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 June 30, 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 August 10, 2001, there were 28,481,786 common shares of beneficial
interest, par value $.001 per share, outstanding.
FORM 10-Q
INDEX
Part I: Financial Information Page
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets as of
June 30, 2001 and December 31, 2000 1
Consolidated Statements of Operations for
the three and six months ended June 30, 2001 and 2000 2
Consolidated Statements of Cash Flows for
the six months ended June 30, 2001 and 2000 3
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosure about Market Risk 19
Part II: Other Information
Item 2. Changes in Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 22
Part I. Financial Information
Item 1. Financial Statements
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
June 30,
2001 December 31,
(unaudited) 2000
----------- ------------
ASSETS
Real estate
Land $ 69,206 $ 69,206
Buildings and improvements 450,179 444,933
-------- --------
519,385 514,139
Less: accumulated depreciation 110,585 102,461
-------- --------
Net real estate 408,800 411,678
Properties held for sale 28,709 49,445
Cash and cash equivalents 20,740 22,167
Cash in escrow 5,692 5,213
Investments in unconsolidated
partnerships 5,974 6,784
Rents receivable, net 7,207 9,667
Prepaid expenses 1,527 2,905
Deferred charges, net 12,765 13,026
Other assets 2,405 2,726
-------- --------
$493,819 $523,611
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable $252,860 $277,112
Accounts payable and accrued expenses 5,475 7,495
Due to related parties 117 111
Dividends and distributions payable 4,144 4,241
Other liabilities 3,639 4,179
-------- --------
Total liabilities 266,235 293,138
-------- --------
Minority interest in Operating
Partnership 41,205 48,959
Minority interests in majority-
owned partnerships 2,202 2,197
-------- --------
Total minority interests 43,407 51,156
-------- --------
Shareholders' equity:
Common shares, $.001 par value,
authorized 100,000,000 shares,
issued and outstanding 28,481,786
and 28,150,472 shares, respectively 29 28
Additional paid-in capital 189,136 188,392
Accumulated other comprehensive income (268) --
Deficit (4,720) (9,103)
-------- --------
Total shareholders' equity 184,177 179,317
-------- --------
$493,819 $523,611
======== ========
See accompanying notes
1
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(in thousands, except per share amounts)
Three months ended Six months ended
June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
(unaudited) (unaudited)
Revenues
Minimum rents $16,958 $18,663 $34,404 $37,104
Percentage rents 359 589 1,091 1,340
Expense reimbursements 3,138 3,199 7,047 7,043
Other 563 2,518 1,065 3,345
------- ------- ------- -------
Total revenues 21,018 24,969 43,607 48,832
------- ------- ------- -------
Operating expenses
Property operating 4,757 5,337 10,955 11,323
Real estate taxes 2,818 2,914 5,618 5,627
General and administrative 1,352 1,285 2,541 2,578
Depreciation and amortization 4,936 5,085 9,900 10,100
------- ------- ------- -------
Total operating expenses 13,863 14,621 29,014 29,628
------- ------- ------- -------
Operating income 7,155 10,348 14,593 19,204
Equity in earnings of unconsolidated partnerships 137 151 289 351
Gain on sale of property 7,035 -- 7,035 --
Interest expense (4,781) (6,261) (10,059) (12,616)
------- ------- ------- -------
Income before minority interest, extraordinary
item and cumulative effect of change in
accounting principal 9,546 4,238 11,858 6,939
Minority interest (1,746) (1,274) (2,186) (2,101)
Extraordinary item - loss on early extinguishment
of debt -- -- (140) --
Cumulative effect of change in accounting principal -- -- (149) --
------- ------- ------- -------
Net income $ 7,800 $ 2,964 $ 9,383 $ 4,838
======= ======= ======= =======
Net income per Common Share - basic and diluted:
Income before extraordinary item and cumulative
effect of change in accounting principal $ .27 $ .12 $ .35 $ .19
Extraordinary item -- -- (.01) --
Cumulative effect of change in accounting principal -- -- (.01) --
------- ------- ------- -------
Net income $ .27 $ .12 $ .33 $ .19
======= ======= ======= =======
See accompanying notes
2
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(in thousands)
June 30, June 30,
2001 2000
(unaudited) (unaudited)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,383 $ 4,838
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 9,900 10,100
Minority interests 2,186 2,101
Equity in income of unconsolidated partnerships (289) (351)
Provision for bad debts 469 314
Stock-based compensation -- 197
Gain on sale of property (7,035) --
Extraordinary item 140 --
Cumulative effect of change in accounting principal 149 --
Changes in assets and liabilities:
Funding of escrows, net (479) (1,989)
Rents receivable 1,991 (798)
Prepaid expenses 1,378 1,501
Due to related parties 6 19
Other assets 144 (298)
Accounts payable and accrued expenses (2,020) (540)
Other liabilities (540) (698)
------- -------
Net cash provided by operating activities 15,383 14,396
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for real estate and improvements (5,371) (5,239)
Net proceeds from sale of property 27,017 --
Distributions from unconsolidated partnerships 830 924
Payment of deferred leasing costs (793) (1,095)
------- -------
Net cash provided by (used in) investing activities 21,683 (5,410)
------- -------
See accompanying notes
3
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(in thousands)
June 30, June 30,
2001 2000
(unaudited) (unaudited)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage notes $(55,552) $(60,453)
Proceeds received on mortgage notes 31,300 41,200
Payment of deferred financing costs (45) (1,055)
Dividends paid (6,736) (6,126)
Distributions to minority interest
in Operating Partnership (1,633) (2,516)
Distributions on Preferred Operating
Partnership units (99) (73)
Distributions to minority interest
in majority-owned partnership (27) (22)
Redemption of Operating Partnership Units (4,814) --
Repurchase of Common Shares (887) (3,332)
------- -------
Net cash used in financing activities (38,493) (32,377)
------- -------
Decrease in cash and cash equivalents (1,427) (23,391)
Cash and cash equivalents, beginning of period 22,167 35,340
------- -------
Cash and cash equivalents, end of period $20,740 $11,949
======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest, net of amounts
capitalized of $109 and $241, respectively $10,356 $12,501
======= =======
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.
