UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-12002 ACADIA REALTY TRUST (Exact name of registrant in its charter) MARYLAND 23-2715194 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 20 SOUNDVIEW MARKETPLACE, PORT WASHINGTON, NY 11050 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (516) 767-8830 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of May 4, 2000, there were 25,263,763 common shares of beneficial interest, par value $.001 per share, outstanding. ACADIA REALTY TRUST AND SUBSIDIARIES FORM 10-Q INDEX Part I: Financial Information Page Item 1. Financial Statements (unaudited) Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999 1 Consolidated Statements of Operations for the three months ended March 31, 2000 and 1999 2 Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and 1999 3 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosure of Market Risk 20 Part II: Other Information Item 2. Changes in Securities and Use of Proceeds 21 Item 5. Other Information 21 Item 6. Exhibits 21 Signatures 22 Part I. Financial Information Item 1. Financial Statements ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) March 31, 2000 December 31, (unaudited) 1999 ----------- ---- ASSETS Real estate Land $ 81,956 $ 81,956 Buildings and improvements 478,512 477,573 Properties under development 11,381 9,992 -------- -------- 571,849 569,521 Less: accumulated depreciation 95,200 90,932 -------- -------- Net real estate 476,649 478,589 Property held for sale 13,068 13,227 Cash and cash equivalents 13,203 35,340 Cash in escrow 10,419 9,707 Investments in unconsolidated partnerships 7,160 7,463 Rents receivable, net 8,171 8,865 Prepaid expenses 2,647 2,952 Due from related parties -- 19 Deferred charges, net 13,691 12,374 Other assets 2,323 2,267 -------- -------- $547,331 $570,803 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Mortgage notes payable $308,230 $326,651 Accounts payable and accrued expenses 5,827 6,385 Dividends and distributions payable 4,344 4,371 Other liabilities 3,649 4,224 -------- -------- Total liabilities 322,050 341,631 -------- -------- Minority interest in Operating Partnership 73,984 74,462 Minority interests in majority owned partnerships 2,220 2,223 -------- -------- Total minority interests 76,204 76,685 -------- -------- Shareholders' equity: Common shares, $.001 par value, authorized 100,000,000 shares, issued and outstanding 25,294,463 and 25,724,315 shares, respectively 26 26 Additional paid-in capital 165,231 168,641 Deficit (16,180) (16,180) -------- --------- Total shareholders' equity 149,077 152,487 -------- --------- $547,331 $ 570,803 ======== ========= See accompanying notes 1 ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (in thousands, except per share amounts) March 31, March 31, 2000 1999 (unaudited) (unaudited) ----------- ----------- Revenues Minimum rents $ 18,441 $17,353 Percentage rents 751 788 Expense reimbursements 3,844 3,458 Other 827 652 -------- ------- Total revenues 23,863 22,251 -------- ------- Operating Expenses Property operating 5,986 5,882 Real estate taxes 2,713 2,551 Depreciation and amortization 5,015 4,686 General and administrative 1,293 1,466 -------- ------- Total operating expenses 15,007 14,585 -------- ------- Operating income 8,856 7,666 Equity in earnings of un- consolidated partnerships 200 183 Loss on sale of properties -- (1,284) Interest expense (6,355) (5,424) -------- ------- Income before minority interest 2,701 1,141 Minority interest (827) (376) -------- ------- Net income $ 1,874 $ 765 ======== ======= Net income per Common Share - basic and diluted $ .07 $ .03 ======== ======= See accompanying notes 2 ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (in thousands) March 31, March 31, 2000 1999 (unaudited) (unaudited) ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,874 $ 765 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,015 4,686 Minority interests 827 376 Equity in income of unconsolidated partnerships (200) (183) Provision for bad debts 227 355 Stock-based compensation 197 -- Loss on sale of property -- 1,284 Changes in assets and liabilities: Funding of escrows, net (712) (658) Rents receivable 467 (920) Prepaid expenses 305 447 Due to related parties 19 (120) Other assets (115) 37 Accounts payable and accrued expenses (558) (2,748) Other liabilities (575) (686) ------- -------- Net cash provided by operating activities 6,771 2,635 ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for real estate and improvements (2,440) (10,970) Net proceeds from sale of property -- 6,128 Distributions from unconsolidated partnerships 503 -- Payment of deferred leasing costs (668) (105) ------- -------- Net cash used in investing activities (2,605) (4,947) ------- -------- See accompanying notes 3 ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (in thousands) March 31, March 31, 2000 1999 (unaudited) (unaudited) CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on mortgages $ (59,421) $ (975) Proceeds received on mortgage