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, 2001
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 8, 2001, there were 28,005,572 common shares of beneficial interest,
par value $.001 per share, outstanding.
ACADIA REALTY TRUST AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
Part I: Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets as of
March 31, 2001 and December 31, 2000 1
Consolidated Statements of Operations for
the three months ended March 31, 2001 and 2000 2
Consolidated Statements of Cash Flows for
the three months ended March 31, 2001 and 2000 3
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosure of Market Risk 16
Part II: Other Information
Item 6. Exhibits 17
Signatures 18
Part I. Financial Information
Item 1. Financial Statements
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
March 31,
2001 December 31,
(unaudited) 2000
----------- -----------
ASSETS
Real estate
Land $ 69,206 $ 69,206
Buildings and improvements 447,286 444,933
-------- --------
516,492 514,139
Less: accumulated depreciation 106,520 102,461
-------- --------
Net real estate 409,972 411,678
Property held for sale 49,144 49,445
Cash and cash equivalents 15,705 22,167
Cash in escrow 5,737 5,213
Investments in unconsolidated
partnerships 5,802 6,784
Rents receivable, net 9,047 9,667
Prepaid expenses 2,757 2,905
Deferred charges, net 12,668 13,026
Other assets 2,739 2,726
-------- --------
$513,571 $523,611
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable $271,387 $277,112
Accounts payable and accrued expenses 6,582 7,495
Dividends and distributions payable 4,228 4,241
Due to related parties 124 111
Other liabilities 4,420 4,179
-------- --------
Total liabilities 286,741 293,138
-------- --------
Minority interest in Operating
Partnership 48,521 48,959
Minority interests in majority-
owned partnerships 2,208 2,197
-------- --------
Total minority interests 50,729 51,156
-------- --------
Shareholders' equity:
Common shares, $.001 par value,
authorized 100,000,000 shares,
issued and outstanding 28,011,672
and 28,150,472 shares, respectively 28 28
Additional paid-in capital 185,772 188,392
Accumulated other comprehensive income (596) --
Deficit (9,103) (9,103)
-------- --------
Total shareholders' equity 176,101 179,317
-------- --------
$513,571 $523,611
======== ========
See accompanying notes
1
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(in thousands, except per share amounts)
March 31, March 31,
2001 2000
(unaudited) (unaudited)
----------- -----------
Revenues
Minimum rents $ 17,446 $ 18,441
Percentage rents 732 751
Expense reimbursements 3,909 3,844
Other 502 827
-------- --------
Total revenues 22,589 23,863
-------- --------
Operating Expenses
Property operating 6,198 5,986
Real estate taxes 2,800 2,713
Depreciation and amortization 4,964 5,015
General and administrative 1,189 1,293
-------- --------
Total operating expenses 15,151 15,007
-------- --------
Operating income 7,438 8,856
Equity in earnings of un-
consolidated partnerships 152 200
Interest expense (5,278) (6,355)
-------- --------
Income before extraordinary item,
minority interest and cumulative effect
of a change in accounting principal 2,312 2,701
Extraordinary item - Loss on early
extinguishment of debt (140) --
Minority interest in Operating Partnership (440) (827)
Cumulative effect of a change in
accounting principal (149) --
-------- --------
Net income $ 1,583 $ 1,874
======== ========
Net income per Common Share:
Income before extraordinary item
and cumulative effect of a change
in accounting principal $ .08 $ .07
Extraordinary item (.01) --
Cumulative effect of a change in
accounting principal (.01) --
-------- --------
Net income $ .06 $ .07
========= =========
See accompanying notes
2
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(in thousands)
March 31, March 31,
2001 2000
(unaudited) (unaudited)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,583 $1,874
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 4,964 5,015
Minority interests 440 827
Equity in earnings of unconsolidated
partnerships (152) (200)
Provision for bad debts 386 227
Stock-based compensation -- 197
Extraordinary item - Loss on early
extinguishment of debt 140 --
Cumulative effect of a change in accounting
principal 149 --
Changes in assets and liabilities:
Funding of escrows, net (524) (712)
Rents receivable 234 467
Prepaid expenses 148 305
Due to related parties 13 19
Other assets (99) (115)
Accounts payable and accrued expenses (913) (558)
Other liabilities 241 (575)
------- ------
Net cash provided by operating activities 6,610 6,771
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for real estate and
improvements (2,453) (2,440)
Distributions from unconsolidated partnerships 538 503
Payment of deferred leasing costs (331) (668)
------- ------
Net cash used in investing activities (2,246) (2,605)
------- ------
See accompanying notes
3
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(in thousands)
March 31, March 31,
2001 2000
(unaudited) (unaudited)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgages $ (28,725) $(59,421)
Proceeds received on mortgage notes 23,000 41,000
Payment of deferred financing and
other costs (18) (1,066)
Dividends paid (3,374) (3,089)
Distributions to minority interests in
Operating Partnership (817) (1,258)
Distributions on preferred Operating
Partnership Units (50) (23)
Repurchase of Common Shares (842) (2,446)
--------- --------
Net cash used in financing activities (10,826) (26,303)
--------- --------
Decrease in cash and cash equivalents (6,462) (22,137)
Cash and cash equivalents, beginning of period 22,167 35,340
--------- --------
Cash and cash equivalents, end of period $ 15,705 $ 13,203
========= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest, net of
amounts capitalized of $52 and $169,
respectively $ 5,488 $ 6,360
========= ========
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, 2001, the Company controlled 81% of
the Operating Partnership as the sole general partner.
