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, 2004
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.)
1311 MAMARONECK AVENUE, SUITE 260, WHITE PLAINS, NY 10605
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(914) 288-8100
----------------------------------------------------
(Registrant's telephone number, including area code)
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
YES [X] NO [ ]
As of August 5, 2004, there were 29,262,642 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 June 30, 2004 and December 31, 2003 3
Consolidated Statements of Income for the three and six months ended June 30, 2004 and 2003 4
Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2003 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 18
Item 3. Quantitative and Qualitative Disclosure of Market Risk 26
Item 4. Controls and Procedures 27
PART II: OTHER INFORMATION
Item 2. Changes in Securities 27
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 6. Exhibits 28
Signatures 29
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
JUNE 30,
2004 DECEMBER 31,
(UNAUDITED) 2003
-------------- ---------------
ASSETS
Real estate:
Land $ 54,890 $ 54,890
Buildings and improvements 370,951 366,879
Construction in progress 4,895 5,859
-------------- ---------------
430,736 427,628
Less: accumulated depreciation (107,742) (101,090)
-------------- ---------------
Net real estate 322,994 326,538
Cash and cash equivalents 32,352 14,663
Cash in escrow 3,745 3,342
Investments in and advances to unconsolidated
partnerships 20,958 13,630
Investment in management contracts 3,577 --
Rents receivable, net 10,985 10,394
Notes receivable 10,043 3,586
Prepaid expenses 1,745 3,127
Deferred charges, net 13,137 11,173
Interest rate swap receivable 1,055 --
Other assets 2,285 1,731
-------------- ---------------
$ 422,876 $ 388,184
============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable $ 214,738 $ 190,444
Accounts payable and accrued expenses 5,553 5,804
Dividends and distributions payable 4,866 4,619
Due to related parties 52 48
Interest rate swap payable 2,129 4,044
Other liabilities 2,924 3,806
-------------- ---------------
Total liabilities 230,262 208,765
-------------- ---------------
Minority interest in Operating Partnership 7,401 7,875
Minority interests in majority-owned partnerships 1,774 1,810
-------------- ---------------
Total minority interests 9,175 9,685
-------------- ---------------
Shareholders' equity:
Common shares 29 27
Additional paid-in capital 188,295 177,891
Accumulated other comprehensive loss (2,206) (5,505)
Deficit (2,679) (2,679)
-------------- ---------------
Total shareholders' equity 183,439 169,734
-------------- ---------------
$ 422,876 $ 388,184
============== ===============
See accompanying notes
3
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(unaudited)
(in thousands, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2004 2003 2004 2003
---- ---- ---- ----
Revenues
Minimum rents $ 13,079 $ 12,618 $ 26,180 $ 24,715
Percentage rents 203 95 422 389
Expense reimbursements 3,129 2,896 6,803 6,613
Other property income 200 147 328 298
Management fee income 1,007 545 1,552 943
Interest income 485 164 600 414
Other 40 -- 196 1,218
--------- --------- --------- ---------
Total revenues 18,143 16,465 36,081 34,590
--------- --------- --------- ---------
Operating Expenses
Property operating 3,527 3,389 7,544 7,743
Real estate taxes 2,117 1,812 4,439 4,009
General and administrative 2,422 2,449 4,911 5,145
Depreciation and amortization 4,121 3,888 7,977 7,489
--------- --------- --------- ---------
Total operating expenses 12,187 11,538 24,871 24,386
--------- --------- --------- ---------
Operating income 5,956 4,927 11,210 10,204
Equity in earnings of unconsolidated
partnerships 506 595 1,050 1,148
Gain on sale of land 508 -- 508 1,212
Interest expense (2,761) (2,805) (5,506) (5,531)
Minority interest (445) (274) (648) (1,127)
--------- --------- --------- ---------
Net income $ 3,764 $ 2,443 $ 6,614 $ 5,906
========= ========= ========= =========
Earnings per share
Basic earnings per share $ 0.13 $ 0.09 $ 0.23 $ 0.23
========= ========= ========= =========
Diluted earnings per share $ 0.13 $ 0.09 $ 0.23 $ 0.22
========= ========= ========= =========
See accompanying notes
4
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(in thousands)
JUNE 30, JUNE 30,
2004 2003
(unaudited)
-------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,614 $ 5,906
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 7,977 7,489
Gain on sale of land (508) (1,212)
Minority interests 648 1,127
Equity in earnings of unconsolidated partnerships (1,050) (1,148)
Provision for bad debts 409 367
Changes in assets and liabilities:
Funding of escrows, net (403) (789)
Rents receivable (1,000) (1,077)
Prepaid expenses 1,382 853
Other assets (686) (526)
Accounts payable and accrued expenses 293 (785)
Due to related parties 4 (125)
Other liabilities (882) (392)
------------- ------------
Net cash provided by operating activities 12,798 9,688
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for real estate and improvements (3,083) (4,304)
Payment of accrued expense related to redevelopment project -- (2,488)
Investment in and advances to unconsolidated
partnerships (6,687) (5,855)
Distributions from unconsolidated partnerships 962 574
Collections of notes receivable 3,585 3,232
Payment of deferred leasing costs (1,304) (63)
Advances of notes receivable (10,066) --
Proceeds from sale of land 508 --
------------- ------------
Net cash used in investing activities (16,085) (8,904)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgages (11,957) (23,671)
Proceeds received on mortgage notes 36,251 21,000
Payment of deferred financing and other costs (1,436) (226)
Dividends paid (9,090) (6,971)
Distributions to minority interests in Operating Partnership (271) (850)
Distributions on preferred Operating Partnership Units (108) (100)
Distributions to minority interests in majority-owned
partnerships (338) (940)
Common Shares issued under Employee Stock Purchase Plan 41 --
Settlement of options to purchase Common Shares (66) --
Exercise of options to purchase Common Shares 7,950 --
------------- ------------
Net cash provided by (used in) financing activities 20,976 (11,758)
------------- ------------
Increase (decrease) in cash and cash equivalents 17,689 (10,974)
Cash and cash equivalents, beginning of period 14,663 45,168
------------- ------------
Cash and cash equivalents, end of period $ 32,352 $ 34,194
============= ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest, net of amounts
capitalized of $167 and $262, respectively $ 5,454 $ 5,466
============= ============
Supplemental disclosure of non-cash investing and financing
activities:
Acquisition of contract rights through issuance of
preferred Operating Partnership Units $ 4,000 $ --
============= ============
5
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004
(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" or "OP")
and its majority-owned partnerships. As of June 30, 2004, the Company controlled
98% of the Operating Partnership as the sole general partner.
The Company currently operates 67 properties, which it owns or has an ownership
interest in, consisting of 65 neighborhood and community shopping centers and
two multi-family properties, principally located in the Northeast, Mid-Atlantic
and Midwest regions of the United States.
2. BASIS OF PRESENTATION
The consolidated financial statements include the consolidated accounts of the
Company and its majority-owned partnerships, including the Operating
Partnership, and have been prepared in accordance with accounting principles
generally accepted in the United States ("GAAP") 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 GAAP 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 GAAP
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 months
ended June 30, 2004 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 2004. 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, 2003.
3. INVESTMENTS AND LAND SALE
On April 8, 2004, the Company provided a $3,600 mezzanine loan to an
unaffiliated party. The loan carried interest at the rate of 15%. The loan was
paid in full on June 23, 2004, which resulted in an additional 10% interest
pre-payment penalty over the period the loan was outstanding.
The Company provided a $3,150 loan to an unaffiliated joint venture partner
which used the proceeds in connection with the purchase of the Tarrytown Centre.
The loan matures on May 12, 2005, and bears interest at the prime rate.
In connection with the prior year sale of a contract to purchase land in Bethel,
Connecticut, to the Target Corporation, the Company received additional sales
proceeds of $508 which were being held in escrow pending the completion of
certain sitework by the buyer. Of these proceeds, $254 were distributed to the
Company's joint venture partner in the sale and are a component of minority
interest in the accompanying consolidated financial statements.
4. EARNINGS PER COMMON SHARE
Basic earnings per share was determined by dividing the applicable net income to
common shareholders for the period by the weighted average number of common
shares of beneficial interest ("Common Shares") outstanding during each period
consistent with SFAS No. 128. 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. The
following table sets forth the computation of basic and diluted earnings per
share from continuing operations for the periods indicated.
