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, 1999
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 14, 1999, there were 25,419,215 common shares of
beneficial interest, par value $.001 per share, outstanding.
ACADIA REALTY TRUST AND SUBSIDIARIES
FORM 10-Q
INDEX
Part I: Financial Information Page
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets as of
March 31, 1999 and December 31, 1998 1
Consolidated Statements of Operations for
the three months ended March 31, 1999 and 1998 2
Consolidated Statements of Cash Flows for
the three months ended March 31, 1999 and 1998 3
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosure of Market Risk 20
Part II: Other Information
Item 2. Changes in Securities and Use of Proceeds 21
Item 6. Exhibits 21
Signatures 22
Part I. Financial Information
Item 1. Financial Statements
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
March 31,
1999 December 31,
(unaudited) 1998
----------- ------------
ASSETS
Real estate
Land $ 78,466 $ 76,136
Buildings and improvements 472,912 452,300
Properties under development 18,319 22,813
-------- --------
569,697 551,249
Less: accumulated depreciation 91,549 87,202
-------- --------
Net real estate 478,148 464,047
Property held for sale -- 7,073
Cash and cash equivalents 15,741 15,183
Cash in escrow 13,308 12,650
Investments in unconsolidated
partnerships 7,699 7,516
Rents receivable, net 6,571 6,006
Prepaid expenses 2,350 2,797
Deferred charges, net 11,657 11,461
Other assets 1,561 1,779
-------- --------
$537,035 $528,512
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable $288,497 $277,561
Accounts payable and accrued expenses 7,925 10,673
Due to related parties 56 176
Dividends and distributions payable 4,392 --
Other liabilities 3,131 3,817
-------- --------
Total Liabilities 304,001 292,227
-------- --------
Minority interest in Operating
Partnership 78,378 79,344
Minority interests in majority
owned partnerships 2,350 2,350
-------- --------
Total Minority Interests 80,728 81,694
-------- --------
Shareholders' Equity:
Common shares, $.001 par value,
authorized 100,000,000 shares,
issued and outstanding 25,419,215
shares 25 25
Additional paid-in capital 168,461 170,746
Deficit (16,180) (16,180)
-------- --------
Total Shareholders' Equity 152,306 154,591
-------- --------
$537,035 $528,512
======== ========
See accompanying notes
1
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(in thousands, except per share amounts)
March 31, March 31,
1999 1998
(unaudited) (unaudited)
---------- -----------
Revenues
Minimum rents $ 17,353 $ 8,464
Percentage rents 788 565
Expense reimbursements 3,458 1,753
Other 652 169
-------- --------
Total revenues 22,251 10,951
-------- --------
Operating Expenses
Property operating 5,882 2,292
Real estate taxes 2,551 1,428
Depreciation and amortization 4,686 3,473
General and administrative 1,466 456
-------- --------
Total operating expenses 14,585 7,649
-------- --------
Operating income 7,666 3,302
Equity in earnings of un-
consolidated partnerships 183 --
Loss on sale of properties (1,284) --
Interest expense (5,424) (3,923)
-------- --------
Income (loss) before
minority interest 1,141 (621)
Minority interest in
Operating Partnership (376) 88
-------- --------
Net income (loss) $ 765 $ (533)
======== ========
Net income (loss)
per Common Share - basic and diluted $ .03 $ (.06)
======== ========
See accompanying notes
2
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(in thousands)
March 31, March 31,
1999 1998
(unaudited) (unaudited)
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 765 $ (533)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 4,686 3,473
Minority interest in Operating Partnership 376 (88)
Equity in income of unconsolidated
partnerships (183) --
Provision for bad debts 355 310
Loss on sale of properties 1,284 --
Changes in assets and liabilities:
Funding of escrows, net (658) (681)
Rents receivable (920) 387
Prepaid expenses 447 119
Due to related parties (120) (29)
Other assets 37 20
Accounts payable and accrued expenses (2,748) (164)
Other liabilities (686) (281)
-------- --------
Net cash provided by operating activities 2,635 2,533
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for real estate and
improvements (10,970) (3,810)
Net proceeds from sale of property 6,128 --
Payment of deferred leasing costs (105) (451)
-------- --------
Net cash used in investing activities (4,947) (4,261)
-------- --------
See accompanying notes
3
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(in thousands)
March 31, March 31,
1999 1998
(unaudited) (unaudited)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgages $ (975) $ (702)
Proceeds received on mortgage notes 4,250 1,999
Payment of deferred financing and
other costs (405) (87)
Distributions to minority interests -- (12)
------ ------
Net cash provided by financing activities 2,870 1,198
------ ------
Increase (decrease) in cash and
cash equivalents 558 (530)
Cash and cash equivalents, beginning of period 15,183 1,287
------ ------
Cash and cash equivalents, end of period $15,741 $ 757
======= ======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for
interest, net of amounts
capitalized of $372 and $168,
respectively $6,095 $3,509
====== ======
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Acquisition of real estate by assumption
of debt $7,661
======
See accompanying notes
4
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
1. THE COMPANY
Acadia Realty Trust (the "Company"), formerly known as Mark Centers Trust, is a
fully integrated and self-managed real estate investment trust ("REIT") focused
primarily on the ownership, acquisition, redevelopment and management of
neighborhood and community shopping centers, and multi-family properties.