The Company currently operates fifty-seven properties, which it owns or has an
ownership interest in, consisting of forty-seven neighborhood and community
shopping centers, four redevelopment properties, one enclosed mall and five
multi-family properties, all of which are located in the Eastern and Midwestern
regions of the United States.
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 accounting principles generally accepted in the United States 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 accounting principles generally accepted
in the United States requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from these estimates. Operating
results for the three month period ended March 31, 2001 are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 2001. 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, 2000.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (the "Statement"). In June 1999, the FASB issued Statement No. 137,
which deferred the effective date of Statement No. 133 requiring it to be
adopted for all fiscal quarters of all fiscal years beginning after June 15,
2000. The Company adopted the Statement effective January 1, 2001. The Statement
requires the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If a derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of the derivative will either be offset against the
change in fair value of the hedged asset, liability, or firm commitment through
earnings, or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings.
In connection with the adoption of the Statement, the Company recorded a
transition adjustment of $149 related to the January 1, 2001 valuation of two
LIBOR rate caps which hedge $23.6 million of variable-rate mortgage debt. This
adjustment is reflected as a cumulative effect of a change in accounting
principal in the accompanying financial statements. The Company is also a party
to two swap agreements with a bank through its 49% interest in the Crossroads
Joint Venture and Crossroads II Joint Venture (see note 5). These swap
agreements effectively fix the interest rate on the Company's pro rata share, or
$16.9 million, of the joint venture mortgage debt. The Company recorded a $596
unrealized loss in other comprehensive income which reflects its pro rata share
of the adjustment to fair value for the two swap agreements as of March 31,
2001.
5
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
4. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS
The following table summarizes the change in the shareholders' equity and
minority interests since December 31, 2000:
Minority Minority
interests in interests in
Shareholders' Operating majority-owned
equity Partnership(1) partnerships
------ ----------- ------------
Balance at December 31, 2000 $179,317 $48,959 $ 2,197
Repurchase of Common Shares (842) -- --
Dividends and distributions declared
of $0.12 per Common Share and
Operating Partnership Unit (3,361) (817) --
Net income for the period January 1
through March 31, 2001 1,583 379 11
Other comprehensive income - Unrealized
loss on valuation of swap agreements from
unconsolidated partnerships (596) -- --
-------- ------- --------
Balance at March 31, 2001 $176,101 $48,521 $ 2,208
======== ======= ========
(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 6,804,144 and 10,484,143 units in the Operating Partnership ("Common
OP Units") at March 31, 2001 and 2000, 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.
