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, 2000 [ ] 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. [X] The aggregate market value of the voting common equity stock held by non-affiliates of the Registrant was approximately $176.5 million based on the closing price on the New York Stock Exchange for such stock on March 21, 2001 (the Company has no non-voting common equity). The number of shares of the Registrant's Common Shares of Beneficial Interest outstanding was 28,015,672 on March 21, 2001. DOCUMENTS INCORPORATED BY REFERENCE Part III - Definitive proxy statement for the Annual Meeting of Shareholders presently scheduled to be held May 31, 2001, to be filed pursuant to Regulation 14A.
TABLE OF CONTENTS Form 10-K Report Item No. Page - -------- ----- PART I 1. Business 1 2. Properties 7 3. Legal Proceedings 14 4. Submission of Matters to a Vote of Security Holders 14 PART II 5. Market for the Registrant's Common Equity and Related Shareholder Matters 15 6. Selected Financial Data 16 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 18 7A. Quantitative and Qualitative Disclosures about Market Risk 26 8. Financial Statements and Supplementary Data 27 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 27 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 28 PART IV 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K 28
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. The Company operates fifty-seven properties, which it owns or has an ownership interest in, consisting of forty-seven neighborhood and community shopping centers, four redevelopment retail properties, one enclosed mall and five multi-family properties, all of which are located in the Eastern and Midwestern regions of the United States. 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") and its majority owned subsidiaries. As of December 31, 2000, the Company controlled 81% of the Operating Partnership as the sole general partner. On August 12, 1998, the Company completed a major reorganization ("RDC Transaction") in which it acquired twelve shopping centers, five multi-family properties and a 49% interest in one shopping center along with certain third party management contracts and promissory notes from real estate investment partnerships ("RDC Funds") managed by affiliates of RD Capital, Inc. In exchange for these and a cash investment of $100 million, the Company issued 11.1 million Operating Partnership Units ("OP Units") and 15.3 million common shares of beneficial interest ("Common Shares") to the RDC Funds. After giving effect to the conversion of OP Units, which are generally exchangeable for Common Shares on a one-for-one basis, the RDC Funds beneficially owned 72% of the Common Shares as of the closing of the RDC Transaction. The Company is also obligated to issue OP Units valued at $2.8 million upon the commencement of rental payments from a designated tenant at one of the acquired properties. Concurrent with the RDC Transaction, the Company appointed former RD Capital, Inc. executives Ross Dworman as Chairman and Chief Executive Officer, and Kenneth F. Bernstein as President. In January 2001, the Board of Trustees appointed Mr. Bernstein as Chief Executive Officer with Mr. Dworman remaining as Chairman. 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") which expired December 28, 2000. RECENT DEVELOPMENTS The Company believes that its current stock price does not reflect the underlying value of its assets. As such, on January 4, 2001, the Company announced that it had engaged Credit Suisse First Boston to undertake a review of a broad range of strategic alternatives available to the Company in light of current and prospective market conditions facing the Company and the REIT industry. Consistent with their commitment to maximize shareholder value, the Board of Trustees and management will examine all means to enhance the opportunity for liquidity for all shareholders at a fair price to the Company's net asset value. This includes a possible merger, recapitalization or assets sales, among other alternatives. Discussion regarding the Company's business objectives and operating strategy, liquidity and capital resources and other future plans throughout this Annual Report should be read giving appropriate consideration to this pending evaluation. 1