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 June 30, 2001, the Company controlled 84% of
the Operating Partnership as the sole general partner.
The Company currently operates fifty-six 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 four
multi-family properties located in the Eastern and Midwestern regions of the
United States. One multi-family property and one retail property were held for
sale as of June 30, 2001.
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, in the opinion of management, are
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 six-month period
ended June 30, 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 Forms 10-K and 10-K/A for the year
ended December 31, 2000.
5
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
3. PROPERTY DISPOSITION
As part of its continuing plan to dispose of certain non-core assets, the
Company sold its interest in the Marley Run Apartments (the "Property") for
$27,400 on May 15, 2001, recognizing a $7,035 gain on the disposition. Net
proceeds after the repayment of the associated debt and other closing costs were
$12,745 of which $4,765 was used to redeem 680,667 OP Units at $7.00 per unit.
The redemption price represented a premium of $0.35 over the market price of the
Company's Common shares as of the redemption date. The OP Units redeemed were
held by the original owners of the Property who contributed the Property to the
Company in connection with the RDC Transaction in August 1998, pursuant to
which, the Company agreed to indemnify the OP Unit holders for any income taxes
recognized with respect to a disposition of the Property within five years
following the contribution of the Property. As part of the redemption as
discussed above, the OP Unit holders waived their rights to this tax
reimbursement which the Company estimated to be in excess of $2.00 per OP Unit.
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
interest in interest in
Shareholders' Operating majority-owned
equity Partnership(1) partnerships
------ -------------- ------------
Balance at December 31, 2000 $179,317 $ 48,959 $ 2,197
Repurchase of Common Shares (887) -- --
Conversion of 477,215 Operating Partnership
Units into Common Shares by minority interests 3,403 (3,403) --
Redemption of 688,667 OP Units by minority
interests 8 (4,911) --
Dividends and distributions declared
of $0.24 per Common Share and
Operating Partnership unit (6,779) (1,494) --
Cash flow distribution -- -- (27)
Other comprehensive loss - unrealized loss on
valuation of swap agreements from
unconsolidated partnerships (268) -- --
Net income for the period January 1
through June 30, 2001 9,383 2,054 32
-------- -------- --------
Balance at June 30, 2001 $184,177 $ 41,205 $ 2,202
======== ======== ========
(1) Net income attributable to minority interest in Operating Partnership and
distributions do not include a distribution on Preferred OP Units of $100.
Minority interests in Operating Partnership represent the limited partners'
interest of 5,638,263 and 10,484,143 units in the Operating Partnership ("OP
Units") at June 30, 2001 and 2000, respectively, and 2,212 units of preferred
Operating Partnership interests, 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.
On April 12, 2001, the Company redeemed 8,000 OP Units held by a limited partner
at the market price of the Common Shares at that date of $6.15 per share.
On May 15, 2001, the Company redeemed 680,667 OP Units in connection with the
sale of its interest in the Marley Run Apartments (notes 3 and 7).
On June 14, 2001, certain limited partners converted 477,215 OP Units into
Common Shares on a one-for-one basis.
6
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
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:
June 30, December 31,
2001 2000
---- ----
Balance Sheet
Assets:
Rental property, net $ 7,905 $ 8,446
Other assets 3,736 4,655
-------- --------
Total assets $ 11,641 $ 13,101
======== ========
Liabilities and partners' equity
Mortgage note payable $ 34,393 $ 34,642
Other liabilities 1,679 736
Partners' equity (24,431) (22,277)
-------- --------
Total liabilities and partners' equity $ 11,641 $ 13,101
======== ========
Company's investment in partnerships $ 5,974 $ 6,784
======== ========
Three months ended Six months ended
June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
Statement of Operations
Total revenue $1,861 $1,772 $3,639 $3,637
Operating and other expenses 595 468 1,059 926
Interest expense 654 663 1,323 1,330
Depreciation and amortization 134 132 268 265
------ ------ ------ ------
Net income $ 478 $ 509 $ 989 $1,116
====== ====== ====== ======
Company's share of net income $ 235 $ 249 $ 485 $ 547
Amortization of excess investment
(See below) 98 98 196 196
------ ------ ------ ------
Income from partnerships $ 137 $ 151 $ 289 $ 351
====== ====== ====== ======
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)
6. 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. As the LIBOR rate caps had
no intrinsic value as of June 30, 2001 due to a decline in market LIBOR rates
since their inception, future changes in the fair value of the LIBOR rate caps
are expected to be reflected in current earnings. As the remaining time-value
portion of the fair value is not significant as of June 30, 2001, any further
decreases in the fair value of the LIBOR rate caps are not expected to be
material.