6
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
4. EARNINGS PER COMMON SHARE (CONTINUED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2004 2003 2004 2003
---- ---- ---- ----
NUMERATOR:
Income from continuing operations - basic and
diluted $ 3,764 $ 2,443 $ 6,614 $ 5,906
========= ========= ========= ==========
DENOMINATOR:
Weighted average shares - basic earnings per share 29,128 26,387 28,407 25,885
Effect of dilutive securities:
Employee stock options 541 494 748 378
--------- --------- --------- ----------
Denominator for diluted earnings per share 29,669 26,881 29,155 26,263
========= ========= ========= ==========
Basic earnings per share from continuing
operations $ 0.13 $ 0.09 $ 0.23 $ 0.23
========= ========= ========= ==========
Diluted earnings per share from continuing
operations $ 0.13 $ 0.09 $ 0.23 $ 0.22
========= ========= ========= ==========
The effect of the conversion of common units in the Operating Partnership
("Common OP Units") is not reflected in the above table as they are exchangeable
for Common Shares on a one-for-one basis. The income allocable to such units is
allocated on this same basis and reflected as minority interest in the
accompanying consolidated financial statements. As such, the assumed conversion
of these units would have no net impact on the determination of diluted earnings
per share. The effect of the conversion of Series A and B Preferred OP Units
("Preferred OP Units") is not reflected in the above table as such conversion
would be anti-dilutive.
5. STOCK-BASED COMPENSATION
Effective January 1, 2002, the Company adopted the fair value method of
recording stock-based compensation contained in SFAS No. 123, "Accounting for
Stock-Based Compensation". As such, stock based compensation awards granted
after December 31, 2001 have been expensed over the vesting period based on the
fair value at the date the stock-based compensation was granted. Prior to
January 1, 2002, the Company had applied the intrinsic value method as defined
in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related Interpretations, in accounting for stock-based
compensation plans. The Company elected the prospective method whereby
compensation expense is recognized only for those options granted, modified or
settled on or after January 1, 2002.
The following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value based method of accounting for
stock-based employee compensation for vested stock options granted prior to
January 1, 2002. As all the options granted prior to this date were fully vested
as of December 31, 2003, there is no impact reflected on periods after December
31, 2003.
THREE MONTHS SIX MONTHS
ENDED JUNE 30, 2003 ENDED JUNE 30, 2003
------------------- -------------------
Net income:
As reported $ 2,443 $ 5,906
================= =================
Pro forma $ 2,434 $ 5,888
================= =================
Basic earnings per share
As reported $ 0.09 $ 0.23
================= =================
Pro forma $ 0.09 $ 0.23
================= =================
Diluted earnings per share
As reported $ 0.09 $ 0.23
================= =================
Pro forma $ 0.09 $ 0.23
================= =================
7
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
6. COMPREHENSIVE INCOME
The following table sets forth comprehensive income for the three months and six
months ended June 30, 2004 and 2003:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2004 2003 2004 2003
------------- ------------ ------------- --------------
Net income $ 3,764 $ 2,443 $ 6,614 $ 5,906
Other comprehensive income (loss) (1) 4,850 (1,250) 3,299 (1,287)
---------- ---------- ----------- -----------
Comprehensive income $ 8,614 $ 1,193 $ 9,913 $ 4,619
========== ========== =========== ===========
Notes:
(1) Relates to the changes in the fair value of derivative instruments accounted
for as cash flow hedges.
The following table sets forth the change in accumulated other comprehensive
loss for the six months ended June 30, 2004:
Balance at December 31, 2003 $ 5,505
Unrealized gain on valuation of swap agreements (3,299)
-------
Balance at June 30, 2004 $ 2,206
=======
As of June 30, 2004, the balance in accumulated other comprehensive loss was
comprised of net unrealized losses on the valuation of swap agreements.
7. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS
The following table summarizes the change in the shareholders' equity and
minority interests since December 31, 2003:
MINORITY MINORITY
INTEREST IN INTEREST IN
SHAREHOLDERS' OPERATING MAJORITY-OWNED
EQUITY PARTNERSHIP (1) PARTNERSHIPS
---------------- ---------------- ----------------
Balance at December 31, 2003 $ 169,734 $ 7,875 $ 1,810
Conversion of 628,371 Common OP Units into
Common Shares by minority interests 4,680 (4,680) --
Issuance of Series B Preferred OP Units -- 4,000 --
Dividends and distributions declared of $0.32 per Common
Share and Common OP Unit (9,385) (171) --
Cash flow distribution -- -- ( 84)
Net income for the period January 1 through June 30, 2004 6,614 187 48
Other comprehensive income - Unrealized gain on valuation
of swap agreements 3,299 190 --
Employee stock-based compensation 613 -- --
Settlement of options to purchase Common Shares (66) -- --
Exercise of options to purchase Common Shares 7,950 -- --
------------ ------------ ------------
Balance at June 30, 2004 $ 183,439 $ 7,401 $ 1,774
============ ============ ============
Notes:
(1) Net income attributable to minority interest in the Operating Partnership
and distributions do not include a distribution on Series A and Series B
Preferred OP Units totaling $160.
Minority interest in the Operating Partnership represent (i) the limited
partners' interest of 510,646 and 1,326,238 Common OP Units at June 30, 2004 and
2003, respectively, (ii) 1,580 and 2,212 Series A Preferred OP Units at June 30,
2004 and 2003, respectively, with a nominal value of $1,000 per unit, which are
entitled to a preferred quarterly distribution of $22.50 per unit (9% annually)
and (iii) 4,000 Series B Preferred OP Units at June 30, 2004 with a nominal
value of $1,000 per unit, which are entitled to a preferred quarterly
distribution of $13.00 per unit (5.2% annually) . Minority interests in
majority-owned partnerships represent third-party interests in four partnerships
in which the Company has a majority ownership position.
8
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
7. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS (CONTINUED)
Certain limited partners converted 628,371 Common OP Units into Common Shares on
a one-for-one basis during the six months ended June 30, 2004.
In January 2004, the Company issued $4,000 (4,000 Series B Preferred OP Units
with a stated value of $1,000 each) of Series B Preferred OP Units in
consideration for the acquisition of certain management contract rights. The
Series B Preferred OP Units are entitled to a preferred quarterly distribution
of $13.00 per unit (5.2% annually). The Company's Board of Trustees approved a
waiver on February 24, 2004, which allows the holder to redeem 1,500 Series B
Preferred OP Units at any time for cash. As of June 30, 2004, none of these
units have been redeemed.
In March 2004, 1,000,000 share options were exercised by Ross Dworman, a former
trustee.
During the six months ended June 30, 2004 certain employees of the Company
exercised 79,000 share options at prices ranging from $4.89 to $6.00 per share.
During March 2004, the Company completed a secondary public offering
("Offering") by certain of its shareholders of 5.8 million Common Shares. Yale
University and its affiliates ("Yale") sold 4.2 million Common Shares and Mr.
Dworman sold 1.6 million Common Shares. Following the Offering, Yale and Mr.
Dworman beneficially owned approximately 4.6 million and 2,300 Common Shares,
respectively. The Company did not sell any Common Shares in the Offering and did
not receive any proceeds from the Offering. The Company did not bear any costs
associated with the Offering.
In May 2004, the Board of Trustees approved a resolution permitting one of its
institutional shareholders, which currently owns approximately 2% of the
Company's outstanding Common Shares, to acquire additional shares through open
market purchases. This waiver of the Company's share ownership limitation will
permit this shareholder to acquire up to an additional 3% of the Company's
shares through December 31, 2004, or an aggregate of up to 5% of the Company's
Common Shares.
