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, 2002
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 13, 2002, there were 24,700,328 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, 2002 and December 31, 2001 1
Consolidated Statements of Income for
the three months ended March 31, 2002 and 2001 2
Consolidated Statements of Cash Flows for
the three months ended March 31, 2002 and 2001 3
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosure of Market Risk 19
Part II: Other Information
Item 6. Exhibits 20
Signatures 20
Part I. Financial Information
Item 1. Financial Statements
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
March 31,
2002 December 31,
(unaudited) 2001
----------- -----------
ASSETS
Real estate
Land $ 57,927 $ 57,677
Buildings and improvements 367,128 363,149
-------- --------
425,055 420,826
Less: accumulated depreciation 81,981 78,864
-------- --------
Net real estate 343,074 341,962
Cash and cash equivalents 39,262 33,173
Cash in escrow 3,240 2,699
Investments in unconsolidated
partnerships 5,135 5,169
Rents receivable, net 5,839 5,905
Note receivable 3,563 34,757
Prepaid expenses 2,041 1,683
Deferred charges, net 11,964 11,426
Other assets 1,972 1,859
Assets of discontinued operations 47,755 55,306
-------- --------
$463,845 $493,939
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable $218,966 $218,968
Accounts payable and accrued expenses 4,286 5,024
Dividends and distributions payable 3,745 4,119
Due to related parties 98 107
Other liabilities 3,735 3,863
Liabilities of discontinued operations 43,351 43,944
-------- --------
Total liabilities 274,181 276,025
-------- --------
Minority interest in Operating
Partnership 27,146 37,387
Minority interests in majority-
owned partnerships 1,996 1,429
-------- --------
Total minority interests 29,142 38,816
-------- --------
Shareholders' equity:
Common shares, $.001 par value,
authorized 100,000,000 shares,
issued and outstanding 24,700,328
and 28,697,666 shares, respectively 25 29
Additional paid-in capital 166,834 189,378
Accumulated other comprehensive loss (489) (1,206)
Deficit (5,848) (9,103)
-------- --------
Total shareholders' equity 160,522 179,098
-------- --------
$463,845 $493,939
======== ========
See accompanying notes
1
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(in thousands, except per share amounts)
March 31, March 31,
2002 2001
(unaudited) (unaudited)
----------- -----------
Revenues
Minimum rents $ 12,344 $ 12,330
Percentage rents 319 415
Expense reimbursements 2,691 3,264
Lease termination income 3,800 --
Other 1,014 425
-------- --------
Total revenues 20,168 16,434
-------- --------
Operating Expenses
Property operating 3,689 4,695
Real estate taxes 2,040 2,184
General and administrative 1,450 1,189
Depreciation and amortization 3,745 3,520
-------- --------
Total operating expenses 10,924 11,588
-------- --------
Operating income 9,244 4,846
Equity in earnings of un-
consolidated partnerships 118 152
Interest expense (2,876) (3,703)
Minority interest (1,030) (242)
-------- --------
Income from continuing operations 5,456 1,053
-------- --------
Discontinued operations:
Income from discontinued operations 376 1,017
Gain on sale of properties 1,375 --
Minority interest (741) (198)
-------- --------
1,010 819
-------- --------
Income before extraordinary item and
cumulative effect of change in
accounting principle 6,466 1,872
Extraordinary item - Loss on early
extinguishment of debt -- (140)
Cumulative effect of a change in
accounting principle -- (149)
-------- --------
Net income $ 6,466 $ 1,583
======== ========
Earnings per Common Share - Basic and diluted:
Income from continuing operations $ .20 $ .04
Income from discontinued operations .04 .03
-------- --------
Income before extraordinary item
and cumulative effect of a change
in accounting principle .24 .07
Extraordinary item -- --
Cumulative effect of a change in
accounting principal -- (.01)
-------- --------
Net income per Common Share $ .24 $ .06
======== ========
See accompanying notes
2
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(in thousands)
March 31, March 31,
2002 2001
(unaudited) (unaudited)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 5,456 $ 1,053
Adjustments to reconcile income from
continuing operations to net cash
provided by operating activities:
Depreciation and amortization 3,745 3,520
Minority interests 1,030 242
Equity in earnings of unconsolidated
partnerships (118) (152)
Provision for bad debts 34 273
Changes in assets and liabilities:
Funding of escrows, net (541) (169)
Rents receivable 32 40
Prepaid expenses (358) (64)
Other assets 177 (15)
Accounts payable and accrued expenses (1,187) (856)
Due to related parties (9) 13
Other liabilities (53) 178
------- ------
Net cash provided by operating activities 8,208 4,063
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for real estate and
improvements (5,421) (2,013)
Distributions from unconsolidated partnerships 408 538
Note collected in connection with sale of property 34,780 --
Payment of deferred leasing costs (463) (216)
------- ------
Net cash provided by (used in) investing activities 29,304 (1,691)
------- ------
See accompanying notes
3
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(in thousands)
March 31, March 31,
2002 2001
(unaudited) (unaudited)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgages $ (967) $(28,421)
Proceeds received on mortgage notes 965 23,000
Payment of deferred financing and
other costs (123) (11)
Dividends paid (3,439) (3,374)
Distributions to minority interests in
Operating Partnership (630) (817)
Distributions on preferred Operating
Partnership Units (50) (50)
Distributions to minority interests in
Majority-owned partnership (38) --
Repurchase of Common Shares (33,420) (842)
--------- --------
Net cash used in financing activities (37,702) (10,515)
--------- --------
Cash flows from discontinued operations:
Net cash provided by discontinued operations 5,551 1,680
--------- --------
Increase (decrease) in cash and cash equivalents 5,361 (6,463)
Cash and cash equivalents, beginning of period 34,138 22,167
--------- --------
39,499 15,704
Less: Cash of discontinued operations (237) (2,289)
--------- --------
Cash and cash equivalents, end of period $ 39,262 $ 13,415
========= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest, net of
amounts capitalized of $211 and $52,
respectively $ 3,762 $ 5,488
========= ========
See accompanying notes
4
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(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 March 31, 2002, the Company controlled 87% of
the Operating Partnership as the sole general partner.