notes 41,000 4,250 Payment of deferred financing and other costs (1,066) (405) Dividends paid (3,089) -- Distributions to minority interests in Operating Partnership (1,258) -- Distributions on preferred Operating Partnership units (23) -- Repurchase of Common Shares (2,446) -- --------- ------- Net cash (used in) provided by financing activities (26,303) 2,870 --------- ------- (Decrease) increase in cash and cash equivalents (22,137) 558 Cash and cash equivalents, beginning of period 35,340 15,183 --------- ------- Cash and cash equivalents, end of period $ 13,203 $15,741 ========= ======= Supplemental disclosure of cash flow information: Cash paid during the period for interest, net of amounts capitalized of $169 and $372, respectively $ 6,360 $ 6,095 ========= ======== Supplemental disclosure of non-cash investing and financing activities: Acquisition of real estate by assumption of debt $ 7,661 ======== See accompanying notes 4 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts) 1. THE COMPANY Acadia Realty Trust (the "Company") is a fully integrated and self-managed real estate investment trust ("REIT") focused primarily on the ownership, acquisition, redevelopment and management of neighborhood and community shopping centers, and multi-family properties. All of the Company's assets are held by, and all of its operations are conducted through, Acadia Realty Limited Partnership (the "Operating Partnership") and its majority owned partnerships. As of March 31, 2000, the Company controlled 71% of the Operating Partnership as the sole general partner. The Company currently operates fifty-eight properties, which it owns or has an ownership interest in, consisting of forty-seven neighborhood and community shopping centers, three enclosed malls, two mixed-use properties (a retail/office center and a retail/residential property), five multi-family properties and one redevelopment property located in the Eastern and Midwestern regions of the United States. The retail/office center was held for sale as of March 31, 2000. 2. BASIS OF PRESENTATION The consolidated financial statements include the consolidated accounts of the Company and its majority owned partnerships, including the Operating Partnership, and have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Non-controlling investments in partnerships are accounted for under the equity method of accounting as the Company exercises significant influence. The information furnished in the accompanying consolidated financial statements reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the aforementioned consolidated financial statements for the interim periods. The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. 5 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts) 2. BASIS OF PRESENTATION, CONTINUED Actual results could differ from these estimates. Operating results for the three month period ended March 31, 2000 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2000. For further information refer to the consolidated financial statements and accompanying footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 3. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS The following table summarizes the change in the shareholders' equity and minority interests since December 31, 1999: Minority Minority interests in interests in Shareholders' Operating majority owned Equity Partnership(1) partnerships Balance at December 31, 1999 $152,487 $74,462 $ 2,223 Repurchase of Common Shares (2,446) -- -- Reissuance of treasury shares 197 -- -- Dividends and distributions declared of $0.12 per Common Share and Operating Partnership ("OP") Unit (3,035) (1,258) -- Net income for the period January 1 through March 31, 2000 1,874 780 (3) -------- ------- -------- Balance at March 31, 2000 $149,077 $73,984 $ 2,220 ======== ======= ======== (1) Net income attributable to minority interest in Operating Partnership and distributions do not include a distribution on Preferred OP Units of $50. Minority interests in Operating Partnership represent the limited partners' interest of 10,484,143 and 11,184,143 units in the Operating Partnership ("Common OP Units") at March 31, 2000 and 1999, respectively, and 2,212 units of preferred limited partnership interests (Preferred OP Units), with a nominal value of $1,000 per unit, which are entitled to a preferred quarterly distribution of $22.50 per unit (9% annually). Minority interests in majority owned partnerships represent interests held by third parties in four partnerships in which the Company has a majority ownership position. 