and Joel Braun, Sr. Vice President, dated April 6, 2001 (13) (21) |
| | |
10.16 | | Severance Agreement between the Company and Joseph Hogan, Sr. Vice President, dated April 6, 2001 (13) (21) |
| | |
10.17 | | Severance Agreement between the Company and Joseph Napolitano, Sr. Vice President dated April 6, 2001 (18) (21) |
| | |
10.18 | | Severance Agreement between the Company and Robert Masters, Sr. Vice President and General Counsel dated January 2001 (18) (21) |
| | |
10.19 | | Severance Agreement between the Company and Michael Nelsen, Sr. Vice President and Chief Financial Officer dated February 19, 2003 (15) (21) |
| | |
10.20 | | Secured Promissory Note between RD Absecon Associates, L.P. and Fleet Bank, N.A. dated February 8, 2000 (7) |
| | |
10.21 | | Promissory Note between 239 Greenwich Associates, L.P. and Greenwich Capital Financial Products, Inc. dated May 30, 2003 (18) |
| | |
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Item 6. Exhibits: (continued)
Exhibit No. | | Description |
| |
|
| | |
10.22 | | Open-End Mortgage, Assignment of Leases and Rents, and Security Agreement between 239 Greenwich Associates, L.P. and Greenwich Capital Financial Products, Inc. dated May 30, 2003 (18) |
| | |
10.23 | | Promissory Note between Merrillville Realty, L.P. and Sun America Life Insurance Company dated July 7, 1999 (7) |
| | |
10.24 | | Secured Promissory Note between Acadia Town Line, LLC and Fleet Bank, N.A. dated March 21, 1999 (7) |
| | |
10.25 | | Promissory Note between RD Village Associates Limited Partnership and Sun America Life Insurance Company Dated September 21, 1999 (7) |
| | |
10.26 | | Amended and Restated Mortgage Note between Port Bay Associates, LLC and Fleet Bank, N.A. dated July 19, 2000 (3) |
| | |
10.27 | | Mortgage and Security Agreement between Port Bay Associates, LLC and Fleet Bank, N.A. dated July 19, 2000 (10) |
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10.28 | | Mortgage Note between Port Bay Associates, LLC and Fleet Bank, N.A. dated December 1, 2003 (18) |
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10.29 | | Mortgage and Security Agreement, and Assignment of Leases and Rents between Port Bay Associates, LLC and Fleet Bank, N.A. dated December 1, 2003 (18) |
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10.30 | | Note Modification Agreement between Port Bay Associates, LLC and Fleet Bank, N.A. dated December 1, 2003 (18) |
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10.31 | | Amended and Restated Promissory Note between Acadia Realty L.P. and Metropolitan Life Insurance Company for $25.2 million dated October 13, 2000 (10) |
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10.32 | | Amended and Restated Mortgage, Security Agreement and Fixture Filing between Acadia Realty L.P. and Metropolitan Life Insurance Company dated October 13, 2000 (10) |
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10.33 | | Term Loan Agreement between Acadia Realty L.P. and The Dime Savings Bank of New York, dated March 30, 2000 (10) |
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10.34 | | Mortgage Agreement between Acadia Realty L.P. and The Dime Savings Bank of New York, dated March 30, 2000 (10) |
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10.35 | | Promissory Note between RD Whitegate Associates, L.P. and Bank of America, N.A. dated December 22, 2000 (10) |
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10.36 | | Promissory Note between RD Columbia Associates, L.P. and Bank of America, N.A. dated December 22, 2000 (10) |
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10.37 | | Term Loan Agreement dated as of December 28, 2001, among Fleet National Bank and RD Branch Associates, L.P., et al (13) |
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10.38 | | Term Loan Agreement dated as of December 21, 2001, among RD Woonsocket Associates Limited Partnership, et al. and The Dime Savings Bank of New York, FSB (13) |
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10.39 | | Option Extension of Term Loan as of December 19, 2003 between RD Woonsocket Associates Limited Partnership, et al. and Washington Mutual Bank, FA (18) |
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10.40 | | Revolving Loan Promissory Note dated as of November 22, 2002, among RD Elmwood Associates, L.P. and Washington Mutual Bank, FA (15) |
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10.41 | | Revolving Loan Agreement dated as of November 22, 2002, among RD Elmwood Associates, L.P. and Washington Mutual Bank, FA (15) |
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10.42 | | Mortgage Agreement dated as of November 22, 2002, among RD Elmwood Associates, L.P. and Washington Mutual Bank, FA (15) |
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Item 6. Exhibits: (continued)
Exhibit No. | | Description |
| |
