Securities and Exchange Commission Washington, DC 20549 FORM 10-K x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 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 as specified in its charter) Maryland 23-2715194 (State of incorporation) (I.R.S. employer identification no.) 20 Soundview Marketplace Port Washington, NY 11050 (516)767-8830 (Address of principal executive offices) (Registrant's telephone number) Securities registered pursuant to Section 12(b) of the Act: Common Shares of Beneficial Interest, $.001 par value (Title of Class) New York Stock Exchange (Name of exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: NONE 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value of the voting common equity stock held by non-affiliates of the Registrant was approximately $137.4 million based on the closing price on the New York Stock Exchange for such stock on March 22, 2000 (the Company has no non-voting common equity). The number of shares of the Registrant's Common Shares of Beneficial Interest outstanding was 25,261,715 on March 22, 2000. DOCUMENTS INCORPORATED BY REFERENCE Part III - Definitive proxy statement for the Annual Meeting of Shareholders presently scheduled to be held May 16, 2000, to be filed pursuant to Regulation 14A.
TABLE OF CONTENTS Form 10-K Report Item No. Page - -------- PART I ---- 1. Business 3 2. Properties 8 3. Legal Proceedings 15 4. Submission of Matters to a Vote of Security Holders 15 PART II 5. Market for the Registrant's Common Equity and Related Shareholder Matters 16 6. Selected Financial Data 17 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 19 7A. Quantitative and Qualitative Disclosures about Market Risk 26 8. Financial Statements and Supplementary Data 26 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 26 PART III 10. Directors and Executive Officers of the Registrant 27 11. Executive Compensation 27 12. Security Ownership of Certain Beneficial Owners and Management 27 13. Certain Relationships and Related Transactions 27 PART IV 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K 27
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in this Annual Report on Form 10-K 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.
PART I ITEM 1. BUSINESS GENERAL Acadia Realty Trust (the "Company"), formerly Mark Centers Trust, was formed on March 4, 1993 as a Maryland Real Estate Investment Trust ("REIT"). The Company is a fully integrated, self-managed and self-administered equity REIT focused primarily on the ownership, acquisition, redevelopment and management of neighborhood and community shopping centers, and multi-family properties. The Company operates fifty-eight properties, which it owns or has an ownership interest in, consisting of forty-seven neighborhood and community shopping centers, three enclosed malls, two mixed use properties (a retail/office center and a retail/residential property), five multi-family properties and one redevelopment property which are all located in the Eastern and Midwestern regions of the United States. The retail/office mixed use property is currently held for sale. All of the Company's assets are held by, and all of its operations are conducted through, Acadia Realty Limited Partnership, a Delaware limited partnership (the "Operating Partnership"), previously Mark Centers Limited Partnership, and its majority owned subsidiaries. As of December 31, 1999, the Company controlled 71% of the Operating Partnership as the sole general partner. On August 12, 1998 the Company completed the transactions contemplated by the Contribution and Share Purchase Agreement dated April 15, 1998 (the "RDC Transaction"). In connection with the RDC Transaction, the Operating Partnership acquired (i) fee title or all, or substantially all, of the ownership interests in twelve shopping centers, five multi-family properties and one redevelopment property, (ii) a 49% interest in one shopping center, (iii) certain third party management contracts, and (iv) certain promissory notes from real estate investment partnerships and related entities, which are not under common control, in which RD Capital, Inc. ("RDC") serves as general partner or in another similar management capacity, for approximately 11.1 million Operating Partnership Units ("OP Units") and approximately 2.0 million common shares of beneficial interest ("Common Shares") valued at $97.2 million. In addition, the Company assumed mortgage debt aggregating $154.2 million and incurred other capitalized transaction costs of $5.8 million resulting in an aggregate purchase price of $257.2 million. Pursuant to the terms of the RDC Transaction, the recipients of the OP Units and Common Shares were restricted, subject to certain limited exceptions, from selling or otherwise transferring such OP Units or Common Shares prior to the first anniversary of the closing of the RDC Transaction. As part of the RDC Transaction, the Company issued approximately 13.3 million Common Shares to three real estate investment limited partnerships (collectively "RDC Funds"), in which affiliates of RDC serve as general partner, in exchange for $100.0 million. As a result of the RDC Transaction, the RDC Funds owned 63% of the Common Shares in the Company. Each of the RDC Funds appointed each of its partners as such RDC Funds' proxy with respect to the Common Shares to which such partner would be entitled upon a dissolution of such RDC Fund and a distribution of such Common Shares among the partners. Other real estate investment partnerships and related entities in which RDC or its affiliates serve as general partner or in another similar management capacity, owned 93% of the minority interest in the Operating Partnership as limited partners. Collectively, after giving effect to the conversion of their OP Units, which are generally exchangeable for Common Shares on a one-for-one basis, these entities and the RDC Funds beneficially owned 72% of the Common Shares as of the closing of the RDC Transaction. The Operating Partnership is also obligated to issue additional OP Units valued at $2.8 million upon the completion of certain improvements and the commencement of rental payments from a designated tenant at one of the properties acquired in the RDC Transaction. In March 2000, the RDC Funds, in accordance with their respective partnership agreements (the "RDC Fund Partnership Agreements"), distributed to their respective limited partners the Common Shares which had been issued to the RDC Funds in connection with the RDC Transaction. Pursuant to a registration and lock-up agreement, dated as of the date of the RDC Transaction (the "Registration Agreement"), in March 2000, the Company filed a registration statement with the Securities and Exchange Commission to permit the resale of such Common Shares, which registration statement was declared effective in March 2000. Pursuant to the RDC Fund Partnership Agreements and the Registration Agreement, such limited partners had agreed to certain restrictions on the sale of such Common Shares by such limited partners (the "Original Lock-Up Provisions"). In March 2000, such limited partners agreed, subject to certain conditions, to extend the term of the Original Lock-Up Provisions until December 28, 2000.
Concurrent with the closing of the RDC Transaction, the Company appointed Ross Dworman and Kenneth F. Bernstein, the Chief Executive Officer and Chief Operating Officer, respectively, of RDC, as the Chairman and Chief Executive Officer, and President, respectively, of the Company. Messrs. Dworman and Bernstein, together with two designees of RDC, were appointed to the Board of Trustees. Following the completion of the RDC Transaction, the Company changed its name from Mark Centers Trust to Acadia Realty Trust and the name of the Operating Partnership was changed from Mark Centers Limited Partnership to Acadia Realty Limited Partnership. BUSINESS OBJECTIVES AND OPERATING STRATEGY The Company's primary business objective is to acquire and manage commercial retail properties that will provide cash for distributions to shareholders while also creating potential for capital appreciation to enhance investor returns. The Company's acquisition program focuses on acquiring sub-performing neighborhood and community shopping centers that are well-located and creating significant value through retenanting, timely capital improvements and property redevelopment. In considering acquisitions, the Company focuses on quality shopping centers located in the Northeast, Mid-Atlantic, Southeast and Midwest regions. The Company considers both single assets and portfolios in its acquisition program. In conjunction with evaluating potential portfolio acquisitions, the Company also regularly engages in discussions with public and private entities regarding business combinations as well. Furthermore, the Company may, from time to time, consider acquiring multi-family apartment complexes as well as engaging in joint ventures related to property acquisition and development. The Company typically holds its properties for long-term investment. As such, it continuously reviews the existing portfolio and implements programs to renovate and modernize targeted centers to enhance the property's market position. This in turn strengthens the competitive position of the leasing program to attract and retain quality tenants, increasing cash flow and consequently property value. Upon evaluating the portfolio, the Company also periodically identifies certain properties for disposition and redeploys the capital to existing centers or acquisitions with greater potential for capital appreciation. Operating functions such as leasing, property management, construction, finance and legal (collectively the "Operating Departments") are provided by Company personnel, providing for fully integrated property management and development. The Operating Departments' involvement in acquisitions is an essential component to the acquisition program. By incorporating the Operating Departments in the acquisition process, acquisitions are appropriately priced giving effect to each asset's specific risks and returns. Also, because of the Operating Departments' involvement with, and corresponding understanding of, the acquisition process, transition time is minimized and management can immediately execute an asset's strategic plan. All operating activities are supported by a management information system which was substantially upgraded in 1999 and provides management with the operating data necessary to make informed operating decisions on a timely basis. The Company also designed and implemented a web site in 1999 providing the investment community and prospective tenants with detailed financial and portfolio information. PROPERTY ACQUISITIONS The requirements that acquisitions be accretive based on the Company's long-term cost of capital as well as increase overall portfolio quality and value are core to the Company's acquisition program. When the blended cost of equity and debt increase, it is important to reduce acquisition activity to align the level of investment activity with capital flows. Due to a difficult capital market environment experienced throughout the REIT industry during 1999, the Company made the strategic decision to limit its acquisition program. As a result of what the Company considers this common sense approach, it believes it will be better positioned to take advantage of favorable acquisition opportunities in the event the capital markets improve. Consistent with this disciplined approach, the Company limited its acquisition activity during 1999 to three opportunistic investments as follows: On November 16, 1999, the Company acquired 100% of the partnership interests of the limited partnership which owns the Pacesetter Park Shopping Center, a 96,000 square foot community shopping center located in Rockland County, New York. The aggregate purchase price of $7.4 million consisted of the assumption of $4.6 million in first mortgage debt and the issuance of $2.2 million in preferred Operating Partnership units with the balance funded from working capital.
On May 5, 1999, the Company acquired the sole general partner's interest in the limited partnership owning the Gateway Mall (formerly the Mall 189), a 122,000 square foot shopping center located in Burlington, Vermont, for $6.5 million. The interest, which is senior to the interests of the limited partners, was acquired out of bankruptcy by restructuring and assuming the mortgage debt of $6.2 million. The balance of the purchase was funded from working capital. The Gateway Mall is in its early stages of redevelopment with anticipated completion in late 2001. The property is a partially enclosed mall that will be reconfigured into a conventional strip center format. 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 from working capital. PROPERTY DEVELOPMENT In 1999, the Company completed the redevelopment of a 39,700 square foot building located in Greenwich, Connecticut, which consists of 17,000 square feet of retail space and 21 apartments (approximately 15,000 square feet). During June 1999, Restoration Hardware, the lead anchor for the center occupying 12,300 square feet of the retail space, commenced paying rent. The remaining retail space has been leased as well with occupancy anticipated during the second quarter of 2000. All twenty-one residential units are leased as of December 31, 1999. Costs incurred on this project, including the initial acquisition cost, totaled $17.5 million. During 1999, the Company also completed the following property development and expansions: - - The completion of a 10-screen theater at the Wesmark Plaza in Sumter, South Carolina. - - The expansion of a 42,000 square foot Waldbaum's (A&P) Supermarket to 65,000 square feet including a new parking lot and exterior facade at the Town Line Plaza in Rocky Hill, Connecticut. - - The installation of Walmart and Circuit City in approximately 121,000 and 33,000 square feet, respectively, as well as an 11,600 square foot expansion of Stern's Department Store in the Ledgewood Mall in Ledgewood, New Jersey. The installation of these tenants in addition to PharMor leasing 47,300 square feet resulted in a 94% occupancy level at the property as of December 31, 1999. The Company also received municipal approval in 1999 to renovate and expand by approximately 30,000 square feet the 125,000 square foot Elmwood Park Shopping Center. As part of the redevelopment, the Company is planning to construct a 48,000 square foot free-standing A&P supermarket, replacing a 28,000 square foot in-line Grand Union supermarket at a significantly higher rent per square foot. The Company expects redevelopment costs of approximately $9.1 million to complete this project in 2002. In conjunction with the A&P supermarket rent commencement, the Operating Partnership is also obligated to issue OP Units equal to $2.8 million as previously discussed in the RDC Transaction. LEASING ACTIVITY During 1999, the Company replaced several weak or formerly vacated anchor tenants with stronger retailers at various centers in connection with management's goal of repositioning and reanchoring of the portfolio. Anchor replacements included the following: - - Kmart replaced a former Caldors at the Crossroads Shopping Center (joint venture property), in White Plains, New York. - - A lease was executed with Ames Department Stores for 76,000 square feet, replacing a former Bradless at the New Louden Center in Latham, New York. Rent is anticipated to commence during the second quarter of 2000. - - A lease was executed with Homegoods, Inc. (a TJX company) for 37,000 square feet, replacing a majority of the 43,000 square feet formerly occupied by Burlington Coat at the Bloomfield Town Square in Bloomfield, Michigan. Rent is expected to commence during the third quarter of 2000.
- - A former BiLo grocery store (Penn Traffic Company) occupying 59,100 square feet was replaced by a Redner's Market at the Pittston Plaza and commenced paying rent during June 1999. - - Acme (Albertson's) currently occupying 44,824 square feet at the Marketplace at Absecon in Absecon, New Jersey, replaced a Super Fresh supermarket and commenced paying rent during September 1999. The Company also recaptured two anchor spaces during 1999 as part of the Company's reanchoring activities. The first lease was acquired during August 1999 for 60,400 square feet from Montgomery Ward. This lease, which was for space located at the Northside Mall in Dothan, Alabama, was acquired for $57,000 and provided for minimum rent of $1.24 per square foot. The second, which was acquired from Caldor's for $400,000, was for 85,800 square feet located at the Methuen Shopping Center in Methuen, Massachusetts, and provided for minimum rent of $2.20 per square foot. Although recapturing these lease resulted in an interim loss in revenues and a decline in overall portfolio occupancy, management anticipates these properties will be reanchored with stronger tenants at market rents, which are currently greater than the former rent on both of these spaces. DISPOSITION OF PROPERTIES In connection with the Company's ongoing program of evaluating its property portfolio and optimizing the portfolio for both cash flow and future capital appreciation, the Company sold two non-core assets during 1999. The Searstown Mall was sold on February 1, 1999 for a sale price of $3.3 million and the Auburn Plaza on March 29, 1999 for $3.5 million. FINANCING STRATEGY The Company intends to continue to finance acquisitions and property redevelopment with sources of capital determined by management to be the most appropriate based on, among other factors, availability, pricing and other commercial and financial terms. The sources of capital may include bank and other institutional borrowing, the issuance of equity and/or debt securities and the sale of properties. In 1999, the Company established the specific goal of enhancing the flexibility within its mortgage debt structure to better position itself to take advantage of favorable opportunities for portfolio and strategic transactions. This enhanced flexibility is currently being accomplished primarily through the use of variable rate debt and fixed rate debt with low prepayment penalties. Management believes it was largely successful in the pursuit of this goal while at the same time maintaining a debt service coverage ratio (including interest expense and principal amortization) of 1.94x for 1999. See Item 7A for a discussion on the Company's market risk exposure related to its mortgage debt. FINANCIAL INFORMATION ABOUT MARKET SEGMENTS 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 notes to the consolidated financial statements appearing in Item 8 of this Annual Report on Form 10-K. 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 retail versus residential tenants. The Company does not have any foreign operations. See the consolidated financial statements and notes thereto included in Item 8 of this Annual Report on Form 10-K for certain information on industry segments as required by Item 1. CORPORATE HEADQUARTERS AND EMPLOYEES The Company's executive offices are located at 20 Soundview Marketplace, Port Washington, New York 11050, and its telephone number is (516) 767-8830. The Company has an internet Web address at www.acadiarealty.com. The Company has 168 employees of which 48 are located at the executive offices, 6 at the New York City corporate office, 13 at the Pennsylvania regional office and the remaining property management personnel are located on-site at the Company's properties. COMPETITION There are numerous shopping facilities that compete with the Company's properties in attracting retailers to lease space. In addition, there are numerous commercial developers and real estate companies that compete with the Company in seeking land for development, properties for acquisition and tenants for their properties. Also, retailers at the Company's properties face increasing competition from outlet malls, discount shopping clubs, internet commerce, direct mail and telemarketing.
COMPLIANCE WITH GOVERNMENTAL REGULATIONS - ENVIRONMENTAL MATTERS Under various Federal, state and local laws, ordinances and regulations relating to the protection of the environment, a current or previous owner or operator of real estate may be liable for the cost of removal or remediation of certain hazardous or toxic substances disposed, stored, generated, released, manufactured or discharged from, on, at, under, or in a property. The Company believes that it is in compliance in all material respects with all Federal, state and local ordinances and regulations regarding hazardous or toxic substances. Upon conducting environmental site inspections in connection with obtaining the Morgan Stanley Mortgage Capital ("Morgan Stanley") financing during October 1996, certain environmental contamination was identified at the Troy Plaza in Troy, New York. The Company has entered into a voluntary remedial agreement with the State of New York for the remediation of the property. Environmental consultants have completed the remediation operations at the site and are performing a post-remediation sampling and analysis program. Upon the issuance of a final report to the State of New York, the Company will have satisfied all conditions to the voluntary remedial agreement. As of December 31, 1999, Morgan Stanley holds $250,000 in escrow to be released upon the Company receiving final approval from the State of New York. Management is not aware of any other environmental liability that they believe would have a material adverse impact on the Company's financial position or results of operations. Management is unaware of any instances in which it would incur significant environmental costs if any or all properties were sold, disposed of or abandoned. RETAIL ENVIRONMENT Seasonality The retail environment is seasonal in nature, particularly in the fourth calendar quarter when retail sales are typically at their highest levels. As such, contingent rents based on tenants achieving certain sales targets are generally higher in the fourth quarter when such targets are typically met. Tenant Bankruptcies Since January of 1999, certain tenants experienced financial difficulties and several have filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy laws ("Chapter 11"). Following are the significant bankruptcies to have occurred since then: On March 1, 1999, the Penn Traffic Company ("Penn Traffic") filed for protection under Chapter 11. Penn Traffic, which operates grocery stores under the names "Bi-Lo Foods" and "P&C Foods", is a tenant at seven locations in the Company's portfolio comprising approximately 308,000 square feet. Rental revenues (including expense reimbursements) from Penn Traffic for the years ended December 31, 1999 and 1998 totaled $1.0 million and $2.4 million, respectively. Two of these leases were assigned to other supermarket operators, two of the leases were assumed by Penn Traffic, two leases were rejected and the tenant did not renew one lease following its expiration on April 30, 1999. During 1999, the Company received $460,000 in settlement of claims filed related to the Chapter 11 proceedings for Penn Traffic which has since reorganized and emerged from bankruptcy. On March 23, 1999, Factory Card Outlet filed for protection under Chapter 11. This retailer is a tenant at two locations in the Company's portfolio comprising approximately 19,000 square feet. Rental revenues from these two locations totaled $283,000 and $202,000 for the years ended December 31, 1999 and 1998, respectively. The tenant has neither affirmed nor rejected the leases at either of the locations. On March 10, 2000, Eagle Supermarkets filed for protection under Chapter 11. This grocery is a tenant at one location in the Company's portfolio comprising approximately 52,000 square feet. Rental revenues from this tenant were $327,000 and $86,000 for the years ended December 31, 1999 and 1998, respectively. The tenant has neither affirmed nor rejected the lease. In addition to the above bankruptcies, in August 1999, old America Stores, L.P. ceased operations and proceeded to undergo an orderly liquidation of assets for the benefit of its creditors. This tenant previously occupied stores in two locations, Martintown Plaza (18,000 square feet) and Wesmark Plaza (30,000 square feet). Rental revenues from these two locations totalled $216,000 and $132,000 for the years ended December 31, 1999 and 1998, respectively. A settlement has been agreed to pursuant to which the Company shall receive approximately $45,000. TAX STATUS - QUALIFICATION AS REAL ESTATE INVESTMENT TRUST The Company has and currently transacts its affairs so as to qualify as, and has elected to be treated as, a real estate investment trust under sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). Under the Code, a real estate investment trust that meets applicable requirements is not subject to Federal income tax to the extent that it distributes at least 95% of its REIT taxable income to its shareholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to Federal income tax on its taxable income.