All of the Company's assets are held by, and all of its operations are conducted
through, Acadia Realty Limited Partnership (the "Operating Partnership"),
formerly known as Mark Centers Limited Partnership, and its majority owned
partnerships. As of March 31, 1999, the Company controlled 69% of the Operating
Partnership as the sole general partner.
The Company currently operates fifty-seven properties, which it owns or has an
ownership interest in, consisting of forty-seven neighborhood and community
shopping centers, three enclosed malls, one mixed use (retail/office)
property, five multi-family properties and one redevelopment property located
in the Eastern and Midwestern regions of the United States.
2. BASIS OF PRESENTATION
The consolidated financial statements include the consolidated accounts of the
Company and its majority owned partnerships, including the Operating
Partnership, and have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. Non-controlling
investments in partnerships are accounted for under the equity method of
accounting as the Company exercises significant influence. The information
furnished in the accompanying consolidated financial statements reflects all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the aforementioned consolidated financial statements for the
interim periods. The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes.
5
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
2. BASIS OF PRESENTATION, CONTINUED
Actual results could differ from these estimates. Operating results for the
three month period ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 1999. 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, 1998.
3. ACQUISITION OF PROPERTY
On February 24, 1999, the Company acquired the Mad River Station, a 154,000
square foot shopping center located in Dayton, Ohio for $11,500. The Company
assumed $7,661 in mortgage debt and funded the remaining purchase price from
working capital.
4. DISPOSITION OF PROPERTIES
Pursuant to its continuing plan to dispose of certain under-performing
properties, the Company sold two properties during the three month period ended
March 31, 1999. The Company sold the Searstown Mall on February 1, 1999 for
a sale price of $3,300 and the Auburn Plaza on March 29, 1999 for $3,500.
5. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS
The following table summarizes the change in the shareholders' equity and
minority interests since December 31, 1998:
Shareholders' Minority
Equity Interests
Balance at December 31, 1998 $154,591 $ 81,694
Dividends and distributions declared
of $0.12 per Common Share and Operating
Partnership ("OP") Unit (3,050) (1,342)
Net income for the period January 1
through March 31, 1999 765 376
-------- --------
Balance at March 31, 1999 $152,306 $ 80,728
======== ========
Minority interests represent the limited partners' interest of 11,184,143 and
1,623,000 units in the Operating Partnership at March 31, 1999 and 1998,
respectively. In addition, at March 31, 1999, minority interests also include an
aggregate amount of $2,350 representing interests held by third parties in four
partnerships in which the Company has a majority ownership position.
6
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
6. INVESTMENT IN PARTNERSHIPS
The Company owns a 49% interest in the Crossroads Joint Venture and Crossroads
II Joint Venture (collectively "Crossroads") and accounts for this investment
using the equity method. Summary financial information of the Crossroads and the
Company's investment in and share of income from Crossroads follows:
March 31,
1999
---
Balance Sheet
Assets:
Rental property, net $ 9,051
Other assets 5,095
-------
Total assets $14,146
=======
Liabilities and partners' equity
Mortgage note payable $35,424
Other liabilities 717
Partners' equity (21,995)
-------
Total liabilities and partners' equity $14,146
=======
Company's investment in partnerships $ 7,699
=======
Statement of Operations
Total revenue $ 1,803
Operating and other expenses 463
Interest expense 634
Depreciation and amortization 132
-------
Net income $ 574
=======
Company's share of net income $ 281
Amortization of excess investment
(See below) 98
-------
Income from partnerships $ 183
=======
The unamortized excess of the Company's investment over its share of the net
equity in Crossroads at the date of acquisition was $19,580. The portion of this
excess attributable to buildings and improvements is being amortized over the
life of the related property.