6 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts) 4. INVESTMENT IN PARTNERSHIPS The Company owns a 49% interest in the Crossroads Joint Venture and Crossroads II Joint Venture (collectively "Crossroads") and accounts for this investment using the equity method. Summary financial information of the Crossroads and the Company's investment in and share of income from Crossroads follows: March 31, December 31, 2000 1999 ---- ---- Balance Sheet Assets: Rental property, net $ 8,690 $ 8,801 Other assets 5,014 5,204 -------- -------- Total assets $ 13,704 $ 14,005 ======== ======== Liabilities and partners' equity Mortgage note payable $ 34,993 $35,105 Other liabilities 781 777 Partners' equity (22,070) (21,877) -------- ------- Total liabilities and partners' equity $ 13,704 $14,005 ======== ======= Company's investment in partnerships $ 7,160 $ 7,463 ======== ======= March 31, March 31, 2000 1999 ---- ---- Statement of Operations Total revenue $ 1,865 $ 1,803 Operating and other expenses 458 463 Interest expense 667 634 Depreciation and amortization 133 132 -------- -------- Net income $ 607 $ 574 ======== ======== Company's share of net income $ 298 $ 281 Amortization of excess investment (See below) 98 98 -------- -------- Income from partnerships $ 200 $ 183 ======== ======== The unamortized excess of the Company's investment over its share of the net equity in Crossroads at the date of acquisition was $19,580. The portion of this excess attributable to buildings and improvements is being amortized over the life of the related property. 7 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts) 5. MORTGAGE LOANS On January 31, 2000, the Company repaid $23,090 of outstanding debt with a life insurance company from working capital. The remaining outstanding debt of $30,735 with this lender was fully repaid with the proceeds from the March 30, 2000 bank financing as described below. On February 8, 2000, the Company closed on a revolving credit facility with a bank, which provides for the borrowing of up to $7,400. The facility, which is secured by one of the Company's properties, matures in March 2003 and requires the monthly payment of interest at the rate of LIBOR plus 150 basis points (the rate increases by an additional 25 basis points if the amount outstanding under the facility exceeds 50% of the value of the collateral). The monthly repayment of principal amortized over 25 years is required only if the Company draws the full amount available under the facility. As of March 31, 2000, the Company had not drawn any amounts under this facility. On March 23, 2000, the Company fully repaid $4,600 of outstanding debt with a bank which was collateralized by one of the Company's properties. On March 30, 2000, the Company closed on a $59,000 secured financing line with a bank (the "Line"). The Line is secured by five of the seven properties that collateralized a loan with a life insurance company which was retired using $30,735 of the proceeds from the initial $36,000 funding. The balance of the Line must be drawn by April 2001. The Line matures April 1, 2005 and requires the monthly payment of interest at a variable-rate of LIBOR + 175 basis points and principal amortized over 30 years. After September 2001, the debt can be prepaid without prepayment or yield maintenance fees. As of March 31, 2000, $36,000 was outstanding under the Line. 6. RELATED PARTY TRANSACTIONS The Company manages three properties in which certain current shareholders of the Company or their affiliates have ownership interests. Management fees earned by the Company under these contracts are at rates ranging from 3.0% to 3.5%. Such fees aggregated $237 and $143 during the three month periods ended March 31, 2000 and 1999, respectively. 7. DIVIDENDS AND DISTRIBUTIONS PAYABLE On February 29, 2000, the Board of Trustees of the Company approved and declared a cash quarterly dividend for the quarter ended March 31, 2000 of $0.12 per Common Share and Common OP Unit. The dividend was paid on April 17, 2000 to the shareholders of record as of March 31, 2000. The Board of Trustees also approved a distribution of $22.50 per Preferred OP Unit which was paid on April 17, 2000 as well. 8 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts) 8. PER SHARE DATA For the three month periods ended March 31, 2000 and 1999, basic earnings per share was determined by dividing the net income applicable to common shareholders for each period by the weighted average number of common shares of beneficial interest ("Common Shares") outstanding during each period consistent with the Financial Accounting Standards Board Statement No. 128. The weighted average number of shares outstanding for the three month periods ended March 31, 2000 and 1999 were 25,476,098 and 25,419,215, respectively. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue Common Shares were exercised or converted into Common Shares or resulted in the issuance of Common Shares that then shared in the earnings of the Company. For the three month periods ended March 31, 2000 and 1999 no additional shares were reflected as the impact would be anti-dilutive in such years. 