8. INVESTMENTS IN AND ADVANCES TO 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:
JUNE 30, DECEMBER 31,
2004 2003
---------------- -----------------
Balance Sheets
Assets:
Rental property, net $ 7,170 $ 7,402
Other assets 3,913 3,710
------------ -------------
Total assets $ 11,083 $ 11,112
============ =============
Liabilities and partners' deficit
Mortgage note payable $ 32,632 $ 32,961
Other liabilities 3,620 4,696
Partners' deficit (25,169) (26,545)
------------ -------------
Total liabilities and partners'
deficit $ 11,083 $ 11,112
============ =============
Company's investment in Crossroads $ 4,114 $ 3,665
============ =============
9
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
8. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS (CONTINUED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2004 2003 2004 2003
---- ---- ---- ----
Statements of Income
Total revenue $ 1,951 $ 2,077 $ 3,976 $ 4,096
Operating and other expenses 582 578 1,189 1,201
Interest expense 589 685 1,263 1,278
Depreciation and amortization 153 145 302 284
----------- ---------- ---------- -----------
Net income $ 627 $ 669 $ 1,222 $ 1,333
=========== ========== ========== ===========
Company's share of net income $ 295 $ 359 $ 611 $ 676
Amortization of excess investment (see below) 98 98 196 196
----------- ---------- ---------- -----------
Income from Crossroads $ 197 $ 261 $ 415 $ 480
=========== ========== ========== ===========
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 ("FUND I")
In 2001, the Company formed a joint venture, Fund I, with four of its
institutional investors for the purpose of acquiring real estate assets. The
Company is the sole general partner with a 22% interest in the joint venture and
is also entitled to a profit participation in excess of its invested capital
based on certain investment return thresholds. The Company also earns
market-rate fees for asset management as well as for property management,
construction and leasing services. Decisions made by the general partner as it
relates to purchasing, financing, and disposition of properties are subject to
the unanimous disapproval of the Advisory Committee of Fund I, which is
comprised of representatives from each of the four institutional investors.
As of June 30, 2004, Fund I owns or has an ownership interest in nine shopping
centers and twenty-five anchor-only supermarket leases comprising 2.6 million
square feet.
In March 2004, Fund I and an unaffiliated partner purchased a first mortgage
loan from a life insurance company, secured by a 235,000 square foot shopping
center in Aiken, South Carolina. The $9,600 loan, which was in default, was
purchased for $5,500. Fund I and its partner subsequently obtained fee title to
this center in April 2004. Related to this transaction, the Company provided a
$3,150 loan to Fund I which is included in investments in and advances to
unconsolidated partnerships in the accompanying consolidated financial
statements.
In May 2004, Fund I and an unaffiliated partner, each with a 50% interest,
acquired a 35,000 square foot shopping center in Tarrytown, New York, for
$5,300. Related to this acquisition, the Company loaned $2,000 to Fund I, which
is included in Investments in and advances to unconsolidated partnerships in the
accompanying consolidated financial statements.
In May 2004, Fund I acquired a 50% interest in Haygood Shopping Center and
Sterling Heights Shopping Center for an aggregate investment of $3,200. These
assets are part of the portfolio that the Company currently manages as a result
of its January 2004 acquisition of certain management contracts. The Haygood
Shopping Center is a 165,000 square foot shopping center located in Virginia
Beach, Virginia. The Sterling Heights Shopping Center is a 141,000 square foot
shopping center located in Sterling Heights, Michigan.
10
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
8. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS (CONTINUED)
The Company accounts for its investment in Fund I using the equity method.
Summary financial information of Fund I and the Company's investment in and
share of income from Fund I follows:
JUNE 30, DECEMBER 31,
2004 2003
-------------- --------------
Balance Sheets
Assets:
Rental property, net $ 173,310 $ 173,507
Investments in unconsolidated partnerships 6,432 --
Other assets 6,500 4,763
-------------- --------------
Total assets $ 186,242 $ 178,270
============== ==============
Liabilities and partners' equity
Mortgage notes payable $ 114,990 $ 120,609
Other liabilities 17,240 11,731
Partners' equity 54,012 45,930
-------------- --------------
Total liabilities and partners' equity $ 186,242 $ 178,270
============== ==============
Company's investment in Fund I $ 11,694 $ 9,965
============== ==============
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2004 2003 2004 2003
---- ---- ---- ----
Statements of Operations
Total revenue $ 6,664 $ 6,502 $ 13,260 $ 12,121
Operating and other expenses 1,379 1,112 2,698 2,258
Management and other fees 516 602 1,032 1,045
Interest expense 1,663 1,674 3,269 2,981
Depreciation and amortization 2,173 2,135 4,300 3,796
Minority interest 45 13 87 82
Equity in earnings of unconsolidated partnerships 84 -- 84 --
--------- --------- ---------- ---------
Net income $ 804 $ 966 $ 1,790 $ 1,959
========= ========= ========== =========
Company's share of net income (1) $ 309 $ 334 $ 635 $ 668
========= ========= ========== =========
Notes:
(1) The Company's pro-rata share of net income is before interest expense on
advances to Fund I, management and other fees as these amounts are paid to
the Company.
11
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
9. DERIVATIVE FINANCIAL INSTRUMENTS
The following table summarizes the notional values and fair values of the
Company's derivative financial instruments as of June 30, 2004. The notional
value does not represent exposure to credit, interest rate or market risks.
NOTIONAL INTEREST COMMENCEMENT MATURITY
HEDGE TYPE VALUE RATE DATE DATE FAIR VALUE
- ----------------------------------------- --------------- ----------- -------------- -------------- ---------------
LIBOR Swap (1) $ 11,974 5.94% (3) 6/16/07 $ (838)
LIBOR Swap (1) 5,000 6.48% (3) 6/16/07 (427)
------------
Interest rate swap payable related to
unconsolidated partnerships $ (1,265)
============
LIBOR Swap 30,000 4.80% (3) 4/1/05 $ (601)
LIBOR Swap 20,000 4.53% (3) 10/1/06 (624)
LIBOR Swap 8,931 4.47% (3) 6/1/07 (256)
LIBOR Swap 15,499 4.32% (3) 1/1/07 (399)
LIBOR Swap 11,989 4.11% (3) 1/1/07 (249)
------------
Interest rate swap payable $ (2,129)
============
LIBOR Swap (2) 37,667 4.35% 4/1/05 1/1/11 $ 685
LIBOR Swap (2) 11,410 4.90% 10/2/06 10/1/11 203
LIBOR Swap (2) 4,640 4.71% 10/2/06 1/1/10 53
LIBOR Swap (2) 8,434 5.14% 6/1/07 3/1/12 114
------------
Interest rate swap receivable $ 1,055
============
Notes:
(1) Relates to the Company's investments in Crossroads. These swaps effectively
fix the interest rate on the Company's pro rata share of mortgage debt. The
fair values of these instruments are reflected as components of the
Company's investment in Crossroads in the accompanying consolidated
financial statements.
(2) Forward starting swap agreements. The fair values of these instruments are
separately reflected in the accompanying consolidated financial statements.
(3) These agreements are currently in effect.
10. MORTGAGE LOANS
During the second quarter of 2004, the Company drew down an additional $8,000
under an existing $20,000 revolving facility and an additional $2,500 under an
existing $7,400 revolving facility. As of June 30, 2004, $12,500 and $7,000 were
outstanding under these facilities, respectively. The balances on these
revolving facilities were paid in full on July 1, 2004.
On June 30, 2004, the Company closed on a $45,900 cross collateralized revolving
facility, which is collateralized by five of the Company's properties. The
existing combined outstanding debt of $23,000 was modified to allow the Company
to borrow an additional $22,900. The facility matures in 2012 and bears interest
at LIBOR plus 105 basis points through December 31, 2004 and LIBOR plus 140
basis points thereafter. The Company drew down $16,750 under this facility on
June 30, 2004, resulting in a total outstanding balance of $39,750. On July 1,
2004, proceeds from the additional borrowings were used to pay down the two
revolving facilities mentioned above.
On June 30, 2004, the Company closed on a $12,100 revolving facility secured by
one of its properties. The existing outstanding debt of $8,900 was modified to
allow the Company to borrow an additional $3,200. The facility matures in 2012
and bears interest at LIBOR plus 105 basis points through December 31, 2004 and
LIBOR plus 145 basis points thereafter.
On April 19, 2004, a $1,400 letter of credit was placed with a lender in the
Company's name. This letter of credit was necessary to maintain coverage ratios
following the rejection of a tenant's lease at a Fund I property.
12
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
11. RELATED PARTY TRANSACTIONS
The Company managed one property in which a shareholder of the Company had an
ownership interest for which the Company earned a management fee of 3% of tenant
collections. Management fees earned by the Company under this contract
aggregated $56 and $127 for the three months and six months ended June 30, 2004,
respectively, and $61 and $115 for the three and six months ended June 30, 2003,
respectively. In addition, the Company also earned leasing commissions of $41
and $83 related to this property for the three and six months ended June 30,
2004. The property was sold July 12, 2004, and the management contract was
terminated.
The Company also earns certain management and service fees in connection with
its investment in Fund I (Note 8) and Fund II (Note 14). Such fees earned by the
Company aggregated $611 and $1,011 for the three and six months ended June 30,
2004, respectively, and $484 and $828 for the three and six months ended June
30, 2003, respectively.