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.
As of June 30, 2001, the Company has recorded a $268 unrealized loss in
accumulated other comprehensive income which reflects its pro rata share of the
adjustment of the two swap agreements to fair value. These swap agreements have
no hedge ineffectiveness as they meet all the associated criteria under the
Statement. Since these instruments have no hedge ineffectiveness, the interest
rate differentials that arise under the swap agreements are recognized in
earnings as they are periodically settled. Amounts in other comprehensive income
are not amortized to earnings unless the swap agreements are terminated. At the
maturity of the swaps, their fair value will be zero.
7. RELATED PARTY TRANSACTIONS
The Company currently manages two properties in which certain 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. During 2000, the Company terminated a contract to manage a third
property owned by a related party that earned a fee of 3.5% of collections. Fees
earned under these contracts aggregated $119 and $214 during the three and
six-month periods ended June 30, 2001, respectively, and $208 and $445 during
the three and six-month periods ended June 30, 2000, respectively.
On May 15, 2001, the Company redeemed certain OP Units in connection with the
sale of its interest in the Marley Run Apartments (note 3). Messrs. Dworman and
Bernstein, Chairman and Chief Executive Officer, respectively, owned a total of
13,600 of these redeemed OP Units through various affiliated entities.
8
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
8. DIVIDENDS AND DISTRIBUTIONS PAYABLE
On June 4, 2001, the Board of Trustees of the Company approved and declared a
cash quarterly dividend for the quarter ended June 30, 2001 of $0.12 per Common
Share and Common OP Unit. The dividend was paid on July 13, 2001 to the
shareholders of record as of June 29, 2001. The Board of Trustees also approved
a distribution of $22.50 per Preferred OP Unit which was paid on July 13, 2001.
9. PER SHARE DATA
For the three and six-month periods ended June 30, 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 June 30,
2001 and 2000 were 28,089,593 and 25,241,794, respectively. The weighted average
number of shares outstanding for the six-month periods ended June 30, 2001 and
2000 were 28,090,531 and 25,358,946, 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 and six-month periods ended June
30, 2001 and 2000 no additional shares were reflected as the impact would be
anti-dilutive in such periods.
10. COMPREHENSIVE INCOME
Comprehensive income for the three months ended June 30, 2001 totaled $8,128 and
was comprised of net income of $7,800 and other comprehensive income of $328.
Comprehensive income for the six months ended June 30, 2001 totaled $9,115 and
was comprised of net income of $9,383 and other comprehensive loss of $268. The
following table sets forth the change in accumulated other comprehensive loss
for the period since December 31, 2000:
Accumulated other
Comprehensive
loss
-----------------
Balance at December 31, 2000 $ --
Unrealized loss on valuation of swap
agreements from unconsolidated partnerships 268
--------
Balance at June 30, 2001 $ 268
========
As of June 30, 2001, the balance in accumulated other comprehensive loss was
comprised entirely of unrealized losses on the valuation of swap agreements from
unconsolidated partnerships.
9
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
11. 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.