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 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 engaging in joint ventures related to property acquisition and development. 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. 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. The Company also periodically identifies certain properties for disposition and redeploys the capital to existing centers or acquisitions with greater potential for capital appreciation. Upon conducting a comprehensive review of the portfolio during 2000, the Company identified 30 of the current portfolio of 57 properties as core assets. These core retail properties are neighborhood and community shopping centers and consist of 26 stabilized shopping centers and four redevelopment properties. The core properties are typically dominant centers in high barrier-to-entry markets. The anchors at these centers typically pay below-market rents and have low rent-to-sales ratios which are, on average, approximately 4%. Furthermore, 22 of the 30 core properties are anchored by supermarkets. These attributes enable the properties to better withstand a weakening economy while also creating opportunities to increase rental income. The non-core properties consist of 22 retail and five multi-family properties. In addition to these properties, the Company sold another mixed-use center during 2000 as discussed under "Disposition of Properties" below. The Company intends on disposing of all the non-core assets as market conditions permit. Two of the multi-family and one retail property are currently being actively marketed for sale. 17 of the non-core retail properties secure debt originally issued by Morgan Stanley Mortgage Capital and are cross-collateralized. 2
PROPERTY REDEVELOPMENT The Company's redevelopment program focuses on selecting well-located neighborhood and community shopping centers and creating significant value through retenanting and property redevelopment. The Company currently has four properties under redevelopment as follows: Abington Towne Center - The Company has completed the first phase of redevelopment of this previously enclosed multi-level mall located in the Philadelphia suburb of Abington, Pennsylvania. In December 2000, the Company sold approximately 160,000 square feet representing the top two floors and the rear portion of the ground level and the related parking area to the Target Corporation ("Target") for $11.5 million. Target is currently building out the space and is expected to open prior to the end of 2001. The Company has "de-malled" the balance of the center consisting of approximately 46,000 square feet of the main building and 14,000 square feet of store space in outparcel buildings which it will continue to own and operate. An existing anchor, T.J. Maxx, was relocated to a 27,000 square foot space in the Company's portion of the main building and reopened for business during November 2000. As of December 31, 2000, costs incurred on this project totaled $3.6 million. Remaining costs projected to complete the redevelopment of this property are approximately $370,000. Elmwood Park Shopping Center - During 2000, the Company commenced with the sitework on the redevelopment of this center located in Elmwood Park, New Jersey, approximately ten miles west of New York City. The redevelopment consists of reanchoring, renovating and expanding the existing 125,000 square foot shopping center by 30,000 square feet. The new anchor, a 48,000 square foot free-standing A&P supermarket, will replace an undersized (28,000 square feet) in-line Grand Union supermarket when completed. The project also includes the expansion of an existing Walgreens drug store. As of December 31, 2000, costs incurred on this project totaled $563,000. The Company expects remaining redevelopment costs of approximately $8.7 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 $2.75 million in connection with the RDC Transaction. Methuen Shopping Center - This center, located in Methuen, Massachusetts (part of the Boston metropolitan statistical area) was formerly anchored by a Caldor department store. The Company acquired this lease out of bankruptcy and is currently in final lease negotiations with a national discount retailer for an 89,000 square foot department store, although there can be no assurances that these negotiations will ultimately result in an executed lease. Projected costs to complete this project are approximately $400,000. Gateway Shopping Center - The redevelopment of the Gateway Shopping Center, a partially enclosed mall located in Burlington, Vermont, includes the recapture of a 32,000 square foot former Grand Union store, demolition of 70% of the property and the construction of a new anchor tenant. Following the bankruptcy of Grand Union, the lease was assigned to Shaw's which has resulted in a temporary delay of the planned de-malling and redevelopment. The Company is reviewing a broad range of possible redevelopment scenarios and related costs as a result of the lease assignment to Shaw's. 3