ITEM 2. PROPERTIES SHOPPING CENTER PROPERTIES As of December 31, 1999, the Company owned and operated 53 shopping centers (including one property which is under redevelopment, two mixed-use centers and a shopping center in which the Company owns a 49% interest) totaling approximately 9.1 million square feet of gross leasable area ("GLA"). The Company's shopping centers, which are located in 16 states, are generally well-established, anchored community and neighborhood shopping centers. The shopping centers are diverse in size, ranging from approximately 45,000 to 516,000 square feet with an average size of 172,000 square feet. The Company's portfolio was approximately 89% occupied at December 31, 1999. The Company's shopping centers are typically anchored by a national or regional discount department store and/or a supermarket or drugstore. The Company had 737 leases (including the mixed-use and joint venture properties) as of December 31, 1999 of which approximately 45% were with national or regional tenants. A substantial portion of the income from the properties consists of rent received under long term leases. Most of these leases provide for the payment of fixed minimum rent monthly in advance and for the payment by tenants of a pro-rata share of the real estate taxes, insurance, utilities and common area maintenance of the shopping centers. Minimum rents and expense reimbursements accounted for approximately 94% of the Company's total revenues for the year ended December 31, 1999. As of December 31, 1999, approximately 56% of the Company's existing leases also provided for the payment of percentage rents either in addition to or in place of minimum rents. These arrangements generally provide for payment to the Company of a certain percentage of a tenant's gross sales in excess of a stipulated annual amount. Percentage rents accounted for approximately 3% of the total 1999 revenues of the Company. Six of the Company's shopping center properties are subject to long-term ground leases in which a third party owns and has leased the underlying land to the Company. The Company pays rent for the use of the land and is responsible for all costs and expenses associated with the building and improvements. No individual property contributed in excess of 10% of the Company's total revenues for the years ended December 31, 1999 and 1998. For the year ended December 31, 1997, greater than 10% of the Company's total rents were derived from leases at the Northwood Centre, a mixed-use (retail/office) property (See "Major Tenants" in Item 2).
The following sets forth more specific information with respect to each of the Company's shopping centers, mixed-use and joint venture properties at December 31, 1999: <TABLE> <CAPTION> Year Occupancy (1) Anchor Tenants (2) Shopping Center Constructed(C) Ownership % Current Lease Expiration Property Location Acquired(A) Interest GLA 12/31/99 Lease Option Expiration - ------------------------------------------------------------------------------------------------------------------------------------ NEW ENGLAND REGION Connecticut <S> <C> <C> <C> <C> <C> <C> 239 Greenwich Avenue Greenwich 1998 (A) Fee 16,834 (3) 79% Restoration Hardware 2015/2020 Town Line Plaza Rocky Hill 1998 (A) Fee 205,752 (4) 93% Super Food Market (A&P) 2017/2052 Massachusetts Methuen Shopping Center Methuen 1998 (A) Fee 134,494 32%(5) DeMoulas Market 2000/2015 Crescent Plaza Brockton 1984 (A) Fee (6) 216,095 100% Bradlees 2009/2027 Shaw's 2012/2042 Rhode Island Walnut Hill Plaza Woonsocket 1998 (A) Fee 267,721 97% Sears 2003/2033 Shaw's 2013/2043 Vermont The Gateway Shopping Center Burlington 1999 (A) Fee 117,394 (7) 62% Grand Union 2005/2010 NEW YORK REGION New Jersey Berlin Shopping Center Berlin 1994 (A) Fee 187,296 88% Kmart 2005/2049 Acme 2005/2015 Elmwood Park Plaza Elmwood Park 1998 (A) Fee 124,144 (8) 86% Grand Union 2001/none Ledgewood Mall Ledgewood 1983 (A) Fee 516,682 94% The Sports' Authority 2007/2037 Stern's 2005/2030 Walmart 2019/2049 Circuit City 2020/2040 Manahawkin Village Shopping Center Manahawkin 1993 (A) Fee 175,261 100% Kmart 2019/2069 Hoyt's Cinema 2018/2038 Marketplace of Absecon Absecon 1998 (A) Fee 91,699 96% Acme 2015/2055 New York Branch Shopping Center Village of the 1998 (A) LI (9) 125,812 99% Grand Union 2013/2028 Branch Pergament 2004/2019 New Loudon Center Latham 1982 (A) Fee 251,743 51%(10) Price Chopper 2015/2035 Marshalls 2004/2009 Troy Plaza Troy 1982 (A) Fee 128,479 100% Ames 2001/2016 Price Chopper 2004/2014 Smithtown Shopping Center Smithtown 1998 (A) Fee 87,155 90% Daffy's 2008/2028 Walgreens 2021/none Soundview Marketplace Port Washington 1998 (A) LI/Fee (9) 180,620 92% King Kullen 2007/2022 Clearview Cinema Group 2010/2030 (subsidiary of Cablevision) Pacesetter Park Shopping Center Ramapo 1999 (A) Fee 95,559 82% Grand Union 2020/2040 </TABLE>
<TABLE> <CAPTION> Year Occupancy (1) Anchor Tenants (2) Shopping Center Constructed(C) Ownership % Current Lease Expiration Property Location Acquired(A) Interest GLA 12/31/99 Lease Option Expiration - ------------------------------------------------------------------------------------------------------------------------------------ MID-ATLANTIC REGION Pennsylvania <S> <C> <C> <C> <C> <C> <C> 25th Street Shopping Center Easton 1993 (A) Fee 131,477 91% CVS 2005/2010 Petco 2009/2018 Ames Plaza Shamokin 1966(C) Fee 98,210 68% Ames 2003/2013 Atrium Mall Abington 1998(A) Fee 178,434 78% SuperFresh (A&P) 2009/2039 (11) Circuit City 2009/2029 (11) TJ Maxx 2004/2014 Birney Mall Moosic 1968 (C) Fee 193,899 100% Kmart 2004/2049 Consolidated Stores 2003/2008 Blackman Plaza Wilkes-Barre 1968 (C) Fee 117,456 99% Kmart 2004/2044 Bradford Towne Centre Towanda 1993 (C) Fee 257,319 92% Kmart 2019/2069 P&C Foods 2014/2024 Circle Plaza Shamokin Dam 1978 (C) Fee 92,171 100% Kmart 2004/2049 Dunmore Plaza Dunmore 1975 (A) Fee (12) 45,380 96% Price Chopper 2000/2020 Eckerd Drug 2004/2019 East End Centre Wilkes-Barre 1986 (C) Fee 308,427 100% Ames 2007/2037 PharMor 2003/2017 Price Chopper 2008/2028 Green Ridge Plaza Scranton 1986 (C) Fee 197,622 67% Ames 2007/2037 Kingston Plaza Kingston 1982 (C) Fee 64,824 100% Price Chopper 2006/2026 Dollar General 2001/2007 Luzerne Street Shopping Center Scranton 1983 (A) Fee 57,715 100% Price Chopper 2004/2024 Eckerd Drug 2004/2019 Mark Plaza Edwardsville 1968 (C) LI(9) 216,220 94% Kmart 2004/2049 Redner's Markets 2018/2028 Monroe Plaza Stroudsberg 1964 (C) Fee 130,569 100% Ames 2001/2019 Shoprite 2005/2023 Eckerd Drug 2002/2012 Mountainville Shopping Center Allentown 1983 (A) Fee 114,801 96% Acme 2004/2028 True Value Hardware 2002/2010 Eckerd Drug 2004/2019 Pittston Plaza Pittston 1994 (C) Fee 79,568 100% Redner's Markets 2018/2028 Eckerd Drug 2004 (13) Plaza 15 Lewisburg 1995 (A) Fee 113,530 98% Weis Market 2001/2021 Ames 2001/2021 Plaza 422 Lebanon 1972 (C) Fee 154,791 88% Ames 2001/2021 Giant Food 2004 (14) Route 6 Mall Honesdale 1994 (C) Fee 175,482 97% Kmart 2020/2070 Shillington Plaza Reading 1994 (A) Fee 150,742 100% Kmart 2004/2049 Weis Market 2001/2019 Tioga West Tunkhannock 1965 (C) Fee 122,338 100% BiLo 2014/2024 Ames 2000/2015 Eckerd Drug 2000/2010 Fashion Bug 2009/2021 Union Plaza New Castle 1996 (C) Fee 217,992 100% Sears 2011/2031 Ames 2017/2026 Peebles 2018/2027 Valmont Plaza West Hazleton 1985 (A) Fee 200,164 79% Ames 2007/2027 Virginia Kings Fairgrounds Danville 1992 (A) LI(9) 118,535 100% Schewel Furniture 2001/2011 The Tractor Co. 2008/2023 CVS 2002/2012 (13) </TABLE>
<TABLE> <CAPTION> Year Occupancy (1) Anchor Tenants (2) Shopping Center Constructed(C) Ownership % Current Lease Expiration Property Location Acquired(A) Interest GLA 12/31/99 Lease Option Expiration - ------------------------------------------------------------------------------------------------------------------------------------ SOUTHEAST REGION Alabama <S> <C> <C> <C> <C> <C> <C> Midway Plaza Opelika 1984 (A) Fee 207,538 71% Office Depot 2007/2022 Carmike Cinema 2005/2015 Beall's Outlet Stores 2001/none Northside Mall Dothan 1986 (A) Fee (9) 382,299 65%(15) Wal-Mart 2004/2029 Florida New Smyrna Beach New Smyrna Shopping Center Beach 1983 (A) Fee 100,430 96% DeMarsh Theater 2005/2015 Hardbodies Family Fitness Georgia 2008/none Cloud Springs Plaza Fort Oglethorpe 1985 (A) Fee 113,367 96% Food Lion 2011/2031 Consolidated Stores 2000/2005 Badcock Furniture 2000/2010 South Carolina Martintown Plaza North Augusta 1985 (A) LI (9) 133,892 89% Belk's Store 2004/2024 Office Depot 2008/2018 Wesmark Plaza Sumter 1986 (A) Fee 215,198 87% Staples 2005/2015 Theater Management 2009/2019 Goody's 2005/2015 MIDWEST REGION Illinois Hobson West Plaza Naperville 1998 (A) Fee 99,950 92% Eagle Foods 2007/2032 (16) Indiana Merrillville Plaza Hobart 1998 (A) Fee 235,420 94% JC Penney 2008/2018 Office Max 2008/2028 TJ Maxx 2004/2009 Michigan Bloomfield Town Square Bloomfield Hills 1998 (A) Fee 213,903 92% Burlington Coat 2009/2014 (17) Drug Emporium 2000/2020 TJ Maxx 2003/2013 Office Max 2010/2025 Ohio Mad River Station Shopping Center Dayton 1999 (A) Fee 153,968 94% Office Depot 2000/2010 Babies `R' Us 2005/2020 MIXED-USE PROPERTY Florida Northwood Centre Tallahassee 1985 (A) Fee 500,012 (18) 96% FL Dept of HRS 2004 FL Dept of Business and Professional Regulation 2006 PROPERTY HELD IN JOINT-VENTURE (19) New York Crossroads Shopping Center Greenburgh 1998 JV 310,897 99% Kmart 2012/2037 Waldbaum's (A&P) 2007/2032 ---------- ---- Total 9,127,280 89% ========== ==== </TABLE>
Notes: (1) Does not include space leased but not yet occupied by the tenant. (2) Tenant GLA comprises at least 10% of GLA for the center. (3) This represents the GLA related to the retail portion of this mixed-use property. The property also has 21 apartments (approximately 15,000 square feet). The remaining retail space has been leased but is not yet occupied as of December 31, 1999. (4) Includes a 92,500 square foot non-owned Walmart (formerly Caldors). (5) The Company recaptured a lease with Caldors for 85,800 square feet in October 1999. The lease provided for minimum rent of $2.20 per square foot, which is below the prevailing market rate for rents. (6) During the term of the lease, Bradlees has the right of first refusal in the event that the Company sells all or a portion of the Crescent Plaza giving it the right to purchase on the same terms as a bona fide offer from a third party. (7) The Company purchased this property in May 1999. The property is a partially enclosed mall that will be reconfigured into a conventional strip center format. (8) The Company has signed a lease with A&P to construct a 48,000 free-standing building at this site. (9) The Company is a ground lessee under long-term ground leases. (10) Does not include 76,000 square feet leased, but not yet occupied, by Ames Department Stores as of December 31, 1999. (11) The Company is currently redeveloping this property. This tenant continues to pay rent but is currently not operating in their space. (12) The Company holds a fee interest in a portion of the Dunmore Plaza and an equitable interest in the land on the remaining portion. An industrial development authority holds the fee for this remaining portion and the equitable interest in the building on such remaining portion is held by an unrelated entity. The Company receives and accounts for most of its income from this property as percentage rent. (13) Includes space leased for which rent is being paid but which is not presently occupied. (14) This space is currently being sub-leased to a non-grocery store tenant. (15) The Company recaptured a lease with Montgomery Wards for 60,400 square feet in August 1999. The lease provided for minimum rent of $1.24 per square foot, which is below the prevailing market rate for rents. (16) The tenant is currently operating under Chapter 11 of the United States Bankruptcy laws and has neither affirmed nor rejected the lease. (17) Subsequent to December 31, 1999, the Company recaptured the lease for 43,200 square feet with Burlington Coat and signed a lease with Homegoods, Inc. (a TJX company) for approximately 37,000 square feet of this space. (18) This property was held for sale as of December 31, 1999. On December 15, 1999, the Company received a Notice of Exercise of Right to Terminate Lease from the Florida Department of Health for an aggregate 59,150 square feet representing $827,000 of rents. (19) The Company has a 49% investment in this property.
MAJOR TENANTS No individual retail tenant accounted for more than 6.8% of minimum rents for the year ended December 31, 1999 or 11.1% of total leased GLA as of December 31, 1999. The following table sets forth certain information for the 25 largest retail tenants based upon minimum rents in place as of December 31, 1999 (GLA and rent in thousands): <TABLE> <CAPTION> Percentage of Total Represented by Retail Tenant ---------------------------- Number of Retail Stores in Total Annualized Base Total Annualized Base Tenant Portfolio GLA Rent (1) Portfolio GLA (2) Rent (2) ------ --------- ----- --------------- ------------- -------------- <S> <C> <C> <C> <C> <C> Kmart 9 924 $ 3,432 11.1% 6.8% Ames (3) 10 739 2,211 8.9% 4.4% Price Chopper 6 267 1,559 3.2% 3.1% Grand Union 4 175 1,365 2.1% 2.7% A&P (Waldbaum's, Superfresh) (4) 2 110 1,338 1.3% 2.7% Eckerd Drug (5) 16 179 1,331 2.2% 2.6% Walmart 2 233 1,117 2.8% 2.2% Shaw's 2 103 1,015 1.2% 2.0% Acme (Albertson's) 3 109 948 1.3% 1.9% Circuit City (4) 2 66 890 0.8% 1.8% Redner's Supermarket 2 112 837 1.3% 1.7% T.J. Maxx 5 130 825 1.6% 1.6% PharMor 2 90 797 1.1% 1.6% Sears 2 160 703 1.9% 1.4% Penn Traffic (BiLo, P&C Foods) 2 86 636 1.0% 1.3% Sterns (Federated) 1 62 618 0.7% 1.2% CVS 6 63 599 0.8% 1.2% JC Penney 2 73 547 0.9% 1.1% Clearview Cinemas (6) 1 25 518 0.3% 1.0% Payless Shoe Source 12 41 513 0.5% 1.0% Blockbuster Video 4 23 495 0.3% 1.0% Office Depot 3 84 443 1.0% 0.9% Walgreens 2 19 420 0.3% 0.8% Marshalls 2 53 417 0.6% 0.8% King Kullen Grocery 1 41 414 0.5% 0.8% --- ----- ------- ----- ----- Total 103 3,967 $23,988 47.7% 47.6% === ===== ======= ===== ===== </TABLE> (1) Base rents do not include percentage rents, additional rents for property expense reimbursements, or contractual rent escalations due after December 31, 1999. (2) Total GLA and annualized base rent for the Company's retail properties, excluding mixed-use and joint venture properties. (3) Does not include leased space at the New Loudon Center for which rent payment has not yet commenced. (4) The Company is currently redeveloping the Atrium Mall. The A&P Supermarket and Circuit City at this center are currently paying rent, but have ceased operating at this location. (5) Subsidiary of JC Penney. (6) Subsidiary of Cablevision. In 1999, approximately 5.9% of the Company's total revenue was derived from current leases of office space and specialized computer facilities with four agencies of the State of Florida at the Northwood Centre in Tallahassee, Florida; the Florida Department of Children and Families (3.2%), the Florida Department of Business Professional Regulation (1.8%), the Florida Department of Health and Rehabilitative Services (0.7%) and the Florida Department of Revenue (0.2%). During 1998, the State of Florida renewed leases for approximately 59,000 and 123,000 square feet with lease terms of five and seven years, respectively. Leases with these Florida agencies contain customary conditions, required under Florida law, permitting state agency tenants to cancel their leases upon six months' notice in the event that state-owned office facilities in the same county become available. These leases do not provide for early termination penalties. There are currently state-owned facilities available in the county and the State of Florida periodically reassesses its options with respect to such leases including those of the Company. On December 15, 1999, the Company received a Notice of Exercise of Right to Terminate Lease from the Florida Department of Health and Rehabilitative Services for approximately 59,000 square feet representing $827,000 of rents. The Company would be further adversely affected in the event that the State of Florida exercises its right to cancel the lease for any other space it currently leases. This property is currently held for sale by the Company.