The Company currently operates 35 properties, which it owns or has an ownership
interest in, consisting of 31 neighborhood and community shopping centers, one
enclosed mall and three multi-family properties, all of which are located in the
Eastern and Midwestern regions of the United States. The above excludes 17
properties sold subsequent to March 31, 2002.
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 that, 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 three months ended
March 31, 2002 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 2002. 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, 2001.
3. PROPERTY ACQUISITION AND DISPOSITION
On January 10, 2002, the Company purchased a three-acre site located in the
Bronx, New York for $3,109. Simultaneously, the Company sold approximately 46%
of the land to a self-storage facility for $3,300, recognizing a $1,500 gain on
sale. The Company currently plans to build and lease a 15,000 square foot retail
building on the remaining parcel.
In connection with its ongoing plan to dispose of certain non-core assets, the
Company sold Union Plaza, a 218,000 square foot shopping center located in New
Castle, Pennsylvania for $4,750 on January 16, 2002. The Company received a
$3,560 purchase money note. The note, which matures January 15, 2005, requires
monthly interest of 7% for year one, increasing at a rate of 1% per annum
throughout the term. As part of the transaction, the Company has agreed to
reimburse the purchaser 50% of the former Ames rent, or $22 per month, for a
period of 18 months.
4. DISCONTINUED OPERATIONS
In October 2001, the Financial Accounting Standards Board issued Statement
("SFAS") No. 144, Accounting for the Impairment and Disposal of Long-Lived
Assets, which supercedes SFAS No. 121, Accounting for the Impairment of Long
Lived Assets and for Long-Lived Assets to be Disposed Of. It also supercedes the
accounting and reporting provisions of APB Opinion No. 30, Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions. SFAS No. 144 retains the
fundamental provisions of SFAS No. 121 for (a) recognition and measurement of
the impairment of long-lived assets to be held and used and (b) measurement of
long-lived assets to be disposed of by sale, but broadens the definition of what
constitutes a discontinued operation and how the results of a discontinued
operation are to be measured and presented. The statement is effective for
fiscal years beginning after December 15, 2001 and was adopted by the Company
for the year commencing January 1, 2002.
A significant component of the Company's business plan during 2001 and 2002 was
the disposition of non-core real estate assets. Under this initiative, which was
completed in April 2002, the Company sold two apartment complexes and 20
shopping centers in six separate transactions during 2001 and 2002 (the "Sold
Properties"). The Company recorded a $14,756 impairment loss for the quarter
ended September 30, 2001 on one of these shopping centers that was subsequently
sold during the quarter ended March 31, 2002. 17 of the Sold Properties were
shopping centers which were subject to a securitized loan, and were sold in
April 2002 to a single buyer (note 15).
5
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
4. DISCONTINUED OPERATIONS, continued
The results of operations of the Sold Properties are reported separately as
discontinued operations for the three months ended March 31, 2002 and 2001.
Assets and liabilities of the Sold Properties have been classified separately in
the Company's consolidated balance sheets at March 31, 2002 and December 31,
2001. The following table summarizes financial information of the Sold
Properties for all periods presented:
March 31, December 31,
2002 2001
----------- -----------
ASSETS
Net real estate $ 41,327 $ 46,558
Cash and cash equivalents 237 965
Cash in escrow 2,322 2,547
Rents receivable, net 710 1,209
Prepaid expenses 567 625
Deferred charges, net 2,171 2,705
Other assets 421 697
-------- --------
Total assets 47,755 55,306
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable 42,438 42,639
Accounts payable and accrued expenses 312 681
Other liabilities 601 624
-------- --------
Total liabilities 43,351 43,944
-------- --------
Net assets of discontinued operations $ 4,404 $ 11,362
======== ========
Revenues from discontinued operations for the three months ended March 31, 2002
and 2001, totaled $3,167 and $6,155, respectively.
5. TENANT LEASES
In March 2002, the Company received a $3,800 settlement of its claim against a
former tenant, which is reflected as lease termination income in the
accompanying consolidated statement of income.
6
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
6. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS
The following table summarizes the change in the shareholders' equity and
minority interests since December 31, 2001:
Minority Minority
interests in interests in
Shareholders' Operating majority-owned
equity Partnership(1) partnerships
------------- -------------- --------------
Balance at December 31, 2001 $179,098 $37,387 $ 1,429
Repurchase of Common Shares (33,420) -- --
Conversion of 1,526,637 Operating Partnership
Units into Common Shares by minority interests 10,872 (10,872) --
Dividends and distributions declared
of $0.13 per Common Share and
Operating Partnership Unit (3,211) (484) --
Cash flow distribution -- -- (38)
Net income for the period January 1
through March 31, 2002 6,466 1,115 605
Other comprehensive income - Unrealized
loss on valuation of swap agreements from
unconsolidated partnerships 717 -- --
-------- ------- --------
Balance at March 31, 2002 $160,522 $27,146 $ 1,996
======== ======= ========
(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 3,723,080 and 6,804,144 units in the Operating Partnership ("Common
OP Units") at March 31, 2002 and 2001, 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 three
partnerships in which the Company has a majority ownership position.
In February 2002, the Company completed a "modified Dutch Auction" tender offer
(the "Tender Offer") whereby the Company purchased 5,523,974 Common Shares,
comprised of 4,136,321 Common Shares and 1,387,653 Common OP Units converted to
Common Shares, at a purchase price of $6.05.The aggregate purchase price paid
was $33,400.