REANCHORING AND LEASING ACTIVITY During 2000, 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: - Homegoods, Inc. (a TJX company) took occupancy and commenced paying rent during 2000 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. - The Company reanchored the New Loudon Shopping Center, located in Latham, New York with a 76,000 square foot Ames which took occupancy and commenced paying rent during 2000. - During 2000, the Company installed Stein Mart in 36,000 square feet at the Northside Mall, located in Dothan Alabama, replacing a Montgomery Wards lease which was purchased out of bankruptcy by the Company. This tenant, which co-anchors the center with a Wal*Mart, commenced paying rent in 2000. - A lease was executed with Giant Food Stores (an Ahold subsidiary) for 61,000 square feet, replacing a former BiLo supermarket at the Greenridge Shopping Center in Scranton, Pennsylvania. Rent is anticipated to commence during the third quarter of 2001. - In connection with the addition of an anchor at the Union Plaza located in New Castle, Pennsylvania, on August 25, 2000, the Company sold 13 acres to Lowes Home Center, Inc., which is constructing a 130,000 square foot store at the location. Proceeds from this sale totaled $1.9 million. 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. The Company evaluated several potential property acquisitions during 2000, including a portfolio of properties totaling $150 million, but due to a difficult capital market environment experienced throughout the REIT industry during 2000, the Company made the strategic decision to forego these contemplated acquisitions. 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. DISPOSITION OF PROPERTIES In addition to the sales discussed under "Property Redevelopment" and "Reanchoring and Leasing Activity", during 2000, the Company sold a non-core asset in connection with its ongoing program of evaluating and optimizing the property portfolio with respect to property locations, tenant profiles, cash flows and future capital appreciation. On December 14, 2000, the Company sold the Northwood Centre, a mixed-use center consisting of retail and governmental offices located in Tallahassee, Florida, for $31.5 million. The buyer assumed the mortgage balance of $22.1 million and acquired various mortgage-related escrows for $1.8 million that, following additional net closing adjustments and costs resulted in net proceeds of $11.0 million to the Company. 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 cash on hand, bank and other institutional borrowing, the sale of properties and issuance of equity securities. In 2000, 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 no or 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 1.90x for 2000. See Item 7A for a discussion on the Company's market risk exposure related to its mortgage debt. 4
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 172 employees of which 51 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 entered into a voluntary remedial agreement with the State of New York for the remediation of the property. During 2000 the Company satisfied all conditions to this voluntary remedial agreement and received final approval from the State of New York. All amounts held in escrow by Morgan Stanley pertaining to environmental remediation were released to the Company in October 2000. 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. 5