9. SEGMENT REPORTING The Company has two reportable segments: retail properties and multi-family properties. The Company evaluates property performance primarily based on net operating income before depreciation, amortization and certain non-recurring 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. March 31, 2000 -------------- Retail Multi-Family All Properties Properties Other Total ---------- ------------ ----- ----- Revenues $ 19,482 $ 3,791 $ 590 $ 23,863 Property operating expenses and real estate taxes 7,274 1,425 - 8,699 Net property income before depreciation, amortization and certain nonrecurring items 12,208 2,366 590 15,164 Depreciation and amortization 4,395 498 122 5,015 Interest expense 5,239 1,066 50 6,355 Real estate at cost 489,387 82,462 - 571,849 Total assets 454,171 86,000 7,160 547,331 Gross leasable area (multi-family - 2,273 units) 8,817 2,039 - 10,856 Expenditures for real estate and improvements 2,124 316 - 2,440 Reconciliation to income before minority interest Net property income before depreciation, amortization and certain nonrecurring items $ 15,164 Depreciation and amortization (5,015) General and administrative (1,293) Equity in earnings of unconsolidated partnerships 200 Interest expense (6,355) -------- Income before minority interest $ 2,701 ======== 9 ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts) 9. SEGMENT REPORTING (continued) March 31, 1999 -------------- Retail Multi-Family All Properties Properties Other Total ---------- ------------ ----- ----- Revenues $ 18,260 $ 3,694 $ 297 $ 22,251 Property operating expenses and real estate taxes 7,043 1,390 - 8,433 Net property income before depreciation, amortization and certain nonrecurring items 11,217 2,304 297 13,818 Depreciation and amortization 4,253 433 4,686 Interest expense 4,406 1,018 - 5,424 Real estate at cost 488,478 81,219 - 569,697 Total assets 446,953 82,383 7,699 537,035 Gross leasable area (multi-family - 2,273 units) 8,561 2,039 - 10,600 Expenditures for real estate and improvements 10,717 253 - 10,970 Reconciliation to income before minority interest Net property income before depreciation, amortization and certain nonrecurring items $ 13,818 Depreciation and amortization (4,686) General and administrative (1,466) Equity in earnings of unconsolidated partnerships 183 Loss on sale of property (1,284) Interest expense (5,424) -------- Income before minority interest $ 1,141 ======== 10 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 Acadia Realty Trust (the "Company") as of March 31, 2000 and 1999 and for the three 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 the actual results, performance or achievements of the Company to be materially different from any future results performance or achievements expressed or implied by such forward-looking statements. Such factors 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 the Company's 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. RESULTS OF OPERATIONS Comparison of the three month period ended March 31, 2000 ("2000") to the three month period ended March 31, 1999 ("1999") Total revenues increased $1.6 million, or 7%, to $23.9 million for 2000 compared to $22.3 million for 1999. Minimum rents increased $1.0 million, or 6%, to $18.4 million for 2000 compared to $17.4 million for 1999. $591,000 of this increase was a result of the retenanting of the Ledgewood Mall, which included the installation of Wal*Mart and Circuit City, both of which commenced paying rent in March 1999. The acquisition of the Mad River Shopping Center in February 1999 and the Pacesetter Park Shopping Center in November 1999 ("1999 Acquisitions") contributed $466,000 to the increase in minimum rents. The redevelopment of 239 Greenwich Avenue, which was completed in December of 1999, contributed $395,000 to the increase in minimum rents as well. These increases were partially offset by a $213,000 decline in minimum rents following the sale of the Searstown Mall in February 1999 and the Auburn Plaza in March 1999 ("1999 Dispositions"). Expense reimbursements increased $386,000, or 11%, from $3.4 million for 1999 to $3.8 million for 2000. The 1999 Acquisitions contributed $196,000 to the increase. Ledgewood Mall also contributed $118,000 to the increase, primarily as a result of the retenanting of the property. The balance of the increase was due to an increase in expense reimbursements in the balance of the portfolio primarily as a result of increases in reimbursable operating expenses and real estate taxes. These increases were partially offset by a $102,000 decrease as a result of the 1999 Dispositions. Other income increased $175,000 for 2000 which was primarily a result of $95,000 in additional third-party property management fees earned in 2000 and a $91,000 increase in interest income due to greater interest earning assets in 2000. Total operating expenses increased $422,000, or 3%, to $15.0 million for 2000, from $14.6 million for 1999. Property operating expenses increased $104,000, or 2%, to $6.0 million for 2000 compared to $5.9 million for 1999. Of this increase, $156,000 was attributable to the 1999 Acquisitions. The remaining increase, throughout the balance of the portfolio, was in reimbursable operating expenses which also resulted in an increase in expense reimbursement income as previously discussed. These increases were partially offset by the $129,000 decrease following the 1999 Dispositions. Real estate taxes increased $162,000, or 6%, from $2.5 million for 1999 to $2.7 million for 2000. The 1999 Acquisitions contributed $112,000 of this increase. The balance of the increase was experienced throughout the balance of the portfolio. The 1999 Dispositions resulted in an $83,000 decrease in real estate taxes. 