|
| | |
10.43 | | Note Modification Agreement between RD Elmwood Associates, L.P. and Washington Mutual Bank, FA dated December 19, 2003 (18) |
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10.44 | | Prospectus Supplement Regarding Options Issued under the Acadia Realty Trust 1999 Share Incentive Plan and 2003 Share Incentive Plan (19) (21) |
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10.45 | | Acadia Realty Trust 1999 Share Incentive Plan and 2003 Share Incentive Plan Deferral and Distribution Election Form (19) (21) |
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10.46 | | Amended, Restated And Consolidated Promissory Note between Acadia New Loudon, LLC and Greenwich Capital Financial Products, Inc. dated August 13, 2004 (19) |
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10.47 | | Amended, Restated And Consolidated Mortgage, Assignment Of Leases And Rents And Security Agreement between Acadia New Loudon, LLC and Greenwich Capital Financial Products, Inc. dated August 13, 2004 (19) |
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10.48 | | Amended and Restated Term Loan Agreement between Fleet National Bank and Heathcote Associates, L.P., Acadia Town Line, LLC, RD Branch Associates, L.P., RD Abington Associates Limited Partnership, And RD Methuen Associates Limited Partnership dated September 30, 2004 (19) |
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10.49 | | Mortgage Modification Agreement between Fleet National Bank and Acadia Town Line, LLC dated September 30, 2004 (19) |
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10.49a | | Mortgage Modification Agreement between Fleet National Bank and Heathcote Associates, L.P. dated September 30, 2004 (19) |
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10.49b | | Mortgage Modification Agreement between Fleet National Bank and RD Branch Associates dated September 30, 2004 (19) |
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10.49c | | Mortgage Modification Agreement between Fleet National Bank and RD Methuen Associates dated September 30, 2004 (19) |
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10.49d | | Mortgage Modification Agreement between Fleet National Bank and RD Abington Associates Limited Partnership dated September 30, 2004 (19) |
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10.50 | | Revolving Loan Agreement between Fleet National Bank and The Bank of China and RD Absecon Associates, L.P., RD Bloomfield Associates, L.P., RD Hobson Associates, L.P., RD Village Associates, L.P., and RD Woonsocket Associates L.P. dated May 26, 2005 (22) |
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10.51 | | Mortgage, Assignment of Leases and Rents and Security Agreement between Acadia Crescent Plaza, LLC and Greenwich Capital Financial Products, Inc. dated August 31, 2005 (22) |
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10.52 | | Mortgage, Assignment of Leases and Rents and Security Agreement between Pacesetter/Ramapo Associates and Greenwich Capital Financial Products, Inc. dated October 17, 2005 (22) |
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10.53 | | Loan Agreement between RD Elmwood Associates, L.P. and Bear Stearns Commercial Finance Mortgage, Inc. dated December 9, 2005 (22) |
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10.54 | | Mortgage and Security Agreement between RD Elmwood Associates, L.P. and Bear Stearns Commercial Finance Mortgage, Inc. dated December 9, 2005 (22) |
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Item 6. Exhibits: (continued)
Exhibit No. | | Description |
| |
|
| | |
10.55 | | Agreement and Plan Of Merger Dated as of December 22, 2005 by and among Acadia Realty Acquisition I, LLC, Ara Btc LLC, ARA MS LLC, ARA BS LLC, ARA BC LLC and ARA BH LLC, Acadia Investors, Inc., AII BTC LLC, AII MS LLC, AII BS LLC, AII BC LLC And AII BH LLC, Samuel Ginsburg 2000 Trust Agreement #1, Martin Ginsburg 2000 Trust Agreement #1, Martin Ginsburg, Samuel Ginsburg and Adam Ginsburg, and GDC SMG, LLC, GDC Beechwood, LLC, Aspen Cove Apartments, LLC and SMG Celebration, LLC (23) |
| | |
10.56 | | Amended and Restated Loan Agreement between Acadia Realty Limited Partnership, as lender, and Levitz SL Woodbridge, L.L.C., Levitz SL St. Paul, L.L.C., Levitz SL La Puente, L.L.C., Levitz SL Oxnard, L.L.C., Levitz SL Willowbrook, L.L.C., Levitz SL Northridge, L.L.C., Levitz SL San Leandro, L.L.C., Levitz SL Sacramento, L.L.C., HL Brea, L.L.C., HL Deptford, L.L.C., HL Hayward, L.L.C., HL San Jose, L.L.C., HL Scottsdale, L.L.C., HL Torrance, L.L.C., HL Irvine 1, L.L.C., HL West Covina, L.L.C., HL Glendale, L.L.C. and HL Northridge, L.L.C., each a Delaware limited liability company, Levitz SL Langhorne, L.P. and HL Fairless Hills, L.P., each a Delaware limited partnership (each, together with its permitted successors and assigns, a “Borrower” , and collectively, together with their respective permitted successors and assigns, “ Borrowers “), dated June 1, 2006 (24) |