In addition to the Common OP units converted by limited partners in connection
with the Tender Offer, certain limited partners also converted 138,984 Common OP
Units into Common Shares on a one-for-one basis during the three months ended
March 31, 2002.
In February 2002, the Board of Trustees voted to permit Yale University ("Yale")
to acquire 2,266,667 additional Common Shares from the Howard Hughes Medical
Institute by granting a conditional waiver of the provision in the Company's
Declaration of Trust that prohibits ownership positions in excess of 4% of the
Company. The waiver was limited to this particular transaction. Following this,
Yale owned 8,421,759 Common Shares, or 34% of The Company's outstanding Common
Shares. Additionally, as a condition to approving the waiver, Yale agreed to
establish a voting trust whereby all shares owned by Yale University in excess
of 30% of the Company's outstanding Common Shares, will be voted in the same
proportion as all other shares voted, excluding Yale.
7
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
7. INVESTMENT IN PARTNERSHIPS
Crossroads
The Company owns a 49% interest in the Crossroads Joint Venture and Crossroads
II Joint Venture (collectively "Crossroads"), which collectively own a 311,000
square foot shopping center in White Plains, New York. The Company accounts for
its investment in Crossroads 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,
2002 2001
-------- -----------
Balance Sheet
Assets:
Rental property, net $ 7,907 $ 7,997
Other assets 3,540 3,715
-------- --------
Total assets $ 11,447 $ 11,712
======== ========
Liabilities and partners' equity
Mortgage note payable $ 33,998 $ 34,133
Other liabilities 2,395 2,759
Partners' equity (24,946) (25,180)
-------- --------
Total liabilities and partners' equity $ 11,447 $ 11,712
======== ========
Company's investment in Crossroads $ 5,114 $ 5,147
======== ========
For the three months ended March 31,
2002 2001
---- ----
Statement of Income
Total revenue $ 1,715 $ 1,778
Operating and other expenses 497 464
Interest expense 625 669
Depreciation and amortization 135 134
-------- --------
Net income $ 458 $ 511
======== ========
Company's share of net income $ 216 $ 250
Amortization of excess investment
(See below) 98 98
-------- --------
Income from partnerships $ 118 $ 152
======== ========
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.
Acadia Strategic Opportunity Fund, LP ("ASOF")
In 2001, the Company formed a joint venture, ASOF, with four of its
institutional investors for the purpose of acquiring real estate assets. As of
March 31, 2002, ASOF had not yet acquired any assets. As of and for the three
months ended March 31, 2002, ASOF had total assets and equity, each of $97, and
a net loss of $339. The Company's investment in, and share of the net loss of
ASOF were $21 and $0, respectively.
8
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
8. INTEREST RATE HEDGES
On January 1, 2001, the Company adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS No. 138, Accounting for
Certain Derivative Instruments and Certain Hedging Activities. SFAS No. 133, as
amended, establishes accounting and reporting standards for derivative
instruments. Specifically, SFAS No. 133 requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position and to measure those instruments at fair value. Additionally, the fair
value of those instruments will affect either shareholders' equity or net income
depending on whether the derivative instrument qualifies as a hedge for
accounting purposes and, if so, the nature of the hedging activity.
In connection with the adoption of SFAS No. 133, the Company recorded a
transition adjustment of $149 related to the January 1, 2001 valuation of two
LIBOR rate caps that hedge $23,047 of variable-rate mortgage debt. This
adjustment is reflected as a cumulative effect of a change in accounting
principle in the accompanying consolidated statement of income.
The Company is a party to two swap agreements with a bank through its 49%
interest in the Crossroads Joint Venture and Crossroads II (see note 7). These
swap agreements effectively fix the interest rate on the Company's pro rata
share, or $16,659, of the joint venture mortgage debt.
The Company is also a party to two interest rate swap transactions which hedge
the Company's exposure to changes to interest rates with respect to $50,000 of
LIBOR based variable rate debt. The first swap agreement, which extends through
April 1, 2005, provides for a fixed all-in rate of 6.55% (includes a credit
spread of 1.75%) on $30,000 of notional principal. The second swap agreement,
which extends through October 1, 2006, provides for a fixed all-in rate of 6.28%
(includes a credit spread of 1.75%) on $20,000 of notional principal.
As of March 31, 2002, unrealized losses of $489 representing the fair value of
the aforementioned swaps were reflected in accumulated other comprehensive loss.
The following table summarizes the notional values and fair values of the
Company's derivative financial instruments. The notional value provides an
indication of the extent of the Company's involvement in these instruments on
March 31, 2002, but does not represent exposure to credit, interest rate or
market risks.
Hedge Type Notional Value Rate Interest Maturity Fair Value
- ---------- -------------- ---- ----------------- ----------
Swap(1) $11,974 5.94% 6/16/07 $(368)
Swap(1) 5,000 6.48% 6/16/07 (278)
Swap 30,000 4.80% 4/1/05 (283)
Swap 20,000 4.53% 10/1/06 402
Caps 24,000 6.50% 9/1/02 --
(1) Relates to the Company's investments in unconsolidated partnerships
On March 31, 2002, the derivative instruments were reported at their fair value
as other assets of $402, other liabilities of $283 and investments in
unconsolidated partnerships of ($646). For the three months ended March 31,
2002, the Company recorded an unrealized $17 gain in earnings due to partial
ineffectiveness on one of the swaps. The ineffectiveness resulted from
differences between the swap notional and the principal amount of the hedged
variable rate debt.