Six months ended
June 30, 2001
-------------
Retail Multi-Family All
properties properties other Total
------------------------------------------------
Revenues .................................................... $ 35,446 $ 7,488 $ 673 $ 43,607
Property operating expenses and real estate taxes ........... 13,476 3,097 -- 16,573
Net property income before depreciation and amortization..... 21,970 4,391 673 27,034
Depreciation and amortization ............................... 8,676 1,033 191 9,900
Interest expense ............................................ 7,928 2,131 -- 10,059
Real estate at cost ......................................... 456,607 62,778 -- 519,385
Total assets ................................................ 426,665 61,180 5,974 493,819
Gross leasable area (multi-family 1,937 units) ............... 8,625 1,765 -- 10,390
Expenditures for real estate and improvements ............... 4,536 835 -- 5,371
Reconciliation to income before minority interest
Net property income before depreciation and amortization .... $ 27,034
Depreciation and amortization ............................... (9,900)
General and administrative .................................. (2,541)
Equity in earnings of unconsolidated partnerships ........... 289
Gain on sale of property .................................... 7,035
Interest expense ............................................ (10,059)
--------
Income before minority interest, extraordinary item and cumulative
effect of change in accounting principal $ 11,858
========
Three months ended
June 30, 2001
------------------
Retail Multi-Family All
properties properties other Total
------------------------------------------------
Revenues .................................................... $ 17,055 $ 3,562 $ 401 $ 21,018
Property operating expenses and real estate taxes ........... 6,039 1,536 -- 7,575
Net property income before depreciation and amortization .... 11,016 2,026 401 13,443
Depreciation and amortization ............................... 4,355 486 95 4,936
Interest expense ............................................ 3,789 992 -- 4,781
Real estate at cost ......................................... -- -- -- --
Total assets ................................................ -- -- -- --
Gross leasable area ......................................... -- -- -- --
Expenditures for real estate and improvements ............... 2,363 555 -- 2,918
Reconciliation to income before minority interest
Net property income before depreciation and amortization..... $ 13,443
Depreciation and amortization ............................... (4,936)
General and administrative .................................. (1,352)
Equity in earnings of unconsolidated partnerships ........... 137
Gain on sale of property .................................... 7,035
Interest expense ............................................ (4,781)
--------
Income before minority interest, extraordinary item and cumulative
effect of change in accounting principal $ 9,546
========
10
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
11. SEGMENT REPORTING (continued)
Six months ended
June 30, 2000
----------------
Retail Multi-Family All
properties properties other Total
------------------------------------------------
Revenues .................................................... $ 40,135 $ 7,620 $ 1,077 $ 48,832
Property operating expenses and real estate taxes ........... 13,972 2,978 -- 16,950
Net property income before depreciation and amortization..... 26,163 4,642 1,077 31,882
Depreciation and amortization ............................... 8,875 1,008 217 10,100
Interest expense ............................................ 10,416 2,150 50 12,616
Real estate at cost ......................................... 491,848 82,789 -- 574,637
Total assets ................................................ 452,036 86,453 6,890 545,379
Gross leasable area (multi-family 2,273 units) .............. 8,809 2,039 -- 10,848
Expenditures for real estate and improvements ............... 4,595 644 -- 5,239
Reconciliation to income before minority interest
Net property income before depreciation and amortization..... 31,882
Depreciation and amortization ............................... (10,100)
General and administrative .................................. (2,578)
Equity in earnings of unconsolidated partnerships ........... 351
Interest expense ............................................ (12,616)
--------
Income before minority interest $ 6,939
========
Three months ended
June 30, 2000
------------------
Retail Multi-Family All
properties properties other Total
------------------------------------------------
Revenues .................................................... $ 20,653 $ 3,829 $ 487 $ 24,969
Property operating expenses and real estate taxes ........... 6,698 1,553 -- 8,251
Net property income before depreciation and amortization..... 13,955 2,276 487 16,718
Depreciation and amortization ............................... 4,480 510 95 5,085
Interest expense ............................................ 5,177 1,084 -- 6,261
Real estate at cost ......................................... -- -- -- --
Total assets ................................................ -- -- -- --
Gross leasable area ......................................... -- -- -- --
Expenditures for real estate and improvements ............... 2,471 328 -- 2,799
Reconciliation to income before minority interest
Net property income before depreciation and amortization..... 16,718
Depreciation and amortization ............................... (5,085)
General and administrative .................................. (1,285)
Equity in earnings of unconsolidated partnerships ........... 151
Interest expense ............................................ (6,261)
--------
Income before minority interest $ 4,238
========
12. MORTGAGE LOANS
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.
On May 15, 2001 the Company repaid $14,117 of outstanding debt with a bank in
connection with the sale of the Marley Run Apartments.
11
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 June 30, 2001 and 2000 and for the
three and six 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 June 30, 2001 ("2001") to the three
month period ended June 30, 2000 ("2000")
Total revenues decreased $4.0 million, or 16%, to $21.0 million for 2001
compared to $25.0 million for 2000.
Minimum rents decreased $1.7 million, or 9%, to $17.0 million for 2001 compared
to $18.7 million for 2000. Of this decrease, $2.0 million was due to the loss of
rents following the sale of the Northwood Centre in December 2000 and Marley Run
Apartments in May 2001 ("Property Dispositions"). An additional $180,000
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.
Percentage rents decreased $230,000, from $589,000 for 2000 to $359,000 for
2001. This decrease was primarily attributable to certain tenants paying
percentage rent in lieu of minimum rent in 2000 according to anchor co-tenancy
lease provisions. These tenants have reverted to paying full minimum rent in
2001. Additionally, certain tenant bankruptcies contributed to lower percentage
rent income in 2001.
In total, expense reimbursements did not vary significantly between 2001 and
2000. Real estate tax reimbursements of $2.1 million and common area maintenance
("CAM") expense reimbursements of $1.0 million were essentially unchanged from
2000.
Other income decreased $1.9 million, or 78%, to $563,000 in 2001 compared to
$2.5 million in 2000. This was primarily due to $1.8 million of lease
termination income received from two tenants at the Abington Towne Center in
connection with the commencement of redevelopment of the center in 2000.