The Company also earns fees in connection with its rights to provide asset
management, leasing, disposition, development and construction services for an
existing portfolio of retail properties and/or leasehold interests owned by a
third party. Net fees earned by the Company in connection with this portfolio
were $299 and $331 for the three and six months ended June 30, 2004,
respectively.
12. DIVIDENDS AND DISTRIBUTIONS PAYABLE
On May 6, 2004, the Board of Trustees of the Company approved and declared a
cash quarterly dividend for the quarter ended June 30, 2004 of $0.16 per Common
Share and Common OP Unit. The dividend was paid on July 15, 2004 to shareholders
of record as of June 30, 2004. The Company also paid a distribution of $22.50
per Series A Preferred OP Unit and $13.00 per Series B Preferred OP Unit on July
15, 2004.
13
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
13. SEGMENT REPORTING
The Company has two reportable segments: retail properties and multi-family
properties. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates property performance primarily based on net operating income before
depreciation, amortization and certain nonrecurring items. The reportable
segments are managed separately due to the differing nature of the leases and
property operations associated with the retail versus residential tenants. The
following tables set forth certain segment information for the Company as of and
for the three and six months ended June 30, 2004 and 2003 (does not include
unconsolidated partnerships):
SIX MONTHS ENDED JUNE 30, 2004
------------------------------
RETAIL MULTI-FAMILY ALL
PROPERTIES PROPERTIES OTHER TOTAL
----------- ------------- ----------- ----------
Revenues $ 29,879 $ 3,854 $ 2,348 $ 36,081
Property operating expenses and real estate taxes 9,95 2,025 -- 11,983
---------- ----------- ----------- ----------
Net property income before depreciation and amortization $ 19,921 $ 1,829 $ 2,348 $ 24,098
========== =========== =========== ==========
Depreciation and amortization $ 7,121 $ 700 $ 156 $ 7,977
========== =========== =========== ==========
Interest expense $ 4,757 $ 749 $ -- $ 5,506
========== =========== =========== ==========
Real estate at cost $ 390,636 $ 40,100 $ -- $ 430,736
========== =========== =========== ==========
Total assets $ 365,225 $ 36,693 $ 20,958 $ 422,876
========== =========== =========== ==========
Gross leasable area (multi-family - 1,474 units) 5,14 1,207 -- 6,352
========== =========== =========== ==========
Expenditures for real estate and improvements $ 2,757 $ 326 $ -- $ 3,083
========== =========== =========== ==========
Revenues
Total revenues for reportable segments $ 36,846
Elimination of intersegment management fee income (615)
Elimination of intersegment asset management fee income (150)
----------
Total consolidated revenues $ 36,081
==========
Property operating expenses and real estate taxes
Total property operating expenses and real estate taxes
for reportable segments $ 12,519
Elimination of intersegment management fee expenses (536)
----------
Total consolidated expenses $ 11,983
==========
Reconciliation to net income
Net property income before depreciation and
amortization $ 24,098
Depreciation and amortization (7,977)
General and administrative (4,911)
Equity in earnings of unconsolidated partnerships 1,050
Interest expense (5,506)
Gain on sale of land 508
Minority interest (648)
----------
Net income $ 6,614
==========
14
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
13. SEGMENT REPORTING, CONTINUED
THREE MONTHS ENDED JUNE 30, 2004
--------------------------------
RETAIL MULTI-FAMILY ALL
PROPERTIES PROPERTIES OTHER TOTAL
----------- ------------- ----------- ----------
Revenues $ 14,682 $ 1,929 $ 1,532 $ 18,143
Property operating expenses and real estate taxes 4,564 1,080 -- 5,644
----------- ---------- ---------- ----------
Net property income before depreciation and amortization $ 10,118 $ 849 $ 1,532 $ 12,499
=========== ========== ========== ==========
Depreciation and amortization $ 3,693 $ 350 $ 78 $ 4,121
=========== ========== ========== ==========
Interest expense $ 2,388 $ 373 $ -- $ 2,761
=========== ========== ========== ==========
Real estate at cost $ 390,636 $ 40,100 $ -- $ 430,736
=========== ========== ========== ==========
Total assets $ 365,225 $ 36,693 $ 20,958 $ 422,876
=========== ========== ========== ==========
Gross leasable area (multi-family - 1,474 units) 5,145 1,207 -- 6,352
=========== ========== ========== ==========
Expenditures for real estate and improvements $ 1,554 $ 189 $ -- $ 1,743
=========== ========== ========== ==========
Revenues
Total revenues for reportable segments $ 18,540
Elimination of intersegment management fee income (322)
Elimination of intersegment asset management fee income (75)
-----------
Total consolidated revenues $ 18,143
===========
Property operating expenses and real estate taxes
Total property operating expenses and real estate taxes for
reportable segments $ 5,927
Elimination of intersegment management fee expenses (283)
-----------
Total consolidated expenses $ 5,644
===========
Reconciliation to net income
Net property income before depreciation and amortization $ 12,499
Depreciation and amortization (4,121)
General and administrative (2,422)
Equity in earnings of unconsolidated partnerships 506
Interest expense (2,761)
Gain on sale of land 508
Minority interest (445)
-----------
Net income $ 3,764
===========
15
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
13. SEGMENT REPORTING, CONTINUED
SIX MONTHS ENDED JUNE 30, 2003
------------------------------
RETAIL MULTI-FAMILY ALL
PROPERTIES PROPERTIES OTHER TOTAL
----------- ------------- ----------- --------
Revenues $ 28,421 $ 3,588 $ 2,581 $ 34,590
Property operating expenses and real estate taxes 9,790 1,962 -- 11,752
--------------------------------------------------
Net property income before depreciation and amortization $ 18,631 $ 1,626 $ 2,581 $ 22,838
==================================================
Depreciation and amortization $ 6,693 $ 649 $ 147 $ 7,489
==================================================
Interest expense $ 4,764 $ 767 $ -- $ 5,531
==================================================
Real estate at cost $ 384,304 $ 39,093 $ -- $ 423,397
==================================================
Total assets $ 357,694 $ 36,453 $ 12,533 $ 406,680
==================================================
Gross leasable area (multi-family - 1,474 units) 5,147 1,207 -- 6,354
==================================================
Expenditures for real estate and improvements $ 3,607 $ 697 $ -- $ 4,304
==================================================
Revenues
Total revenues for reportable segments $ 35,401
Elimination of intersegment management fee income (661)
Elimination of intersegment asset management fee income (150)
------------
Total consolidated revenues $ 34,590
============
Property operating expenses and real estate taxes
Total property operating expenses and real estate taxes
for reportable segments $ 12,330
Elimination of intersegment management fee expense (578)
------------
Total consolidated expenses $ 11,752
============
Reconciliation to net income
Net property income before depreciation and amortization $ 22,838
Depreciation and amortization (7,489)
General and administrative (5,145)
Equity in earnings of unconsolidated partnerships 1,148
Interest expense (5,531)
Gain on sale of land 1,212
Minority interest (1,127)
------------
Net Income $ 5,906
============
16
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
13. SEGMENT REPORTING, CONTINUED
THREE MONTHS ENDED JUNE 30, 2003
--------------------------------
RETAIL MULTI-FAMILY ALL
PROPERTIES PROPERTIES OTHER TOTAL
----------- ------------- --------- --------
Revenues $ 13,983 $ 1,787 $ 695 $ 16,465
Property operating expenses and real estate taxes 4,142 1,059 -- 5,201
-------------------------------------------------
Net property income before depreciation and amortization $ 9,841 $ 728 $ 695 $ 11,264
=================================================
Depreciation and amortization $ 3,484 $ 328 $ 76 $ 3,888
=================================================
Interest expense $ 2,422 $ 383 $ -- $ 2,805
=================================================
Real estate at cost $ 384,304 $ 39,093 $ -- $ 423,397
=================================================
Total assets $ 357,694 $ 36,453 $12,533 $ 406,680
=================================================
Gross leasable area (multi-family - 1,474 units) 5,147 1,207 -- 6,354
=================================================
Expenditures for real estate and improvements $ 1,780 $ 356 $ -- $ 2,136
=================================================
Revenues
Total revenues for reportable segments $ 16,872
Elimination of intersegment management fee income (332)
Elimination of intersegment asset management fee income (75)
-----------
Total consolidated revenues $ 16,465
===========
Property operating expenses and real estate taxes
Total property operating expenses and real estate taxes
for reportable segments $ 5,474
Elimination of intersegment management fee expense (273)
-----------
Total consolidated expenses $ 5,201
===========
Reconciliation to net income
Net property income before depreciation and amortization $ 11,264
Depreciation and amortization (3,888)
General and administrative (2,449)
Equity in earnings of unconsolidated partnerships 595
Interest expense (2,805)
Gain on sale of land --
Minority interest (274)
-----------
Net income $ 2,443
===========
14. SUBSEQUENT EVENTS
On July 21, 2004, the Company closed its second discretionary acquisition fund,
Acadia Strategic Opportunity Fund II, LLC ("Fund II"), which includes all of
the investors from Fund I as well as two new institutional investors. With
$300,000 of committed discretionary capital, Fund II expects to be able to
acquire up to $900,000 of real estate assets on a leveraged basis. The Company
is the sole managing member with a 20% interest in Fund II. The terms and
structure of Fund II are substantially the same as Fund I. The Company will
earn a pro rata return on its invested capital as well as fees for asset
management, property management, leasing and construction services. The Company
also has the opportunity to earn additional amounts based on certain investment
return thresholds.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is based on the consolidated financial statements of
the Company as of June 30, 2004 and 2003 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 are set forth in the Company's Form 10-K for the year
ended December 31, 2003 and include, among others, the following: general
economic and business conditions, which will, among other things, affect demand
for rental space, the availability and creditworthiness of prospective tenants,
lease rents and the availability of financing; adverse changes in 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.