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 2000, 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 10, 2000, Eagle Supermarkets filed for protection under Chapter 11. This grocer is a tenant at one location in the Company's portfolio comprising approximately 52,000 square feet. Rental revenues from this tenant were $278,000 and $291,000 for the years ended December 31, 2000 and 1999, respectively. This tenant subsequently emerged from bankruptcy during 2000 and assumed the lease at the Company's center. On August 8, 2000, Carmike Cinemas filed for protection under Chapter 11. This theater operator was a tenant at one location in the Company's portfolio comprising approximately 25,000 square feet. Rental revenues from this tenant were $125,000 and $152,000 for the years ended December 31, 2000 and 1999, respectively. This tenant has rejected their lease and vacated from the Company's location. The Company is currently marketing this space in an effort to replace this tenant. On October 3, 2000, Grand Union Co. ("Grand Union") filed for protection under Chapter 11. Grand Union was a tenant at four locations in the Company's portfolio comprising approximately 175,000 square feet. Rental revenues from Grand Union for the years ended December 31, 2000 and 1999 totaled $2.1 million and $1.5 million, respectively. Three of these leases were assigned to other supermarket operators. The fourth location, located at the Elmwood Park Shopping Center, has an original lease expiration date of April 30, 2001. The Company will be replacing this 28,000 in-line supermarket anchor with a 48,000 free-standing A&P supermarket as previously discussed under "Property Redevelopment". On November 17, 2000, Bradlees filed for protection under Chapter 11. This retailer was a tenant at one location in the Company's portfolio comprising approximately 105,000 square feet. Rental revenues from this tenant were $519,000 and $439,000 for the years ended December 31, 2000 and 1999, respectively. The tenant is in the process of liquidating their business. The Company has received notification that the lease is to be assumed by a national home improvement retailer. On March 22, 2001, Pergament filed for protection under Chapter 11. This tenant operates at two locations in the Company's portfolio comprising approximately 33,000 square feet. Rental revenues from this tenant were $518,000 and $486,000 for the years ended December 31, 2000 and 1999, respectively. This tenant also operates at a location occupying 25,000 square feet in which the Company holds a 49% ownership interest in the property. Rental revenues from the tenant at this location were $355,000 and $457,000 for the years ended December 31, 2000 and 1999, respectively. The tenant has neither accepted nor rejected its lease at any of these locations. 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 (90% commencing in 2001). 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. 6
ITEM 2. PROPERTIES SHOPPING CENTER PROPERTIES As of December 31, 2000, the Company owned and operated 52 shopping centers (including four properties which are under redevelopment and a shopping center in which the Company owns a 49% interest) totaling approximately 8.7 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 31,000 to 515,000 square feet with an average size of 167,000 square feet. The Company's portfolio was approximately 90% occupied at December 31, 2000. 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 724 leases (including the joint venture property) as of December 31, 2000 of which a majority of the rental revenues received thereunder were from national or regional tenants. A majority 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 91% of the Company's total revenues for the year ended December 31, 2000. As of December 31, 2000, approximately 52% 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 2000 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, 2000, 1999 and 1998. 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, 2000: 7
<TABLE> <CAPTION> Year Occupancy (1) Anchor Tenants (2) Shopping Center Constructed(C) Ownership % Current Lease Expiration Property Location Acquired(A) Interest GLA 12/31/00 Lease Option Expiration - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> NEW ENGLAND REGION Connecticut 239 Greenwich Avenue Greenwich 1998 (A) Fee 16,834 (3) 100% Restoration Hardware 2015/2025 Chico's Fashion 2010/2020 Town Line Plaza Rocky Hill 1998 (A) Fee 205,858 (4) 98% Waldbaums 2017/2052 Massachusetts Methuen Shopping Center Methuen 1998 (A) Fee 129,494 34% (5) DeMoulas Market 2005/2015 Crescent Plaza Brockton 1984 (A) Fee 216,095 99% Bradlees 2009/2027 (6) Shaw's 2012/2042 Rhode Island Walnut Hill Plaza Woonsocket 1998 (A) Fee 278,146 95% A.J. Wright(TJX Co.) 2004/2019 Sears 2003/2033 Shaw's 2013/2043 Vermont The Gateway Shopping Center Burlington 1999 (A) Fee 117,394 (7) 40% Shaw's 2005/2010 NEW YORK REGION New Jersey Berlin Shopping Center Berlin 1994 (A) Fee 185,578 91% Kmart 2004/2029 Acme 2005/2015 