Total operating expenses decreased $758,000, or 5%, to $13.9 million for 2001,
from $14.6 million for 2000.
Property operating expenses decreased $580,000, or 11%, to $4.8 million for 2001
compared to $5.3 million for 2000. This decrease resulted primarily from
Property Dispositions. Also contributing to the decrease was a reduction in
estimated property liability insurance claims related to prior year policies
based on actual claims filed through 2001. These decreases were partially offset
by higher payroll costs in 2001.
12
RESULTS OF OPERATIONS, continued
Real estate taxes decreased $96,000, or 3%, from $2.9 million for 2000 to $2.8
million for 2001. This net decrease was due to a decrease in taxes following
Property Dispositions offset by higher real estate taxes experienced generally
throughout the portfolio.
Depreciation and amortization decreased $149,000 for 2001. Depreciation expense
decreased $110,000. This was a result of a $320,000 decrease related to the
Property Dispositions offset against additional depreciation expense related to
capitalized tenant installation costs during fiscal 2000 and 2001. Amortization
expense decreased $39,000, which was primarily the result of a decrease in
amortization of loan costs following certain loan payoffs during fiscal 2000 and
2001 and the Disposition Properties.
General and administrative expense increased $67,000, or 5%, from $1.3 million
for 2000 to $1.4 million for 2001, which was primarily attributable to the
write-off of certain abandoned project costs in 2001.
Interest expense of $4.8 million for 2001 decreased $1.5 million, or 24%, from
$6.3 million for 2000. Of this decrease, $652,000 was the result of a lower
average interest rate on the portfolio mortgage debt and $843,000 was due to
lower average outstanding borrowings following certain loan payoffs during
fiscal 2000 and 2001.
Comparison of the six month period ended June 30, 2001 ("2001") to the six month
period ended June 30, 2000 ("2000")
Total revenues decreased $5.2 million, or 11%, to $43.6 million for 2001
compared to $48.8 million for 2000.
Minimum rents decreased $2.7 million, or 7%, to $34.4 million for 2001 compared
to $37.1 million for 2000. Of this decrease, $3.5 million was due to the loss of
rents related to Property Dispositions. An additional $370,000 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
2000 and 2001.
Percentage rents decreased $249,000, or 19%, to $1.1 million for 2001 compared
to $1.3 million for 2000. This decrease was attributable to those factors
previously discussed for the three month periods ended June 30, 2001 and 2000.
In total, expense reimbursements were essentially unchanged from 2000. Real
estate tax reimbursements increased $131,000, or 3%, to $4.2 million for 2001
compared to $4.1 million in 2000. This increase was primarily the result of
general increases in real estate taxes experienced throughout the portfolio. CAM
expense reimbursements decreased $127,000, or 4%, from $3.0 million in 2000 to
$2.9 million in 2001. This resulted primarily from a decrease in reimbursements
following the planned termination of certain leases at the Abington Towne Center
as previously discussed and from Property Dispositions.
Other income decreased $2.2 million, from $3.3 million in 2000 to $1.1 million
in 2001, primarily as a result of $1.8 million in lease termination income
received in 2000 as previously discussed for the three month periods ended June
30, 2001 and 2000, and a $218,000 decrease in third-party property management
fees earned in 2001 following the cancellation of one management contract in
November 2000.
Total operating expenses decreased $614,000, or 2%, to $29.0 million for 2001,
from $29.6 million for 2000.
13
RESULTS OF OPERATIONS, continued
Property operating expenses decreased $368,000, or 3%, from $11.3 million in
2000 to $10.9 in 2001. The decrease was attributable to those factors previously
discussed for the three month periods ended June 30, 2001 and 2000. The decrease
was partially offset by higher payroll costs, an increase in CAM expenses
(primarily snow removal costs) throughout the portfolio, and an increase in bad
debt expense in 2001.
Real estate taxes were essentially unchanged from 2000. This was the result of
higher real estate taxes experienced generally throughout the portfolio
partially offset against a decrease from Property Dispositions.
Depreciation and amortization decreased $200,000, or 2%, from $10.1 million for
2000 to $9.9 million for 2001. Depreciation expense decreased $160,000 and
amortization expense decreased $40,000. The decreases were attributable to those
factors previously discussed for the three month periods ended June 30, 2001 and
2000.
General and administrative expense decreased $37,000. The decrease is
attributable to a $65,000 decrease in third-party professional fees in 2001
partially offset against the write-off of certain abandoned project costs in
2001.
Interest expense of $10.1 million for 2001 decreased $2.5 million, or 20%, from
$12.6 million for 2000. Of the decrease, $576,000 was due to a lower average
interest rate on the portfolio mortgage debt and $2.0 million was attributable
to lower average outstanding borrowings following certain loan payoffs during
fiscal 2000 and 2001.
Funds from Operations
The Company considers 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 the performance of the Company.
However, the Company's method of calculating FFO may be different from methods
used by other REITs and, accordingly, may not be comparable to such other REITs.
FFO does not represent cash generated from operations as defined by accounting
principles generally accepted in the United States ("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 the Company's performance or to cash flows as a measure of liquidity.