5. 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 Crossroads and the
Company's investment in and share of income from Crossroads follows:
March 31, December 31,
2001 2000
---- ----
Balance Sheet
Assets:
Rental property, net $ 8,018 $ 8,446
Other assets 3,984 4,655
-------- --------
Total assets $ 12,002 $ 13,101
======== ========
Liabilities and partners' equity
Mortgage note payable $ 34,519 $ 34,642
Other liabilities 748 736
Partners' equity (23,265) (22,277)
-------- --------
Total liabilities and partners' equity $ 12,002 $ 13,101
======== ========
Company's investment in partnerships $ 5,802 $ 6,784
======== ========
6
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
5. INVESTMENT IN PARTNERSHIPS, continued
March 31, March 31,
2001 2000
---- ----
Statement of Operations
Total revenue $ 1,778 $ 1,865
Operating and other expenses 464 458
Interest expense 669 667
Depreciation and amortization 134 133
-------- --------
Net income $ 511 $ 607
======== ========
Company's share of net income $ 250 $ 298
Amortization of excess investment
(See below) 98 98
-------- --------
Income from partnerships $ 152 $ 200
======== ========
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.
6. MORTGAGE LOANS
On January 8, 2001, the Company partially repaid $10,087 of fixed-rate mortgage
debt, which was secured by two of the Company's properties, with a life
insurance company. On March 30, 2001, the remaining outstanding debt of $7,912
with this lender was fully repaid.
On March 29, 2001, the Company borrowed an additional $23,000 under an existing
$59,000 secured financing line with a bank. As of March 31, 2001, $59,000 was
outstanding under this line.
On March 30, 2001, the Company fully repaid $9,851 of outstanding debt with a
bank which was collateralized by one of the Company's properties.
7. RELATED PARTY TRANSACTIONS
The Company currently manages two 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 of 3.0%
and 3.25% of collections, respectively. During 2000, the Company also managed a
third property owned by a related party earning fees at a rate of 3.5% of
collections. This contract was terminated in November of 2000. Fees earned under
these contracts aggregated $95 and $237 during the three month periods ended
March 31, 2001 and 2000, respectively.
8. DIVIDENDS AND DISTRIBUTIONS PAYABLE
On March 8, 2001, the Board of Trustees of the Company approved and declared a
cash quarterly dividend for the quarter ended March 31, 2001 of $0.12 per Common
Share and Common OP Unit. The dividend was paid on April 13, 2001 to the
shareholders of record as of March 30, 2001. The Board of Trustees also approved
a distribution of $22.50 per Preferred OP Unit which was paid on April 13, 2001.
7
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
9. PER SHARE DATA
For the three month periods ended March 31, 2001 and 2000, 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,
2001 and 2000 were 28,091,479 and 25,476,098, 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, 2001
and 2000 no additional shares were reflected as the impact would be
anti-dilutive in such years.
10. 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, 2001
--------------
Retail Multi-Family All
Properties Properties Other Total
---------- ----------- ----- --------
Revenues $ 18,391 $ 3,926 $ 272 $ 22,589
Property operating expenses and
real estate taxes 7,437 1,561 - 8,998
Net property income before depreciation,
amortization and certain nonrecurring items 10,954 2,365 272 13,591
Depreciation and amortization 4,321 547 96 4,964
Interest expense 4,139 1,139 - 5,278
Real estate at cost 432,914 83,578 - 516,492
Total assets 426,281 81,488 5,802 513,571
Gross leasable area (multi-family - 2,273 units) 8,644 2,039 - 10,683
Expenditures for real estate and improvements 2,173 280 - 2,453
Reconciliation to income before
minority interest
Net property income before depreciation,
amortization and certain nonrecurring items $ 13,591
Depreciation and amortization (4,964)
General and administrative (1,189)
Equity in earnings of unconsolidated
partnerships 152
Interest expense (5,278)
--------
Income before extraordinary item,
minority interest and cumulative effect
of a change in accounting principal $ 2,312
========
8
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
10. SEGMENT REPORTING (continued)
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
========
11. SUBSEQUENT EVENTS
On April 10, 2001 the Company repaid $3,500 of outstanding debt under a
revolving credit facility with a bank. Following this repayment, the Company had
no outstanding balance under this facility, which provides for total borrowings
of up to $7,400.
9
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, 2001 and 2000 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, 2001 ("2001") to the three
month period ended March 31, 2000 ("2000")
Total revenues decreased $1.3 million, or 5%, to $22.6 million for 2001 compared
to $23.9 million for 2000.
Minimum rents decreased $1.0 million, or 5%, to $17.4 million for 2001 compared
to $18.4 million for 2000. Of this decrease, $1.5 million was due to the loss of
rents following the sale of the Northwood Centre in December 2000. An additional
$200,000 decrease in rents resulted from the planned termination of various
tenant leases at the Abington Towne Center in June 2000 as part of the
redevelopment and partial sale of the center. Partially offsetting these
decreases was an increase in rents due to general increases in occupancy
throughout the balance of the portfolio during fiscal 2000 and 2001.