7
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
7. MORTGAGE LOANS
On March 23, 1999, the Company closed on a $7,000 facility with Fleet Bank, NA
which is secured by the Town Line Plaza. As of March 31, 1999, the Company had
$4,000 outstanding under this facility which matures March 15, 2002, bears
interest at LIBOR plus 175 basis and requires the payment of principal amortized
over a 25 year period. In connection with this facility, the Company also
obtained two irrevocable letters of credit totaling $3,000. The first letter of
credit for $2,000 is required pursuant to the bankruptcy reorganization plan of
the owner of the Mall 189 (Note 12). The letter of credit is expected to be
reduced in $500 increments as redevelopment of the property progresses. The
second letter of credit for $1,000 was obtained related to the settlement of
certain litigation in 1998 with the former President of the Company.
On February 24, 1999, the Company assumed $7,661 in mortgage debt in connection
with the acquisition of the Mad River Station shopping center. The debt, which
matures May 23, 2005, bears interest at a fixed-rate of 9.6% and requires the
payment of principal amortized over 25 years. The debt can be prepaid commencing
May 23, 2000 with certain prepayment fees and May 23, 2002 without any such
fees.
8. RELATED PARTY TRANSACTIONS
The Company manages three properties in which certain current shareholders of
the Company or their affiliates have ownership interests. Management fees earned
by the Company under these contracts are at rates of 3.25% and 3.5% of
collections, or in one case, a fixed annual fee of $110. Such fees aggregated
$143 during the three month period ended March 31, 1999.
9. DIVIDENDS AND DISTRIBUTIONS PAYABLE
On February 4, 1999, the Board of Trustees of the Company approved and declared
a quarterly dividend for the quarter ended March 31, 1999 of $0.12 per Common
Share. The dividend was paid on April 15, 1999 to the shareholders of record as
of March 31, 1999.
8
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
10. PER SHARE DATA
Basic earnings per share was determined by dividing the net income applicable to
common shareholders by the weighted average number of Common Shares outstanding
during each period consistent with the guidelines of the Financial Accounting
Standards Board Statement No. 128. The weighted average number of Common Shares
for the three month period ended March 31, 1999 and 1998 totaled 25,419,215 and
8,554,177, 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.
Options to purchase 300,000 Common Shares at $9 per share were outstanding
during the three month period ended March 31, 1999 but were not included in the
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of the Common Shares and, therefore,
the effect would be antidilutive. For the three months ended March 31, 1998, no
additional Common Shares were reflected as the impact would be anti-dilutive due
to the net loss for the period.
11. SEGMENT REPORTING
The Company has two reportable segments: retail properties and multi-family
properties. The Company evaluates property performance primarily based on net
operating income before depreciation, amortization and certain non-recurring
items. The reportable segments are managed separately due to the differing
nature of the leases and property operations associated with the retail versus
residential tenants.
March 31, 1999
--------------
Retail Multi-Family All
Properties Properties Other Total
---------- ------------ ----- -----
Revenues $ 18,260 $ 3,694 $ 297 $ 22,251
Property operating expenses and
real estate taxes 7,043 1,390 - 8,433
Net property income before depreciation,
amortization and certain nonrecurring items 11,217 2,304 297 13,818
Depreciation and amortization 4,253 433 4,686
Interest expense 4,406 1,018 - 5,424
Real estate at cost 488,478 81,219 - 569,697
Total assets 446,953 82,383 7,699 537,035
Gross leasable area (multi-family - 2,273 units) 8,561 2,039 - 10,600
Expenditures for real estate and improvements 10,717 253 - 10,970
Reconciliation to income (loss) before
minority interest
Net property income before depreciation,
amortization and certain nonrecurring items $ 13,818
Depreciation and amortization (4,686)
General and administrative (1,466)
Equity in earnings of unconsolidated
partnerships 183
Loss on sale of property (1,284)
Interest expense (5,424)
-------
Income (loss) before minority interest $ 1,141
=======
March 31, 1998
--------------
Retail Multi-Family All
Properties Properties Other Total
---------- ------------ ----- -----
Revenues $ 10,932 $ - $ 19 $ 10,951
Property operating expenses and
real estate taxes 3,720 - - 3,720
Net property income before depreciation,
amortization and certain nonrecurring items 7,212 - 19 7,231
Depreciation and amortization 3,473 - - 3,473
Interest expense 3,921 - 2 3,923
Real estate at cost 311,541 - - 311,541
Total assets 255,787 - - 255,787
Gross leasable area (multi-family - 2,273 units) 7,265 - - 7,265
Expenditures for real estate and improvements 3,810 - - 3,810
Reconciliation to income (loss) before
minority interest
Net property income before depreciation,
amortization and certain nonrecurring items $ 7,231
Depreciation and amortization (3,473)
General and administrative (456)
Equity in earnings of uncomsolidated
partnerships -
Loss on sale of property -
Interest expense (3,923)
------
Income (loss) before minority interest $ (621)
======
9
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
12. SUBSEQUENT EVENTS
On May 5, 1999, the Company acquired the general partner's interest in the
entity owning the Mall 189, a 122,000 square foot shopping center located in
South Burlington, Vermont for approximately $6,547. The interest was acquired
out of bankruptcy by restructuring and assuming the mortgage debt of $6,222. The
center, which is currently a partially enclosed mall, will be converted into a
conventional strip center format.