OVERVIEW
The Company currently operates 67 properties, which it owns or has an ownership
interest in, consisting of 65 neighborhood and community shopping centers and
two multi-family properties, principally located in the Northeast, Mid-Atlantic
and Midwest regions of the United States. The Company receives income primarily
from the rental revenue from its properties, including recoveries from tenants,
offset by operating and overhead expenses. The Company focuses on three primary
areas in executing its business plan as follows:
- -- Focus on maximizing the return on its existing portfolio through leasing and
property redevelopment activities. The Company's redevelopment program is a
significant and ongoing component of managing its existing portfolio and
focuses on selecting well-located neighborhood and community shopping
centers and creating significant value through re-tenanting and property
redevelopment.
- -- Pursue above-average returns though a disciplined and opportunistic
acquisition program. The primary conduits for the Company's acquisition
program are through its existing acquisition joint ventures, Fund I and Fund
II, as well as the Retailer Controlled Property Venture ("RCP Venture")
established to invest in surplus or underutilized properties owned or
controlled by retailers.
- -- Maintain a strong balance sheet, which provides the Company with the
financial flexibility to fund both property redevelopment and acquisition
opportunities.
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.
VALUATION OF PROPERTY HELD FOR USE AND SALE
On a quarterly basis, the Company reviews both the carrying value of 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. Management does not believe
that the values of its properties within the portfolio are impaired as of June
30, 2004.
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 June 30, 2004, the Company had recorded an allowance
for doubtful accounts of $2.6 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.
18
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2004 ("2004") TO THE THREE MONTHS
ENDED JUNE 30, 2003 ("2003")
Total revenues increased $1.7 million, or 10%, to $18.1 million for 2004
compared to $16.4 million for 2003.
Minimum rents increased $0.5 million, or 4%, to $13.1 million for 2004 compared
to $12.6 million for 2003. This increase was attributable to an increase in
rents from re-tenanting activities across the portfolio.
In total, expense reimbursements increased $0.2 million, or 8%, from $2.9
million in 2003 to $3.1 million in 2004. Common area maintenance ("CAM") expense
remained unchanged at $1.4 million. Real estate tax reimbursements increased
$0.2 million, primarily as a result of the tenants' share of a real estate tax
refund received in 2003 related to the appeal of taxes paid in prior years at
Greenridge Plaza.
Management fee income increased $0.5 million, or 85%, to $1.0 million in 2004
from $0.5 million in 2003. This was the result of an increase in management fees
related to the acquisition of certain management contract rights as well as Fund
I leasing commissions in 2004.
Interest income increased $0.3 million from 2003 to 2004. This was primarily due
to additional interest income on the Company's advances and notes receivable
originated in 2004.
Total operating expenses increased $0.7 million, or 6%, to $12.2 million for
2004, from $11.5 million for 2003.
Property operating expenses increased $.1 million, or 4%, to $3.5 million for
2004 compared to $3.4 million for 2003. This was a result primarily of higher
non-recurring maintenance and repairs in 2004 offset by lower insurance premiums
in 2004.
Real estate taxes increased $0.3 million, or 17%, from $1.8 million in 2003 to
$2.1 million in 2004 due to a real estate tax refund received in 2003 related to
the appeal of taxes paid in prior years at the Greenridge Plaza and higher real
estate taxes experienced throughout the portfolio.
General and administrative expense remained unchanged at $2.4 million.
In total, depreciation and amortization expense increased $0.2 million, or 6%,
to $4.1 million in 2004, from $3.9 million in 2003. Depreciation expense
remained unchanged from 2003 to 2004. Amortization expense increased $0.2
million in 2004 primarily as a result of the amortization of investment in
management contracts.
Interest expense remained unchanged from 2003 to 2004. Interest expense
decreased $0.1 million as result of a lower average interest rate on the
portfolio mortgage debt in 2004. This decrease was offset by a $0.05 million
increase in interest expense resulting from higher average outstanding
borrowings in 2004.
The gain on sale of land in 2004 was related to the prior year sale of a
contract to purchase land as discussed in note 3 to the consolidated financial
statements appearing in Part I, Item I in this Form 10Q.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2004 ("2004") TO THE SIX MONTHS
ENDED JUNE 30, 2003 ("2003")
Total revenues increased $1.5 million, or 4%, to $36.1 million for 2004 compared
to $34.6 million for 2003.
Minimum rents increased $1.5 million, or 6%, to $26.2 million for 2004 compared
to $24.7 million for 2003. This increase was attributable to an increase in
rents following the redevelopment of the Gateway Shopping Center in 2003 and an
increase in rents from re-tenanting activities across the portfolio.
In total, expense reimbursements increased $0.2 million, or 3%, from $6.6
million for 2003 to $6.8 million for 2004. Real estate tax reimbursements,
increased $0.4 million, primarily as a result of the combination of tenant
reimbursement of higher real estate taxes across the portfolio and those factors
previously discussed for the three months ended June 30, 2004. CAM expense
reimbursements, decreased $0.2 million, or 6%, to $3.2 million in 2004 from $3.4
million in 2003. This resulted primarily from tenant reimbursements of higher
snow removal costs during 2003.
Management fee income increased $0.6 million, or 65%, to $1.6 million in 2004
from $1.0 million in 2003. This was the result of an increase in management fees
related to Fund I and the acquisition of certain management contract rights in
2004.
Interest income increased $0.2 million from 2003 to 2004. This was primarily due
to those factors addressed for the three months ended June 30, 2004. These
increases were offset by a decrease in interest income due to lower interest
earning cash deposits in 2004.
19
Other income of $1.2 million in 2003 was due to a lump sum additional payment of
$1.2 million received in 2003 from a tenant in connection with the re-anchoring
of the Branch Plaza.
Total operating expenses increased $0.5 million, or 2%, to $24.9 million for
2004, from $24.4 million for 2003.
Property operating expenses decreased $0.2 million, or 3%, to $7.5 million for
2004, compared to $7.7 million for 2003. This was a result primarily of higher
snow removal costs during 2003 offset by higher non-recurring maintenance and
repairs in 2004.
Real estate taxes increased $0.4 million, or 11%, from $4.0 million in 2003 to
$4.4 million in 2004. These increases were attributable to those factors
previously discussed for the three months ended June 30, 2004.
General and administrative decreased $0.2 million, or 5%, to $4.9 million in
2004 from $5.1 million in 2003. This was attributable to the Company's
capitalization of certain internal leasing costs commencing 2004.
Depreciation and amortization expense increased $0.5 million, or 7%, from $7.5
million in 2003 to $8.0 million in 2004. Depreciation expense increased $0.1
million. This was the result of increased depreciation expense following the
Gateway redevelopment project being placed in service during the second quarter
of 2003. Amortization expense increased $0.4 million in 2004 primarily as a
result of the amortization of investment in management contracts in 2004.