In total, expense reimbursements increased $65,000, or 2%, from $3.8 million for
2000 to $3.9 million for 2001. Common area maintenance ("CAM") expense
reimbursements of $1.8 million were essentially unchanged from 2000. An increase
in real estate tax reimbursements of $100,000 was primarily the result of
general increases in real estate tax expense throughout the portfolio.
Other income decreased $325,000, or 39%, to $502,000 in 2001 compared to
$827,000 for 2000. This was primarily due to a decrease of $154,000 in
third-party property management fees earned in 2001 following the cancellation
of one management contract in November 2000 and a $175,000 decrease in interest
income due to lower interest earning assets in 2001.
Total operating expenses increased $144,000, or 1%, to $15.2 million for 2001,
from $15.0 million for 2000.
Property operating expenses increased $212,000, or 4%, to $6.2 million for 2001
compared to $6.0 million for 2000. This increase was a combination of higher
payroll costs, an increase in CAM expenses (primarily snow removal costs)
throughout the portfolio and an increase in bad debt expense in 2001. These
increases were partially offset by a $499,000 decrease in property operating
expenses following the sale of the Northwood Centre in December 2000.
Real estate taxes increased $87,000, or 3%, from $2.7 million for 2000 to $2.8
million for 2001. This increase was due to higher real estate taxes experienced
generally throughout the portfolio. Offsetting this increase was a decrease in
taxes following the sale of the Northwood Centre.
10
RESULTS OF OPERATIONS, continued
Depreciation and amortization decreased $51,000 for 2001, of which $50,000
resulted from a decrease in depreciation expense. This decrease was a result of
the sale of the Northwood Centre partially offset against increased depreciation
expense related to capitalized tenant installation costs during fiscal 2000 and
2001.
General and administrative expense decreased $104,000, or 8%, from $1.3 million
for 2000 to $1.2 million for 2001, which was primarily attributable to a
$125,000 decrease in third-party professional fees in 2001.
Interest expense of $5.3 million for 2001 decreased $1.1 million, or 17%, from
$6.4 million for 2000. Of this decrease, $405,000 was the result of a lower
average interest rate on the portfolio mortgage debt and $839,000 was due to
lower average outstanding borrowings following certain loan payoffs during
fiscal 2000 and 2001, including the debt related to the Northwood Centre which
was sold in December 2000. These decreases were partially offset by $117,000
less capitalized interest in 2001.
The $140,000 extraordinary loss in 2001 was a result of the write-off of
deferred financing fees as a result of the early repayment of the related debt.
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
accounting principles generally accepted in the United States 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
accounting principles generally accepted in the United States) 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, 2001 and 2000 is as
follows:
For the quarter ended
March 31,
2001 2000
---- ----
Net income $1,583 $1,874
Depreciation of real estate and amortization of
leasing costs:
Wholly-owned and consolidated
partnerships 4,689 4,737
Unconsolidated partnerships 157 156
Income attributable to minority interest in
Operating Partnership (a) 379 780
Extraordinary item 140 --
Cumulative effect of a change in
accounting principal 149 --
------ ------
Funds from operations $7,097 $7,547
====== ======
Funds from operations per share (b) $ 0.20 $ 0.21
====== ======
(a) Does not include distributions paid to Preferred OP Unitholders for the
quarter ended March 31, 2001 and 2000.
(b) Assumes full conversion of a weighted average 6,804,144 and 10,484,143
Common OP Units into Common Shares for the quarter ended March 31, 2001 and
2000.
11
LIQUIDITY AND CAPITAL RESOURCES
Uses of Liquidity
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 90% of its
taxable income to its shareholders. On March 8, 2001, the Board of Trustees of
the Company approved and declared a cash quarterly dividend for the quarter
ended March 31, 2001 of $0.12 per Common Share and Common OP Unit. The dividend
was paid on April 13, 2001 to the shareholders of record as of March 30, 2001.
The Board of Trustees also approved a distribution of $22.50 per Preferred OP
Unit which was paid on April 13, 2001.