NAREIT defines FFO as net income (computed in accordance with GAAP), excluding
gains (or losses) from sales of property, plus depreciation and amortization,
and after adjustments for unconsolidated partnerships and joint ventures.
Effective January 1, 2000, NAREIT clarified the definition of FFO to include
non-recurring events except those that are defined as "extraordinary items"
under GAAP. The reconciliation of net income to FFO for the three and six month
periods ended June 30, 2001 and 2000 is as follows:
For the three months ended For the six months ended
June 30, June 30,
2001 2000 2001 2000
------- -------- -------- --------
Net income $ 7,800 $ 2,964 $ 9,383 $ 4,838
Depreciation of real estate and amortization of
leasing costs:
Wholly owned and consolidated partnerships 4,708 4,789 9,397 9,526
Unconsolidated partnerships 156 160 313 316
Income attributable to minority interest in
Operating Partnership (a) 1,675 1,216 2,054 1,996
Gain on sale of property (7,035) -- (7,035) --
Extraordinary item -- -- 140 --
Cumulative effect of change in accounting principal -- -- 149 --
-------- -------- -------- --------
Funds from operations $ 7,304 $ 9,129 $ 14,401 $ 16,676
======== ======== ======== ========
(a) Does not include distributions paid to Preferred OP Unit holders for the
three and six months ended June 30, 2001 and 2000.
14
LIQUIDITY AND CAPITAL RESOURCES
General
The Company's principal uses of its liquidity are expected to be for
distributions to its shareholders and OP Unit holders, 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 June 4, 2001, the Board of Trustees of
the Company approved and declared a cash quarterly dividend for the quarter
ended June 30, 2001 of $0.12 per Common Share and Common OP Unit. The dividend
was paid on July 13, 2001 to the shareholders of record as of June 29, 2001. The
Board of Trustees also approved a distribution of $22.50 per Preferred OP Unit
which was paid on July 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. Two of these projects are expected to be
substantially complete by the end of 2001 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 157,000 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 13,000 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 June
30, 2001 totaled $2.7 million with approximately $800,000 of costs remaining to
complete the redevelopment of this property.
Methuen Shopping Center - This center, located in Methuen, Massachusetts (part
of the Boston metropolitan statistical area) was formerly anchored by a Caldor
discount department store. The Company purchased this lease in 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.
The remaining two properties under redevelopment are as follows:
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 future anchor tenant, a 48,000 square foot
freestanding A&P supermarket, will replace an undersized (28,000 square feet)
in-line former Grand Union supermarket when completed. The project also includes
the expansion of an existing Walgreens drug store. As of June 30, 2001, costs
incurred on this project totaled $1.8 million. The Company expects remaining
redevelopment costs of approximately $7.4 million to complete this project. In
conjunction with the A&P supermarket rent commencement, the Operating
Partnership is also obligated to issue OP Units equal to $2.8 million to the
original owners who contributed the property to the Company in connection with
the RDC Transaction in August 1998. The Company believes A&P has defaulted under
its obligation to accept the site as delivered and has commenced litigation
against A&P as further discussed in Part II, Item 1.
15
LIQUIDITY AND CAPITAL RESOURCES, continued
Gateway Shopping Center - The redevelopment of the Gateway Shopping Center, a
partially enclosed mall located in South Burlington, Vermont, originally
included 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 and assumed
by Shaw's supermarket. The Company is currently in negotiations 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 $2.0 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 August 10, 2001, the Company had repurchased
1,794,642 (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.
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 June 30, 2001, the Company has a total of $8.4
million of additional capacity with two lenders. Of this amount, $3.6 million is
currently being utilized for a letter of credit which the Company has issued in
connection with the construction of the A&P supermarket at the Elmwood Park
Shopping Center. 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 June 30, 2001 interest on the Company's mortgage indebtedness ranged from
5.2% to 9.9% with maturities that ranged from March 2002 to November 2021. Of
the total outstanding debt, $124.3 million, or 49%, was carried at fixed
interest rates with a weighted average of 8.5%, and $128.6 million, or 51%, was
carried at variable rates with a weighted average of 5.9%. Of the total
outstanding debt, $61.4 million will become due through the end of 2003, with
scheduled maturities of $42.2 million at an interest rate of 6.7% in 2002 and
$19.2 million at an interest rate of 6.1% in 2003. No outstanding debt matures
in the balance of 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 March 31, 2001:
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.
On May 15, 2001 the Company repaid $14.1 million of outstanding debt with a bank
in connection with the sale of the Marley Run Apartments.