Interest expense remained unchanged from 2003 to 2004. Interest expense
decreased as a result of a combination of a $0.06 million decrease resulting
from lower average outstanding borrowings in 2004 and a $0.05 million decrease
related to a lower average interest rate on the portfolio debt in 2004. These
decreases were offset by a $0.1 million decrease in capitalized interest in
2004.
The gain on sale of land in 2004 and 2003 was related to the sale of a contract
to purchase land.
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. It is
helpful as it excludes various items included in net income that are not
indicative of the operating performance, such as gains (or losses) from sales of
property and depreciation and amortization. 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 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.
Consistent with the NAREIT definition, the Company defines FFO as net income
(computed in accordance with GAAP), excluding gains (or losses) from sales of
depreciated property, plus depreciation and amortization, and after adjustments
for unconsolidated partnerships and joint ventures. The reconciliation of net
income to FFO for the three and six months ended June 30, 2004 and 2003 is as
follows (amounts in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2004 2003 2004 2003
---- ---- ---- ----
Net income $ 3,764 $ 2,443 $ 6,614 $ 5,906
Depreciation of real estate and amortization of leasing costs:
Wholly-owned and consolidated partnerships 3,567 3,571 7,084 6,970
Unconsolidated partnerships 569 551 1,121 1,010
Income attributable to Minority interest in Operating
Partnership (1) 72 203 187 641
--------- --------- --------- ---------
Funds from operations $ 7,972 $ 6,768 $ 15,006 $ 14,527
========= ========= ========= =========
Cash flows provided by (used in):
Operating activities $ 12,798 $ 9,688
========= =========
Investing activities $ (16,085) $ (8,904)
========= =========
Financing activities $ 20,976 $ (11,758)
========= =========
Notes:
(1) Does not include distributions paid to Series A and B Preferred OP
Unitholders.
20
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 the funding of its joint
venture commitments, acquisition, redevelopment, expansion and re-tenanting
activities.
DISTRIBUTIONS
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
May 6 , 2004, the Board of Trustees of the Company approved and declared a cash
quarterly dividend for the quarter ended June 30, 2004 of $0.16 per Common Share
and Common OP Unit. The dividend was paid on July 15, 2004 to shareholders of
record as of June 30, 2004. The Company also paid a distribution of $22.50 per
Series A Preferred OP Unit and $13.00 per Series B Preferred OP Unit on July 15,
2004.
ACADIA STRATEGIC OPPORTUNITY FUND, LP ("FUND I")
In September of 2001, the Company committed $20.0 million to a newly formed
joint venture formed with four of its institutional shareholders, who committed
$70.0 million, for the purpose of acquiring a total of approximately $300.0
million of community and neighborhood shopping centers on a leveraged basis.
Since the formation of Fund I, the Company has used it as the primary vehicle
for the acquisition of assets. To date, Fund I has invested approximately $55.2
million of the total committed equity. Of the remaining unfunded equity
commitment, Fund I anticipates investing approximately $14.8 million in the
redevelopment and re-tenanting of currently owned assets and the balance of
approximately $20 million in the RCP Venture as discussed below.
The Company is the manager and general partner of Fund I with a 22% interest. In
addition to a pro-rata return on its invested equity, the Company is entitled to
a profit participation based upon certain investment return thresholds. Cash
flow is to be distributed pro-rata to the partners (including the Company) until
they have received a 9% cumulative return ("Preferred Return") on, and a return
of all capital contributions. Thereafter, remaining cash flow is to be
distributed 80% to the partners (including the Company) and 20% to the Company.
The Company also earns a fee for asset management services equal to 1.5% of the
total equity commitments, as well as market-rate fees for property management,
leasing and construction services.
On March 11, 2004, Fund I, in conjunction with the Company's long-time
investment partner, Hendon Properties ("Hendon"), purchased a $9.6 million first
mortgage loan from New York Life Insurance Company for $5.5 million. The loan,
which was secured by a 235,000 square foot shopping center in Aiken, South
Carolina, was in default at acquisition. Fund I and Hendon acquired the loan
with the intention of pursuing ownership of the property securing the debt. Fund
I provided 90% of the equity capital and Hendon provided the remaining 10% of
the equity capital used to acquire the loan. Hendon is entitled to receive
profit participation in excess of its proportionate equity interest. The
property is currently anchored by a Kroger supermarket and is only 56% occupied
due to the vacancy of a former Kmart store. Subsequent to the acquisition of the
loan, Fund I and Hendon obtained fee title to this property and currently plan
to redevelop and re-anchor the center. The Company loaned $3.2 million to Fund I
in connection with the purchase of the first mortgage loan. The note matures
March 9, 2006, and bears interest at 7%. In addition to its loan to Fund I, the
Company invested $0.9 million, primarily its pro-rata share of equity as a
partner in Fund I.
In May 2004, Fund I and an unaffiliated partner, each with a 50% interest,
acquired a 35,000 square foot shopping center in Tarrytown, New York, for $5.3
million. Related to this acquisition, the Company loaned $2.0 million to Fund I
which bears interest at the prime rate and matures May 2005.
In May 2004, Fund I acquired a 50% interest in Haygood Shopping Center and
Sterling Heights Shopping Center for an aggregate investment of $3.2 million.
These assets are part of the portfolio that the Company currently manages as a
result of its January 2004 acquisition of certain management contracts. The
Haygood Shopping Center is a 165,000 square foot shopping center located in
Virginia Beach, Virginia. The Sterling Heights Shopping Center is a 141,000
square foot shopping center located in Sterling Heights, Michigan.
ACADIA STRATEGIC OPPORTUNITY FUND II, LLC ("FUND II")
On July 21, 2004, the Company closed its second discretionary acquisition fund,
Acadia Strategic Opportunity Fund II, LLC ("Fund II), which includes all of the
investors from Fund I as well as two new institutional investors. With $300
million of committed discretionary capital, Fund II expects to be able to
acquire up to $900 million of real estate assets on a leveraged basis. The
Company is the sole managing member with a 20% interest in the joint venture.
The terms and structure of Fund II are substantially the same as Fund I with the
exceptions that the Preferred Return is 8% and the asset management fee is
calculated on committed equity of $250 million for the first twelve months and
then on the total committed equity of $300 million thereafter.
21
RCP VENTURE
On January 27, 2004, the Company entered into the Retailer Controlled Property
Venture ("RCP Venture") with Klaff Realty, L.P. ("Klaff") and its long-time
capital partner Lubert-Adler Management, Inc. for the purpose of making
investments in surplus or underutilized properties owned by retailers. The
initial size of the RCP Venture is expected to be approximately $300 million in
equity based on anticipated investments of approximately $1 billion. The RCP
Venture is currently exploring investment opportunities, but has not yet made
any commitments. Each participant in the RCP Venture has the right to opt out of
any potential investment. The Company, through its current acquisition Funds I
and II, anticipates investing 20% of the equity of the RCP Venture. It is
currently anticipated that approximately $20 million and $40 million will be
invested by Funds I and II, respectively. Cash flow is to be distributed to the
partners until they have received a 10% cumulative return and a full return of
all contributions. Thereafter, remaining cash flow is to be distributed 20% to
Klaff ("Klaff's Promote") and 80% to the partners (including Klaff). Profits
earned on up to $20.0 million of the Company's contributed capital are not
subject to Klaff's Promote. The Company will also earn market-rate fees for
property management, leasing and construction services on behalf of the RCP
Venture.
The Company also acquired Klaff's rights to provide asset management, leasing,
disposition, development and construction services for an existing portfolio of
retail properties and/or leasehold interests comprised of approximately 10
million square feet of retail space located throughout the United States (the
"Klaff Properties"). The acquisition involves only Klaff's rights associated
with operating the Klaff Properties and does not include equity interests in
assets owned by Klaff. The Operating Partnership issued $4.0 million of Series B
Preferred OP Units to Klaff in consideration of this acquisition.
OTHER INVESTMENTS
On March 18, 2004, the Company provided a $3.0 million mezzanine loan to an
unrelated joint venture. The loan is for a term of three years with interest of
11% for year one, 10% for year two and prime plus 6% for year three.
On April 8, 2004, the Company provided a $3.6 million mezzanine loan to an
unrelated party. The loan carried interest at the rate of 15%. The loan was paid
in full on June 23, 2004, which resulted in an additional 10% interest
pre-payment penalty over the period the loan was outstanding.