The Company's interest rate hedges are designated as cash flow hedges and hedge
the future cash outflows on debt. Interest rate swaps that convert variable
payments to fixed payments-such as those held by the Company, as well as
interest rate caps, floors, collars, and forwards are cash flow hedges. The
unrealized gains/losses in the fair value of these hedges are reported on the
balance sheet with a corresponding adjustment to either accumulated other
comprehensive income or earnings depending on the type of hedging relationship.
For cash flow hedges, offsetting gains and losses are reported in accumulated
other comprehensive income. Over time, the unrealized gains and losses held in
accumulated other comprehensive income will be reclassified to earnings. This
reclassification occurs over the same time period in which the hedged items
affect earnings. Within the next twelve months, the Company expects to
reclassify to earnings as interest expense approximately $121 of the current
balance held in accumulated other comprehensive loss.
The Company hedges its exposure to the variability in future cash flows for
forecasted transactions over a maximum period of twelve months. During the
forecasted period, unrealized gains and losses in the hedging instrument will be
reported in accumulated other comprehensive income. Once the hedged transaction
takes place, the hedge gains and losses will be reported in earnings during the
same period in which the hedged item is recognized in earnings.
9
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
9. MORTGAGE LOANS
On March 15, 2002, the Company extended its existing loan with a bank through
March 15, 2007 and drew down an additional $1,000. As of March 31, 2002, $5,000
was outstanding under this loan.
10. RELATED PARTY TRANSACTIONS
The Company currently manages one property in which a shareholder of the Company
has an ownership interest for which the Company earns a management fee of 3% of
tenant collections. In 2001, the Company terminated a contract to manage a
property owned by a related party that earned fees of 3.25% of tenant
collections. Management fees earned by the Company under these contracts
aggregated $61 and $95 for the three months ended March 31, 2002 and 2001,
respectively.
In connection with the Company's Tender Offer, which was completed in February
2002, Mr. Dworman tendered and sold 492,271 Common OP Units (after converting
these to Common Shares on a one-for-one basis) and 107,729 Common Shares (note
6).
11. DIVIDENDS AND DISTRIBUTIONS PAYABLE
On March 21, 2002, the Board of Trustees of the Company approved and declared a
cash quarterly dividend for the three months ended March 31, 2002 of $0.13 per
Common Share and Common OP Unit. The dividend was paid on April 15, 2002 to the
shareholders of record as of March 29, 2002. The Board of Trustees also approved
a distribution of $22.50 per Preferred OP Unit that was paid on April 15, 2002.
12. PER SHARE DATA
For the three months ended March 31, 2002 and 2001, 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 SFAS No. 128,
Earnings per Share. The weighted average number of shares outstanding for the
three-month periods ended March 31, 2002 and 2001 were 26,376,443 and
28,091,479, 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 months ended March 31, 2002 and
2001 no additional shares were reflected as the impact would be anti-dilutive in
such periods.
13. COMPREHENSIVE LOSS
Comprehensive loss for the three months ended March 31, 2002 totaled $7,183 and
was comprised of net income of $6,466 and other comprehensive income of $717.
The following table sets forth the change in accumulated other comprehensive
loss for the period since December 31, 2001:
Accumulated other comprehensive loss -
Balance at December 31, 2001 $ 1,206
Unrealized gain on valuation of swap
agreements (717)
--------
Balance at March 31, 2002 $ 489
========
As of March 31, 2002, the balance in accumulated other comprehensive loss was
comprised entirely of unrealized losses on the valuation of swap agreements.
10
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
14. SEGMENT REPORTING
As a result of the discontinued operations (note 4), the Company currently
operates in predominantly one industry segment. The Company's current focus is
on the ownership, acquisition, redevelopment and management of neighborhood and
community shopping centers. The Company currently operates 35 properties, of
which 32 are shopping centers located in the Eastern and Midwestern regions of
the United States. Management does not group its operations on a geographic
basis and measures performance and evaluates each property on an individual
basis and allocates resources based thereon, independent of the other properties
within the portfolio. Accordingly, the Company believes it has a single
reportable segment for disclosure purposes in accordance with accounting
principles generally accepted in the United States. Furthermore, no single
tenant comprises more than 10% of the total revenues for the Company and none of
the Company's shopping centers are located in a foreign country.
Prior to the sale of two major apartment complexes during 2001, the Company had
two reportable segments: retail properties and multi-family properties. Both the
Company's multi-family properties and retail properties contributed in excess of
10% of the Company's revenues, respectively. Segment information for the three
months ended 2001 is presented below:
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
========
14. PRO FORMA INFORMATION
The following unaudited pro-forma condensed consolidated information for the
three months ended March 31, 2002 and 2001 are presented as if the Sold
Properties (note 4) had been sold as of January 1, 2000.
March 31, March 31,
2002 2001
----------- -----------
Revenues $ 20,168 $ 16,434
======== ========
Income before extraordinary item $ 5,456 $ 904
======== ========
Net income $ 5,456 $ 764
======== ========
Net income per Common Share -
Basic and diluted $ .20 $ .03
========= =========
11
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
15. SUBSEQUENT EVENTS
On April 24, 2002, the Company sold a multi-property portfolio for $52,700. The
portfolio consisted of 17 retail properties, which are cross-collateralized in a
securitized loan program and in the aggregate contained approximately 2.3
million square feet. As part of the transaction, the buyer assumed the
outstanding mortgage debt of $42,438. The Company retained a senior, preferred
interest in the acquiring entity in the amount of $6,262, which earns an initial
annual preferred return of 15% that increases by 1% annually for the following
three years. The Company has the right to require the Buyer to redeem the
preferred interest at face value at the end of the fifth year.
12
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, 2002 and 2001 and for the
three months then ended. This information should be read in conjunction with the
accompanying consolidated financial statements and notes thereto. Operating
results for all periods presented reflect the results of the Sold Properties on
a discontinued basis for financial reporting purposes. Certain amounts for the
three months ended March 31, 2001 have been reclassified to conform to the
current presentation.