11 RESULTS OF OPERATIONS, continued Depreciation and amortization increased $329,000, or 7%, from $4.7 million for 1999 to $5.0 million for 2000. Depreciation increased $227,000 and amortization expense increased $102,000. Depreciation related to the redevelopment costs for 239 Greenwich Avenue and installation costs associated with the retenanting of the Ledgewood Mall contributed $144,000 to the increase in depreciation expense. The 1999 Acquisitions also contributed $76,000 to the increase. The increase in amortization expense was primarily attributable to the amortization of financing costs related to additional financings in 1999 and 2000. General and administrative expense decreased $173,000, or 12%, from $1.5 million for 1999 to $1.3 million for 2000, which was primarily attributable to a $50,000 decrease in expenses in 2000 following the relocation of the Pennsylvania regional office and lower third-party professional fees in 2000. Interest expense of $6.4 million for 2000 increased $931,000, or 17%, from $5.4 million for 1999 primarily attributable to the higher average outstanding borrowings related to property acquisition and redevelopment activities. Funds from Operations The Company, along with most industry analysts, considers funds from operations ("FFO") as defined by the National Association of Real Estate Investment Trusts ("NAREIT") as an appropriate supplemental measure of operating performance. However, FFO does not represent cash generated from operations as defined by generally accepted accounting principles and is not indicative of cash available to fund cash needs. It should not be considered as an alternative to net income for the purpose of evaluating the Company's performance or to cash flows as a measure of liquidity. Generally, NAREIT defines FFO as net income (computed in accordance with generally accepted accounting principles) before gains (losses) on sales of property, plus depreciation on real estate and amortization of capitalized leasing costs, and after adjustments for unconsolidated partnerships and joint ventures on the same basis. The reconciliation of net income to FFO for the three month periods ended March 31, 2000 and 1999 is as follows: For the quarter ended March 31, 2000 1999 ---------- ----------- Net income $1,874 $ 765 Depreciation of real estate and amortization of leasing costs: Wholly owned and consolidated partnerships 4,737 4,514 Unconsolidated partnerships 156 155 Income attributable to minority interest in Operating Partnership (a) 780 376 Loss on sale of property -- 1,284 ------ ------ Funds from operations $7,547 $7,094 ====== ====== Funds from operations per share (b) $ 0.21 $ 0.19 ====== ====== (a) Does not include distributions paid to Preferred OP Unitholders for the quarter ended March 31, 2000. (b) Assumes full conversion of a weighted average 10,484,143 and 11,184,143 Common OP Units into Common Shares for the quarter ended March 31, 2000 and 1999. 12 LIQUIDITY AND CAPITAL RESOURCES General The Company's principal uses of its liquidity are expected to be for distributions to its shareholders and OP unitholders, debt service and loan repayments, and property investment which includes acquisition, redevelopment, expansion and retenanting activities. In order to qualify as a REIT for Federal income tax purposes, the Company must currently distribute at least 95% of its taxable income to its shareholders. Effective 2001, the requirement will be reduced to 90% pursuant to the REIT Modernization Act passed in 1999. On February 29, 2000, the Board of Trustees of the Company approved and declared a cash quarterly dividend for the quarter ended March 31, 2000 of $0.12 per Common Share and Common Operating Partnership unit. The dividend was paid on April 17, 2000 to the shareholders of record as of March 31, 2000. The Board of Trustees also approved a distribution of $22.50 per Preferred OP Unit which was paid on April 17, 2000 as well. During the quarter ended March 31, 2000, the Company's share repurchase program was also a use of liquidity. For the three months ended March 31, 2000, the Company purchased 471,300 shares at a total cost of $2.4 million. Cumulatively, through March 31, 2000, the Company had repurchased 866,200 shares at a total cost of $4.4 million under the share repurchase program. The program, which allows for the repurchase of up to $10.0 million of the Company's outstanding Common Shares on the open market, may be discontinued or extended at any time and there is no assurance that the Company will purchase the full amount authorized. Sources of