On April 9, 1999, Marvin Slomowitz, a current trustee of the Company, converted
100,000 OP Units to 100,000 Common Shares.
13. PRO FORMA INFORMATION
The following unaudited pro forma condensed consolidated information for the
three months ended March 31, 1998 is presented as if the RDC Transaction as
described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998, had occurred on January 1, 1997.
March 31,
1998
---------
Revenue $20,702
=======
Net income $ 1,276
=======
Net income per share-
basic and diluted $ 0.05
=======
Weighted average number of
Common Shares outstanding 24,676,558
==========
Weighted average number of
Common Shares outstanding-assuming
dilution 24,680,358
==========
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion is based on the consolidated financial statements of
Acadia Realty Trust (the "Company") as of March 31, 1999 and 1998 and for the
three months then ended. This information should be read in conjunction with the
accompanying consolidated financial statements and notes thereto.
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
The following comparison for the three month period ended March 31, 1999 as
compared to the same period for 1998 reference the effect of the properties
acquired on August 12, 1998 (the "RDC Properties") as a result of the RDC
Transaction as discussed in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
Comparison of the three month period ended March 31, 1999 ("1999") to the three
month period ended March 31, 1998 ("1998")
Total revenues increased $11.3 million, or 103%, to $22.3 million for 1999
compared to $11.0 million for 1998.
Minimum rents increased $8.9 million, or 105%, to $17.4 million for 1999
compared to $8.5 million for 1998. $8.6 million, or 97%, of the increase was
attributable to the RDC Properties.
Percentage rents increased $223,000, or 39%, to $788,000 for 1999 compared to
$565,000 for 1998. This increase was primarily attributable to the impact from
the Company's adopting the Emerging Issue Task Force ("EITF") Issue No. 98-9
"Accounting for Contingent Rent in Interim Financial Periods" in 1998.
11
RESULTS OF OPERATIONS, continued
Expense reimbursements increased $1.7 million, or 97%, from $1.8 million for
1998 to $3.5 million for 1999, which was primarily attributable to the RDC
Properties which had expense reimbursements of $1.6 million for 1999.
Other income increased $483,000 for 1999 which was primarily a result of
$156,000 in management fees earned in 1999 under four contracts acquired in the
RDC Transaction and an increase in interest earning assets in 1999.
Total operating expenses increased $6.9 million, or 91%, to $14.5 million for
1999, from $7.6 million for 1998.
Property operating expenses increased $3.6 million, or 157%, to $5.9 million for
1999 compared to $2.3 million for 1998. Of this increase, $3.2 million, or 89%,
was attributable to the RDC Properties. The remaining increase was primarily due
to an increase in snow removal costs for 1999.
Real estate taxes increased $1.1 million, or 79%, from $1.4 million for 1998 to
$2.5 million for 1999 primarily attributable to the RDC Properties which had
real estate tax expense in 1999 of $1.1 million.
Depreciation and amortization increased $1.2 million, or 35%, for 1999 primarily
attributable to the RDC Properties, which had depreciation expense of $1.4
million.
General and administrative expense increased $1.0 million, or 221%, from
$456,000 for 1998 to $1.5 million for 1999, which was primarily attributable to
additional staffing and administration costs following the RDC Transaction.
Interest expense of $5.4 million for 1999 increased $1.5 million, or 38%, from
$3.9 million for 1998 primarily attributable to the mortgage debt associated
with the RDC Properties partially offset by the paydown of certain existing debt
with the proceeds from the RDC Transaction.