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 months ended March 31, 2002 ("2002") to the three-month
period ended March 31, 2001 ("2001")
Total revenues increased $3.8 million, or 23%, to $20.2 million for 2002
compared to $16.4 million for 2001.
Minimum rents of $12.3 million were essentially unchanged from 2001. The net
variance was a combination of increases in rents from retenanting activities and
rent step-ups for existing tenants offset by a decrease in rents following
certain tenant bankruptcies.
Percentage rents decreased $96,000, or 23%, to $319,000 for 2002 compared to
$415,000 for 2001. This decrease was primarily attributable to certain tenant
bankruptcies contributing to lower percentage rent income in 2002.
In total, expense reimbursements decreased $573,000, or 18%, from $3.3 million
for 2001 to $2.7 million for 2002. Common area maintenance ("CAM") expense
reimbursements, which comprise the majority of the variance between years,
decreased $461,000, or 30%, from $1.6 million in 2001 to $1.1 million in 2002.
This resulted primarily from a decrease in snow removal costs following a mild
winter in 2002. Lease termination income of $3.8 million was the result of a
claim settlement against a former tenant.
Lease termination income of $3.8 million in 2002 was the result of the
settlement of the Company's claim against a former tenant.
Other income increased $589,000, or 139%, to $1.0 million in 2002 compared to
$425,000 for 2001. This was primarily due to an increase of $265,000 in asset
management fees earned in 2002 and a $260,000 increase in interest income due to
higher interest earning assets in 2002.
Total operating expenses decreased $664,000, or 6%, to $10.9 million for 2002,
from $11.6 million for 2001.
Property operating expenses decreased $1.0 million, or 21%, to $3.7 million for
2002 compared to $4.7 million for 2001. This decrease was the result of lower
CAM expenses (primarily snow removal costs) throughout the portfolio, lower
utility expenses following the redevelopment of the Elmwood Park Shopping Center
and a decrease in bad debt expense in 2002.
General and administrative expense increased $261,000, or 22%, from $1.2 million
for 2001 to $1.5 million for 2002. This increase was primarily attributable to
an increase in third-party professional fees in 2002 related to the Company's
Tender Offer.
Depreciation and amortization increased $225,000, or 6%, from $3.5 million for
2001 to $3.7 million for 2002. Depreciation expense increased $40,000. This was
a result of increased depreciation expense related to capitalized tenant
installation costs during 2001 and 2002. Amortization expense increased
$185,000, which was primarily attributable to the write-off of deferred leasing
costs related to certain tenant leases.
Interest expense of $2.9 million for 2002 decreased $827,000, or 22%, from $3.7
million for 2001. Of this decrease, $950,000 was the result of a lower average
interest rate on the portfolio mortgage debt and $159,000 was due to more
capitalized interest in 2002. These decreases were offset by $282,000 of higher
average outstanding borrowings during 2002.
13
RESULTS OF OPERATIONS, continued
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.
The $149,000 cumulative effect of a change in accounting principle in 2001 was a
transition adjustment related to the valuation of LIBOR rate caps recognized in
connection with the January 1, 2001 adoption of SFAS No. 133.
Income from discontinued operations decreased $641,000 due to the timing of
property sales in 2001 and 2002 (note 4).
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 months ended
March 31, 2002 and 2001 is as follows:
For the three months
ended March 31,
2002 2001
---- ----
Net income $ 6,466 $ 1,583
Depreciation of real estate and amortization of
leasing costs:
Wholly-owned and consolidated
partnerships 4,339 4,689
Unconsolidated partnerships 157 157
Income attributable to minority interest in
Operating Partnership (a) 1,116 379
Gain on sale of properties (802) --
Extraordinary item -- 140
Cumulative effect of a change in
accounting principle -- 149
------- -------
Funds from operations 11,276 7,097
Less: Funds from operations - Discontinued
operations (1,207) (2,433)
------- -------
Funds from operations - Continuing operations $10,069 $ 4,664
======= =======
Cash flows provided by (used in):
Operating activities $ 8,208 $ 4,063
Investing activities 29,304 (1,691)
Financing activities (37,702) (10,515)
(a) Does not include distributions paid to Preferred OP Unitholders.
(b) Assumes full conversion of a weighted average 4,379,309 and 6,804,144 Common
OP Units into Common Shares for the three months ended March 31, 2002 and 2001.
14
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 funding of its joint venture
commitments, 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 21, 2002, the Board of Trustees of the Company approved and declared a
cash quarterly dividend for the quarter ended March 31, 2002 of $0.13 per Common
Share and Common OP Unit. The dividend was paid on April 15, 2002 to the
shareholders of record as of March 29, 2002. The Board of Trustees also approved
a distribution of $22.50 per Preferred OP Unit, which was paid on April 15,
2002.
Acadia Strategic Opportunity Fund, LP
As announced in 2001, the Company has committed $20 million to a new joint
venture formed with four of its institutional shareholders, for the purpose of
acquiring additional community and neighborhood shopping centers. To date, the
Company has funded $186,000 of this commitment in connection with organization
and start-up costs. No properties have been acquired yet.
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 two
redevelopment projects in progress as follows:
Elmwood Park Shopping Center - This shopping 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 first phase of the redevelopment
is complete. It included the relocation and expansion of a Walgreen's into a
15,000 square foot, state-of-the-art drugstore that includes a drive-through
pharmacy. Construction is underway on the second phase, which consists of
building a 49,000 square foot freestanding Pathmark supermarket to replace the
former undersized (28,000 square feet) in-line Grand Union supermarket. As of
March 31, 2002, costs incurred on this project totaled $1.9 million (net of
reimbursements). The Company expects remaining redevelopment costs of
approximately $6.2 million to complete this project. In addition, the Company is
obligated, in connection with the 1998 transaction with RD Capital, Inc. in
which the Company acquired the Elmwood Park Shopping Center, to issue Common OP
Units equal to up to $2.8 million upon the supermarket rent commencement at this
project.