capital for funding property acquisition, redevelopment, expansion and retenanting, as well as repurchase of common stock are expected to be obtained from cash on hand, additional debt financings, sales of existing properties and additional equity offerings. As of March 31, 2000, the Company has $23.0 million available under a financing line with a bank as well as $7.4 available under a revolving credit facility with another bank. The Company also has eleven properties that are currently unencumbered and therefore available as potential collateral for future borrowings. The Company anticipates that cash flow from operating activities will continue to provide adequate capital for all debt service payments, recurring capital expenditures and REIT distribution requirements. Financing and Debt As of March 31, 2000 interest on the Company's mortgage indebtedness ranged from 7.2% to 9.6% with maturities that ranged from June 2000 to March 2022. Of the total outstanding debt, $199.9 million, or 65%, was carried at fixed interest rates with a weighted average of 8.3%, and $108.3 million, or 35%, was carried at variable rates with a weighted average of 7.8%. Of the total outstanding debt, $82.2 million will become due by 2001, with scheduled maturities of $41.0 million at an interest rate of 7.8% in 2000 and $41.2 million at an interest rate of 7.8% in 2001. The Company expects to refinance this maturing debt or select other alternatives based on market conditions at that time, although there can be no assurance as to the consummation or terms of such refinancings. The following summarizes certain significant financing transactions completed since December 31, 1999: On January 31, 2000, the Company paid down $23.0 million of outstanding debt with a life insurance company from working capital. The remaining outstanding debt of $30.1 million with this lender was fully repaid with the proceeds from the March 30, 2000 bank financing as described below. On February 8, 2000, the Company closed on a revolving credit facility with a bank, which provides for the borrowing of up to $7.4 million. The facility, which is secured by one of the Company's properties, matures in March 2003 and requires the monthly payment of interest at the rate of LIBOR plus 150 basis points (the rate increases by an additional 25 basis points if the amount outstanding under the facility exceeds 50% of the value of the collateral). The monthly repayment of principal amortized over 25 years is required only if the Company draws the full amount available under the facility. As of March 31, 2000, the Company had not drawn any amounts under this facility. On March 23, 2000, the Company fully repaid $4.6 million of outstanding debt with a bank which was collateralized by one of the Company's properties. 13 Financing and Debt, continued On March 30, 2000, the Company closed on a $59.0 million secured financing line with a bank (the "Line"). The Line is secured by five of the seven properties that collateralized a loan with a life insurance company which was retired using $30.1 million of the proceeds from the initial $36.0 million funding. The balance of the Line must be drawn by April 2001. The Line matures April 1, 2005 and requires the monthly payment of interest at a variable-rate of LIBOR + 175 basis points and principal amortized over 30 years. After September 2001, the debt can be prepaid without prepayment or yield maintenance fees. As of March 31, 2000, $36.0 million was outstanding under the Line. The following table summarizes the Company's mortgage indebtedness as of March 31, 2000: March 31, December 31, Interest 2000 1999 Rate ------------ ------------ -------- Mortgage notes payable - variable-rate General Electric Capital Corp. $ 7,098 $ 7,126 8.76% (Commercial paper rate +2.75%) Fleet Bank, N.A. 3,952 3,966 7.66% (LIBOR + 1.75%) Fleet Bank, N.A. 9,298 9,326 7.69% (LIBOR + 1.78%) Sun America Life Insurance Company 13,889 13,931 8.09% (LIBOR + 2.05%) Sun America Life Insurance Company 9,948 9,979 8.05% (LIBOR + 2.05%) KBC Bank 14,441 14,508 7.16% (LIBOR + 1.25%) First Union National Bank 13,729 13,750 7.56% (LIBOR + 1.65%) Dime Savings Bank of NY 36,000 -- 7.94% (LIBOR + 1.75%) -------- -------- Total variable-rate debt 108,355 72,586 -------- -------- Mortgage notes payable - fixed rate John Hancock Mutual Life Insurance Company -- 53,878 9.11% Metropolitan Life Insurance Company 41,000 41,000 7.75% Sun America Life Insurance Company 41,921 42,143 7.75% Huntoon Hastings Capital Corp. 6,222 6,222 7.50% North Fork Bank 9,978 5,000 7.75% M&T Real Estate Inc. -- 4,628 8.18% Anchor National Life Insurance Company 3,844 3,866 7.93% Lehman Brothers Holdings, Inc. 17,929 17,973 8.32% Mellon Mortgage Company 7,536 7,566 9.60% Northern Life Insurance Company 3,112 3,173 7.70% Bankers Security Life 2,145 2,189 7.70% Morgan Stanley Mortgage Capital 43,925 44,092 8.84% Nomura Asset Capital Corporation 22,263 22,335 9.02% -------- -------- Total fixed-rate debt 199,875 254,065 -------- -------- $308,230 $326,651 ======== ======== Properties Payment Maturity Encumbered Terms -------- ---------- ------- Mortgage notes payable - variable-rate General Electric Capital Corp. 01/01/02 (1) (19) Fleet Bank, N.A. 03/15/02 (2) (19) Fleet Bank, N.A. 05/31/02 (3) (19) Sun America Life Insurance Company 08/01/02 (4) (19) Sun America Life Insurance Company 10/01/02 (5) (19) KBC Bank 12/31/02 (6) (19) First Union National Bank 01/01/05 (7) (19) Dime Savings Bank of NY 04/01/05 (8) (19) Mortgage notes payable - fixed rate Metropolitan Life Insurance Company 06/01/00 (9) (20) Sun America Life Insurance Company 01/01/01 (10) $346(19) Huntoon Hastings Capital Corp. 09/01/02 (11) (21) North Fork Bank 12/01/02 (12) $38(19) M&T Real Estate Inc. -- -- -- Anchor National Life Insurance Company 01/01/04 (13) $33(19) Lehman Brothers Holdings, Inc. 03/01/04 (14) $139(19) Mellon Mortgage Company 05/23/05 (15) $70(19) Northern Life Insurance Company 12/01/08 (16) $41(19) Bankers Security Life 12/01/08 (16) $28(19) Morgan Stanley Mortgage Capital 11/01/21 (17) $380(19) Nomura Asset Capital Corporation 03/11/22 (18) $193(19) 14 Financing and Debt, continued Notes: (1) Soundview Marketplace (9) Valmont Plaza (17) Midway Plaza Luzerne Street Plaza Northside Mall (2) Town Line Plaza Green Ridge Plaza New Smyrna Beach Crescent Plaza Cloud Springs Plaza (3) Smithtown Shopping Center East End Centre Troy Plaza Martintown Plaza (4) Merrillville Plaza (10) Bloomfield Town Square Kings Fairgrounds Atrium Mall Shillington Plaza (5) Village Apartments Walnut Hill Shopping Center Dunmore Plaza GHT Apartments Kingston Plaza (6) Marley Run Apartments Colony Apartments Twenty Fifth Street Shopping Center Circle Plaza (7) 239 Greenwich Avenue (11) Gateway Mall Mountainville Plaza Birney Plaza (8) New Loudon Centre (12) The Branch Shopping Center Monroe Plaza Ledgewood Mall Ames Plaza Bradford Towne Centre Plaza 15 Berlin Shopping Center Route 6 Mall (13) Pittston Plaza (18) Northwood Centre (14) Glen Oaks Apartments (19) Monthly principal and interest (15) Mad River Station Shopping (20) Interest only monthly Center (16) Manahawkin Shopping Center (21) Interest only until 5/01; principal and interest thereafter 15 Property Investment activities The Company's acquisition program focuses on acquiring sub-performing neighborhood and community shopping centers that are well-located and creating significant value through retenanting, timely capital improvements and property redevelopment. In considering acquisitions, the Company focuses on quality shopping centers located in the Northeast, Mid-Atlantic, Southeast and Midwest regions. The Company considers both single assets and portfolios in its acquisition program. In conjunction with evaluating potential portfolio acquisitions, the Company also regularly engages in discussions with public and private entities regarding business combinations as well. Furthermore, the Company may, from time to time, consider acquiring multi-family apartment complexes as well as engaging in joint ventures related to property acquisition and development. The Company also periodically identifies certain properties for disposition and redeploys the capital to existing centers or acquisitions with greater potential for capital appreciation. Property Redevelopment and Retenanting During 1999, the Company received municipal approval to renovate and expand by approximately 30,000 square feet the 125,000 square foot Elmwood Park Shopping Center. As part of the redevelopment, the Company is planning to construct a 48,000 square foot free-standing A&P supermarket, replacing a 28,000 square foot in-line Grand Union supermarket at a significantly higher rent per square foot. The Company expects redevelopment costs of approximately $8.7 million through 2001 to complete this project. The Operating Partnership is also obligated to issue additional Common OP Units with a total value of $2.8 million upon the completion of this project and the commencement of rental payments from the A&P supermarket. The Company is also in the early stages of redeveloping two additional centers, the Atrium Mall in Abington, Pennsylvania and the Gateway Mall (formerly the Mall 189), located in Burlington, Vermont. The Company currently estimates these projects will require approximately $7.0 million through 2002 to fund their redevelopment. During the quarter ended March 31, 2000, the Company signed three leases in connection with the re-anchoring of three properties, the New Loudon Shopping Center in Latham, New York, the Northside Mall in Dothan, Alabama, and the Bloomfield Town Square in Bloomfield Hills, Michigan. In January 2000, the Company signed a lease with Ames Department Stores for 76,000 square feet at the New Loudon Center and in March 2000, the Company signed a lease with Stein Mart for 36,000 square feet at the Northside Mall. Also in March 2000, the Company leased 37,000 square feet to HomeGoods, an affiliate of the TJX Company, at the Bloomfield Hills property. The total anticipated installation costs for these three tenants, including the buyout cost of one of the former tenant's lease, are anticipated to be approximately $2.8 million. 