Funds from Operations
The Company, along with most industry analysts, consider funds from
operations("FFO") as defined by the National Association of Real Estate
Investment Trusts ("NAREIT")as an appropriate supplemental measure of operating
performance. However, FFO does not represent cash generated from operations as
defined by generally accepted accounting principles and is not indicative of
cash available to fund cash needs. It should not be considered as an alternative
to net income for the purpose of evaluating the Company's performance or to cash
flows as a measure of liquidity.
12
RESULTS OF OPERATIONS, continued
Generally, NAREIT defines FFO as net income (loss) before gains (losses) on
sales of property, non-recurring charges and extraordinary items, adjusted for
certain non-cash charges, primarily depreciation and amortization of capitalized
leasing costs. Commencing in 1999, the Company is including the effect of the
straight-lining of rents in computing FFO in accordance with the NAREIT
definition. Prior to 1999, straight-line rents were excluded in computing FFO.
Straight-line rents (net of related write-offs) for the three month periods
ended March 31, 1999 and 1998 were $381,000 and $29,000, respectively. The
reconciliation of net income to FFO for the three month periods ended March 31,
1999 and 1998 is as follows:
Three months ended March 31,
1999 1998
---- ----
Net income (loss) $ 765 $ (533)
Depreciation of real estate
and amortization of leasing costs 4,668 3,281
Income (loss) attributable to
Operating Partnership Units 376 (88)
Loss on sale of properties 1,284 --
Other items -- 11
------- -------
Funds from operations $ 7,093 $ 2,671
======= =======
Funds from operations
per share (a) $ 0.19 $ 0.26
======= =======
(a) Assumes full conversion of 11,184,143 and 1,623,000 OP Units into Common
Shares for the three months ended March 31, 1999 and 1998, respectively, for a
total weighted average Common Shares and OP Units of 36,603,358 and 10,177,177,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Financing and Debt
On March 23, 1999, the Company closed on a $7.0 million facility with Fleet
Bank, NA which is secured by the Town Line Plaza. As of March 31, 1999, the
Company had $4.0 million outstanding under this facility which matures March 15,
2002, bears interest at LIBOR plus 175 basis and requires the payment of
principal amortized over a 25 year period. In connection with this facility, the
Company also obtained two irrevocable letters of credit totaling $3.0 million.
The first letter of credit for $2.0 million is required pursuant
13
LIQUIDITY AND CAPITAL RESOURCES, continued
to the bankruptcy reorganization plan of the owner of the Mall 189 (see
Property Acquisitions). The letter of credit is expected to be reduced in
$500,000 increments as redevelopment of the property progresses. The second
letter of credit for $1.0 million was obtained related to the settlement of
certain litigation in 1998 with the former President of the Company.
On February 24, 1999, the Company assumed $7.7 million in mortgage debt in
connection with the acquisition of the Mad River Station shopping center. The
debt, which matures May 23, 2005, bears interest at a fixed-rate of 9.6% and
requires the payment of principal amortized over 25 years. The debt can be
prepaid commencing May 23, 2000 with certain prepayment fees and May 23, 2002
without any such fees.
As of March 31, 1999 interest on the Company's mortgage indebtedness ranged from
6.2% to 9.6% with maturities that ranged from June 1999 to March 2022. Of the
total outstanding debt, $254.4 million, or 88%, was carried at fixed interest
rates with a weighted average of 8.4% and $34.1 million, or 12%, was carried at
variable rates with a weighted average of 6.7%. Of the total outstanding debt,
$108.3 million will become due by 2000, with scheduled maturities of $13.0
million at a weighted average interest rate of 7.7% in 1999 and $95.3 million at
a weighted average interest rate of 8.5% in 2000. 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.