Gateway Shopping Center - The redevelopment of the Gateway Shopping Center, a
partially enclosed mall located in South Burlington, Vermont, includes the
demolition of 90% of the property and the construction of a new anchor
supermarket. Following the bankruptcy of the former anchor supermarket, Grand
Union, the lease was assigned to and assumed by Shaw's Supermarkets. The Company
has executed a new lease with Shaw's Supermarkets for the construction of a new
72,000 square foot supermarket. This will replace the 32,000 square foot store
formerly occupied by Grand Union. Total costs through March 31, 2002 for this
project, including the original acquisition costs, were $8.8 million. The
Company estimates $8.6 million of remaining costs to complete this
redevelopment.
Additionally, for the balance of 2002, the Company currently estimates that
capital outlays of approximately $2.5 to $4.0 million will be required for
tenant improvements, related renovations and other property improvements related
to executed leases.
Share Repurchase
The Company's repurchase of its Common Shares is an additional use of liquidity.
On December 20, 2001, the Company commenced the Tender Offer to repurchase up to
4,784,615, or 14% of its outstanding Common Shares and Common OP Units
(collectively, "Shares"). Under the terms of the Tender Offer, the Company
invited shareholders to tender their Shares at a minimum price of $6.05 and a
maximum of $6.50. Upon receiving all tendered Shares, the Company would select
the lowest price (the "Purchase Price") that would permit it to purchase the
4,784,615 Shares. All Shares purchased by the Company would be at a single
price, even if tendered below the Purchase Price. Separate from the Tender
Offer, the Company also agreed to purchase 600,000 Shares from Mr. Dworman at
the Purchase Price determined through the Tender Offer. This agreement was
subsequently cancelled and Mr. Dworman participated in the Tender Offer, which
was expanded by 600,000 Shares. Upon completion of the Tender Offer in February
2002, the Company purchased 5,523,974 Shares, comprised of 4,136,321 Common
Shares and 1,387,653 Common OP Units (which were converted to Common Shares upon
tender), at a Purchase Price of $6.05. The total Shares acquired in the Tender
Offer included 139,359 Shares purchased pursuant to the Company's right to
increase the Tender Offer by an additional 2% of its Common Shares outstanding.
The aggregate purchase price paid for the 5,523,974 Shares was $33.4 million.
In addition to the Tender Offer, the Company has an existing share repurchase
program which authorizes Management, at its discretion, to repurchase up to
$20.0 million of the Company's outstanding Common Shares. Through May 8, 2002,
the Company had repurchased 1,928,432 Common Shares (net of 123,173 shares
reissued) at a total cost of $11.6 million. The program may be discontinued or
extended at any time and there is no assurance that the Company will purchase
the full amount authorized.
15
Sources of Liquidity
The Company intends on using ASOF as the primary vehicle for future
acquisitions. Sources of capital for funding the Company's joint venture
commitment, other property acquisitions, redevelopment, expansion and
retenanting, as well as future repurchase of Common Shares are expected to be
obtained primarily from cash on hand, additional debt financings and future
sales of existing properties. As of March 31, 2002, the Company had a total of
approximately $28.0 million of additional capacity with four lenders, of which
the Company is required to draw $7.7 million by June 2002 and an additional $9.4
million by December 2002, or forego the ability to draw these funds at any time
during the remaining term of the loans. Of the remaining capacity, approximately
$4.0 million is subject to additional leasing requirements at the collateral
properties and certain lender requirements which the Company has not yet
satisfied. The Company also had cash on hand of $39.3 million as well as seven
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
At March 31, 2002, mortgage notes payable aggregated $219.0 million and were
collateralized by 28 properties and related tenant leases (this excludes
mortgage debt of $42.4 million assumed by the buyer of the 17-property portfolio
sold on April 24, 2002 - see Asset Sales below). Interest on the
Company's mortgage indebtedness ranged from 3.3% to 9.9% with maturities that
ranged from May 2002 to January 2011. Of the total outstanding debt, $62.6
million, or 29%, was carried at fixed interest rates with a weighted average of
8.3%, and $156.4 million, or 71%, was carried at variable rates with a weighted
average of 3.7%. Taking into effect $50.0 million of notional principal under
variable to fixed-rate swap agreements, $112.6 million of the portfolio, or 51%
was fixed at a 7.5% weighted average interest rate. Of the total outstanding
debt, $57.0 million will become due by 2003, with scheduled maturities of $38.0
million at a weighted average interest rate of 4.8% in 2002, and $19.0 million
with a weighted average interest rate of 3.8% in 2003. As the Company does not
anticipate having sufficient cash on hand to repay such indebtedness, it will
need to refinance this indebtedness or select other alternatives based on market
conditions at that time. See the notes to the consolidated financial statements
for additional detail related to the Company's mortgage debt.
The Company owns a 49% interest in Crossroads. The Company accounts for its
investment in Crossroads using the equity method of accounting as it has a
non-controlling investment in Crossroads, but exercises significant influence.
As such, the Company's financial statements reflect its share of income from,
but not the assets and liabilities of Crossroads. The Company's effective
pro-rata share of Crossroads mortgage debt as of March 31, 2002 was $16.7
million. Interest on the debt, which matures in October 2007, has been
effectively fixed at 7.2% through variable to fixed-rate swap agreements. The
Company's effective pro-rata share of debt from Acadia Strategic Opportunity
Fund, LP, which has not yet acquired any property and as such currently has no
debt, will be approximately 22% of any future outstanding debt.