16 HISTORICAL CASH FLOW The following discussion of historical cash flow compares the Company's cash flow for the three month period ended March 31, 2000 ("2000") with the Company's cash flow for the three month period ended March 31, 1999 ("1999"). Net cash provided by operating activities increased from $2.6 million for 1999 to $6.8 million for 2000. This variance was primarily attributable to an increase in operating income before non-cash expenses in 2000 and $2.3 million of additional cash used in 1999 for the payment of accounts payable and accrued expenses. Investing activities used $2.6 million during 2000, representing a $2.3 million decrease from $4.9 million of cash used during 1999. This was the result of an $8.0 million decrease in expenditures for real estate acquisitions, development and tenant installation in 2000 and $503,000 of distributions received from an unconsolidated subsidiary partnership in 2000, offset by net sales proceeds of $6.1 million received in 1999 following the sale of two properties. Net cash used in financing activities of $26.3 million for 2000 decreased $29.2 million compared to $2.9 million provided in 1999. The decrease resulted primarily from $58.4 million of additional cash used in 2000 for the repayment of debt, dividends and distributions of $4.4 million being paid in 2000 and $2.5 million of additional cash used in 2000 for the repurchase of common shares. This was partially offset by an increase of $36.8 million of cash provided by additional borrowings. 17 INFLATION The Company's long-term leases contain provisions designed to mitigate the adverse impact of inflation on the Company's net income. Such provisions include clauses enabling the Company 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 the Company's leases are for terms of less than ten years, which permits the Company to seek to increase rents upon re-rental at market rates if rents are below the then existing market rates. Most of the Company's leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes, insurance and utilities, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation. Item 3. Quantitative and qualitative disclosures about market risk The Company's primary market risk exposure is to changes in interest rates related to the Company's mortgage debt. See the discussion under Item 2. of this report for certain quantitative details related to the Company's mortgage debt. Currently, the Company manages its exposure to fluctuations in interest rates primarily through the use of fixed-rate debt and LIBOR rate caps. As of March 31, 2000, the Company had total mortgage debt of $308.2 million of which $199.9 million, or 65%, is fixed-rate and $108.3 million, or 35%, is variable-rate based upon either LIBOR or the lender's commercial paper rate, plus certain spreads. As of March 31, 2000, $23.8 million of notional variable-rate debt was covered under contracts capping LIBOR at a weighted average of 6.5%. Of the total outstanding debt, $41.0 million of fixed-rate debt, which currently bears interest at 7.8%, will become due during 2000. As the Company intends on refinancing such debt at the then-existing market interest rates which may be greater than the current interest rate, the Company's interest expense would increase by approximately $103,000, if the interest rate on the refinanced debt increased by 25 basis points. The Company may seek additional variable-rate financing if and when pricing and other commercial and financial terms warrant. As such, the Company would consider further hedging against the interest rate risk related to such variable-rate debt through interest rate caps or other means. 18 Part II. Other Information Item 1. Legal Proceedings There have been no material legal proceedings beyond those previously disclosed in the Registrants previously filed Annual Report on Form 10-K for the year ended December 31, 1999. Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information Extension of Institutional Investor Lock-up dated March 23, 2000 as further discussed in the attached press release - Exhibit 99. Item 6. Exhibits and Reports on Form 8-K The following exhibit is included herein: 27 Financial Data Schedule (EDGAR filing only) 99 Press release dated March 23, 2000 announcing the extension of Institutional Investor Lock-up (b) Reports on Form 8-K The following Form 8-K was filed on April 6, 2000 1) Form 8-K filed April 6, 2000 (earliest event April 6, 2000), reporting in Item 5. certain supplemental information concerning the ownership, operations and portfolio of the Company as of December 31, 1999. 19 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 By: /s/ Ross Dworman Chairman and Chief Executive Officer (Principal Executive Officer) /s/ Perry Kamerman Senior Vice President of Finance (Principal Financial and Accounting Officer) Date: May 10, 2000 20