Property Redevelopment and Expansion
The Company's redevelopment program focuses on selecting well-located
neighborhood and community shopping centers and creating significant value
through retenanting and property redevelopment. The Company currently has four
properties under redevelopment as follows:
Abington Towne Center - The Company has completed the first phase of
redevelopment of this previously enclosed multi-level mall located in the
Philadelphia suburb of Abington, Pennsylvania. In 2000, the Company sold
approximately 160,000 square feet representing the top two floors and the rear
portion of the ground level and the related parking area to the Target Corp.
which is currently building out the space and is expected to open prior to the
end of 2001. The Company has "de-malled" the balance of the center consisting of
approximately 46,000 square feet of the main building and 14,000 square feet of
store space in outparcel buildings which it will continue to own and operate.
Costs incurred on this project (net of reimbursements from Target) through March
31, 2001 totaled $2.7 million with approximately $1.0 million of costs remaining
to complete the redevelopment of this property.
Elmwood Park Shopping Center - This center, located in Elmwood Park, New Jersey,
is approximately ten miles west of New York City. The redevelopment consists of
reanchoring, renovating and expanding the existing 125,000 square foot shopping
center by 30,000 square feet. The new anchor, a 48,000 square foot free-standing
A&P supermarket, will replace an undersized (28,000 square feet) in-line Grand
Union supermarket when completed. The project also includes the expansion of an
existing Walgreens drug store. As of March 31, 2001, costs incurred on this
project totaled $643,000. The Company expects remaining redevelopment costs of
approximately $8.6 million to complete this project in 2002. In conjunction with
the A&P supermarket rent commencement, the Operating Partnership is also
obligated to issue OP Units equal to $2.75 million.
Methuen Shopping Center - This center, located in Methuen, Massachusetts (part
of the Boston metropolitan statistical area) was formally anchored by a Caldor
department store. The Company acquired this lease out of bankruptcy and has
executed a lease with Wal*Mart for an 89,000 square foot department store which
is projected to open in the fourth quarter of 2001. Projected costs to complete
this project are approximately $400,000.
Gateway Shopping Center - The redevelopment of the Gateway Shopping Center, a
partially enclosed mall located in South Burlington, Vermont, includes the
recapture of a 32,000 square foot former Grand Union store, demolition of 90% of
the property and the construction of a new anchor tenant. Following the
bankruptcy of Grand Union, the lease was assigned to Shaw's supermarket. The
Company is currently in discussions with Shaw's to continue with the
redevelopment of this center.
Additionally, the Company currently estimates that for the remaining portfolio,
capital outlays of approximately $2.5 million will be required during 2001 for
tenant improvements, related renovations and other property improvements related
to executed leases.
Share Repurchase Plan
The Company's repurchase of its Common Shares is an additional use of liquidity.
In January 2001, the Board of Trustees approved a continuation and expansion of
the Company's existing stock repurchase program. Management is authorized, at
its discretion, to repurchase up to an additional $10.0 million of the Company's
outstanding Common Shares. Through May 8, 2001, the Company had repurchased
1,793,642 (net of 86,063 shares reissued) at a total cost of $10.6 million under
the expanded share repurchase program which allows for the repurchase of up to
$20.0 million of the Company's outstanding Common Shares. The program may be
discontinued or extended at any time and there is no assurance that the Company
will purchase the full amount authorized.
12
LIQUIDITY AND CAPITAL RESOURCES, continued
Sources of Liquidity
Sources of capital for funding property acquisition, redevelopment, expansion
and retenanting, as well as repurchase of Common Shares are expected to be
obtained primarily from cash on hand, additional debt financings and sales of
existing properties. As of March 31, 2001, the Company has a total of $8.4
million of additional capacity with two lenders. The Company also has 15
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, 2001 interest on the Company's mortgage indebtedness ranged from
6.5% to 9.6% with maturities that ranged from March 2002 to November 2021. Of
the total outstanding debt, $124.8 million, or 46%, was carried at fixed
interest rates with a weighted average of 8.4%, and $146.6 million, or 54%, was
carried at variable rates with a weighted average of 7.7%. Of the total
outstanding debt, $78.7 million will become due by 2003, with scheduled
maturities of $55.9 million at an interest rate of 7.3% in 2002 and $22.8
million at an interest rate of 7.2% in 2003. No outstanding debt matures in
2001. The Company expects to refinance 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, 2000:
On January 8, 2001, the Company partially repaid $10.1 million of fixed-rate
mortgage debt, which was secured by two of the Company's properties, with a life
insurance company. On March 30, 2001, the remaining outstanding debt of $7.9
million with this lender was fully repaid.