LEASE EXPIRATIONS The following table shows scheduled lease expirations for retail tenants in place as of December 31, 1999, assuming that none of the tenants exercise renewal options. The table does not include leases related to the Company's mixed-use and joint venture properties (GLA and rent in thousands): <TABLE> <CAPTION> Percentage of Total Represented by Expiring Leases ------------------------------ Number of GLA of Expiring Annualized Base Annualized Base December 31, Leases Expiring Leases Rent(1) Leased GLA Rent ------------ --------------- --------------- --------------- ---------- -------------- <S> <C> <C> <C> <C> <C> <C> 2000 157 660 4,901 9% 10% 2001 100 744 3,958 10% 5% 2002 83 382 3,480 5% 9% 2003 73 502 3,914 7% 8% 2004 78 1,330 6,463 18% 13% 2005 45 617 4,351 8% 9% 2006 16 147 1,149 2% 2% 2007 20 551 3,025 8% 6% 2008 28 349 3,126 5% 6% 2009 27 525 3,413 7% 7% Thereafter 35 1,540 12,591 21% 25% --- ----- ------- ---- ---- Total 662 7,347 $50,371 100% 100% === ===== ======= ==== ==== </TABLE> (1) Base rents do not include percentage rents, additional rents for property expense reimbursements, nor contractual rent escalations due after December 31, 1999. The table does not include activity related to the Company's mixed-use or joint venture properties GEOGRAPHIC CONCENTRATIONS The following table summarizes the Company's retail properties (including mixed-use and joint venture properties) by region as of December 31, 1999 (GLA and rent in thousands): <TABLE> <CAPTION> Percentage of Total Represented by Region Annualized Base ----------------------- Annualized Base Rent per Leased Annualized Base Region GLA Occupied % Rent(1) Square Foot GLA Rent ------ --- -------- ------- ----------- --- ---- <S> <C> <C> <C> <C> <C> <C> New England 941 83% $ 5,143 $ 6.56 10% 8% New York Region 1,964 88% 18,210 10.56 22% 30% Mid-Atlantic 3,538 93% 16,866 5.15 39% 27% Southeast 1,153 79% 3,883 4.28 12% 6% Midwest 703 93% 6,268 9.57 8% 10% ----- ----- -------- ------ ---- ---- 8,299 89% 50,371 6.86 91% 81% Mixed-Use Property 517 95% 7,089 14.42 6% 11% Joint Venture Property 311 99% 4,889 15.89 3% 8% ----- ----- -------- ------ ---- ---- Total 9,127 89% $ 62,349 $ 7.65 100% 100% ===== ===== ======== ====== ==== ==== </TABLE> (1) Base rents do not include percentage rents, additional rents for property expense reimbursements, nor contractual rent escalations due after December 31, 1999.
MULTI-FAMILY PROPERTIES The Company owns five multi-family properties located in the Mid-Atlantic and Midwest regions. The properties average 455 units and as of December 31, 1999, had an average occupancy rate of 92%. The following sets forth more specific information with respect to each of the Company's multi-family properties at December 31, 1999: <TABLE> <CAPTION> Multi-family Ownership % Occupied Property Location Year Acquired Interest Units 12/31/99 - --------------------------------------------------------------------------------------------------------------------- Maryland <S> <C> <C> <C> <C> <C> Glen Oaks Apartments Greenbelt 1998 Fee 463 98% Marley Run Apartments Pasadena 1998 Fee 336 94% Missouri Gate House, Holiday House, Tiger Village Columbia 1998 Fee 592 97% Colony Apartments Columbia 1998 Fee 282 98% North Carolina Village Apartments Winston Salem 1998 Fee 600 77% ----- --- Totals 2,273 92% ===== === </TABLE> ITEM 3 LEGAL PROCEEDINGS On November 20, 1995, Jack Wertheimer, a former President of the Company, filed a complaint against the Company, its Trustees, including Mr. Slomowitz, and the Company's former in-house General Counsel and former Chief Financial Officer in the United States District Court for the Middle District of Pennsylvania. The complaint, which was filed in connection with the termination of Mr. Wertheimer's employment, included many of the allegations raised in a state court proceeding commenced by Mr. Wertheimer in November 1994. The Federal court complaint also included a civil RICO action in which Mr. Wertheimer alleged that the Board of Trustees of the Company conspired with Mr. Slomowitz to terminate Mr. Wertheimer's employment as part of Mr. Slomowitz's breach of his duty of good faith and fair dealing. Further, Mr. Wertheimer alleged that the above defendants engaged in securities fraud in connection with the initial public offering and that Mr. Slomowitz defrauded or overcharged the Company in corporate transactions. The Federal complaint sought treble damages under RICO, as well as damages arising from Mr. Wertheimer's alleged termination of employment, invasion of privacy, intentional infliction of emotional distress, fraud and misrepresentation. On December 31, 1998, the Company and Mr. Wertheimer settled this litigation and entered into an agreement whereby the Company paid Mr. Wertheimer $1.0 million on December 31, 1998 and agreed to pay him (i)$900,000 on April 1, 1999, which was paid on such date, and (ii) five annual payments of $200,000 commencing January 10, 2000, the first of which was paid on such date. Pursuant to this agreement, the Company has obtained a standby letter of credit to collateralize these future payments. The Company is involved in other various matters of litigation arising in the normal course of business. While the Company is unable to predict with certainty the amounts involved, the Company's management and counsel are of the opinion that, when such litigation is resolved, the Company's resulting liability, if any, will not have a significant effect on the Company's consolidated financial position. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders through the solicitation of proxies or otherwise during the fourth quarter of 1999.
PART II ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS (a) Market Information The following table shows, for the period indicated, the high and low sales price for the Common Shares as reported on the New York Stock Exchange (the "NYSE"), and cash dividends paid during the two years ended December 31, 1999 and 1998. Dividend Quarter Ended High Low Per Share ------------- ---- --- --------- 1999 March 31, 1999 5 1/2 5 $ 0.12 June 30, 1999 5 3/4 4 15/16 0.12 September 30, 1999 5 5/8 5 0.12 December 31, 1999 5 3/16 4 1/2 0.12 1998 March 31, 1998 9 3/16 8 3/4 $ -- June 30, 1998 8 7/8 7 7/16 -- September 30, 1998 7 5/8 5 3/16 -- December 31, 1998 6 1/4 4 15/16 -- At March 22, 2000, there were 213 holders of record of the Company's Common Shares. (b) Dividends The Company has determined that 41% of the total dividends distributed to shareholders in 1999 represented ordinary income, while the remaining 59% represented return of capital. The Company's cash flow is affected by a number of factors, including the revenues received from rental properties, the operating expenses of the Company, the interest expense on its borrowings, the ability of lessees to meet their obligations to the Company and unanticipated capital expenditures. Future dividends paid by the Company will be at the discretion of the Trustees and will depend on the actual cash flows of the Company, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Trustees deem relevant.
ITEM 6 SELECTED FINANCIAL DATA The following table sets forth, on a historical basis, selected financial data for the Company. This information should be read in conjunction with the audited consolidated financial statements of the Company and Management's Discussion and Analysis of Financial Condition and Results of Operations appearing elsewhere in this Annual Report on Form 10-K. <TABLE> <CAPTION> Years ended December 31, ---------------------------------------------------------------------------------- 1999 1998(1) 1997 1996 1995 ---------------------------------------------------------------------------------- OPERATING DATA: <S> <C> <C> <C> <C> <C> Revenues $ 92,709 $ 59,771 $ 44,498 $ 43,796 $ 43,332 ----------------------------------------------------------------------------------- Operating expenses 38,483 28,485 17,055 17,868 16,374 Interest and other financing expense 23,314 18,302 15,444 12,733 10,598 Depreciation and amortization 19,887 15,795 13,768 13,398 11,820 ----------------------------------------------------------------------------------- Total 81,684 62,582 46,267 43,999 38,792 ----------------------------------------------------------------------------------- 11,025 (2,811) (1,769) (203) 4,540 Non-recurring charges (2) - (2,249) - - - Equity in earnings of unconsolidated partnerships 584 256 - - - Adjustment of carrying value of property held for sale - (11,560) - (392) - ----------------------------------------------------------------------------------- Income (loss) before (loss) gain on sale, extraordinary items and minority interest 11,609 (16,364) (1,769) (595) 4,540 (Loss) gain on sale of property (1,284) (175) (12) 21 93 Extraordinary items - loss on early extinguishment of debt - (707) -- (190) -- Minority interest (3,130) 3,348 217 40 (833) ----------------------------------------------------------------------------------- Net income (loss) $ 7,195 $(13,898) $ (1,564) $ (724) $ 3,800 =================================================================================== Net income (loss) per Common Share - basic and diluted $ 0.28 $ (0.91) $ (0.18) $ (0.08) $ 0.44 =================================================================================== Weighted average number of Common Shares outstanding - basic 25,708,787 15,205,962 8,551,930 8,546,553 8,540,631 =================================================================================== - diluted (3) 25,708,787 15,205,962 8,551,930 8,546,553 8,563,466 =================================================================================== Funds from Operations (4) $ 31,160 $ 15,073 $ 11,003 $ 12,536 $ 15,388 =================================================================================== Funds from Operations per share (5) $ 0.85 $ 0.74 $ 1.08 $ 1.23 $ 1.51 =================================================================================== BALANCE SHEET DATA: Real estate before accumulated depreciation $ 569,521 $ 551,249 $ 311,688 $ 307,411 $ 291,157 Total assets 570,803 528,512 254,500 258,517 249,515 Total mortgage indebtedness 326,651 277,561 183,943 172,823 151,828 Minority interest - Operating Partnership 74,462 79,344 9,244 10,752 13,228 Total equity 152,487 154,591 48,800 56,806 69,779 </TABLE>
Notes: (1) Activity for the year ended December 31, 1998 includes the operations of the properties acquired in the RDC Transaction from August 12, 1998 through December 31, 1998. (2) Non-recurring charges represent expenses incurred related to the RDC Transaction including payments made to certain officers and key employees pursuant to change in control provisions of employment contracts, severance paid to Mr. Slomowitz, retention bonuses for certain employees and transaction-related consulting and professional fees. (3) For 1999 through 1996, the weighted average number of shares outstanding on a diluted basis is not presented as the inclusion of additional shares is anti-dilutive. (4) 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. 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. FFO for the 1998 through 1995 has been restated to include straight-line rent. (5) Includes weighted average OP Units as follows: 1999 - 10,883,184; 1998 - 5,252,815; 1997 and 1996 - 1,623,000; 1995 - 1,621,937; 1994 - 1,621,000.
ITEM 7 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the consolidated financial statements of the Company (including the related notes thereto) appearing elsewhere in this Annual Report. Certain statements contained in this report constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions, which will, among other things, affect demand for rental space, the availability and creditworthiness of prospective tenants, lease rents and the availability of financing; adverse changes in the Company's real estate markets, including, among other things, competition with other companies; risks of real estate development and acquisition; governmental actions and initiatives; and environmental/safety requirements. RESULTS OF OPERATIONS Comparison of the year ended December 31, 1999 ("1999") to the year ended December 31, 1998 ("1998") The following comparison references the effect of the properties acquired on August 12, 1998 as a result of the RDC Transaction (the "RDC Properties"). Total revenues increased $32.9 million, or 55%, to $92.7 million for 1999 compared to $59.8 million for 1998. Minimum rents increased $26.1 million, or 56%, to $73.0 million for 1999 compared to $46.9 million for 1998. $21.4 million, or 82%, of the increase was attributable to the RDC Properties. $1.4 million, or 5%, of the increase was attributable to amounts received as a result of two settlements. The first settlement was related to the liability of a tenant-assigner of a lease to a former tenant who had filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy laws ("Chapter 11") and the second was with respect to certain claims related to the Chapter 11 proceedings for the Penn Traffic Company. The remaining increase was primarily due to two property acquisitions, a redevelopment project placed in service subsequent to 1998, and anchor replacements at the Ledgewood Mall. Percentage rents increased $343,000, or 13%, to $3.0 million for 1999 compared to $2.7 million for 1998. This increase was primarily attributable to the RDC Properties and 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" as of April 1, 1998 (subsequently codified with Staff Accounting Bulletin No. 101 "Revenue Recognition"). Expense reimbursements increased $5.1 million, or 59%, for 1999, of which $3.8 million resulted from the RDC Properties. The remaining increase was primarily attributable to anchor replacements at the Ledgewood Mall and an increase in expense recoveries resulting from increased contract services, primarily snow removal, as a result of the comparatively mild winter season in 1998. Other income increased $1.4 million, of which $625,000 resulted from the RDC Properties and $442,000 was due to management fees which were earned under four contracts acquired in the RDC Transaction. The remaining increase was attributable to additional interest income resulting from a higher balance of interest earning assets in 1999. Total operating expenses increased $11.9 million, or 26%, to $58.4 million for 1999, from $46.5 million for 1998. Property operating expenses increased $7.4 million, or 52%, to $21.6 million for 1999 compared to $14.2 million for 1998. $6.4 million, or 86% of the increase, was attributable to the RDC Properties. The remaining increase was due to additional staffing in the leasing and property management departments following the RDC Transaction and an increase in contract services, primarily snow removal, as a result of the comparatively mild winter season in 1998. This increase was partially offset against a decrease in estimated claims related to the Company's property-related liability insurance policies. Real estate taxes increased $3.0 million, or 40%, from $7.5 million for 1998 to $10.5 million for 1999. This increase was primarily attributable to the RDC Properties.
RESULTS OF OPERATIONS Comparison of the year ended December 31, 1999 ("1999") to the year ended December 31, 1998 ("1998"), continued Depreciation and amortization increased $4.1 million, or 26%, for 1999 primarily attributable to the RDC Properties. This increase was partially offset by the effect from the sale of two properties during the first quarter of 1999 and the sale of a property in December 1998. General and administrative expense increased $1.9 million, or 44%, from $4.4 million for 1998 to $6.3 million for 1999, which was primarily attributable to additional staffing and administration costs following the RDC Transaction. See the following comparison of 1998 to 1997 for a discussion of non-recurring charges, settlement of litigation, adjustment of carrying value of property held for sale and extraordinary item - loss on extinguishment of debt for 1998. Interest expense of $23.3 million for 1999 increased $5.0 million, or 27%, from $18.3 million for 1998. This increase was 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. Contributing further to this increase was an additional $49.1 million of outstanding debt as of December 31, 1999 as a result of new borrowings made subsequent to 1998. Comparison of the year ended December 31, 1998 ("1998") to the year ended December 31, 1997 ("1997") Total revenues increased $15.3 million, or 34%, to $59.8 million in 1998 compared to $44.5 million in 1997. Minimum rents increased $13.2 million, or 39%, to $46.9 million for 1998 compared to $33.7 million for 1997. $12.6 million, or 95% of this increase was attributable to the RDC Properties. The remaining increase was primarily a result of increases at the Mark Plaza and Ledgewood Mall. Percentage rents decreased $532,000, or 17%, to $2.7 million for 1998 compared to $3.2 million for 1997 primarily as a result of the impact from the Company adopting the Emerging Issue Task Force ("EITF") Issue No. 98-9 "Accounting for Contingent Rent in Interim Financial Periods" as of April 1, 1998 (Subsequently codified by the Securities and Exchange Commission Staff Accounting Bulletin No. 101 "Revenue Recognition"). Expense reimbursements of $8.6 million for 1998, which represent the pass-through of certain property expenses to the tenants, increased $2.0 million, or 31%, from $6.6 million for 1997 of which $2.1 million of the increase was a result of the RDC Properties. Other income increased $511,000, or 50%, to $1.5 million for 1998 compared to $1.0 million for 1997. $240,000 of this increase was attributable to third party management fees earned related to certain management contracts acquired in connection with the RDC Transaction. The remaining increase was primarily attributable to the RDC Properties and an increase in interest earning assets in 1998. Total 1998 operating expenses increased $15.7 million, or 51%, to $46.5 million compared to $30.8 million in 1997. Property operating expenses increased $5.2 million, or 57%, to $14.2 million for 1998 from $9.0 million for 1997. $4.1 million, or 79% of this increase was attributable to the RDC Properties. The remaining increase was primarily due to (i) the recording of reserves of $250,000 against unbilled rents receivable ("straight-line rent") for certain leases with Penn Traffic, which filed for Chapter 11 protection under bankruptcy law in March of 1999, (ii) an increase in estimated claims of $450,000 related to the Company's property liability insurance policies offset by (iii) the reversal of a $245,000 reserve for environmental remediation costs for the Cloud Springs Plaza in 1997 following notification from the Georgia Department of Natural Resources that contamination exceeding a reportable quantity had not occurred. Real estate taxes increased $1.8 million, or 32%, to $7.5 million for 1998 from $5.7 million for 1997 of which $1.7 million of the increase was due to the RDC Properties.