The following table summarizes the Company's mortgage indebtedness as of March
31, 1999:
March 31, December 31, Interest
1999 1998 Rate
---- ---- ----
Mortgage notes payable - variable-rate
General Electric Capital Corp. $ 7,205 $ 6,989 7.81% (Commercial paper rate +2.75%)
Fleet Bank, N.A. 8,240 8,268 6.74% (LIBOR + 1.78%)
KBC Bank 14,676 14,760 6.22% (LIBOR + 1.25%)
Fleet Bank, N.A. 4,000 - 6.69% (LIBOR + 1.75%)
-------- --------
Total variable-rate debt 34,121 30,017
-------- --------
Mortgage notes payable - fixed rate
Sun America Life Insurance Company 8,664 8,717 7.75%
The Manufacturers Life Insurance Company (USA) 4,355 4,372 7.73%
John Hancock Mutual Life Insurance Company 54,277 54,445 9.11%
Metropolitan Life Insurance Company 41,000 41,000 7.75%
Sun America Life Insurance Company 43,642 43,832 7.75%
Anchor National Life Insurance Company 3,930 3,950 7.93%
Lehman Brothers Holdings, Inc. 18,099 18,140 8.32%
Northern Life Insurance Company 3,352 3,409 7.70%
Bankers Security Life 2,311 2,351 7.70%
Morgan Stanley Mortgage Capital 44,575 44,729 8.84%
Nomura Asset Capital Corporation 22,528 22,599 9.02%
Mellon Mortgage Company 7,643 - 9.60%
-------- --------
Total fixed-rate debt 254,376 247,544
-------- --------
$288,497 $277,561
======== ========
14
Properties Payment
Maturity Encumbered Terms
-------- ---------- -------
Mortgage notes payable - variable-rate
General Electric Capital Corp. 01/01/02 (1) (17)
Fleet Bank, N.A. 05/31/02 (2) (17)
KBC Bank 12/31/02 (3) (17)
Fleet Bank, N.A. 03/15/02 (4) (17)
Total variable-rate debt
Mortgage notes payable - fixed rate
Sun America Life Insurance Company 06/24/99 (5) $74(17)
The Manufacturers Life Insurance Company (USA) 12/10/99 (6) $34(17)
John Hancock Mutual Life Insurance Company 04/01/00 (7) $455(17)
Metropolitan Life Insurance Company 06/01/00 (8) (16)
Sun America Life Insurance Company 01/01/01 (9) $346(17)
Anchor National Life Insurance Company 01/01/04 (10) $33(17)
Lehman Brothers Holdings, Inc. 03/01/04 (11) $139(17)
Northern Life Insurance Company 12/01/08 (12) $41(17)
Bankers Security Life 12/01/08 (12) $28(17)
Morgan Stanley Mortgage Capital 11/01/21 (13) $380(17)
Nomura Asset Capital Corporation 03/11/22 (14) $193(17)
Mellon Mortgage Company 05/23/05 (15) $71(17)
Total fixed-rate debt
Notes:
(1) Soundview Marketplace (8) Valmont Plaza (13) Midway Plaza
Luzerne Street Plaza Northside Mall
(2) Village Commons Green Ridge Plaza New Smyrna Beach
Crescent Plaza Cloud Springs Plaza
(3) Marley Run Apartments East End Centre Troy Plaza
Martintown Plaza
(4) Town Line (9) Bloomfield Town Square Kings Fairgrounds
Atrium Mall Shillington Plaza
(5) Village Apartments Walnut Hill Shopping Center Dunmore Plaza
GHT Apartments Kingston Plaza
(6) Hobson West Plaza Colony Apartments Twenty Fifth Street Shopping Center
Circle Plaza
(7) New Loudon Centre (10) Pittston Plaza Mountainville Plaza
Ledgewood Mall Plaza 15
Plaza 422 (11) Glen Oaks Apartments Birney Plaza
Berlin Shopping Center Monroe Plaza
Route 6 Mall (12) Manahawkin Shopping Center Ames Plaza
Tioga West
Bradford Towne Centre (14) Northwood Centre
(15) Mad River
(16) Interest only monthly
(17) Monthly principal and interest
15
LIQUIDITY AND CAPITAL RESOURCES, continued
Reinstatement of Dividend
On February 4, 1999, the Company reinstated the payment of dividends declaring a
quarterly dividend of $0.12 per Common Share. The dividend was paid April 15,
1999 to shareholders of record as of March 31, 1999.
Acquisition and development of properties
On February 24, 1999, the Company acquired the Mad River Station, a 154,000
square foot shopping center located in Dayton, Ohio for $11.5 million. The
Company assumed $7.7 million in mortgage debt and funded the remaining purchase
price from working capital. The center, which is 97% leased, is anchored by
Babies 'R' Us, Office Depot and Pier One Imports.
On May 5, 1999, the Company acquired the general partner's interest in the
entity owning the Mall 189, a 122,000 square foot shopping center located in
South Burlington, Vermont for approximately $6.5 million. The center was
acquired out of bankruptcy by restructuring and assuming the mortgage debt of
$6.2 million. Mall 189 is a partially enclosed mall which will be converted into
a conventional strip center format at an estimated cost of $4.0 million. The
existing tenants include a 31,600 square foot Grand Union supermarket that is
currently paying a below-market rent.