The Company currently has one outstanding letter of credit for $2.0 million,
from which no amounts have been drawn against, related to the completion of
certain work at one of its properties currently under redevelopment. The
following summarizes the financing and refinancing transactions since December
31, 2001:
On March 15, 2002, the Company extended a maturing $7.0 million loan with a
bank. The debt, which is secured by one of the Company's properties, requires
the monthly payment of interest at the rate of LIBOR plus 175 basis points and
principal amortized over 25 years and now matures March 15, 2007.
On April 16, 2002, the Company closed on a $9.4 million loan with a bank. The
debt, which is secured by one of the Company's properties and matures January 1,
2007, initially requires the monthly payment of interest at the rate of LIBOR
plus 300 basis points and principal amortized over 25 years. Following the
completion of certain construction at the property, the rate decreases to LIBOR
plus 175 basis points. The Company has drawn $6.3 million under this facility to
repay $6.2 million to the previous lender on the property and for loan closing
costs. Upon completion of the planned construction at this property and subject
to other conditions including loan-to-value limit and debt service coverage
ratio, the Company may draw the remaining $3.1 available under this facility.
16
LIQUIDITY AND CAPITAL RESOURCES, continued
The following table summarizes the Company's mortgage indebtedness as of
March 31, 2002:
March 31, December 31, Interest
2002 2001 Rate
------- ------- ------
Mortgage notes payable - variable-rate
Fleet Bank, N.A. 5,000 4,051 3.65% (LIBOR + 1.75%)
Fleet Bank, N.A. 9,079 9,106 3.66% (LIBOR + 1.78%)
Sun America Life Insurance Company 13,429 13,521 3.91% (LIBOR + 2.05%)
Sun America Life Insurance Company 9,618 9,682 3.93% (LIBOR + 2.05%)
Fleet Bank, N.A. 8,823 8,853 3.62% (LIBOR + 1.75%)
Metropolitan Life Insurance Company 10,800 10,800 3.88% (LIBOR + 2.00%)
First Union National Bank 13,481 13,512 3.32% (LIBOR + 1.45%)
Dime Savings Bank of NY 57,858 58,149 3.63% (LIBOR + 1.75%)
Fleet Bank, N.A. 12,320 12,350 3.62% (LIBOR + 1.75%)
Dime Savings Bank 15,935 16,000 3.73% (LIBOR + 1.85%)
-------- --------
Total variable-rate debt 156,343 156,024
-------- --------
Mortgage notes payable - fixed rate
Huntoon Hastings Capital Corp. 6,182 6,194 9.88%
Anchor National Life Insurance Company 3,650 3,676 7.93%
Mellon Mortgage Company 7,269 7,305 9.60%
Northern Life Insurance Company 2,546 2,619 7.70%
Reliastar Life Insurance Company 1,755 1,805 7.70%
Metropolitan Life Insurance Company 24,734 24,820 8.13%
Bank of America, N.A. 10,992 11,017 7.55%
Bank of America, N.A. 5,495 5,508 7.55%
-------- --------
Total fixed-rate debt 62,623 62,944
-------- --------
$218,966 $218,968
======== ========
Properties Payment
Maturity Encumbered Terms
---------- ---------- -------
Mortgage notes payable - variable-rate
Fleet Bank, N.A. 03/15/07 (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)
Fleet Bank, N.A. 08/01/03 (6) (2)
Metropolitan Life Insurance Company 11/01/03 (7) (22)
First Union National Bank 01/01/05 (8) (2)
Dime Savings Bank of NY 04/01/05 (9) (2)
Fleet Bank, N.A. 01/01/07 (10) (2)
Dime Savings Bank 01/01/07 (11) (2)
Mortgage notes payable - fixed rate
Huntoon Hastings Capital Corp. 09/01/02 (12) $55(2)
Anchor National Life Insurance Company 01/01/04 (13) $33(2)
Mellon Mortgage Company 05/23/05 (14) $70(2)
Northern Life Insurance Company 12/01/08 (15) $41(2)
Reliastar Life Insurance Company 12/01/08 (15) $28(2)
Metropolitan Life Insurance Company 11/01/10 (16) $197(2)
Bank of America, N.A. 01/01/11 (17) $78(2)
Bank of America, N.A. 01/01/11 (18) $39(2)
Notes:
(1) Town Line Plaza (10) Branch Shopping Center (17) GHT Apartments
Abington Towne Center
(2) Monthly principal and interest Methuen Shopping Center (18) Colony Apartments
(3) Smithtown Shopping Center (11) Walnut Hill Plaza
Bloomfield Town Square
(4) Merrillville Plaza
(12) Gateway Shopping Center
(5) Village Apartments
(13) Pittston Plaza
(6) Soundview Marketplace
(7) Greenridge Plaza (14) Mad River Station Shopping Center
Lierne Street Plaza (refinanced subsequent to March 31, 2002)
Valmont Plaza
(15) Manahawkin Shopping Center
(8) 239 Greenwich Avenue
(9) Ledgewood Mall (16) Crescent Plaza
New Louden Center East End Centre
Route 6 Plaza
Bradford Towne Centre
Berlin Shopping Center
17
LIQUIDITY AND CAPITAL RESOURCES, continued
Asset Sales
Asset sales are an additional source of liquidity for the Company. On January
10, 2002, the Company purchased a three-acre site located in the Bronx, New York
for $3.1 million. Simultaneously, the Company sold approximately 46% of the land
to a self-storage facility for $3.3 million, recognizing a $1.5 million gain on
sale. The Company currently plans to build and lease a 15,000 square foot retail
building on the remaining parcel.