RESULTS OF OPERATIONS Comparison of the year ended December 31, 1998 ("1998") to the year ended December 31, 1997 ("1997"), continued Depreciation and amortization increased $2.0 million, or 15%, to $15.8 million for 1998 from $13.8 million for 1997 of which $1.9 million of the increase was attributable to the RDC Properties. General and administrative expense increased $2.0 million, or 88%, to $4.4 million for 1998 from $2.4 million for 1997 which was primarily attributable to additional staffing and administrative costs following the RDC Transaction. Non-recurring charges of $2.2 million in 1998 were related primarily to payments made to certain officers and key employees pursuant to change in control provisions of employment contracts, severance paid to the Former Principal Shareholder, retention bonuses for certain employees and RDC Transaction-related consulting and professional fees. Settlement of litigation of $2.4 million in 1998 resulted from the agreement between the Company and its former President whereby the Company paid $1.0 million in 1998 and recorded a liability of $1.4 million based on future contractual payments to be made commencing April 1999 through January 2004. Equity in earnings of unconsolidated partnerships in 1998 are a result of the 49% interest in the Crossroads Shopping Center acquired by the Company in the RDC Transaction. The adjustment of carrying value of property held for sale represents a 1998 non-cash charge of $11.6 million to write-down three properties to their estimated net realizable value pursuant to a disposition plan. One of these properties was sold in 1998 for which an additional loss of $175,000 was recognized. A second property was sold in February 1999 and the Company has entered into a contract in March 1999 to sell the third property. Interest expense increased $2.9 million, or 19%, to $18.3 million in 1998, compared to $15.4 million in 1997 of which $2.8 of the increase was attributable to the RDC Properties. The $707,000 extraordinary loss is a result of the write-off of deferred financing fees as a result of the repayment of the related mortgage debt.
RESULTS OF OPERATIONS, continued 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. 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. The reconciliation of net income to FFO for the years ended December 31, 1999, 1998 and 1997 is as follows: Reconciliation of Net Income (Loss) to Funds from Operations (a) <TABLE> <CAPTION> For the Years Ended December 31, 1999 1998 1997 ------- --------- --------- <S> <C> <C> <C> Net income (loss) $ 7,195 $(13,898) $ (1,564) Depreciation of real estate and amortization of leasing costs: Wholly owned and consolidated partnerships 18,949 14,925 12,993 Unconsolidated partnerships 626 231 -- Non-recurring RDC transaction charges (b) -- 2,249 -- Settlement of Litigation -- 2,358 -- Income (loss) attributable to minority interest (c) 3,106 (3,348) (217) Loss on sale of property 1,284 175 12 Adjustment of carrying value of property held for sale -- 11,560 -- Other adjustments -- 114 (221) Extraordinary item - loss on extinguishment of debt -- 707 -- ------- -------- ------- Funds from operations $31,160 $ 15,073 $11,003 ======= ======== ======= Funds from operations per share (d) $ 0. 85 $ 0.74 $ 1. 08 ======= ======== ======= </TABLE> Notes: (a) FFO for the years ended December 31, 1998 and 1997 have been restated to include straight-line rents (net of write-offs) of $353 and $176, respectively. (b) The Company acquired substantially all of the interests of RD Capital on August 12, 1998. (c) Does not include a distribution of $24 paid to Preferred OP Unitholders for the year ended December 31, 1999. (d) FFO per share is computed based on the weighted average number of Common Shares outstanding for the years ended December 31, 1999, 1998 and 1997 of 25,708,787,15,205,962 and 8,551,930, respectively. It also assumes full conversion of a weighted average 10,833,184, 5,252,815 and 1,623,000 OP Units into Common Shares for the years ended December 31, 1999, 1998 and 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES Financing and Debt At December 31, 1999, mortgage notes payable aggregated $326.7 million and were collateralized by 49 properties and related tenant leases. Interest on the Company's mortgage indebtedness ranged from 7.5% to 9.6% with maturities that ranged from April 2000 to March 2022. Of the total outstanding debt, $254.1 million, or 78%, was carried at fixed interest rates with a weighted average of 8.4% and $72.6 million, or 22%, was carried at variable rates with a weighted average of 8.0%. Of the total outstanding debt, $136.1 million will become due by 2001, with scheduled maturities of $94.9 million at a weighted average interest rate of 8.5% in 2000 and $41.2 million with a weighted average interest rate of 7.8% in 2001. 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 summarizes the financing and refinancing transactions since December 31, 1998: On February 8, 2000, the Company closed on a revolving credit facility with a bank, which provides for the borrowing of up to $7.4 million. The facility, which is secured by one of the Company's properties, matures in March 2003 and requires the monthly payment of interest at the rate of LIBOR plus 150 basis points (the rate increases by an additional 25 basis points if the amount outstanding under the facility exceeds 50% of the value of the collateral). The monthly repayment of principal amortized over 25 years is required only if the Company draws the full amount available under the facility. The Company has currently not drawn any amounts under this facility. On January 31, 2000, the Company paid down $23.1 million of outstanding debt with a life insurance company from working capital. On December 16, 1999, the Company closed on a $13.8 million bank loan. The variable-rate debt, which is secured one of the Company's properties, matures in January 2005, bears interest at LIBOR plus 165 basis points and requires the fixed monthly payment of principal of $10,000. The interest rate is to be lowered by 20 basis points upon stabilization of the property and certain debt service coverage ratios. On November 22, 1999, the Company closed on a fixed-rate facility with a bank, which provides for the borrowing of up to $10.0 million. The loan, which is secured by one of the Company's properties, matures in December 2002 and requires the monthly payment of interest at 7.75% and principal amortized over 25 years. As of December 31, 1999, the Company had borrowed $5.0 million under this facility, with the remaining $5.0 million available to be drawn in up to three traunches. The proceeds from this borrowing were used primarily to retire maturing debt with another lender of $4.4 million, which was secured by another of the Company's properties. On November 16, 1999, the Company assumed $4.6 million in first mortgage debt in connection with the acquisition of all of the partnership interests of the limited partnership which owns the Pacesetter Park Shopping Center. The bank loan, which matures March 2003, bears interest at 8.18% and requires the monthly payment of principal and interest amortized over 20 years. During 1999, the Company closed on two variable-rate financings with an insurance company which are secured by two of the Company's properties. On September 21, 1999, the Company closed on a $10.0 million loan which matures in October 2002 and on July 7, 1999, a $14.0 million loan which matures in August 2002. Both loans require monthly payments of interest at a rate of LIBOR plus 205 basis points adjusted on a quarterly basis and principal amortized over 25 years. The Company has also purchased interest rate cap agreements for both loans, which cap LIBOR at 6.50%. Approximately $8.6 million of the proceeds were used to retire existing debt with the same lender. On May 5, 1999, the Company assumed $6.2 million in mortgage debt in connection with the acquisition of the general partner's interest in Mall 189. The debt, which matures September 1, 2002, bears interest at a fixed-rate of 7.5% and requires the payment of interest only through May 4, 2001. Thereafter, and through the maturity date, the loan bears interest at a fixed-rate of 9.875% and requires total monthly payments of $55,000 representing interest and principal. The debt can be prepaid commencing May 4, 2002, without any prepayment fees.
On March 23, 1999, the Company closed on a $7.0 million facility with a bank that is secured by one of the Company's properties. As of December 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. The Company also obtained two irrevocable letters of credit totaling $3.0 million. The first, in the amount of $2.0 million, is related to the acquisition of the Mall 189 as required pursuant to the bankruptcy reorganization plan of the seller of the property. The letter of credit is expected to be reduced in $500,000 increments as redevelopment of the property progresses. In addition, a letter of credit for $1.0 million was obtained related to the settlement of certain litigation in 1998 with a former president of the Company, which is expected to be reduced in $200,000 increments as certain obligations are met.
LIQUIDITY AND CAPITAL RESOURCES, continued Financing and Debt, continued 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 after May 23, 2002 without any such fees. Property Acquisitions, Development and Expansion The Company's acquisition program focuses on acquiring sub-performing neighborhood and community shopping centers that are well-located and creating significant value through retenanting and property redevelopment. On November 16, 1999, the Company acquired 100% of the partnership interests of the limited partnership which owns the Pacesetter Park Shopping Center, a 96,000 square foot community shopping center located in Rockland County, New York. The aggregate purchase price of $7.4 million consisted of the assumption of $4.6 million in first mortgage debt and the issuance of $2.2 million in preferred Operating Partnership units with the balance funded from working capital. On May 5, 1999, the Company acquired the sole general partner's interest in the limited partnership owning the Gateway Mall (formerly the Mall 189), a 122,000 square foot shopping center located in Burlington, Vermont, for $6.5 million. The interest, which is senior to the interests of the limited partners, was acquired out of bankruptcy by restructuring and assuming the mortgage debt of $6.2 million. The balance of the purchase was funded from working capital. The Gateway Mall is in its early stages of redevelopment with anticipated completion in 2001. The property is a partially enclosed mall that will be reconfigured into a conventional strip center format. 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 from working capital. The Company completed the redevelopment of a 39,700 square foot building located in Greenwich, Connecticut, which consists of 17,000 square feet of retail space and 21 apartments (approximately 15,000 square feet). During June 1999, Restoration Hardware, the lead anchor for the center occupying 12,300 square feet of the retail space, commenced paying rent. The remaining retail space has been leased as well with occupancy anticipated during the second quarter of 2000. All twenty-one residential units are leased as of December 31, 1999 Costs incurred on this project totalled $17.5 million. The Company has received municipal approval to renovate and expand by approximately 30,000 square feet the 125,000 square foot Elmwood Park Shopping Center. As part of the redevelopment, the Company is planning to construct a 48,000 square foot free-standing A&P supermarket, to replace a 28,000 square foot in-line Grand Union supermarket at a significantly higher rent per square foot. The Company expects redevelopment costs of approximately $9.1 million to complete this project in 2002. In conjunction with the A&P supermarket rent commencment, the Operating Partnership is also obligated to issue OP Units equal to $2.75 million as discussed in Note 2 to the Consolidated Financial Statements. Additionally, the Company currently estimates that for the remaining portfolio, capital outlays of approximately $3.5 million will be required for tenant improvements, related renovations and other property improvements related to executed leases. Share Repurchase Plan Through March 13, 2000, the Company had repurchased 815,600 shares at a total cost of $4.2 million under a Share repurchase program. The program, which allows for the repurchase of up to $10.0 million of the Company's outstanding Common Shares on the open market, may be discontinued or extended at any time and there is no assurance that the Company will purchase the full amount authorized.
LIQUIDITY AND CAPITAL RESOURCES, continued Liquidity Sources Sources of capital for funding property development, property expansion and renovation, repurchase of common stock and future property acquisitions are expected to be obtained from cash on hand, additional debt financings, sales of existing properties and additional equity offerings. The Company also has nine 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. HISTORICAL CASH FLOW The following discussion of historical cash flow compares the Company's cash flow for the year ended December 31, 1999 ("1999") with the Company's cash flow for the year ended December 31, 1998 ("1998"). Net cash provided by operating activities increased from $7.5 million for 1998 to $25.9 million for 1999. This variance was primarily attributable to an increase in operating income before non-cash expenses in 1999 partially offset by changes in operating assets and liabilities. Investing activities used $19.9 million during 1999, representing a $4.9 million decrease from $24.8 million of cash used during 1998. This variance was the result of an increase in net sales proceeds of $3.9 million received in 1999 versus 1998 and an increase of $1.5 million related to an investment in an unconsolidated subsidiary partnership in 1999, offset by a $500,000 increase in expenditures for real estate acquisitions, development and tenant installation in 1999. Net cash provided by financing activities of $14.2 million for 1999 decreased $17.1 million compared to $31.3 million provided in 1998. The decrease resulted primarily from $95.9 million of net proceeds from the issuance of Common Shares in 1998, dividends and distributions of $13.3 million being paid in 1999 and $2.0 of additional cash used in 1999 for the repurchase of common shares. This was partially offset by additional cash of $65.9 million used in 1998 for the repayment of debt and a $28.3 million increase in cash provided by additional borrowings. 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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (the "FASB") issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (the "Statement"). In June 1999, the FASB issued Statement No. 137, which deferred the effective date of Statement No. 133 requiring it to be adopted for all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company expects to adopt the Statement effective January 1, 2001. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company does not anticipate that the adoption of this Statement will have a significant effect on its results of operations or financial position. IMPACT OF YEAR 2000 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. In prior years, the Company discussed the nature and progress of its plans to become Y2K ready. In late 1999, the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Y2K date change. The Company expended approximately $200,000 during 1999 in connection with remediating its systems. The Company is not aware of any material problems resulting from Y2K issues, either with its products, its internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Y2K matters that may arise are addressed promptly. ITEM 7A - 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 consolidated financial statements and notes thereto included in this Annual 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 December 31, 1999, the Company had total mortgage debt of $326.7 million of which $254.1 million, or 78%, is fixed-rate and $72.6 million, or 22%, is variable-rate based upon either LIBOR or the lender's commercial paper rate, plus certain spreads. $24.0 million of notional variable-rate principal is hedged through the use of LIBOR rate caps as of December 31, 1999. 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.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data listed in items 14(a)(1) and 14(a)(2) hereof are incorporated herein by reference. ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY This item is incorporated by reference from the definitive proxy statement for the Annual Meeting of Shareholders presently scheduled to be held on May 16, 2000, to be filed pursuant to Regulation 14A. ITEM 11 EXECUTIVE COMPENSATION This item is incorporated by reference from the definitive proxy statement for the Annual Meeting of Shareholders presently scheduled to be held on May 16, 2000, to be filed pursuant to Regulation 14A. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT This item is incorporated by reference from the definitive proxy statement for the Annual Meeting of Shareholders presently scheduled to be held on May 16, 2000, to be filed pursuant to Regulation 14A.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS This item is incorporated by reference from the definitive proxy statement for the Annual Meeting of Shareholders presently scheduled to be held on May 16, 2000, to be filed pursuant to Regulation 14A. PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AMD REPORTS ON FORM 8-K (a) 1. Financial Statements - Form 10-K The following consolidated financial Report Page information is included as a separate section of this annual report on Form 10-K ACADIA REALTY TRUST INDEX OF FINANCIAL STATEMENTS Report of Independent Auditors F-2 Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3 Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997 F-4 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1999, 1998 and 1997 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 F-6 Notes to Consolidated Financial Statements F-8 2. Financial Statement Schedule Schedule III - Real Estate and Accumulated Depreciation F-28 All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule. 3. Exhibits
<TABLE> <CAPTION> Exhibit No. <S> <C> <C> 3.1(a) Declaration of Trust Incorporated by reference of the Company, as to the copy thereof filed as amended an exhibit to the Company's Form 10-K filed for the fiscal Year ended December 31, 1994 3.1(b) Fourth Amendment to Incorporated by reference to Declaration of Trust the copy thereof filed as an Exhibit to Company's Form 10-Q filed for the quarter ended September 30, 1998 3.2 By-Laws of the Company Incorporated by reference to the copy thereof filed as an exhibit to the Company's Form S-11 (File No.33-60008) ("Form S-11") 10.1(a) Agreement of Limited Incorporated by reference to Partnership of the the copy thereof filed as an Operating Partnership exhibit to Amendment No. 3 to the Company's Form S-11 10.1(b) First, Second Incorporated by reference to and Third Amendments to the copy thereof filed as an the Agreement of Limited exhibit to the Company's Form Partnership of the 10-K filed for the fiscal Operating Partnership year ended December 31, 1998 10.1(c) Certificate of Designation of Series A Preferred Operating Partnership Units of Limited Partnership Interest of Acadia Realty Limited Partnership Filed herewith 10.2 Loan Agreement Incorporated by reference to between the Company the copy thereof filed as and Metropolitan exhibit to Amendment No. 3 Life Insurance to the Company's Form S-11 Company *10.6(a) 1999 Share Option Plan Incorporated by reference to the copy thereof filed as an exhibit to the Company's Form S-8 filed September 28, 1999 10.14 Form of Registration Incorporated by reference Rights Agreement to the copy thereof filed as an exhibit to Amendment No. 4 to the Company's Form S-11 10.18 Form of Loan Agreement Incorporated by reference together with Form of to the copy thereof filed as First Mortgage and an exhibit to the Company's Security Agreement Form 10-K filed for the fiscal between the Company and year ended December 31, 1995 John Hancock Mutual Life Insurance Company dated March 15, 1995 10.22(a) Indenture of Mortgage, Incorporated by reference to Deed of Trust, Security the copy thereof filed as an Agreement, Financing exhibit to the Company's Form Statement, Fixture 10-Q filed for the quarter Filing and Assignment ended September 30, 1996 of Leases, Rents and Security Deposits between the Company and Morgan Stanley Mortgage Capital, Inc. </TABLE>