16
LIQUIDITY AND CAPITAL RESOURCES, continued
Financing and Debt, continued
The following table summarizes the Company's mortgage indebtedness as of June
30, 2001:
June 30, December 31, Interest
2001 2000 Rate
------- ------- ------
Mortgage notes payable - variable-rate
Fleet Bank, N.A. 4,081 4,110 5.50% (LIBOR + 1.75%)
Fleet Bank, N.A. 9,161 9,216 5.53% (LIBOR + 1.78%)
Sun America Life Insurance Company 13,666 13,774 6.36% (LIBOR + 2.05%)
Sun America Life Insurance Company 9,785 9,856 6.93% (LIBOR + 2.05%)
KBC Bank -- 14,238 -- (LIBOR + 1.25%)
Fleet Bank, N.A. -- 3,500 -- (LIBOR + 1.50%)
Fleet Bank, N.A. 8,910 8,965 5.81% (LIBOR + 1.75%)
Metropolitan Life Insurance Company 10,800 10,800 6.34% (LIBOR + 2.00%)
First Union National Bank 13,574 13,636 5.20% (LIBOR + 1.45%)
Dime Savings Bank of NY 58,601 35,814 5.81% (LIBOR + 1.75%)
-------- --------
Total variable-rate debt 128,578 123,909
-------- --------
Mortgage notes payable - fixed rate
Huntoon Hastings Capital Corp. 6,217 6,222 9.88%
Anchor National Life Insurance Company 3,727 3,775 7.93%
Lehman Brothers Holdings, Inc. 17,695 17,792 8.32%
Mellon Mortgage Company 7,375 7,442 9.60%
Northern Life Insurance Company 2,760 2,895 7.70%
Reliastar Life Insurance Company 1,902 1,996 7.70%
Metropolitan Life Insurance Company 24,987 25,148 8.13%
Bank of America, N.A. 11,061 11,100 7.55%
Bank of America, N.A. 5,531 5,550 7.55%
Morgan Stanley Mortgage Capital 43,027 43,397 8.84%
Sun America Life Insurance Company -- 17,999 7.75%
North Fork Bank -- 9,887 7.75%
-------- --------
Total fixed-rate debt 124,282 153,203
-------- --------
$252,860 $277,112
======== ========
17
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 -- -- --
Fleet Bank, N.A. 03/01/03 (6) (2)
Fleet Bank, N.A. 08/01/03 (7) (2)
Metropolitan Life Insurance Company 11/01/03 (8) (21)
First Union National Bank 01/01/05 (9) (2)
Dime Savings Bank of NY 04/01/05 (10) (2)
Mortgage notes payable - fixed rate
Huntoon Hastings Capital Corp. 09/01/02 (11) (12)
Anchor National Life Insurance Company 01/01/04 (13) $33(2)
Lehman Brothers Holdings, Inc. 03/01/04 (14) $139(2)
Mellon Mortgage Company 05/23/05 (15) $70(2)
Northern Life Insurance Company 12/01/08 (16) $41(2)
Reliastar Life Insurance Company 12/01/08 (16) $28(2)
Metropolitan Life Insurance Company 11/01/10 (17) $197(2)
Bank of America, N.A. 01/01/11 (18) $78(2)
Bank of America, N.A. 01/01/11 (19) $39(2)
Morgan Stanley Mortgage Capital 11/01/21 (20) $380(2)
Sun America Life Insurance Company -- -- --
North Fork Bank -- -- --
Notes:
(1) Town Line Plaza (10) Ledgewood Mall (18) GHT Apartments
New Louden Center
(2) Monthly principal and interest Route 6 Plaza (19) Colony Apartments
Bradford Towne Centre
(3) Smithtown Shopping Center Berlin Shopping Center (20) Midway Plaza
Kings Fairgrounds
(4) Merrillville Plaza (11) Gateway Shopping Center Plaza 15
Ames Plaza
(5) Village Apartments (12) Interest only until 5/01; monthly Martintown Plaza
principal and interest thereafter Shillington Plaza
Dunmore Plaza
(13) Pittston Plaza Kingston Plaza
(6) Marketplace of Absecon 25th Street Shopping Center
(14) Glen Oaks Apartments Circle Plaza
(7) Soundview Marketplace Northside Mall
(15) Mad River Station Shopping Center Monroe Plaza
(8) Green Ridge Plaza New Smyrna Beach
Luzerne Street Plaza (16) Manahawkin Shopping Center Mountainville Plaza
Valmont Plaza Cloud Springs Plaza
(17) Crescent Plaza Birney Plaza
(9) 239 Greenwich Avenue East End Centre Troy Plaza
(21) Interest only until 5/02; monthly
principal and interest thereafter
Asset Sales
As part of its continuing plan to dispose of certain non-core assets, the
Company sold its interest in the Marley Run Apartments (the "Property") for
$27.4 million on May 15, 2001. Net proceeds after the repayment of the
associated debt and other closing costs were $12.7 million of which $4.8 million
was used to redeem 680,667 OP Units at $7.00 per unit. The redemption price
represented a premium of $0.35 over the market price of the Company's Common
shares as of the redemption date. The OP Units redeemed were held by the
original owners of the Property who contributed the Property to the Company in
connection with the RDC Transaction in August 1998, pursuant to which, the
Company agreed to indemnify the OP Unit holders for any income taxes recognized
with respect to a disposition of the Property within five years following the
contribution of the Property. As part of the redemption as discussed above, the
OP Unit holders waived their rights to this tax reimbursement which the Company
estimated to be in excess of $2.00 per OP Unit.