In connection with its ongoing plan to dispose of certain non-core assets, the
Company sold Union Plaza, a 218,000 square foot shopping center located in New
Castle, Pennsylvania for $4.8 on January 16, 2002. The Company received a $3.6
million purchase money note. The note, which matures January 15, 2005, requires
monthly interest of 7% for year one, increasing at a rate of 1% per annum
throughout the term. As part of the transaction, the Company has agreed to
reimburse the purchaser 50% of the former Ames rent, or $22,000 per month, for a
period of 18 months.
On April 24, 2002, the Company sold a multi-property portfolio for $52.7
million. The portfolio consisted of 17 retail properties, which are
cross-collateralized in a securitized loan program and in the aggregate
contained approximately 2.3 million square feet. As part of the transaction, the
buyer assumed the outstanding mortgage debt of $42.4 million. The Company
retained a senior, preferred interest in the acquiring entity in the amount of
$6.3 million, which earns an initial annual preferred return of 15% that
increases by 1% annually for the following three years. The Company has the
right to require the Buyer to redeem the preferred interest at face value at the
end of the fifth year.
HISTORICAL CASH FLOW
The following discussion of historical cash flow compares the Company's cash
flow for the three-month period ended March 31, 2002 ("2002") with the Company's
cash flow for the three-month period ended March 31, 2001 ("2001").
Cash and cash equivalents were $39.3 million and $13.4 million at March 31, 2002
and 2001, respectively. The increase of $25.9 million was a result of the
following increases and decreases in cash flows:
Three months ended March 31,
2002 2001 Change
(in millions)
Net cash provided by operating activities $ 8.2 $ 4.1 $ 4.1
Net cash provided by (used in) investing activities 29.3 (1.7) 31.0
Net cash used in financing activities (37.7) (10.5) (27.2)
Net cash provided by discontinued operations 5.6 1.7 3.9
The variance in net cash provided by operating activities resulted from an
increase of $5.2 million in operating income before non-cash expenses in 2002,
which was primarily due to $3.8 million of lease termination income received in
2002 and lower interest expense due to lower average interest rates on the
portfolio mortgage debt. This increase was partially offset by a net decrease in
cash provided by changes in operating assets and liabilities of $1.1 million,
primarily accounts payable and other liabilities.
The variance in net cash provided by (used in) investing activities was
primarily the result of an increase of $34.8 million received in 2002 from the
collection of a note receivable from the sale of a property offset by an
increase of $3.7 million in expenditures for real estate acquisitions,
development and tenant installation in 2002.
The increase in net cash used in financing activities resulted primarily from
$33.4 million of cash used in 2002 for the Company's Tender Offer and a decrease
of $22.0 million of cash provided by additional borrowings and related financing
costs in 2002. This was partially offset by $27.5 million of additional cash
used in 2001 for the repayment of debt.
The increase in net cash provided by discontinued operations was a result of an
increase in net sales proceeds of $4.0 million received in 2002 (note 4).
CRITICAL ACCOUNTING POLICIES
Management's discussion and analysis of financial condition and results of
operations is based upon the Company's consolidated financial statements, which
have been prepared in accordance with GAAP. The preparation of these financial
statements requires management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses. The Company
bases its estimates on historical experience and assumptions that are believed
to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying value of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. The Company believes the
following critical accounting policies affect its significant judgments and
estimates used in the preparation of its consolidated financial statements.
18
Valuation of Property Held for Use and Sale
On a quarterly basis, the Company reviews the carrying value of both properties
held for use and for sale. The Company records impairment losses and reduces the
carrying value of properties when indicators of impairment are present and the
expected undiscounted cash flows related to those properties are less than their
carrying amounts. In cases where the Company does not expect to recover its
carrying costs on properties held for use, the Company reduces its carrying cost
to fair value, and for properties held for sale, the Company reduces its
carrying value to the fair value less costs to sell. Based on the foregoing
criterea, management does not believe that the value of the properties held for
sale or properties in use are impaired as of March 31, 2002.
Bad Debts
The Company maintains an allowance for doubtful accounts for estimated losses
resulting from the inability of tenants to make payments on arrearages in billed
rents, as well as the likelihood that tenants will not have the ability to make
payment on unbilled rents including estimated expense recoveries and
straight-line rent. As of March 31, 2002, the Company had recorded an allowance
for doubtful accounts of $2.2 million. If the financial condition of the
Company's tenants were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required.
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. 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, interest rate swap agreements and
LIBOR caps. The Company is a party to two interest rate swap transactions to
hedge the Company's exposure to changes in interest rates with respect to $50.0
million of LIBOR based variable rate debt. In addition, $23.6 million of
notional variable-rate principal is hedged through the use of LIBOR caps as of
March 31, 2002. The Company also has two interest rate swaps hedging the
Company's exposure to changes in interest rates with respect to $16.7 million of
LIBOR based variable rate debt related to its investment in Crossroads.
Of the Company's total outstanding debt, $57.0 million will become due by 2003.
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
$570,000 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, 2002 would increase by $1.1 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.
19
Part II. Other Information
Item 1. Legal Proceedings
There have been no material legal proceedings beyond those previously disclosed
in the Registrants filed Annual Report on Form 10-K for the year ended December
31, 2001.
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
None
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
The following Form 8-K's were filed during the three months ended March 31, 2002
1) Form 8-K filed January 23, 2002 (earliest event January 23, 2002),
reporting in Item 5. a press release issued by the Registrant
discussing the impact of Kmart Corporation announcing Chapter 11
bankruptcy.
2) Form 8-K filed March 5, 2002 (earliest event March 5, 2002), reporting
in Item 9. certain supplemental information concerning the ownership,
operations and portfolio of the Company as of December 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
By: /s/ Perry Kamerman
------------------------
Perry Kamerman
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: May 14, 2002
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