The Company provided a $3.2 million loan to an unaffiliated partner which used
the proceeds in connection with the purchase of the Tarrytown Centre. The loan
matures on May 12, 2005, and bears interest at the prime rate.
PROPERTY REDEVELOPMENT AND EXPANSION
The Company's redevelopment program focuses on selecting well-located
neighborhood and community shopping centers and creating significant value
through re-tenanting and property redevelopment. During the quarter ended June
30, 2004, the Company completed one redevelopment and had one ongoing
redevelopment project as follows:
New Loudon Center -- During 2003, the Company installed The Bon Ton Department
Store, replacing the majority of space formerly occupied by a former Ames
department store. The Company leased the balance of the former Ames space to
Marshall's, an existing tenant at the center, which opened in its expanded
37,000 square feet store during 2004. The Company also installed a new 49,000
square foot Raymour and Flanigan furniture store at this center which opened
during April of 2004. This project is now complete and is currently 100%
occupied.
Town Line Plaza -- This project, located in Rocky Hill, Connecticut, was added
to the Company's redevelopment pipeline in December of 2003. The Company is
re-anchoring the center with a new Super Stop & Shop supermarket, replacing a
former GU Markets supermarket. The existing building is being demolished and
will be replaced with a 66,000 square foot Super Stop & Shop. The new
supermarket anchor is paying gross rent at a 33% increase over that of the
former tenant with no interruption in rent payments. Costs to date for this
project totaled $1.7 million. All remaining redevelopment costs associated with
this project, which is anticipated to be completed during the first quarter of
2005, are to be paid by Stop & Shop.
Additionally, for the year ending December 31, 2004, the Company currently
estimates that capital outlays of approximately $3.0 million to $5.5 million
will be required for tenant improvements, related renovations and other property
improvements.
22
SHARE REPURCHASE
The Company has an existing share repurchase program that authorizes management,
at its discretion, to repurchase up to $20.0 million of the Company's
outstanding Common Shares. Through August 5, 2004, the Company had repurchased
1.9 million Common Shares at a total cost of $10.8 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. There were no repurchases of
securities during the six months ended June 30, 2004.
SOURCES OF LIQUIDITY
The Company intends on using Funds I and II as the primary vehicles for future
acquisitions, including investments in the RCP Venture. Sources of capital for
funding the Company's joint venture commitments, other property acquisitions,
redevelopment, expansion and re-tenanting, as well as future repurchases of
Common Shares are expected to be obtained primarily from cash on hand,
additional debt financings, issuance of public equity or debt instruments and
possible sales of existing properties. As of June 30, 2004, the Company had a
total of approximately $27.3 million of additional capacity with six lenders, of
which the Company is required to draw $5.0 million by December 2004, or forego
the ability to draw these funds at any time during the remaining term of the
loans. The Company also had cash and cash equivalents on hand of $32.4 million
at June 30, 2004 as well as eleven properties that are currently unencumbered
and therefore available as potential collateral for future borrowings. The
Company anticipates that cash flow from operating activities will continue to
provide adequate capital for all debt service payments, recurring capital
expenditures and REIT distribution requirements.
FINANCING AND DEBT
At June 30, 2004, mortgage notes payable aggregated $214.7 million and were
collateralized by 20 properties and related tenant leases. Interest rates on the
Company's outstanding mortgage indebtedness ranged from 2.2% to 8.1% with
maturities that ranged from October 2005 to June 2013. Taking into consideration
$86.4 million of notional principal under variable to fixed-rate swap agreements
currently in effect, $155.8 million of the portfolio, or 73%, was fixed at a
6.6% weighted average interest rate and $58.9 million, or 27% was floating at a
2.5% weighted average interest rate. There is no debt maturing in 2004 and $8.7
million is scheduled to mature in 2005 at a current weighted average interest
rate of 2.8%. The Company currently anticipates refinancing this indebtedness or
selecting other alternatives based on market conditions at that time.
The following summarizes the financing and refinancing transactions since March
31, 2004:
During the second quarter of 2004, the Company drew down an additional $8.0
million under an existing $20.0 million revolving facility and an additional
$2.5 million under an existing $7.4 million revolving facility. As of June 30,
2004, $12.5 million and $7.0 million were outstanding under these facilities.
The balances on these revolving facilities were paid in full on July 1, 2004.
On June 30, 2004, the Company closed on a $45.9 million cross collateralized
revolving facility, which is collateralized by five of the Company's properties.
The existing combined outstanding debt of $23.0 million was modified to allow
the Company to borrow an additional $22.9 million. The facility matures in 2012
and bears interest at LIBOR plus 105 basis points through December 31, 2004 and
LIBOR plus 140 basis points thereafter. The Company drew down $16.75 million
under this facility on June 30, 2004, resulting in a total outstanding balance
of $39.75 million. On July 1, 2004, proceeds from the additional borrowings were
used to pay down the two revolving facilities mentioned above.
On June 30, 2004, the Company closed on a $12.1 million revolving facility
secured by one of its properties. The existing outstanding debt of $8.9 million
was modified to allow the Company to borrow an additional $3.2 million. The
facility matures in 2012 and bears interest at LIBOR plus 105 basis points
through December 31, 2004 and LIBOR plus 145 basis points thereafter.
On April 19, 2004, a $1.4 million letter of credit was placed with a lender in
the Company's name. This letter of credit was necessary to maintain coverage
ratios following the rejection of a tenant's lease at a Fund I property.
23
The following table summarizes the Company's mortgage indebtedness as of June
30, 2004 and December 31, 2003:
JUNE 30, DECEMBER 31, INTEREST RATE PROPERTIES PAYMENT
2004 2003 AT JUNE 30, 2004 MATURITY ENCUMBERED TERMS
---------- ------------- ------------------ ---------- ------------ ---------
Mortgage notes payable --
variable-rate
Sun America Life Insurance
Company $ 9,058 $ 9,191 2.84% (LIBOR + 1.73%) 10/01/05 (1) (13)
Washington Mutual Bank, FA 19,778 20,083 2.98% (LIBOR + 1.85%) 01/01/07 (2) (13)
Washington Mutual Bank, FA 12,500 -- 2.63% (LIBOR + 1.50%) 11/22/07 (3) (14)
Fleet National Bank 7,000 -- 2.68% (LIBOR + 1.50%) 03/01/08 (4) (15)
Fleet National Bank 8,535 8,598 2.51% (LIBOR + 1.40%) 12/01/08 (5) (13)
Washington Mutual Bank, FA 39,840 50,686 2.63% (LIBOR + 1.50%) 04/01/11 (6) (13)
Fleet National Bank 39,713 23,130 2.18% (LIBOR + 1.05%) 06/29/12 (7) (16)
Fleet National Bank 8,931 8,992 2.18% (LIBOR + 1.05%) 06/29/12 (8) (13)
---------- -----------
Total variable-rate debt 145,355 120,680
---------- -----------
Mortgage notes payable --
fixed-rate
Sun America Life Insurance
Company 13,327 13,425 6.46% 07/01/07 (9) (13)
Metropolitan Life Insurance
Company 23,910 24,113 8.13% 11/01/10 (10) (13)
Bank of America, N.A. 16,146 16,226 7.55% 01/01/11 (11) (13)
RBS Greenwich Capital 16,000 16,000 5.19% 06/01/13 (12) (17)
---------- -----------
Total fixed-rate debt 69,383 69,764
---------- -----------
$ 214,738 $ 190,444
========== ===========
Notes
(1) Village Apartments (7) Branch Shopping Center (12) 239 Greenwich Avenue
Abington Towne Centre
(2) Walnut Hill Plaza Methuen Shopping Center (13) Monthly principal and interest.
Bloomfield Town Square Gateway Shopping Center
Town Line Plaza
(3) Elmwood Park Shopping Center;
$12,500 is outstanding under (8) Smithtown Shopping Center (14) Interest only monthly.
this $20,000 revolving
facility. Outstanding
balance repaid July 1, 2004.
(4) Marketplace of Absecon; $7,000 (9) Merrillville Plaza (15) Interest only monthly until fully drawn;
is outstanding under this $7,400 monthly principal and interest thereafter.
revolving facility. Outstanding
balance repaid July 1, 2004.
(5) Soundview Marketplace (10) Crescent Plaza (16) Annual principal and monthly interest.
East End Centre
(6) New Loudon Center (11) GHT Apartments/Colony (17) Interest only monthly until 5/05; monthly
Ledgewood Mall Apartments principal and interest thereafter.