18
HISTORICAL CASH FLOW
The following discussion of historical cash flow compares the Company's cash
flow for the six month period ended June 30, 2001 ("2001") with the Company's
cash flow for the six month period ended June 30, 2000 ("2000").
Net cash provided by operating activities increased from $14.4 million for 2000
to $15.4 million for 2001. This variance was attributable to a net increase in
cash provided by changes in operating assets and liabilities of $3.3 million.
This increase was offset by a decrease of $2.3 million in operating income
before non-cash expenses in 2001, primarily due to $1.8 million of lease
termination income received in 2000 from tenants at the Abington Towne Center in
connection with the commencement of the redevelopment of the center.
Investing activities provided $21.7 million during 2001, representing a $27.1
million increase from $5.4 million of cash used during 2000. This was primarily
the result of an increase in net sales proceeds of $27.0 million received in
2001 from the sale of the Marley Run Apartments.
Net cash used in financing activities of $38.5 million for 2001 increased $6.1
million compared to $32.4 million used in 2000. The increase in cash used
resulted primarily from a $9.9 million decrease in cash provided by additional
borrowings and $4.8 million of cash used for the redemption of Operating
Partnership Units in 2001. This was partially offset by $4.9 million of
additional cash used in 2000 for the repayment of debt and $2.4 million of
additional cash used in 2000 for the repurchase of Common Shares.
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 June 30, 2001, the Company had total mortgage debt of
$252.9 million of which $124.3 million, or 49%, is fixed-rate and $128.6
million, or 51%, is variable-rate based upon LIBOR plus certain spreads. $23.5
million of notional variable-rate principal is hedged through the use of LIBOR
rate caps as of June 30, 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.
19
Item 3. Quantitative and qualitative disclosures about market risk, continued
Of the total outstanding debt, $42.2 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 $422,000 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 June 30, 2001
would increase by $1.3 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.
20
Part II. Other Information
Item 1. Legal Proceedings
On July 30, 2001, the Company filed a lawsuit in Superior Court of New
Jersey Law Division: Bergen County against The Great Atlantic & Pacific
Tea Company ("A&P"). The complaint alleges A&P defaulted under its
lease at the Elmwood Park Shopping Center by failing to accept delivery
of its site at the center (reference Item 2, Liquidity and Capital
Resources, Property Redevelopment and Expansion). During 2001, the
Company completed all required sitework and also complied with all
other requirements of the lease in delivering the pad site to A&P. The
Company believes A&P wrongfully refused acceptance of the site and is
seeking to have the Court declare the lease in default, terminate the
lease and accelerate the rent which totals approximately $24.4 million
over the 20 year lease term. Although the Company believes its claim
has substantial legal merit, it cannot provide any assurances as to the
outcome of this legal action due to the early stage of this litigation.
Item 2. Changes in Securities
On April 12, 2001, the Company redeemed 8,000 OP Units held by a
limited partner at the market price of the Common Shares at that date
of $6.15 per share.
On May 15, 2001, the Company redeemed 680,667 OP Units in connection
with the sale of its interest in the Marley Run Apartments at the rate
of $7.00 per unit.
On June 14, 2001, certain limited partners converted 477,215 OP Units
into Common Shares on a one-for-one basis.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On May 31, 2001 the Registrant held its annual meeting of shareholders.
The shareholders voted, in person or by proxy for the following
proposals. The results of the voting are shown below:
Proposal 1 -
Election of Trustees:
Votes Cast For Votes Withheld
Ross Dworman 20,485,275 24,471
Kenneth F. Bernstein 19,951,645 558,100
Martin L. Edelman, Esq. 20,480,894 28,852
Marvin J. Levine, Esq. 20,478,718 31,027
Lawrence J. Longua 20,482,275 27,471
Gregory A. White 20,484,275 25,471
Lee S. Wielansky 20,483,099 26,646
Proposal 2 -
The ratification of the appointment of Ernst & Young, LLP as
independent auditors for the Company for the fiscal year ending
December 31, 2001:
Votes Cast For Votes Withheld Abstain
20,500,267 7,129 2,350
21
Item 4. Submission of Matters to a Vote of Security Holders, continued
Proposal 3 -
Such other business as may properly come before the Annual Meeting Or
adjournments thereof:
Votes Cast For Votes Withheld Abstain
15,864,223 2,328,159 2,317,364
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
10.54 First Amendment to Employment Agreement between the
Company and Kenneth F. Bernstein
10.55 First Amendment to Employment Agreement between the
Company and Ross Dworman
(b) Reports on Form 8-K
The following Form 8-K's were filed during the three
months ended June 30, 2001
1) Form 8-K filed May 18, 2001 (earliest event May 18,
2001), reporting in Item 7. certain supplemental
information concerning the ownership, operations and
portfolio of the Company as of March 31, 2001.
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 of Finance
(Principal Financial and
Accounting Officer)
Date: August 10, 2001
22