The Company is currently redeveloping a 39,700 square foot retail and
residential building located in Greenwich, Connecticut. The building, which is
currently vacant, is being completely refurbished, and when completed in 1999
will consist of approximately 17,000 square feet of retail space and 21
apartments (approximately 15,000 square feet). Approximately 12,300 square feet
of retail space has been pre-leased to a national tenant. As of March 31, 1999,
costs incurred to date were $12.8 million. The Company expects that an
additional $3.1 million will be required to complete this project.
The Company completed the installation of Walmart and Circuit City in
approximately 121,000 and 33,000 square feet, respectively, in the Ledgewood
Mall in Ledgewood, New Jersey. Both tenants commenced paying rent during the
first quarter of 1999. Remaining costs estimated to be paid for these projects
total $1.5 million.
For the remaining portfolio, the Company currently estimates that capital
outlays of approximately $3.8 million will be required for tenant improvements,
related renovations and other property improvements related to executed leases.
16
LIQUIDITY AND CAPITAL RESOURCES, continued
Sources of capital for funding property development, property expansion and
renovation and future property acquisitions are expected to be obtained from
additional debt financings , additional equity offerings and from sales of
existing properties. The Company has generated additional working capital as a
result of its continuing plan to dispose of certain under-performing properties.
The Company sold two properties during the three month period ended March 31,
1999. The Company sold the Searstown Mall on February 1, 1999 and the Auburn
Plaza on March 29, 1999 generating $6.1 million of working capital. As of March
31, 1999, the Company had total cash available of $15.7 million as well as 11
properties which 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.
HISTORICAL CASH FLOW
The following discussion of historical cash flow compares the Company's cash
flow for the three month period ended March 31, 1999 ("1999") with the Company's
cash flow for the three month period ended March 31, 1998 ("1998").
Net cash provided by operating activities increased from $2.5 million for 1998
to $2.6 million for 1999. This variance was primarily attributable to an
increase in operating income before non-cash expenses in 1999 offset, primarily,
by $2.6 million additional cash used in 1999 for the payment of accounts payable
and accrued expenses.
Investing activities used $4.9 million during 1999, representing a $686,000
increase from $4.3 million of cash used during 1998. This was a result of a $6.8
million increase in expenditures for real estate acquisitions, development and
tenant installation in 1999, offset by net sales proceeds of $6.1 million
received in 1999 following the sale of two properties.
Net cash provided by financing activities of $2.9 million for 1999 increased
$1.7 million compared to $1.2 million provided in 1998. The increase resulted
primarily from additional borrowings in 1999.
17
INFLATION
The Company's long-term leases contain provisions designed to mitigate the
adverse impact of inflation on the Company's net income. Such provisions include
clauses enabling the Company to receive percentage rents based on tenants' gross
sales, which generally increase as prices rise, and/or, in certain cases,
escalation clauses, which generally increase rental rates during the terms of
the leases. Such escalation clauses are often related to increases in the
consumer price index or similar inflation indexes. In addition, many of the
Company's leases are for terms of less than ten years, which permits the Company
to seek to increase rents upon re-rental at market rates if rents are below the
then existing market rates. Most of the Company's leases require the tenants to
pay their share of operating expenses, including common area maintenance, real
estate taxes, insurance and utilities, thereby reducing the Company's exposure
to increases in costs and operating expenses resulting from inflation.
YEAR 2000 COMPLIANCE
The year 2000 ("Y2K") problem refers to computer applications using only the
last two digits to refer to a year rather than all four digits. As a result,
these applications could fail or create erroneous results if they recognize "00"
as the year 1900 rather than year 2000. The Company has taken Y2K initiatives in
three general areas which represent the areas that could have an impact on the
Company: information technology systems, non-information technology systems and
third party issues. The following is a summary of these initiatives:
Information technology and related costs: The Company's information technology
systems generally consist of file servers, workstations, operating systems and
applications which are all purchased systems. The Company's assessment and
testing of these systems has revealed that they are Y2K compliant.
Non-information technology and related costs: Non-information technology
consists mainly of facilities management systems such as telephone, utility and
security systems for its properties. The Company is in the process of
identifying date sensitive systems and equipment including HVAC units,
telephones, security systems and alarms, fire and flood warning systems and
general office systems at its properties. Assessment and testing of these
systems is approximately 75% complete and is expected to be completed by no
later than the third quarter of 1999. The identification and remediation of
systems at the properties is being accomplished by Company personnel with the
assistance of consultants, for which both costs are being recorded as normal
operating expense. Based on preliminary assessment the cost of any upgrades or
replacement is not expected to be significant.