| | |
10.57 | | Consent and Assumption Agreement between Thor Chestnut Hill, LP, Thor Chestnut Hill II, LP, Acadia Chestnut, LLC, Acadia Realty Limited Partnership and Wells Fargo Bank, N.A. dated June 9, 2006, original Mortgage and Security Agreement between Thor Chestnut Hill, LP and Thor Chestnut Hill II, LP and Column Financial, Inc. dated June 5, 2003 and original Assignment of Leases and Rents from Thor Chestnut Hill, LP and Thor Chestnut Hill II, LP to Column Financial, Inc. dated June 2003. (24) |
| | |
10.58 | | Loan Agreement and Promissory Note between RD Woonsocket Associates, L.P. and Merrill Lynch Mortgage Lending, Inc. dated September 8, 2006 (25) |
| | |
21 | | List of Subsidiaries of Acadia Realty Trust (25) |
| | |
31.1 | | Certification of Chief Executive Officer pursuant to rule 13a–14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (25) |
| | |
31.2 | | Certification of Chief Financial Officer pursuant to rule 13a–14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (25) |
| | |
32.1 | | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (25) |
| | |
32.2 | | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (25) |
| | |
99.1 | | Amended and Restated Agreement of Limited Partnership of the Operating Partnership (11) |
| | |
99.2 | | First and Second Amendments to the Amended and Restated Agreement of Limited Partnership of the Operating Partnership (11) |
| | |
99.3 | | Third Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership (18) |
| | |
99.4 | | Fourth Amendment to Amended and Restated Agreement of Limited Partnership of the Operating Partnership (18) |
| | |
99.5 | | Certificate of Designation of Series A Preferred Operating Partnership Units of Limited Partnership Interest of Acadia Realty Limited Partnership (2) |
| | |
99.6 | | Certificate of Designation of Series B Preferred Operating Partnership Units of Limited Partnership Interest of Acadia Realty Limited Partnership (18) |
| | |
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Item 6. Exhibits: (continued)
Notes:
(1) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal Year ended December 31, 1994 |
(2) | Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended June 30, 1997 |
(3) | Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 1998 |
(4) | Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 1998 |
(5) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Registration Statement on Form S-11 (File No. 33-60008) |
(6) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 1998 |
(7) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 1999 |
(8) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Registration Statement on Form S-8 filed September 28, 1999 |
(9) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Form 8-K filed on April 20, 1998 |
(10) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Form 10-K filed for the fiscal year ended December 31, 2000 |
(11) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Registration Statement on Form S-3 filed on March 3, 2000 |
(12) | Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 2001 |
(13) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2001 |
(14) | Incorporated by reference to the copy thereof filed as an Exhibit to Yale University’s Schedule 13D filed on September 25, 2002 |
(15) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2002 |
(16) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Definitive Proxy Statement on Schedule 14A filed April 29, 2003. |
(17) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Current Report on Form 8-K filed on July 2, 2003 |
(18) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2003 |
(19) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2004. |
(20) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2004. |
(21) | Management contract or compensatory plan or arrangement. |
(22) | Incorporated by reference to the copy thereof filed as an exhibit to the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2005. |
(23) | Incorporated by reference to the copy thereof filed as an Exhibit to the Company’s Current Report on Form 8-K filed on January 4, 2006 |
(24) | Incorporated by reference to the copy thereof filed as an Exhibit to Company’s Quarterly Report on Form 10-Q filed for the quarter ended June 30, 2006 |
(25) | Filed herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has fully caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ACADIA REALTY TRUST
November 9, 2006 | | /s/ Kenneth F. Bernstein |
| |
|
| | Kenneth F. Bernstein
President and Chief Executive Officer
(Principal Executive Officer) |
November 9, 2006 | | /s/ Michael Nelsen |
| |
|
| | Michael Nelsen
Senior Vice President and Chief Financial Officer
(Principal Financial Officer) |
44