<TABLE> <CAPTION> <S> <C> <C> 10.22(b) Mortgage Note between Incorporated by reference to the Company and Morgan the copy thereof filed as an Stanley Mortgage exhibit to the Company's Form Capital, Inc. 10-Q for the quarter ended September 30, 1996 10.22(c) First Amendment to the Incorporated by reference to Indenture of Mortgage, the copy thereof filed as an Deed of Trust, Security exhibit to the Company's Form Agreement, Financing 10-Q filed for the quarter Statement, Fixture ended September 30, 1998 Filing and Assignment of Lease, Rents and Security Deposits Between the Company and GMAC Commercial Mortgage Corporation 10.24(a) Open-End Mortgage, Incorporated by reference Security Agreement, to the copy thereof filed as Future Filing, Financing an exhibit to the Company's Statement and Assignment Form 10-K filed for the fiscal of Leases and Rents year ended December 31, 1996 between the Company and Anchor National Life Insurance Company 10.24(b) Promissory Note between Incorporated by reference the Company and Anchor to the copy thereof filed as National Life Insurance an exhibit to the Company's Company Form 10-K filed for the fiscal year ended December 31, 1996 10.26(a) Loan Agreement dated Incorporated by reference March 4, 1997 by and to the copy thereof filed a between Mark Northwood an exhibit to the Company's Associates, Limited Form 10-K filed for the fiscal Partnership, a Florida year ended December 31, 1996 limited partnership, and Nomura Asset Capital Corporation 10.26(b) Promissory Note dated Incorporated by reference March 4, 1997 between to the copy thereof filed Mark Northwood as an exhibit to the Company's Associates, Limited Form 10-K filed for the fiscal Partnership, a Florida year ended December 31, 1996 limited partnership, and Nomura Asset Capital Corporation </TABLE>
<TABLE> <CAPTION> <S> <C> <C> 10.26(c) Leasehold Mortgage, Incorporated by reference Assignment of Rents, to the copy thereof filed Security Agreement and as an exhibit to the Company's Fixture Filing by Mark Form 10-K filed for the fiscal Northwood Associates, year ended December 31, 1996 Limited Partnership, a Florida limited partnership, to Nomura Asset Capital Corporation dated March 4, 1997 10.30 Contribution and Share Incorporated by reference to Purchase Agreement the copy thereof filed as an with RD Capital, Inc. exhibit to the Company's Form 8-K filed on April 20, 1998 10.31 Severance and Incorporated by reference to Consulting Agreement the copy thereof filed as an For Marvin L. Slomowitz exhibit to the Company's Form 10-K filed for the fiscal year ended December 31, 1998 10.32 Settlement agreement Incorporated by reference to between the Company the copy thereof filed as an and Jack Wertheimer exhibit to the Company's Form 8-K filed on January 5, 1999 10.33 Employment agreement Incorporated by reference to between the Company the copy thereof filed as an and Ross Dworman exhibit to the Company's Form 10-K filed for the fiscal year ended December 31, 1998 10.34 Employment agreement Incorporated by reference to between the Company the copy thereof filed as an and Kenneth F. Bernstein exhibit to the Company's Form 10-K filed for the fiscal year ended December 31, 1998 </TABLE>
<TABLE> <CAPTION> <S> <C> <C> 10.36 Secured Promissory Note between RD Absecon Associates, L.P. and Fleet Bank, N.A. dated February 8, 2000 Filed herewith 10.37 Mortgage Note between RD Branch Associates, L.P. and North Fork Bank dated November 22, 1999 Filed herewith 10.38 Promissory Note between 239 Greenwich Associates, L.P. and First Union National Bank dated December 16, 1999 Filed herewith 10.39 Note and Mortgage Assumption Agreement between Acadia Mad River Property LLC and Lasalle National Bank for the benefit of Certificateholders of American Southwest Financial Securities Corporation, Commercial Mortgage Pass- Through Certificates, Series 1195-C1 Dated February 24, 1999 Filed herewith 10.40 Mortgage Note Modification Agreement Between Heathcote Associates and Huntoon Hastings Capital Corp. dated May 5, 1999 Filed herewith 10.41 Promissory Note between Merrillville Realty, L.P. and Sun America Life Insurance Company dated July 7, 1999 Filed herewith 10.42 Mortgage and Note Modification Agreement between Pacesetter/Ramapo Associates and M&T Real Estate, Inc. Filed herewith 10.43 Secured Promissory Note between Acadia Town Line, LLC and Fleet Bank, N.A. dated March 23, 1999 Filed herewith 10.44 Promissory Note between RD Village Associates Limited Partnership and Sun America Life Insurance Company Dated September 21, 1999 Filed herewith 21 List of Subsidiaries Filed herewith of Acadia Realty Trust 23 Consent of Independent Filed herewith Auditors to Form S-3 and Form S-8 27 Financial Data Schedule Filed herewith (EDGAR filing only) * Constitutes a compensatory plan or arrangement required to be filed as an exhibit to this Form. (b) Reports on Form 8-K filed during the quarter ended December 31, 1999 - The Company did not file any report on Form 8-K during the quarter ended December 31, 1999. </TABLE>
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized. ACADIA REALTY TRUST (Registrant) By: /s/ Ross Dworman ---------------------------- Chairman and Chief Executive Officer Dated: March 27, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date - --------- ----- ---- /s/Ross Dworman Chairman, March 27, 2000 - --------------------------- Chief Executive (Ross Dworman) Officer and Trustee (Principal Executive Officer) /s/Kenneth F.Bernstein President and March 27, 2000 - --------------------------- Trustee (Kenneth F.Bernstein) /s/Perry S. Kamerman Senior Vice President March 27, 2000 - --------------------------- of Finance (Principal (Perry S. Kamerman) Financial and Accounting Officer) /s/Martin L. Edelman Trustee March 27, 2000 - --------------------------- (Martin L. Edelman, Esq.) /s/Gregory A. White Trustee March 27, 2000 - --------------------------- (Gregory A. white) /s/Marvin J. Levine Trustee March 27, 2000 - --------------------------- (Marvin J. Levine, Esq) /s/Lawrence J. Longua Trustee March 27, 2000 - --------------------------- (Lawrence J. Longua)
EXHIBIT INDEX The following is an index to all exhibits filed with the Annual Report on Form 10-K other than those incorporated by reference herein: Exhibit Number Description Page - ------- ----------- ---- 10.1(c) Certificate of Designation of 34 Series A Preferred Operating Partnership Units of Limited Partnership Interest of Acadia Realty Limited Partnership 10.36 Secured Promissory Note between 44 RD Absecon Associates, L.P. and Fleet Bank, N.A. dated February 8, 2000 10.37 Mortgage Note between RD Branch 66 Associates, L.P. and North Fork Bank dated November 22, 1999 10.38 Promissory Note between 239 Greenwich Associates, L.P. and First Union National Bank dated December 16, 1999 10.39 Note and Mortgage Assumption 84 Agreement between Acadia Mad River Property LLC and Lasalle National Bank for the benefit of Certificateholders of American Southwest Financial Securities Corporation, Commercial Mortgage Pass- Through Certificates, Series 1195-C1 Dated February 24, 1999 10.40 Mortgage Note Modification Agreement 100 Between Heathcote Associates and Huntoon Hastings Capital Corp. dated May 5, 1999 10.41 Promissory Note between Merrillville 107 Realty, L.P. and Sun America Life Insurance Company dated July 7, 1999 10.42 Mortgage and Note Modification 120 Agreement between Pacesetter/Ramapo Associates and M&T Real Estate, Inc. 10.43 Secured Promissory Note between 130 Acadia Town Line, LLC and Fleet Bank, N.A. dated March 23, 1999 10.44 Promissory Note between RD Village 149 Associates Limited Partnership and Sun America Life Insurance Company Dated September 21, 1999 21 List of Subsidiaries of Acadia Realty Trust 23 Consent of Independent Auditors to Form S-3 and Form S-8 27 Financial Data Schedule (EDGAR filing only)
ACADIA REALTY TRUST AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS ACADIA REALTY TRUST Report of Independent Auditors F-2 Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3 Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997 F-4 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1999, 1998, and 1997 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 F-6 Notes to Consolidated Financial Statements F-8 Schedule III - Real Estate and Accumulated Depreciation F-28
REPORT OF INDEPENDENT AUDITORS To the Shareholders and Trustees of Acadia Realty Trust We have audited the accompanying consolidated balance sheets of Acadia Realty Trust (a Maryland Trust) and subsidiaries (the "Company") as of December 31, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and the schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Acadia Realty Trust and subsidiaries as of December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ ERNST & YOUNG LLP New York, New York February 25, 2000 F-2
Part I. Financial Information Item 1. Financial Statements ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts) <TABLE> <CAPTION> December 31, 1999 1998 ---- ---- <S> <C> <C> ASSETS Real estate Land $ 81,956 $ 76,136 Buildings and improvements 477,573 452,300 Properties under development 9,992 22,813 -------- -------- 569,521 551,249 Less: accumulated depreciation 90,932 87,202 -------- -------- Net real estate 478,589 464,047 Property held for sale 13,227 7,073 Cash and cash equivalents 35,340 15,183 Cash in escrow 9,707 12,650 Investments in unconsolidated partnerships 7,463 7,516 Rents receivable, net 8,865 6,006 Prepaid expenses 2,952 2,797 Due from related parties 19 -- Deferred charges, net 12,374 11,461 Other assets 2,267 1,779 -------- -------- $570,803 $528,512 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Mortgage notes payable $326,651 $277,561 Accounts payable and accrued expenses 6,385 10,673 Due to related parties -- 176 Dividends and distributions payable 4,371 -- Other liabilities 4,224 3,817 -------- -------- Total liabilities 341,631 292,227 -------- -------- Minority interest in Operating Partnership 74,462 79,344 Minority interests in majority owned partnerships 2,223 2,350 -------- -------- Total minority interests 76,685 81,694 -------- -------- Shareholders' equity: Common shares, $.001 par value, authorized 100,000,000 shares, issued and outstanding 25,724,315 and 25,419,215 shares, respectively 26 25 Additional paid-in capital 168,641 170,746 Deficit (16,180) (16,180) -------- -------- Total shareholders' equity 152,487 154,591 -------- -------- $570,803 $528,512 ======== ======== </TABLE> See accompanying notes F-3
ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Year ended December 31, 1999 1998 1997 ---- ---- ---- Revenues Minimum rent $73,021 $ 46,940 $ 33,669 Percentage rents 2,994 2,651 3,183 Expense reimbursements 13,786 8,655 6,632 Other 2,908 1,525 1,014 ------- -------- -------- Total revenues 92,709 59,771 44,498 ------- -------- -------- Operating Expenses Property operating 21,606 14,182 9,013 Real estate taxes 10,540 7,536 5,691 Depreciation and amortization 19,887 15,795 13,768 General and administrative 6,337 4,409 2,351 Non-recurring charges -- 2,249 -- Settlement of litigation -- 2,358 -- ------- -------- -------- Total operating expenses 58,370 46,529 30,823 ------- -------- -------- Operating income 34,339 13,242 13,675 Equity in earnings of unconsolidated partnerships 584 256 -- Loss on sale of property (1,284) (175) (12) Adjustment of carrying value of property held for sale -- (11,560) -- Interest expense (23,314) (18,302) (15,444) ------- -------- -------- Income (loss) before extraordinary item and minority interest 10,325 (16,539) (1,781) Extraordinary item - loss on early extinguishment of debt -- (707) -- Minority interest in Operating Partnership (3,130) 3,348 217 ------- -------- -------- Net income (loss) $ 7,195 $(13,898) $ (1,564) ======= ======== ======== Net income (loss) per Common Share: Income (loss) before extraordinary item $ .28 $ (.86) $ (.18) Extraordinary item -- (.05) -- ------- -------- -------- Net income (loss) per Common Share $ .28 $ (.91) $ (.18) ======= ======== ======== See accompanying notes F-4
ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands, except per share amounts) <TABLE> <CAPTION> Common Shares Total ------------- Additional Retained Shareholders' Shares Amount Paid-in Capital Deficit Equity ------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Balance, December 31, 1996 8,548,817 $ 9 $ 57,521 $ (724) $ 56,806 Issuance of shares pursuant to the Company's restricted share plan 5,360 - 52 - 52 Adjustment to minority interest - - - 6 6 Distributions paid to limited partners of the Operating Partnership - - (1,285) - (1,285) Dividends paid in excess of accumulated earnings ($0.76 per share) - - (6,500) - (6,500) Loss before minority interest - - - (1,781) (1,781) Minority interest's equity - - 1,285 217 1,502 ---------- --- -------- -------- -------- Balance, December 31, 1997 8,554,177 9 51,073 (2,282) 48,800 Issuance of shares pursuant to the Company's restricted share plan 3,800 - 29 - 29 Conversion of 800,000 OP Units by limited partner of the Operating Partnership 800,000 1 4,367 - 4,368 Issuance of 13,333,333 Common Shares in connection with the RDC Transaction, net of issuance costs 13,333,333 13 95,909 - 95,922 Issuance of 1,989,048 Common Shares in connection with the RDC Transaction 1,989,048 1 13,965 - 13,966 Conversion of 738,857 OP Units by limited partners of the Operating Partnership in connection with the RDC Transaction 738,857 1 5,403 - 5,404 Loss before minority interest - - - (17,246) (17,246) Minority interest's equity - - - 3,348 3,348 ---------- --- -------- -------- -------- Balance, December 31, 1998 25,419,215 25 170,746 (16,180) 154,591 Conversion of 700,000 OP Units by limited partner of the Operating Partnership 700,000 1 5,012 - 5,013 Dividends declared ($.48 per Common Share) - - (5,133) (7,195) (12,328) Repurchase of Common Shares (394,900) - (1,984) - (1,984) Income before minority interest - - - 10,325 10,325 Minority interest's equity - - - (3,130) (3,130) ---------- --- -------- -------- -------- Balance, December 31, 1999 25,724,315 $ 26 $168,641 $(16,180) $152,487 ========== === ======== ======== ======== </TABLE> F-5
ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, except per share amounts) <TABLE> <CAPTION> Year ended December 31, 1999 1998 1997 ---- ---- ---- <S> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 7,195 $(13,898) $ (1,564) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 19,887 15,795 13,768 Extraordinary item - loss on early extinguishment of debt -- 707 -- Minority interest in Operating Partnership 3,130 (3,348) (217) Equity in income of unconsolidated partnerships (584) (256) -- Provision for bad debts 1,404 1,275 833 Loss on sale of property 1,284 175 12 Adjustment to carrying value of property held for sale -- 11,560 -- Other -- 29 52 Changes in assets and liabilities: Funding of escrows, net 2,943 (4,744) (4,303) Rents receivable (4,263) (2,495) (679) Prepaid expenses (155) (1,556) 180 Due to/from related parties (195) 163 26 Other assets (879) (975) (290) Accounts payable and accrued expenses (4,288) 3,120 1,233 Other liabilities 407 1,907 (117) ------ -------- -------- Net cash provided by operating activities 25,886 7,459 8,934 ------ -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for real estate and improvements (25,091) (23,253) (10,558) Net proceeds from sale of property 6,128 2,193 1,288 Investments in unconsolidated partnerships -- (861) -- Distributions from unconsolidated partnerships 637 -- -- Payment of deferred leasing costs (1,604) (2,901) (1,205) ------- -------- -------- Net cash used in investing activities (19,930) (24,822) (10,475) ------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of Common Shares -- 95,923 -- Principal payments on mortgages (17,598) (80,493) (14,835) Proceeds received on mortgage notes 48,168 19,877 25,955 Payment of note payable to shareholder -- (3,050) -- Payment of deferred financing and other costs (1,091) (967) (757) Dividends paid (9,239) -- (9,577) Distributions to minority interests in Operating Partnership (3,929) (31) (1,870) Distributions to minority interest in majority owned partnerships (127) -- -- Repurchase of Common Shares (1,983) -- -- ------- -------- -------- Net cash provided by (used in) financing activities 14,201 31,259 (1,084) ------- -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 20,157 13,896 (2,625) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 15,183 1,287 3,912 ------- -------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR $35,340 $ 15,183 $ 1,287 ======= ======== ======== </TABLE> See accompanying notes F-6
ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, except per share amounts) <TABLE> <CAPTION> Year ended December 31, 1999 1998 1997 ---- ---- ---- <S> <C> <C> <C> Supplemental Disclosures of Cash Flow Information: Cash paid during the year for interest, net of amounts capitalized of $1,299, $857, and $569, respectively $23,793 $ 17,650 $ 15,502 ======= ========= ======== Supplemental Disclosures of Non-Cash Investing and Financing Activities: Acquisition of real estate by assumption of debt $18,521 ======== Acquisition of real estate by issuance of Preferred Operating Partnership Units $ 2,212 ======== The following activity was recorded in connection with the RDC Transaction (Note 2). Real estate and investment in partnerships acquired $(253,801) Mortgage notes payable assumed 154,234 Operating partnership units issued 83,250 Common Shares issued 13,967 Minority interests in acquired properties 2,350 --------- Net Cash $ -- ========= </TABLE> See accompanying notes F-7
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) 1. Organization, Basis of Presentation and Summary of Significant Accounting Policies 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 subsidiaries. As of December 31, 1999, the Company controlled 71% of the Operating Partnership as the sole general partner. As of December 31, 1999, the Company operated fifty-eight properties, which it owned or had an ownership interest in, consisting of forty-seven neighborhood and community shopping centers, three enclosed malls, two mixed use properties (a retail/office center and a retail/residential property), five multi-family properties and one redevelopment property located in the Eastern and Midwestern regions of the United States. The retail/office mixed use property was held for sale as of December 31, 1999. Principles of Consolidation The consolidated financial statements include the consolidated accounts of the Company and its majority owned subsidiaries, including the Operating Partnership. Non-controlling investments in partnerships are accounted for under the equity method of accounting as the Company exercises significant influence. Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Properties Real estate assets are stated at cost less accumulated depreciation. Such carrying amounts are adjusted, if necessary, to reflect any impairment in the value of the assets. Expenditures for acquisition, development construction and improvement of properties, as well as significant renovations are capitalized. Interest costs are capitalized until construction is substantially complete. Depreciation is computed on the straight-line method over estimated useful lives of thirty to forty years for buildings and the shorter of the useful life or lease term for improvements, furniture, fixtures and equipment. Expenditures for maintenance and repairs are charged to operations as incurred. Property held for sale is reflected at the lower of the carrying amount or net realizable value. Deferred Costs Fees and costs incurred in the successful negotiation of leases have been deferred and are being amortized on a straight-line basis over the terms of the respective leases. Fees and costs incurred in connection with obtaining financing have been deferred and are being amortized over the term of the related debt obligation. F-8