Bradford Towne Centre
24
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
At June 30, 2004, maturities on the Company's mortgage notes ranged from October
2005 to June 2013. In addition, the Company has non-cancelable ground leases at
three of its shopping centers. The Company also leases space for its White
Plains corporate office for a term expiring in 2010. The following table
summarizes the Company's debt maturities, excluding scheduled monthly
amortization payments, and obligations under non-cancelable operating leases as
of June 30, 2004:
(AMOUNTS IN MILLIONS) PAYMENTS DUE BY PERIOD
LESS THAN 1 TO 3 3 TO 5 MORE THAN
CONTRACTUAL OBLIGATION TOTAL 1 YEAR YEARS YEARS 5 YEARS
------------ ----------- ------------ ------------ -----------
Future debt maturities $ 176.8 $ -- $ 8.7 $ 58.2 $ 109.9
Operating lease obligations 22.6 0.5 2.0 2.0 18.1
------------ ----------- ------------ ------------ -----------
Total $ 199.4 $ 0.5 $ 10.7 $ 60.2 $ 128.0
============ =========== ============ ============ ===========
OFF BALANCE SHEET ARRANGEMENTS
The Company has two off balance sheet joint ventures for the purpose of
investing in operating properties as follows:
The Company owns a 49% interest in two partnerships which own the Crossroads
Shopping Center ("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 pro rata share of
Crossroads mortgage debt as of June 30, 2004 was $16.0 million. Interest on the
debt, which matures in October 2007, has been effectively fixed at 7.2% through
variable to fixed-rate swap agreements.
Reference is made to the discussion of Fund I under "Uses of Liquidity" in this
Item 2 for additional detail related to the Company's investment in and
commitments to Fund I. The Company owns a 22% interest in Fund I for which it
also uses the equity method of accounting. The Company's pro rata share of Fund
I fixed-rate mortgage debt as of June 30, 2004 was $21.8 million at a weighted
average interest rate of 6.4%. The Company's pro rata share of Fund I
variable-rate mortgage debt as of June 30, 2004 was $2.5 million at an interest
rate of 3.8%. Maturities on these loans range from May 2005 to January 2023.
HISTORICAL CASH FLOW
The following discussion of historical cash flow compares the Company's cash
flow for the six months ended June 30, 2004 ("2004") with the Company's cash
flow for the six months ended June 30, 2003 ("2003").
Cash and cash equivalents were $32.4 million and $34.2 million at June 30, 2004
and 2003, respectively. The decrease of $1.8 million was a result of the
following increases and decreases in cash flows:
SIX MONTHS ENDED JUNE 30,
2004 2003 CHANGE
-------------- -------------- --------------
Net cash provided by operating activities $ 12.8 $ 9.7 $ 3.1
Net cash used in investing activities $ (16.1) $ (8.9) $ (7.2)
Net cash provided by (used in) financing activities $ 21.0 $ (11.8) $ 32.8
The variance in net cash provided by operating activities resulted from an
increase of $1.6 million in operating income before non-cash expenses in 2004,
which was primarily due to an increase in rents following the redevelopment of
the Gateway shopping center and re-tenanting activities across the portfolio. In
addition, a net increase in cash provided by changes in operating assets and
liabilities of $1.5 million resulted primarily from accounts payable and accrued
expenses.
The variance in net cash used in investing activities was primarily the result
of $10.1 million of notes issued in 2004 offset by the $2.5 million payment of
an earn-out in 2003 related to a redevelopment project.
The increase in net cash provided by (used in) financing activities resulted
primarily from $7.9 million of cash provided by the exercise of stock options in
2004, $15.3 million of cash provided by additional borrowings in 2004 and $11.7
million of less cash used for the repayment of debt in 2004.
25
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 CAM, 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 and interest rate swap agreements.
The Company is a party to current and forward-starting interest rate swap
transactions to hedge the Company's exposure to changes in LIBOR with respect to
$86.4 and $62.2 million of notional principal, respectively. The Company also
has two interest rate swaps hedging the Company's exposure to changes in
interest rates with respect to $16.0 million of LIBOR based variable-rate debt
related to its investment in Crossroads.
The following table sets forth information as of June 30, 2004 concerning the
Company's long-term debt obligations, including principal cash flows by
scheduled maturity and weighted average interest rates of maturing amounts
(amounts in millions):
Consolidated mortgage debt:
WEIGHTED
SCHEDULED AVERAGE
YEAR AMORTIZATION MATURITIES TOTAL INTEREST RATE
- ------------ --------------- ------------ ------- ---------------
2004 $ 1.5 $ -- $ 1.5 n/a
2005 3.7 8.7 12.4 2.9%
2006 4.3 -- 4.3 n/a
2007 4.4 43.2 47.6 3.9%
2008 5.0 15.0 20.0 2.6%
Thereafter 19.0 109.9 128.9 4.5%
--------- -------- ----------
$ 37.9 $ 176.8 $ 214.7
========= ======== ==========
Mortgage debt in unconsolidated partnerships (at Company's pro rata share):
WEIGHTED
SCHEDULED AVERAGE
YEAR AMORTIZATION MATURITIES TOTAL INTEREST RATE
- ------------ --------------- ------------ ------- ---------------
2004 $ 0.3 $ -- $ 0.3 n/a
2005 1.3 1.2 2.5 4.5%
2006 1.4 -- 1.4 n/a
2007 1.3 16.0 17.3 6.9%
2008 1.0 6.7 7.7 4.7%
Thereafter 3.7 7.4 11.1 7.1%
--------- -------- ----------
$ 9.0 $ 31.3 $ 40.3
========= ========= ==========
Of the Company's total outstanding debt, $8.7 million will become due at
maturity in 2005. 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
$0.1 million 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, 2004 would increase by $0.6 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.
26
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. The Company's Chief
Executive Officer and Chief Financial Officer have evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended as of the end of the period covered by this report. Based on such
evaluation, the Company's Chief Executive Officer and Chief Financial Officer
have concluded that, as of the end of such period, the Company's disclosure
controls and procedures are effective.
(b) Internal Control over Financial Reporting. There have not been any changes
in the Company's internal control over financial reporting during the fiscal
quarter to which this report relates that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material legal proceedings beyond those previously disclosed
in the Company's filed Annual Report on Form 10-K for the year ended December
31, 2003.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 6, 2004, the Company 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
-------------- --------------
Kenneth F. Bernstein 24,468,560 20,238
Douglas Crocker II 24,472,290 16,508
Alan S. Forman 24,463,562 25,236
Suzanne M. Hopgood 24,471,690 17,108
Lorrence T. Kellar 23,603,338 885,460
Wendy Luscombe 24,471,690 17,108
Lee S. Wielansky 23,521,226 967,572
PROPOSAL 2 -
The ratification of the appointment of Ernst & Young, LLP as independent
auditors for the Company for the fiscal year ending December 31, 2004:
VOTES CAST FOR VOTES AGAINST ABSTAIN
- -------------- ------------- -------
23,443,532 1,043,025 2,241
ITEM 5. OTHER INFORMATION
None
27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
No. Description
- ---- -----------
31.1 Certification of Chief Executive Officer pursuant to rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith)
31.2 Certification of Chief Financial Officer pursuant to rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith)
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (filed herewith)
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (filed herewith)
(b) Reports on Form 8-K
The following Form 8-K was filed, or furnished as noted in the applicable Form
8-K, for the quarter ended June 30, 2004:
1) Form 8-K filed April 22, 2004 (earliest event April 22, 2004), reporting
in Item 5 additional information about tax fees that the Registrant
reported in its proxy statement for its 2004 Annual Meeting of
Shareholders at the request of Institutional Shareholder Services.
2) Form 8-K filed April 23, 2004 (earliest event April 23, 2004), reporting
in Items 7,9 and 12, a press release announcing the consolidated
financial results for the quarter ended March 31, 2004 and certain
supplemental information concerning the ownership, operations and
portfolio of the Registrant as of March 31, 2004 as made available as
exhibits to the filing.
3) Form 8-K filed May 5, 2004 (earliest event May 5, 2004), reporting in
Item 5, the amendment of the employment contract of Kenneth F. Bernstein,
President and Chief Executive Officer.
28
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
August 5, 2004 /s/ Kenneth F. Bernstein
Kenneth F. Bernstein
President and Chief Executive Officer
(Principal Executive Officer)
August 5, 2004 /s/ Michael Nelsen
Michael Nelsen
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
29