18
YEAR 2000 COMPLIANCE, continued
Third parties and related costs: The Company continues to assess major third
parties' Y2K readiness including tenants, contractors and key suppliers of
out-sourced services including, property maintenance, stock transfer, debt
servicing, banking collection and disbursement, payroll and benefits. Some of
these third parties are publicly traded corporations subject to disclosure
requirements for which the Company currently monitors Y2K disclosures in SEC
filings. The majority of the Company's private vendors are small suppliers that
the Company believes can manually execute their business and are readily
replaceable. Management also believes there is no material risk of being unable
to procure necessary supplies and services. The Company has requested all
significant vendors and tenants to complete Y2K questionnaires and to date has
not received any response from such third parties indicating that they have a
significant Y2K problem. Third party assessment is approximately 75% complete
and expected to be completed by the third quarter of 1999. The assessment of
third party readiness is being conducted by Company personnel whose costs are
recorded as normal operating expenses. The Company is not yet in a position to
estimate the cost of third party compliance issues to the Company, but has no
reason to believe that such costs will be material.
Risks: The principal risk to the Company relating to the implementation of its
accounting system hardware and software upgrades is failure to correctly bill
tenants by December 31, 1999 and pay invoices when due. Management believes it
has adequate resources, or could obtain the needed resources, to manually bill
tenants and pay bills until the systems become operational.
The principal risks to the Company relating to non-information systems at the
properties are failure to identify time-sensitive systems and inability to find
an appropriate replacement system. The Company believes that adequate
replacement components or new systems are available at reasonable prices and are
in good supply. The Company also believes that adequate time and resources are
available to remediate these areas as needed.
The principal risks to the Company in its relationship with third parties are
failure of third party systems used to conduct business such as: disruption of
tenant operations at the properties; banks being unable to process receipts and
disbursements; vendors being unable to supply needed materials and services to
the Company's properties; and processing of out-sourced employee payroll. Based
on Y2K compliance work done to date, the Company has no reason to believe that
key tenants, banks and suppliers will not be Y2K compliant in all material
respects or cannot be replaced within an acceptable timeframe.
19
YEAR 2000 COMPLIANCE, continued
Contingency plans: The Company intends to deal with contingency planning during
the third quarter of 1999 after the results of the above assessments and related
remediation are known.
The Company's description of its Y2K compliance issue is based upon information
obtained by management through evaluations of internal business systems and
tenant and vendor compliance efforts. No assurance can be given that the Company
will be able to address the Y2K issues for all its systems in a timely manner or
that it will not encounter unexpected difficulties or significant expenses
relating to adequately addressing the Y2K issue. If the Company or the major
tenants or vendors with whom the Company does business fail to address their
major issues, the Company's operating results or financial position could be
materially adversely affected.
Item 3. Quantitative and qualitative disclosures about market risk
The Company's primary market risk exposure is to changes in interest rates
related to the Company's mortgage debt. See the discussion under Item 2. of this
report for certain quantitative details related to the Company's mortgage debt.
Currently, the Company manages its exposure to fluctuations in interest rates
primarily through the use of fixed-rate debt. As of March 31, 1999, the Company
had total mortgage debt of $288.5 million of which $254.4 million, or 88%, is
fixed-rate and $34.1 million, or 12%, is variable-rate based upon either LIBOR
or the lender's commercial paper rate, plus certain spreads. The Company may
seek 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 variable-rate debt through interest rate
swaps and protection agreements, or other means.
20
Part II. Other Information
Item 1. Legal Proceedings
There have been no material legal proceedings beyond those previously
disclosed in the Registrants previously filed Annual Report on Form
10-K for the year ended December 31, 1998.
Item 2. Changes in Securities
Other
On April 9, 1999, Marvin Slomowitz, the former principal shareholder,
converted 100,000 OP Units to Common Shares on a one-for-one basis.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
The following exhibit is included herein:
27 Financial Data Schedule (EDGAR filing only)
Reports on Form 8-K - The Company did not file any report on Form 8-K
during the three month period ended March 31, 1999.
21
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has fully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACADIA REALTY TRUST
By: /s/ Ross Dworman
Chairman and Chief Executive
Officer (Principal Executive
Officer)
/s/ Perry Kamerman
Senior Vice President of Finance
(Principal Financial and
Accounting Officer)
Date: May 14, 1999
22