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) 1. Organization, Basis of Presentation and Summary of Significant Accounting Policies, continued Revenue Recognition Leases with tenants are accounted for as operating leases. Minimum rents are recognized on a straight-line basis over the term of the respective leases. As of December 31, 1999 and 1998, unbilled rents receivable relating to straight-lining of rents were $3,057 and $2,163, respectively. Percentage rents are recognized in the period when the specified target, or in the case of percentage rent, the tenant sales breakpoint, is met. Reimbursements from tenants for real estate taxes, insurance and other property operating expenses are recognized as revenue in the period the expenses are incurred. An allowance for doubtful accounts has been provided against certain tenant accounts receivable which are estimated to be uncollectible. Rents receivable at December 31, 1999 and 1998 are shown net of an allowance for doubtful accounts of $1,588 and $1,854, respectively. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash and cash equivalents. Cash in Escrow Cash in escrow consists principally of cash held for real estate taxes, property maintenance, insurance, lease renewals, environmental remediation, and minimum occupancy and property operating income requirements at specific properties as required by certain loan agreements. The balance as of December 31, 1998 also included amounts funded for certain legal settlement amounts (note 17). Non-Recurring Charges In connection with the RDC Transaction (note 2), the Company incurred non-recurring costs of $2,249 related primarily to payments made to certain officers and key employees pursuant to change in control provisions of employment contracts, severance paid to the Former Principal Shareholder (note 8), retention bonuses for certain employees and transaction-related consulting and professional fees. Income Taxes The Company has made an election to be taxed, and believes it qualifies as a real estate investment trust ("REIT") under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. A REIT will generally not be subject to federal income taxation on that portion of its income that qualifies as REIT taxable income to the extent that it distributes at least 95% of its taxable income to its shareholders and complies with certain other requirements. Accordingly, no provision has been made for federal income taxes for the Company in the accompanying consolidated financial statements. The Company is subject to state income or franchise taxes in certain states in which some of its properties are located. These state taxes, which in total are not significant, are included in general and administrative expenses in the accompanying consolidated financial statements. F-9
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) 1. Organization, Basis of Presentation and Summary of Significant Accounting Policies, continued Earnings Per Common Share For the years ended December 31, 1999, 1998 and 1997, basic earnings per share was determined by dividing the net applicable income or loss to common shareholders for the year by the weighted average number of common shares of beneficial interest ("Common Shares") outstanding during each year consistent with the Financial Accounting Standards Board Statement No. 128. The weighted average number of shares outstanding for the years ended December 31, 1999, 1998 and 1997 were 25,708,787, 15,205,962 and 8,551,930, respectively. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue Common Shares were exercised or converted into Common Shares or resulted in the issuance of Common Shares that then shared in the earnings of the Company. For the years ended December 31, 1999, 1998 and 1997 no additional shares were reflected as the impact would be anti-dilutive in such years. Share Repurchase Plan As of December 31, 1999, the Company had repurchased 394,900 Common Shares at a total cost of $1,984 under a share repurchase plan which allows for the repurchase of up to $10,000 of the Company's outstanding Common Shares. The repurchased shares are reflected as a reduction of par value and additional paid-in capital. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board (the "FASB") issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (the "Statement"). In June 1999, the FASB issued Statement No. 137, which deferred the effective date of Statement No. 133 requiring it to be adopted for all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company expects to adopt the Statement effective January 1, 2001. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company does not anticipate that the adoption of this Statement will have a significant effect on its results of operations or financial position. Reclassifications Certain 1998 and 1997 amounts were reclassified to conform with the 1999 presentation. F-10
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) 2. Acquisition and Disposition of Properties and Related Transactions 1999 Acquisitions and Dispositions On November 16, 1999, the Company acquired 100% of the partnership interests of the limited partnership which owns the Pacesetter Park Shopping Center, a 96,000 square foot community shopping center located in Rockland County, New York. The aggregate purchase price of $7,400 consisted of the assumption of $4,637 in first mortgage debt and the issuance of $2,212 in preferred Operating Partnership units with the balance funded from working capital. On May 5, 1999, the Company acquired the sole general partner's interest in the limited partnership owning the Gateway Mall (formerly the Mall 189), a 122,000 square foot shopping center located in Burlington, Vermont, for $6,547. The interest was acquired out of bankruptcy by restructuring and assuming the mortgage debt of $6,222. The balance of the purchase was funded from working capital. The center, which is a partially enclosed mall, is being redeveloped into a conventional strip center format. 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 from working capital. Pursuant to its continuing plan to dispose of certain under-performing properties, the Company sold two properties during 1999, 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. 1998 Acquisitions and Dispositions On August 12, 1998 the Company completed the transactions contemplated by the Contribution and Share Purchase Agreement dated April 15, 1998 (the "RDC Transaction") involving affiliates of RD Capital, Inc. ("RDC"). In connection with the RDC Transaction, the Operating Partnership acquired (i) fee title to or all, or substantially all, of the ownership interests in twelve shopping centers, five multi-family properties and one redevelopment property, (ii) a 49% interest in one shopping center, (iii) certain third party management contracts, and (iv) certain promissory notes from real estate investment partnerships and related entities, which are not under common control, in which RDC serves as general partner or in another similar management capacity, for approximately 11.1 million Operating Partnership units ("OP Units") and approximately 2.0 million Common Shares valued at $97,217. In addition, the Company assumed mortgage debt aggregating $154,234 and incurred other capitalized transaction costs of $5,757 resulting in an aggregate purchase price of $257,208. As part of the RDC Transaction, the Company also issued approximately 13.3 million Common Shares to three real estate investment limited partnerships (collectively "RDC Funds"), in which affiliates of RDC serve as general partner, in exchange for $100,000. F-11
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) 2. Acquisition and Disposition of Properties and Related Transactions, continued 1998 Acquisitions and Dispositions, continued The Company accounted for the RDC Transaction as (i) a purchase of properties and other related assets in exchange for OP Units and Common Shares and the assumption of certain mortgage debt and other liabilities using the purchase method of accounting and (ii) an issuance of Common Shares for cash. Accordingly, the accompanying 1998 consolidated financial statements include the operations of the properties acquired in the RDC Transaction from August 12, 1998 through December 31, 1998 (note 20). The Operating Partnership is also obligated to issue additional OP Units valued at $2,750 upon the completion of certain improvements and the commencement of rental payments from a designated tenant at one of the properties acquired in the RDC Transaction. Following the completion of the RDC Transaction, the Company changed its name from Mark Centers Trust to Acadia Realty Trust and the name of the Operating Partnership was changed from Mark Centers Limited Partnership to Acadia Realty Limited Partnership. Management also adopted a plan to dispose of three under-performing properties following the RDC Transaction. As a result, the Company recorded a non-cash charge of $11,560 to write-down these properties to their estimated net realizable value as the anticipated sales proceeds (net of selling costs) were expected to be insufficient to recover the associated carrying values. On December 30, 1998, the Company completed the sale of the Normandale Mall for $2,350. The remaining two properties (the Searstown Mall and Auburn Plaza) were sold in 1999. F-12
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) 3. 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. All the multi-family units were acquired in 1998 as part of the RDC Transaction. The following table sets forth certain segment information for the Company as of and for the years ended December 31, 1999, 1998 and 1997 (does not include unconsolidated partnerships): <TABLE> <CAPTION> 1999 ---- Retail Multi-Family All Properties Properties Other Total ---------- ------------ ----- -------- <S> <C> <C> <C> <C> Revenues $ 75,823 $ 14,915 $ 1,971 $ 92,709 Property operating expenses and real estate taxes 26,190 5,956 -- 32,146 Net property income before depreciation, amortization and certain nonrecurring items 49,633 8,959 1,971 60,563 Depreciation and amortization 17,817 1,829 241 19,887 Interest expense 19,199 4,115 23,314 Real estate at cost 487,376 82,145 -- 569,521 Total assets 477,977 85,363 7,463 570,803 Gross leasable area (multi-family - 2,273 units) 8,817 2,039 -- 10,856 Expenditures for real estate and improvements 23,912 1,179 -- 25,091 Revenues Total revenues for reportable segments $ 93,766 Elimination of intersegment management fee income (1,057) -------- Total consolidated revenues $ 92,709 ======== Property operating expenses and real estate taxes Total property operating expenses and real estate taxes for reportable segments $ 33,203 Elimination of intersegment management fee expense (1,057) -------- Total consolidated expense $ 32,146 ======== Reconciliation to income before extraordinary item and minority interest Net property income before depreciation, amortization and certain nonrecurring items $ 60,563 Depreciation and amortization (19,887) General and administrative (6,337) Equity in earnings of unconsolidated partnerships 584 Loss on sale of property (1,284) Interest expense (23,314) -------- Income before minority interest $ 10,325 ======== </TABLE> F-13
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) 3. Segment Reporting, continued <TABLE> <CAPTION> 1998 ---- Retail Multi-Family All Properties Properties Other Total ---------- ------------ ----- -------- <S> <C> <C> <C> <C> Revenues $ 53,507 $ 5,644 $ 620 $ 59,771 Property operating expenses and real estate taxes 19,573 2,145 -- 21,718 Net property income before depreciation, amortization and certain nonrecurring items 33,934 3,499 620 38,053 Depreciation and amortization 14,963 629 203 15,795 Interest expense 16,685 1,606 11 18,302 Real estate at cost 470,438 80,811 -- 551,249 Total assets 439,280 81,716 7,516 528,512 Gross leasable area (multi-family - 2,273 units) 8,931 2,039 -- 10,970 Expenditures for real estate and improvements 22,844 409 -- 23,253 Revenues Total revenues for reportable segments $ 60,204 Elimination of intersegment ground rent and management fee income (433) -------- Total consolidated revenues $ 59,771 ======== Property operating expenses and real estate taxes Total property operating expenses and real estate taxes for reportable segments $ 22,151 Elimination of intersegment ground rent and management fee expense (433) -------- Total consolidated expense $ 21,718 ======== Reconciliation to loss before extraordinary item and minority interest Net property income before depreciation, amortization and certain nonrecurring items $ 38,053 Depreciation and amortization (15,795) General and administrative (4,409) Non-recurring charges (2,249) Settlement of litigation (2,358) Equity in earnings of unconsolidated partnerships 256 Loss on sale of property (175) Adjustment of carrying value of property held for sale (11,560) Interest expense (18,302) -------- Loss before extraordinary item and minority interest $(16,539) ======== </TABLE> F-14
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) 3. Segment Reporting, continued <TABLE> <CAPTION> 1997 ---- Retail Multi-Family All Properties Properties Other Total ---------- ------------ ----- -------- <S> <C> <C> <C> <C> Revenues $ 44,238 $ -- $ 260 $ 44,498 Property operating expenses and real estate taxes 14,704 -- -- 14,704 Net property income before depreciation, amortization and certain nonrecurring items 29,534 -- 260 29,794 Depreciation and amortization 13,560 -- 208 13,768 Interest expense 15,435 -- 9 15,444 Real estate at cost 311,688 -- -- 311,688 Total assets 254,500 -- -- 254,500 Gross leasable area (multi-family - 2,273 units) 7,265 -- -- 7,265 Expenditures for real estate and improvements 10,558 -- -- 10,558 Revenues Total revenues for reportable segments $ 44,931 Elimination of intersegment ground rent and management fee income (433) -------- Total consolidated revenues $ 44,498 ======== Property operating expenses and real estate taxes Total property operating expenses and real estate taxes for reportable segments $ 15,137 Elimination of intersegment ground rent and management fee expense (433) -------- Total consolidated expense $ 14,704 ======== Reconciliation to loss before extraordinary item and minority interest Net property income before depreciation, amortization and certain nonrecurring items $ 29,794 Depreciation and amortization (13,768) General and administrative (2,351) Loss on sale of property (12) Interest expense (15,444) -------- Loss before minority interest $ (1,781) ======== </TABLE> F-15
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) 4. Investment in Partnerships In connection with the RDC Transaction, the Company acquired a 49% interest in each of the Crossroads Joint Venture and Crossroads II Joint Venture (collectively the "Crossroads") which collectively own a 311,000 square foot shopping center in Greenburgh, New York. The Company accounts for its investment in Crossroads using the equity method. Summary financial information of the Crossroads and the Company's investment in and share of income from Crossroads follows: December 31, December 31, 1999 1998 ---- ---- Balance Sheet Assets: Rental property, net $ 8,801 $ 9,161 Other assets 5,204 4,308 ------- ------- Total assets $14,005 $13,469 ======= ======= Liabilities and partners' equity Mortgage note payable $35,105 $35,526 Other liabilities 777 502 Partners' equity (21,877) (22,559) ------- ------- Total liabilities and partners' equity $14,005 $13,469 ======= ======= Company's investment in partnerships $ 7,463 $ 7,516 ======= ======= Statement of Operations Total revenue $ 7,003 $ 2,680 Operating and other expenses 1,910 643 Interest expense 2,568 1,022 Depreciation and amortization 534 192 ------- ------- Net income $ 1,991 $ 823 ======= ======= Company's share of net income $ 976 $ 403 Amortization of excess investment (See below) 392 147 ------- ------- Income from Partnerships $ 584 $ 256 ======= ======= 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. F-16
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) 5. Deferred Charges Deferred charges consist of the following as of December 31, 1999 and 1998: 1999 1998 ---- ---- Deferred financing costs $ 7,563 $ 6,624 Deferred leasing and other costs 12,279 10,882 ------- ------- 19,842 17,506 Accumulated amortization (7,468) (6,045) ------- ------- $12,374 $11,461 ======= ======= 6. Mortgage Loans At December 31, 1999, mortgage notes payable aggregated $326,651 and were collateralized by 49 properties and related tenant leases. Interest rates ranged from 7.50% to 9.60%. Mortgage payments are due in monthly installments of principal and/or interest and mature on various dates through 2022. Certain loans are cross-collateralized and cross-defaulted as part of a group of properties. The loan agreements contain customary representations, covenants and events of default. Certain loan agreements require the Company to comply with certain affirmative and negative covenants, including the maintenance of certain debt service coverage and leverage ratios. On December 16, 1999, the Company closed on a $13,750 bank loan. The variable-rate debt, which is secured one of the Company's properties, matures in January 2005, bears interest at LIBOR plus 165 basis points and requires the fixed monthly payment of principal of $10. The interest rate is to be lowered by 20 basis points upon stabilization of the property and certain debt service coverage ratios. On November 22, 1999, the Company closed on a fixed-rate facility with a bank, which provides for the borrowing of up to $10,000. The loan, which is secured by one of the Company's properties, matures in December 2002 and requires the monthly payment of interest at 7.75% and principal amortized over 25 years. As of December 31, 1999, the Company had borrowed $5,000 under this facility, with the remaining $5,000 available to be drawn down in up to three traunches. The proceeds from this borrowing were used primarily to retire maturing debt with another lender of $4,372, which was secured by another of the Company's properties. On November 16, 1999, the Company assumed $4,637 in first mortgage debt in connection with the acquisition of all of the partnership interests of the limited partnership which owns the Pacesetter Park Shopping Center. The loan, which matures March 2003, bears interest at 8.18% and requires the monthly payment of principal and interest amortized over 20 years. During 1999, the Company closed on two variable-rate financings with an insurance company, which are secured by two of the Company's properties. On September 21, 1999, the Company closed on a $10,000 loan which matures in October 2002 and on July 7, 1999, a $14,000 loan which matures in August 2002. Both loans require monthly payments of interest at a rate of LIBOR plus 205 basis points adjusted on a quarterly basis and principal amortized over 25 years. The Company has also purchased interest rate cap agreements for both loans, which cap LIBOR at 6.50%. The costs of the cap agreements have been capitalized and are being amortized as an adjustment to interest expense over the terms of the loans. Approximately $8,555 of the proceeds were used to retire existing debt with the same lender. F-17