On March 29, 2001, the Company borrowed an additional $23.0 million under an
existing $59.0 million secured financing line with a bank. As of March 31, 2001,
$59.0 million was outstanding under the Line.
On March 30, 2001, the Company fully repaid $9.9 million of outstanding debt
with a bank which was collateralized by one of the Company's properties.
On April 10, 2001 the Company repaid $3.5 million of outstanding debt under a
revolving credit facility with a bank. Following this repayment, the Company had
no outstanding balance under this facility, which provides for total borrowings
of up to $7.4 million.
13
LIQUIDITY AND CAPITAL RESOURCES, continued
Financing and Debt, continued
The following table summarizes the Company's mortgage indebtedness as of March
31, 2001:
March 31, December 31, Interest
2001 2000 Rate
------- ------- ------
Mortgage notes payable - variable-rate
Fleet Bank, N.A. 4,096 4,110 6.81% (LIBOR + 1.75%)
Fleet Bank, N.A. 9,189 9,216 6.84% (LIBOR + 1.78%)
Sun America Life Insurance Company 13,725 13,774 7.58% (LIBOR + 2.05%)
Sun America Life Insurance Company 9,824 9,856 8.45% (LIBOR + 2.05%)
KBC Bank 14,165 14,238 6.53% (LIBOR + 1.25%)
Fleet Bank, N.A. 3,500 3,500 6.74% (LIBOR + 1.50%)
Fleet Bank, N.A. 8,938 8,965 7.03% (LIBOR + 1.75%)
Metropolitan Life Insurance Company 10,800 10,800 7.42% (LIBOR + 2.00%)
First Union National Bank 13,605 13,636 6.51% (LIBOR + 1.45%)
Dime Savings Bank of NY 58,737 35,814 7.06% (LIBOR + 1.75%)
-------- --------
Total variable-rate debt 146,579 123,909
-------- --------
Mortgage notes payable - fixed rate
Huntoon Hastings Capital Corp. 6,222 6,222 7.50%
Anchor National Life Insurance Company 3,751 3,775 7.93%
Lehman Brothers Holdings, Inc. 17,744 17,792 8.32%
Mellon Mortgage Company 7,409 7,442 9.60%
Northern Life Insurance Company 2,828 2,895 7.70%
Reliastar Life Insurance Company 1,950 1,996 7.70%
Metropolitan Life Insurance Company 25,069 25,148 8.13%
Bank of America, N.A. 11,081 11,100 7.55%
Bank of America, N.A. 5,541 5,550 7.55%
Morgan Stanley Mortgage Capital 43,213 43,397 8.84%
Sun America Life Insurance Company -- 17,999 7.75%
North Fork Bank -- 9,887 7.75%
-------- --------
Total fixed-rate debt 124,808 153,203
-------- --------
$271,387 $277,112
======== ========
14
LIQUIDITY AND CAPITAL RESOURCES, continued
Financing and Debt, continued
Properties Payment
Maturity Encumbered Terms
---------- ---------- -------
Mortgage notes payable - variable-rate
Fleet Bank, N.A. 03/15/02 (1) (2)
Fleet Bank, N.A. 05/31/02 (3) (2)
Sun America Life Insurance Company 08/01/02 (4) (2)
Sun America Life Insurance Company 10/01/02 (5) (2)
KBC Bank 12/31/02 (6) (2)
Fleet Bank, N.A. 03/01/03 (7) (2)
Fleet Bank, N.A. 08/01/03 (8) (2)
Metropolitan Life Insurance Company 11/01/03 (9) (22)
First Union National Bank 01/01/05 (10) (2)
Dime Savings Bank of NY 04/01/05 (11) (2)
Mortgage notes payable - fixed rate
Huntoon Hastings Capital Corp. 09/01/02 (12) (13)
Anchor National Life Insurance Company 01/01/04 (14) $33(2)
Lehman Brothers Holdings, Inc. 03/01/04 (15) $139(2)
Mellon Mortgage Company 05/23/05 (16) $70(2)
Northern Life Insurance Company 12/01/08 (17) $41(2)
Reliastar Life Insurance Company 12/01/08 (17) $28(2)
Metropolitan Life Insurance Company 11/01/10 (18) $197(2)
Bank of America, N.A. 01/01/11 (19) $78(2)
Bank of America, N.A. 01/01/11 (20) $39(2)
Morgan Stanley Mortgage Capital 11/01/21 (21) $380(2)
Sun America Life Insurance Company -- -- --
North Fork Bank -- -- --
Notes:
(1) Town Line Plaza (11) Ledgewood Mall (19) GHT Apartments
New Louden Center
(2) Monthly principal and interest Route 6 Plaza (20) Colony Apartments
Bradford Towne Centre
(3) Smithtown Shopping Center Berlin Shopping Center (21) Midway Plaza
Kings Fairgrounds
(4) Merrillville Plaza (12) Gateway Shopping Center Plaza 15
Ames Plaza