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) 6. Mortgage Loans, continued On May 5, 1999, the Company assumed $6,222 in mortgage debt in connection with the acquisition of the general partner's interest in Mall 189. The debt, which matures September 1, 2002, bears interest at a fixed-rate of 7.5% and requires the payment of interest only through May 4, 2001. Thereafter, and through the maturity date, the loan bears interest at a fixed-rate of 9.875% and requires total monthly payments of $55 representing interest and principal. The debt can be prepaid commencing May 4, 2002, without any prepayment fees. On March 23, 1999, the Company closed on a $7,000 facility with a bank that is secured by one of the company's properties. As of December 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. The Company also obtained two irrevocable letters of credit totaling $3,000. Related to the acquisition of the Mall 189 (note 2), a letter of credit for $2,000 is required pursuant to the bankruptcy reorganization plan of the seller of the property. The letter of credit is expected to be reduced in $500 increments as redevelopment of the property progresses. In addition, a letter of credit for $1,000 was obtained related to the settlement of certain litigation in 1998 with the former President (note 17), which is expected to be reduced in $200 increments as certain obligations are met. 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 after May 23, 2002 without any such fees. The following table summarizes the Company's mortgage indebtedness as of December 31, 1999 and 1998: <TABLE> <CAPTION> December 31, December 31, Interest 1999 1998 Rate ------------ ------------ -------- <S> <C> <C> <C> Mortgage notes payable - variable-rate General Electric Capital Corp. $ 7,126 $ 6,989 8.52% (Commercial paper rate +2.75%) Fleet Bank, N.A. 3,966 -- 7.91% (LIBOR + 1.75%) Fleet Bank, N.A. 9,326 8,268 7.94% (LIBOR + 1.78%) Sun America Life Insurance Company 13,931 -- 8.26% (LIBOR + 2.05%) Sun America Life Insurance Company 9,979 -- 8.13% (LIBOR + 2.05%) KBC Bank 14,508 14,760 7.73% (LIBOR + 1.25%) First Union National Bank 13,750 -- 7.81% (LIBOR + 1.65%) -------- -------- Total variable-rate debt 72,586 30,017 -------- -------- Mortgage notes payable - fixed rate Sun America Life Insurance Company -- 8,717 -- The Manufacturers Life Insurance Company (USA) -- 4,372 -- John Hancock Mutual Life Insurance Company 53,878 54,445 9.11% Metropolitan Life Insurance Company 41,000 41,000 7.75% Sun America Life Insurance Company 42,143 43,832 7.75% Huntoon Hastings Capital Corp. 6,222 -- 7.50% North Fork Bank 5,000 -- 7.75% M&T Real Estate Inc. 4,628 -- 8.18% Anchor National Life Insurance Company 3,866 3,950 7.93% Lehman Brothers Holdings, Inc. 17,973 18,140 8.32% Mellon Mortgage Company 7,566 -- 9.60% Northern Life Insurance Company 3,173 3,409 7.70% Bankers Security Life 2,189 2,351 7.70% Morgan Stanley Mortgage Capital 44,092 44,729 8.84% Nomura Asset Capital Corporation 22,335 22,599 9.02% -------- -------- Total fixed-rate debt 254,065 247,544 -------- -------- $326,651 $277,561 ======== ======== </TABLE> F-18
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) 6. Mortgage Loans, continued <TABLE> <CAPTION> Properties Payment Maturity Encumbered Terms -------- ---------- ------- <S> <C> <C> <C> Mortgage notes payable - variable-rate General Electric Capital Corp. 01/01/02 (1) (20) Fleet Bank, N.A. 03/15/02 (2) (20) Fleet Bank, N.A. 05/31/02 (3) (20) Sun America Life Insurance Company 08/01/02 (4) (20) Sun America Life Insurance Company 10/01/02 (5) (20) KBC Bank 12/31/02 (6) (20) First Union National Bank 01/01/05 (7) (20) Total variable-rate debt Mortgage notes payable - fixed rate Sun America Life Insurance Company -- - -- The Manufacturers Life Insurance Company (USA) -- - -- John Hancock Mutual Life Insurance Company 04/01/00 (8) $455(20) Metropolitan Life Insurance Company 06/01/00 (9) (21) Sun America Life Insurance Company 01/01/01 (10) $346(20) Huntoon Hastings Capital Corp. 09/01/02 (11) (22) North Fork Bank 12/01/02 (12) $38(20) M&T Real Estate Inc. 03/01/03 (13) $41(20) Anchor National Life Insurance Company 01/01/04 (14) $33(20) Lehman Brothers Holdings, Inc. 03/01/04 (15) $139(20) Mellon Mortgage Company 05/23/05 (16) $70(20) Northern Life Insurance Company 12/01/08 (17) $41(20) Bankers Security Life 12/01/08 (17) $28(20) Morgan Stanley Mortgage Capital 11/01/21 (18) $380(20) Nomura Asset Capital Corporation 03/11/22 (19) $193(20) Total fixed-rate debt Notes: (1) Soundview Marketplace (9) Valmont Plaza (18) Midway Plaza Luzerne Street Plaza Northside Mall (2) Town Line Plaza Green Ridge Plaza New Smyrna Beach Crescent Plaza Cloud Springs Plaza (3) Smithtown Shopping Center East End Centre Troy Plaza Martintown Plaza (4) Merrillville Plaza (10) Bloomfield Town Square Kings Fairgrounds Atrium Mall Shillington Plaza (5) Village Apartments Walnut Hill Shopping Center Dunmore Plaza GHT Apartments Kingston Plaza (6) Marley Run Apartments Colony Apartments Twenty Fifth Street Shopping Center Circle Plaza (7) 239 Greenwich Avenue (11) Gateway Mall Mountainville Plaza Birney Plaza (8) New Loudon Centre (12) The Branch Shopping Center Monroe Plaza Ledgewood Mall Ames Plaza Plaza 422 (13) Pacesetter Park Shopping Plaza 15 Berlin Shopping Center Route 6 Mall (14) Pittston Plaza (19) Northwood Centre Tioga West Bradford Towne Centre (15) Glen Oaks Apartments (20) Monthly principal and interest (16) Mad River Station Shopping (21) Interest only monthly Center (17) Manahawkin Shopping Center (22) Interest only until 5/01; principal and interest thereafter </TABLE> F-19
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) 6. Mortgage Loans, continued The scheduled principal repayments of all mortgage indebtedness as of December 31, 1999 are as follows: 2000 $ 98,726 2001 44,431 2002 70,592 2003 6,717 2004 22,892 Thereafter 83,293 -------- $326,651 ======== 7. Minority Interests Minority interest represents the limited partners' interest of 10,484,143 and 11,184,143 Common Operating Partnership ("Common OP") Units in the Operating Partnership at December 31, 1999 and 1998, respectively, and 2,212 units of Preferred Limited Partnership Interests designated as Series A Preferred Units ("Preferred OP Units") issued November 16, 1999 in connection with the acquisition of all the partnership interests of the limited partnership which owns the Pacesetter Park Shopping Center (note 2). The Preferred OP Units, which have a stated value of $1 each, are entitled to a quarterly preferred distribution of the greater of (i) $22.50 (9% annually) per Preferred OP Unit or (ii) the quarterly distribution attributable to a Preferred OP Unit if such unit were converted into a Common OP Unit. The Preferred OP Units are currently convertible into Common OP Units based on the stated value divided by $7.50. After the seventh anniversary following their issuance, either the Company or the holders can call for the conversion of the Preferred OP Units at the lesser of $7.50 or the market price of the Common Shares as of the conversion date. The Preferred OP Units are subject to a twelve-month lock-up period whereby they cannot be sold, assigned or otherwise transferred. Minority interests at December 31, 1999 and 1998 also include an aggregate amount of $2,223 and $2,350, respectively, representing interests held by third parties in four of the properties acquired in the RDC Transaction in which the Company has a majority ownership position. 8. Related Party Transactions During 1998, the Company entered into the following transactions with Mr. Slomowitz, a former trustee and former principal shareholder, in connection with the RDC Transaction: (i) repaid a $3,030 note related to the Company's 1996 purchase of the Union Plaza, (ii) paid $600 in severance pay, (iii) paid $100 on the closing of the RDC Transaction and agreed to pay $100 on each of the following two anniversary dates of the closing of the RDC Transaction for his agreement not to compete with the Company and for certain consulting services, (iv) granted ten year options to purchase 300,000 Common Shares at an exercise price of $9.00 per Common Share, (v) cancelled formerly issued options to purchase 200,000 Common Shares at $12.00 per Common Share and (vi) agreed to pay a brokerage commission of 2% of the sales price of nine designated properties currently comprising a portion of the Company's portfolio, provided such commissions would not exceed $600 in the aggregate. On December 30, 1999, the Company and Mr. Slomowitz terminated certain of the obligations described above which were incurred in connection with the RDC Transaction. The principal terms included cancellation of the lease for the Company's prior headquarters in a building owned by Mr. Slomowitz. Rent expenses for this office space was $119, $112 and $104 for the years ended December 31, 1999, 1998 and 1997, respectively. The Company paid Mr. Slomowitz the sum of $329 in connection with the lease cancellation. Additionally, Mr. Slomowitz terminated his options to acquire 301,000 common shares and waived the final $100 installment payment due August, 2000. The Company agreed to indemnify Mr. Slomowitz with respect to certain contingent liabilities. Mr. Slomowitz retains the right to continue to guarantee Company debt up to $55,000. F-20
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) 8. Related Party Transactions, continued Mr. Slomowitz also removed all restrictions on the sale of any properties which he had originally contributed to the Company, waived his claims for present and future brokerage commissions and agreed to absorb up to $1,250 of tax liabilities resulting in event of the sale thereof. Mr. Slomowitz also resigned from the Company's Board of Trustees effective December 8, 1999. On July 16, 1999, and April 9, 1999, Mr. Slomowitz converted 600,000 and 100,000 Common OP Units, respectively, into Common Shares. In connection with the RDC Transaction, the Company acquired certain property management contracts for 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 ranging from 3% and 3.5% of collections. Such fees aggregated $639 and $225 for the years ended December 31, 1999 and 1998, respectively. Management fees earned under management contracts on properties owned by Mr. Slomowitz aggregated $8 and $19 for the years ended December 31, 1998 and 1997, respectively. On June 1, 1998, the Company purchased for $1,372 the building and other improvements constituting the Blackman Plaza from Blackman Plaza Partners in which Mr. Slomowitz is the sole general partner (owning a one percent economic interest). The Company was already the owner of the land. Payment for the building and other improvements was made with the proceeds from a financing with CS First Boston (this debt was subsequently retired following the RDC Transaction) and the application of ground rent in arrears totaling $496 due the Company. 9. Tenant Leases Space in the shopping centers and other retail properties is leased to various tenants under operating leases which usually grant tenants renewal options and generally provide for additional rents based on certain operating expenses as well as tenants' sales volume. Minimum future rentals to be received under non-cancelable leases for shopping centers and other retail properties as of December 31, 1999 are summarized as follows: 2000 $ 50,409 2001 46,942 2002 42,902 2003 39,725 2004 34,682 Thereafter 210,408 -------- $425,068 ======== Minimum future rentals above include a total of $2,176 for two tenants (with five leases), which have filed for bankruptcy protection. None of these leases have been rejected nor affirmed. During the years ended December 31, 1999 and 1998, no single tenant collectively accounted for more than 10% of the Company's total revenues. During the year ended December 31, 1997, rental income representing 10% or more of total revenues was earned from various governmental agencies of the State of Florida. Leases with these Florida agencies contain customary conditions, required under Florida Law, permitting state agency tenants to cancel their leases upon six months' notice in the event that state-owned facilities in the same county become available. As such, minimum rents from these Florida agencies are not included in the above table of minimum future rentals. Rentals earned under these leases during the year ended December 31, 1997 were $4,890. On December 15, 1999, the Company received a Notice of Exercise of Right to Terminate Lease from the Florida Department of Health for an aggregate 59,150 square feet representing $827 of rents. F-21
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) 10. Lease Obligations The Company leases land at six of its shopping centers, which are accounted for as operating leases and generally provide the Company with renewal options. The leases terminate during the years 2016 to 2066. Four of these leases provide the Company with options to renew for additional terms aggregating from 20 to 44 years. The Company leases space for its New York City corporate office for a term expiring in 2002. Future minimum rental payments required for leases having remaining non-cancelable lease terms in excess of one year are as follows: 2000 $ 714 2001 714 2002 668 2003 642 2004 642 Thereafter 21,406 ------- $24,786 ======= 11. Share Incentive Plan During 1999, the Company adopted the 1999 Share Incentive Plan (the "1999 Plan") which replaced both the 1994 Share Option Plan and the 1994 Non-Employee Trustees' Share Option Plan. The 1999 Plan authorizes the issuance of options equal to up to 8% of the Common Shares outstanding from time to time on a fully diluted basis. However, not more than 4,000,000 of the Common Shares in the aggregate may be issued pursuant to the exercise of options and no participant may receive more than 5,000,000 Common Shares during the term of the 1999 Plan. Options are granted by the Share Option Plan Committee (the "Committee"), which currently consists of two non-employee Trustees, and will not have an exercise price less than 100% of the fair market value of the Common shares and a term of greater than 10 years at the grant date. Vesting of options is at the discretion of the Committee with the exception of options granted to non-employee Trustees, which vest in five equal annual installments beginning on the date of grant. Pursuant to the 1999 Plan, non-employee Trustees receive an automatic grant of 1,000 options following each Annual Meeting of Shareholders. As of December 31, 1999, the Company has issued 2,066,600 options to officers and employees, which are for ten-year terms and vest in three equal annual installments beginning on the grant date. In addition, 5000 options have been issued to non-employee Trustees. 1,000 of these options were subsequently cancelled as further described in note 8. The 1999 Plan also provides for the granting of Share Appreciation Rights, Restricted Shares and Performance Units/Shares. Share Appreciation Rights provide for the participant to receive, upon exercise, cash and/or Common Shares, at the discretion of the committee, equal to in value to the excess of the option exercise price over the fair market value of the Common Shares at the exercise date. The Committee will determine the award and restrictions placed on Restricted Shares, including the dividends thereon and the term of such restrictions. The Committee also determines the award and vesting of Performance Units and Performance Shares based on the attainment of specified performance objectives of the Company within a specified performance period. As of December 31, 1999, the Company issued 2,000 Restricted Shares, which vest equally over three years, to an employee. No awards of Share Appreciation Rights or Performance Units/Shares were granted for the year ended December 31, 1999. F-22
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) 11. Share Incentive Plan, continued The Company accounts for stock-based compensation pursuant to Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related interpretations. Under APB 25, no compensation expense has been recognized in the accompanying financial statements related to the issuance of stock options because the exercise price of the Company's employee stock options equaled or exceeded the market price of the underlying stock on the date of grant. The alternative fair value accounting provided for under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), has not been elected by the Company. Accordingly, pro forma information regarding net income and earnings per share as required by SFAS 123 has been determined as if the Company had accounted for its employee stock options under the fair value method. The fair value for these options was estimated at the date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: Year ended December 31, 1999 1998 1997 ---- ---- ---- Risk-free interest rate 6.4% 5.2% 6.3% Dividend Yield 9.5% 9.4% 9.0% Expected Life 8.6 years 9.7 Years 4.0 Years Expected volatility 32.4% 37.7% 13.7% For purposes of pro forma disclosure, the estimated fair value of the options are amortized to expense over the options vesting period. For the year ended December 31, 1999, pro forma net income is $6,573, or $0.26 per Share. For the years ended December 31, 1998 and 1997, the Company has elected not to present proforma information because the impact on the reported net loss per Share is immaterial. Changes in the number of shares under all option arrangements are summarized as follows: Year ended December 31, 1999 1998 1997 ---- ---- ---- Outstanding at beginning of period 300,000 329,500 217,000 Granted 2,071,600 305,000 152,500 Option price per share granted $4.89-$7.50 $8.88-$9.00 $10.13-$11.19 Cancelled 300,000 334,500 40,000 Exercisable at end of period 1,368,733 300,000 181,100 Exercised -- -- -- Expired -- -- -- Outstanding at end of period 2,071,600 300,000 329,500 Option prices per share outstanding $4.89-$7.50 $9.00 $10.13-$12.75 As of December 31, 1999 the outstanding options had a weighted average remaining contractual life of approximately 8.6 years. F-23