(5) Village Apartments (13) Interest only until 5/01; monthly Martintown Plaza
principal and interest thereafter Shillington Plaza
(6) Marley Run Apartments Dunmore Plaza
(14) Pittston Plaza Kingston Plaza
(7) Marketplace of Absecon 25th Street Shopping Center
(15) Glen Oaks Apartments Circle Plaza
(8) Soundview Marketplace Northside Mall
(16) Mad River Station Shopping Center Monroe Plaza
(9) Green Ridge Plaza New Smyrna Beach
Luzerne Street Plaza (17) Manahawkin Shopping Center Mountainville Plaza
Valmont Plaza Cloud Springs Plaza
(18) Crescent Plaza Birney Plaza
(10) 239 Greenwich Avenue East End Centre Troy Plaza
(22) Interest only until 5/02; monthly
principal and interest thereafter
15
HISTORICAL CASH FLOW
The following discussion of historical cash flow compares the Company's cash
flow for the three month period ended March 31, 2001 ("2001") with the Company's
cash flow for the three month period ended March 31, 2000 ("2000").
Net cash provided by operating activities of $6.6 million for 2001, in total,
was essentially consistent with 2000.
Investing activities used $2.2 million during 2001, representing a $400,000
decrease from $2.6 million of cash used during 2000. This was primarily the
result of a $300,000 decrease in expenditures for real estate acquisitions,
development and tenant installation in 2001.
Net cash used in financing activities of $10.8 million for 2001 decreased $15.5
million compared to $26.3 million used in 2000. The decrease resulted primarily
from $30.7 million of additional cash used in 2000 for the repayment of debt and
$1.6 million of additional cash used in 2000 for the repurchase of Common
Shares. This was partially offset by a decrease of $17.0 million of cash
provided by additional borrowings and related financing costs in 2001.
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, LIBOR rate caps and interest rate
swap agreements. As of March 31, 2001, the Company had total mortgage debt of
$271.4 million of which $124.8 million, or 46%, is fixed-rate and $146.6
million, or 54%, is variable-rate based upon LIBOR plus certain spreads. $23.6
million of notional variable-rate principal is hedged through the use of LIBOR
rate caps as of March 31, 2001, which cap LIBOR at 6.5%. The Company is also a
party to two swap agreements with a bank through its 49% interest in the
Crossroads Joint Venture and Crossroads II Joint Venture. These swap agreements
effectively fix the interest rate on the Company's pro rata share of the joint
venture debt, or $16.9 million, at a blended base rate of 6.1% plus the
applicable spreads.
Of the total outstanding debt, $55.9 million will become due by 2002. As the
Company intends on refinancing some or all of 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 $559,000 annually if
the interest rate on the refinanced debt increased by 100 basis points.
Furthermore, interest expense on the Company's variable debt as of March 31,
2001 would increase by $1.5 million annually for a 100 basis point increase in
interest rates. 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 hedging against the interest rate risk related to such
additional variable-rate debt through interest rate swaps and protection
agreements, or other means.
16
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, 2000.
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
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K - The Company did not file any reports on Form
8-K during the three month period ended March 31, 2001
17
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
/s/ Kenneth F. Bernstein
------------------------
By: Kenneth F. Bernstein
Chief Executive Officer and President
(Principal Executive Officer)
/s/ Perry Kamerman
------------------------
Perry Kamerman
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: May 14, 2001
18