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) 12. Restricted Share Plan The Company had established a restricted share plan, which originally granted to employees 47,722 restricted Common Shares. The granted restricted shares were scheduled to vest and be issued 20% per year over a five year period, which began June 1, 1994. All such shares other than those which had been forfeited prior to vesting were issued as of December 31, 1998. Each plan participant was entitled to receive additional compensation on a quarterly basis equal to the dividend declared on their respective restricted shares granted under the plan until such plan participants' restricted shares were vested. For the years ended December 31, 1998 and 1997, total compensation expense related to such restricted shares vested in such periods amounted to $29 and $76, respectively. 13. Employee 401(k) Plan The Company maintains a 401(k) plan for employees under which the Company currently matches 50% of a plan participant's contribution up to 6% of the employee's annual salary. A plan participant may contribute up to a maximum of 15% of their compensation but not in excess of $10 for the year ended December 31, 1999. The Company contributed $93, $77 and $67 for the years ended December 31, 1999, 1998 and 1997, respectively. 14. Dividends and Distributions Payable On December 13,1999, the Company declared a cash dividend for the quarter ended December 31, 1999 of $0.12 per Common Share. The dividend was paid on January 15, 2000 to shareholders of record as of December 31, 1999. A distribution of $0.12 per Common OP Unit was paid to Common OP Unit holders as well. A distribution of $10.52 per Preferred OP Unit ($22.50 per annum pro-rated due to their November 1999 issuance) for the quarter ended December 31, 1999 was declared December 13, 1999 and paid to Preferred OP Unit holders on January 15, 2000. The Company has determined that the cash distributed to the shareholders is characterized as follows for federal income tax purposes: 1999 1998 1997 ---- ---- ---- Ordinary income 41% n/a 34% Return of capital 59% n/a 66% ---- --- ---- 100% n/a 100% ==== === ==== 15. Fair Value of Financial Instruments Statement of Financial Accounting Standards No. 107 "Disclosures About Fair Value of Financial Instruments", requires disclosure on the fair value of financial instruments. Certain of the Company's assets and liabilities are considered financial instruments. Fair value estimates, methods and assumptions are set forth below. Cash and Cash Equivalents, Accounts Receivable, Accounts Payable and Accrued Expenses The carrying amount of these assets and liabilities approximates fair value due to the short-term nature of such accounts. Mortgage Notes Payable As of December 31, 1999 and 1998, the Company has determined the estimated fair value of its mortgage notes payable are approximately $327,690 and $292,854, respectively, by discounting future cash payments utilizing a discount rate equivalent to the rate at which similar mortgage notes payable would be originated under conditions then existing. F-24
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) 16. Summary of Quarterly Financial Information (unaudited) The separate results of operations of the Company for the years ended December 31, 1999 and 1998 are as follows: <TABLE> <CAPTION> March 31, June 30, September 30, December 31, Total for 1999 1999 1999 1999 Year -------- -------- ------------- ------------ --------- <S> <C> <C> <C> <C> <C> Revenue $22,251 $21,904 $24,428 $24,126 $92,709 ===================================================================== Income before minority interest $ 1,141 $ 1,886 $ 4,362 $ 2,936 $10,325 ===================================================================== Net income $ 765 $ 1,289 $ 3,083 $ 2,058 $ 7,195 ===================================================================== Net income per share - basic and diluted $ 0.03 $ 0.05 $ 0.12 $ 0.08 $ 0.28 ===================================================================== Cash dividends declared per share $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.48 ===================================================================== Weighted average shares outstanding - basic and diluted 25,419,215 25,510,424 25,988,860 25,908,199 25,708,787 ===================================================================== March 31, June 30, September 30, December 31, Total for 1998 1998 1998 1998 Year --------- -------- ------------- ------------ --------- Revenue $10,951 $10,749 $16,150 $21,921 $59,771 ===================================================================== Loss before extraordinary item and minority interest ($621) ($1,568) ($12,920) ($1,430) ($16,539) ===================================================================== Net loss ($533) ($1,561) ($10,800) ($1,004) ($13,898) ===================================================================== Net loss per share - basic and diluted Loss before extraordinary item ($0.06) ($0.15) ($0.58) ($0.04) ($0.86) ===================================================================== Net loss ($0.06) ($0.18) ($0.60) ($0.04) ($0.91) ===================================================================== Cash dividends declared per share $0.00 $0.00 $0.00 $0.00 $0.00 ===================================================================== Weighted average shares outstanding - basic and diluted 8,544,177 8,555,346 18,078,215 25,419,215 15,205,962 ===================================================================== </TABLE> F-25
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) 17. Legal Proceedings On November 20, 1995, Jack Wertheimer, a former President of the Company, filed a complaint against the Company, its Trustees, including Mr. Slomowitz, and the Company's former in-house General Counsel and former Chief Financial Officer in the United States District Court for the Middle District of Pennsylvania. The complaint, which was filed in connection with the termination of Mr. Wertheimer's employment, included many of the allegations raised in a state court proceeding commenced by Mr. Wertheimer in November 1994. The Federal court complaint also included a civil RICO action in which Mr. Wertheimer alleged that the Board of Trustees of the Company conspired with Mr. Slomowitz to terminate Mr. Wertheimer's employment as part of the Mr. Slomowitz's breach of his duty of good faith and fair dealing. Further, Mr. Wertheimer alleged that the above defendants engaged in securities fraud in connection with the initial public offering and that Mr. Slomowitz defrauded or overcharged the Company in corporate transactions. The Federal complaint sought treble damages under RICO, as well as damages arising from Mr. Wertheimer's alleged termination of employment, invasion of privacy, intentional infliction of emotional distress, fraud and misrepresentation. On December 31, 1998, the Company and Mr. Wertheimer settled this litigation and entered into an agreement whereby the Company paid Mr. Wertheimer $1,000 on December 31, 1998 and agreed to pay him (i)$900 on April 1, 1999 and (ii) five annual payments of $200 commencing January 10, 2000. Pursuant to this agreement, the Company has obtained a standby letter of credit to collateralize these future payments (note 6). The Company is involved in other various matters of litigation arising in the normal course of business. While the Company is unable to predict with certainty the amounts involved, the Company's management and counsel are of the opinion that, when such litigation is resolved, the Company's resulting liability, if any, will not have a significant effect on the Company's consolidated financial position. 18. Contingencies Upon conducting environmental site inspections in connection with obtaining the Morgan Stanley Mortgage Capital ("Morgan Stanley") financing during October 1996, certain environmental contamination was identified at the Troy Plaza in Troy, New York. The Company has entered into a voluntary remedial agreement with the State of New York for the remediation of the property. Environmental consultants have completed the remediation operations at the site and are performing a post-remediation sampling and analysis program. Upon the issuance of a final report to the State of New York, the Company will have satisfied all conditions to the voluntary remedial agreement. As of December 31, 1999, Morgan Stanley holds $250 in escrow to be released upon the Company receiving final approval from the State of New York. Management is not aware of any other environmental liability that they believe would have a material adverse impact on the Company's financial position or results of operations. Management is unaware of any instances in which it would incur significant environmental costs if any or all properties were sold, disposed of or abandoned. F-26
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) 19. Extraordinary Item - Loss on Early Extinguishment of Debt The consolidated statement of operations for the year ended December 31, 1998 includes the write-off of $707 in net deferred financing fees as a result of the repayment of the related mortgage debts. 20. Pro Forma Information The following unaudited pro forma condensed consolidated information for the years ended December 31, 1998 and 1997 is presented as if the RDC Transaction had occurred on January 1, 1997. 1998 1997 ---- ---- Revenue $84,053 $82,220 ======= ======= (Loss) income before extraordinary item $(5,886) $ 5,170 ======= ======= Net (loss) income $(6,067) $ 4,731 ======= ======= Net (loss) income per share- basic and diluted $ (0.24) $ 0.19 ======= ======= Weighted average number of Common Shares outstanding 24,677,928 24,676,558 ========== ========== Weighted average number of Common Shares outstanding- assuming dilution 24,677,928 24,680,356 ========== ========== 21. Subsequent Events On January 31, 2000, the Company paid down $23,090 of outstanding debt with a life insurance company from working capital. On February 8, 2000, the Company closed on a revolving credit facility with a bank, which provides for the borrowing of up to $7,400. The facility, which is secured by one of the Company's properties, matures in March 2003 and requires the monthly payment of interest at the rate of LIBOR plus 150 basis points (the rate increases by an additional 25 basis points if the amount outstanding under the facility exceeds 50% of the value of the collateral). The monthly repayment of principal amortized over 25 years is required only if the Company draws the full amount available under the facility. The Company has currently not drawn any amounts under this facility. F-27
ACADIA REALTY TRUST SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1999 <TABLE> <CAPTION> Costs capitalized Buildings & Subsequent Buildings & Description Encumbrances Land Improvements to Acquisition Land Improvements - ----------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Shopping Centers Circle Plaza (1) $ - $ 3,435 $ 13 $ 2 $ 3,446 Shamokin Dam, PA Martintown Plaza (1) - 4,625 1,620 - 6,245 North Augusta, SC Midway Plaza (1) 196 1,647 3,081 196 4,728 Opelika, AL Northside Mall (1) 1,604 7,080 2,213 1,604 9,293 Dothan, AL New Smyrna Beach (1) 246 2,219 3,963 246 6,182 New Smyrna Beach FL Wesmark Plaza - 380 3,419 3,794 370 7,223 Sumter, SC King's Fairground (1) - 1,426 242 - 1,668 Danville, VA Cloud Springs Plaza (1) 159 2,712 1,177 159 3,889 Ft Ogelthorpe, GA Crescent Plaza 12,000 1,147 7,425 481 1,147 7,906 Brockton, MA New Louden Centre (2) 505 4,161 9,623 505 13,784 Latham, NY Ledgewood Mall (2) 619 5,434 30,937 619 36,371 Ledgewood, NJ Troy Plaza (1) 479 1,976 950 479 2,926 Troy, NY Birney Plaza (1) 210 2,979 803 210 3,782 Moosic, PA Dunmore Plaza (1) 100 506 137 100 643 Dunmore, PA Mark Plaza - - 4,268 3,881 - 8,149 Edwardsville, PA Kingston Plaza (1) 305 1,745 463 284 2,229 Kingston, PA Luzerne Street Plaza 2,000 35 315 1,208 35 1,523 Scranton, PA Blackman Plaza - 120 - 1,383 120 1,383 Wilkes- Barre, PA East End Centre 14,200 1,086 8,661 3,493 1,086 12,154 Wilkes-Barre, PA Greenridge Plaza 6,700 1,335 6,314 695 1,335 7,009 Scranton, PA Plaza 15 (1) 171 81 1,481 171 1,562 Lewisburg, PA </TABLE>
<TABLE> <CAPTION> Date of Accumulated Acquisition (a) Total Depreciation Construction (c) ------------------------------------------------ <S> <C> <C> <C> Shopping Centers Circle Plaza $ 3,448 $ 1,380 1978(c) Shamokin Dam, PA Martintown Plaza 6,245 2,475 1985(a) North Augusta, SC Midway Plaza 4,924 2,138 1984(a) Opelika, AL Northside Mall 10,897 4,133 1986(a) Dothan, AL New Smyrna Beach 6,428 2,835 1983(a) New Smyrna Beach FL Wesmark Plaza 7,593 2,478 1986(a) Sumter, SC King's Fairground 1,668 479 1992(a) Danville, VA Cloud Springs Plaza 4,048 1,634 1985(a) Ft Ogelthorpe, GA Crescent Plaza 9,053 2,969 1984(a) Brockton, MA New Louden Centre 14,289 4,315 1982(a) Latham, NY Ledgewood Mall 36,990 14,285 1983(a) Ledgewood, NJ Troy Plaza 3,405 1,554 1982(a) Troy, NY Birney Plaza 3,992 3,260 1968(c) Moosic, PA Dunmore Plaza 743 304 1975(a) Dunmore, PA Mark Plaza 8,149 3,817 1968(c) Edwardsville, PA Kingston Plaza 2,513 1,264 1982(c) Kingston, PA Luzerne Street Plaza 1,558 809 1983(a) Scranton, PA Blackman Plaza 1,503 72 1968(c) Wilkes- Barre, PA East End Centre 13,240 5,308 1986(c) Wilkes-Barre, PA Greenridge Plaza 8,344 2,921 1986(c) Scranton, PA Plaza 15 1,733 507 1976(c) Lewisburg, PA </TABLE>
ACADIA REALTY TRUST SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1999 <TABLE> <CAPTION> Costs capitalized Buildings & Subsequent Buildings & Description Encumbrances Land Improvements to Acquisition Land Improvements - ----------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Shopping Centers (cont.) Plaza 422 (2) 190 3,004 414 190 3,418 Lebanon, PA Tioga West (2) 48 1,238 3,144 48 4,382 Tunkhannock,PA Mountainville Plaza (1) 420 2,390 486 420 2,876 Allentown, PA Monroe Plaza (1) 70 2,083 147 150 2,150 Stroudsburg, PA Ames Plaza (1) 57 1,958 182 57 2,140 Shamokin, PA Route 6 Mall (2) - - 12,696 1,664 11,032 Honesdale , PA Pittston Mall 3,866 1,500 - 5,956 1,521 5,935 Pittston , PA Valmont Plaza 6,100 522 5,591 1,029 522 6,620 West Hazelton , PA Manahawkin 5,362 2,400 9,396 4,837 3,105 13,528 Stafford Township, NJ Twenty Fifth Street (1) 2,280 9,276 196 2,280 9,472 Easton, PA Berlin Shopping Centre (2) 1,331 5,351 205 1,331 5,556 Berlin, NJ Shillington Plaza (1) 809 3,268 32 809 3,300 Reading, PA Union Plaza - - - 20,241 5,426 14,815 New Castle, PA Bradford Towne Centre (2) - - 16,100 817 15,283 Towanda, PA Atrium Mall 10,360 2,772 11,088 22 2,772 11,110 Abington, PA Bloomfield Town Square 10,332 3,443 13,774 - 3,443 13,774 Bloomfield Hills, MI Walnut Hill Plaza 9,286 3,122 12,488 392 3,122 12,880 Woonsocket, RI Elmwood Park Plaza - 3,248 12,992 211 3,248 13,203 Elmwood Park, NJ Merrillville Plaza 13,931 4,288 17,152 565 4,288 17,717 Hobart, IN Soundview Marketplace 7,126 2,428 9,711 1,180 2,428 10,891 Port Washington, NY Marketplace of Absecon - 2,573 10,294 488 2,577 10,778 Absecon, NJ </TABLE>
<TABLE> <CAPTION> Date of Accumulated Acquisition (a) Total Depreciation Construction (c) ------------------------------------------------ <S> <C> <C> <C> Shopping Centers (cont.) Plaza 422 3,608 2,062 1972(c) Lebanon, PA Tioga West 4,430 2,029 1965(c) Tunkhannock,PA Mountainville Plaza 3,296 1,543 1983(a) Allentown, PA Monroe Plaza 2,300 1,054 1964(c) Stroudsburg, PA Ames Plaza 2,197 1,688 1966(c) Shamokin, PA Route 6 Mall 12,696 1,978 1995(c) Honesdale , PA Pittston Mall 7,456 867 1995(c) Pittston , PA Valmont Plaza 7,142 2,992 1985(a) West Hazelton , PA Manahawkin 16,633 1,763 1993(a) Stafford Township, NJ Twenty Fifth Street 11,752 2,000 1993(a) Easton, PA Berlin Shopping Centre 6,887 1,107 1994(a) Berlin, NJ Shillington Plaza 4,109 586 1994(a) Reading, PA Union Plaza 20,241 1,493 1996(c) New Castle, PA Bradford Towne Centre 16,100 2,931 1994(c) Towanda, PA Atrium Mall 13,882 383 1998(a) Abington, PA Bloomfield Town Square 17,217 473 1998(a) Bloomfield Hills, MI Walnut Hill Plaza 16,002 539 1998(a) Woonsocket, RI Elmwood Park Plaza 16,451 447 1998(a) Elmwood Park, NJ Merrillville Plaza 22,005 638 1998(a) Hobart, IN Soundview Marketplace 13,319 378 1998(a) Port Washington, NY Marketplace of Absecon 13,355 378 1998(a) Absecon, NJ </TABLE>
ACADIA REALTY TRUST SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1999 <TABLE> <CAPTION> Costs capitalized Buildings & Subsequent Buildings & Description Encumbrances Land Improvements to Acquisition Land Improvements - ----------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Shopping Centers (cont.) Hobson West Plaza - 1,793 7,172 243 1,793 7,415 Naperville, IL Smithtown Shopping Center 9,326 3,229 12,917 933 3,229 13,849 Smithtown, NY Town Line Plaza 3,966 878 3,510 6,315 908 9,795 Rocky Hill, CT Branch Shopping Center 5,000 3,156 12,545 - 3,156 12,545 Village of the Branch, NY The Caldor Shopping Center - 956 3,826 - 956 3,826 Methuen, MA Gateway Mall 6,222 1,273 - - 1,273 - Burlington, VT Mad River Station 7,566 2,350 9,404 2,350 9,404 Dayton, OH Pacesetter Park Shopping Center 4,628 1,475 5,899 7 1,475 5,906 Ramapo, NY 239 Greenwich 13,750 1,817 15,846 - 1,817 15,846 Greenwich, CT Residential Properties Gate House, Holiday House, 8,275 2,312 9,247 578 2,312 9,825 Tiger Village Columbia, MO Village Apartments 9,979 3,429 13,716 311 3,429 14,028 Winston Salem, NC Glen Oaks Apartments 17,973 5,045 20,180 359 5,045 20,538 Greenbelt, MD Colony Apartments 3,890 1,118 4,470 147 1,118 4,617 Columbia, MO Marley Run Apartments 14,508 4,209 16,835 188 4,209 17,023 Baltimore, MD Properties under - - - 9,992 - 9,992 development (5) --------- ------------------------------------------------------------------------------ $ 326,651(6) $ 73,238 $ 337,049 $ 159,234 $ 81,956 487,565 ========= ============================================================================== </TABLE>
<TABLE> <CAPTION> Date of Accumulated Acquisition (a) Total Depreciation Construction (c) ------------------------------------------------ <S> <C> <C> <C> Shopping Centers (cont.) Hobson West Plaza 9,208 279 1998(a) Naperville, IL Smithtown Shopping Center 17,078 579 1998(a) Smithtown, NY Town Line Plaza 10,703 515 1998(a) Rocky Hill, CT Branch Shopping Center 15,701 432 1998(a) Village of the Branch, NY The Caldor Shopping Center 4,782 132 1998(a) Methuen, MA Gateway Mall 1,273 - 1999(a) Burlington, VT Mad River Station 11,753 196 1999(a) Dayton, OH Pacesetter Park Shopping Center 7,381 12 1999(a) Ramapo, NY 239 Greenwich 17,663 135 1999(c) Greenwich, CT Residential Properties Gate House, Holiday House, 12,137 367 1998(a) Tiger Village Columbia, MO Village Apartments 17,457 522 1998(a) Winston Salem, NC Glen Oaks Apartments 25,583 731 1998(a) Greenbelt, MD Colony Apartments 5,735 169 1998(a) Columbia, MO Marley Run Apartments 21,232 601 1998(a) Baltimore, MD Properties under 9,992 - development (5) ----------------------- $ 569,521 $ 90,932 ======================= </TABLE>
Acadia Realty Trust Notes To Schedule 3 December 31, 1999 1. These seventeen properties serve as collateral for the financing with Morgan Stanley (Note 6). 2. These seven properties serve as collateral for the financing with John Hancock Life Insurance (Note 6). 3. Depreciation and investments in buildings and improvements reflected in the statements of operations is calculated over the estimated useful life of the assets as follows: Buildings 30 to 40 years Improvements Shorter of lease term or useful life 4. The aggregate gross cost of property included above for Federal income tax purposes was $537,459 as of December 31, 1999. 5. Properties under development includes approximately $5,504 for the Gateway Mall property. 6. Total encumbrances includes $22,335 for Northwood Centre property which is separately disclosed as Property held for sale in the balance sheet. 7.(a) Reconciliation of Real Estate Properties: The following table reconciles the real estate properties from January 1, 1997 to December 31, 1999: <TABLE> <CAPTION> for the year ended December 31, 1999 1998 1997 ---- ---- ---- <S> <C> <C> <C> Balance at beginning of period $ 551,249 $ 311,688 $ 307,411 Acquisitions and adjustments related to development options and establishment of note payable to the former Principal Shareholder - - - Other improvements 19,728 16,647 7,480 Properties acquired 25,905 254,164 - Adjustment of carrying value of property held for sale - (11,560) - Property held for sale (27,301) (11,991) - Fully depreciated assets written off (60) (3,350) (998) Sale of property - (4,349) (2,205) ------------------------------------------ Balance at end of period $ 569,521 $ 551,249 $ 311,688 ========================================== </TABLE> (b) Reconciliation of accumulated Depreciation: The following table reconciles accumulated depreciation from January 1, 1997 to December 31, 1999: <TABLE> <CAPTION> for the year ended December 31, 1999 1998 1997 ---- ---- ---- <S> <C> <C> <C> Balance at beginning of period $ 87,202 $ 83,326 $ 72,956 Sale of property - (2,035) (905) Property held for sale (14,074) (4,918) - Fully depreciated assets written off (60) (3,350) (998) Depreciation related to real estate 17,864 14,179 12,273 ----------------------------------------- Balance at end of period $ 90,932 $ 87,202 $ 83,326 ========================================= </TABLE>