Elmwood Park Shopping Center Elmwood Park 1998 (A) Fee 124,232 93% Grand Union 2001/none (8) Ledgewood Mall Ledgewood 1983 (A) Fee 515,030 93% The Sports' Authority2007/2037 Stern's 2005/2010 Wal*Mart 2019/2049 Circuit City 2020/2040 Marshall's 2002/none Pharmhouse 2009/2019 Manahawkin Village Shopping Center Manahawkin 1993 (A) Fee 175,261 100% Kmart 2019/2059 Hoyt's Cinema 2018/2038 Marketplace of Absecon Absecon 1998 (A) Fee 104,906 86% Eckerd Drug 2020/2040 Acme 2015/2055 New York Branch Shopping Plaza Smithtown 1998 (A) LI (9) 125,840 95% Pathmark 2013/2028 Pergaments 2004/2019 (10) New Loudon Center Latham 1982 (A) Fee 251,743 81% Price Chopper 2015/2035 Marshalls 2004/2009 Ames 2020/2035 Troy Plaza Troy 1982 (A) Fee 128,479 100% Ames 2006/2011 Price Chopper 2004/2014 Village Commons Shopping Center Smithtown 1998 (A) Fee 87,155 92% Daffy's 2008/2028 Walgreens 2021/none Soundview Marketplace Port Washington 1998 (A) LI/Fee (9) 180,620 95% King Kullen 2007/2022 Clearview Cinema 2010/2030 Pacesetter Park Shopping Center Pomona 1999 (A) Fee 95,559 83% Stop & Shop 2020/2040 </TABLE> 8
<TABLE> <CAPTION> Year Occupancy (1) Anchor Tenants (2) Shopping Center Constructed(C) Ownership % Current Lease Expiration Property Location Acquired(A) Interest GLA 12/31/00 Lease Option Expiration - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> MID-ATLANTIC REGION Pennsylvania 25th Street Shopping Center Easton 1993 (A) Fee 131,477 97% CVS 2005/2010 Petco 2009/2019 Ames Plaza Shamokin 1966 (C) Fee 96,154 92% Ames 2003/2013 Buy-Rite Liquidators 2010/2015 Abington Towne Center Abington 1998 (A) Fee 220,000 (11) 95% TJ Maxx 2010/2020 Birney Shopping Center Moosic 1968 (C) Fee 193,899 99% Kmart 2004/2049 Big Lots 2003/2008 Blackman Plaza Wilkes-Barre 1968 (C) Fee 119,206 98% Kmart 2004/2049 Bradford Towne Centre Towanda 1993 (C) Fee 256,719 90% 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) 45,380 100% Price Chopper 2005/2020 Eckerd Drug 2004/2019 East End Centre Wilkes-Barre 1986 (C) Fee 308,427 98% Ames 2007/2037 Phar-Mor 2003/2018 Price Chopper 2008/2028 Green Ridge Plaza Scranton 1986 (C) Fee 197,622 61% (13) 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 (14) Eckerd Drug 2004/2019 Mark Plaza Edwardsville 1968 (C) LI (9) 213,821 91% Kmart 2004/2054 Redner's Markets 2018/2028 Monroe Plaza Stroudsberg 1964 (C) Fee 130,569 100% Ames 2009/2024 Shop-Rite 2005/2023 Eckerd Drug 2002/2012 Mountainville Shopping Center Allentown 1983 (A) Fee 114,247 99% Acme 2004/none (14) Eckerd Drug 2004/2024 Pittston Plaza Pittston 1994 (C) Fee 79,568 100% Redner's Markets 2018/2028 Eckerd Drug 2006/2016 Plaza 15 Lewisburg 1995 (A) Fee 113,530 98% Weis Markets 2001/2021 Ames 2006/2021 Plaza 422 Lebanon 1972 (C) Fee 154,791 87% Ames 2001/2021 Giant Food 2004/2029 (15) Route 6 Mall Honesdale 1994 (C) Fee 175,482 95% Kmart 2020/2070 Shillington Plaza Reading 1994 (A) Fee 150,742 100% Kmart 2004/2049 Weis Markets 2001/2016 Tioga West Tunkhannock 1965 (C) Fee 122,338 100% BiLo 2014/2023 Ames 2005/2015 Eckerd Drug 2005/2015 Union Plaza New Castle 1996 (C) Fee 217,992 100% Sears 2011/2031 Ames 2017/2027 Peebles 2018/2027 Valmont Plaza West Hazleton 1985 (A) Fee 200,164 77% Ames 2007/2022 (14) Virginia Kings Fairgrounds Danville 1992 (A) LI (9) 118,535 100% Schewel Furniture 2006/2011 Tractor Supply Co. 2008/2023 CVS 2002/2012 </TABLE> 9
<TABLE> <CAPTION> Year Occupancy (1) Anchor Tenants (2) Shopping Center Constructed(C) Ownership % Current Lease Expiration Property Location Acquired(A) Interest GLA 12/31/00 Lease Option Expiration - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> SOUTHEAST REGION Alabama Midway Plaza Opelika 1984 (A) Fee 207,538 77% Office Depot 2007/2022 Beall's Outlet 2001/none Northside Mall Dothan 1986 (A) LI/Fee (9) 382,299 65% Wal*Mart 2004/2034 Florida New Smyrna Beach New Smyrna Shopping Center Beach 1983 (A) Fee 101,321 100% Beacon Theater 2005/2025 Georgia Cloud Springs Plaza Fort Oglethorpe 1985 (A) Fee 113,367 93% Food Lion 2011/2031 Consolidated Stores 2005/none Badcock Furniture 2005/2010 South Carolina Martintown Plaza North Augusta 1985 (A) LI (9) 133,892 76% Belk's Store 2004/2024 Office Depot 2008/2018 Wesmark Plaza Sumter 1986 (A) Fee 204,783 92% Staples 2005/2020 Beacon Theater 2009/2019 Goody's 2005/2015 MIDWEST REGION Illinois Hobson West Plaza Naperville 1998 (A) Fee 99,950 94% Eagle Foods 2007/2032 Indiana Merrillville Plaza Hobart 1998 (A) Fee 235,420 100% JC Penney 2008/2018 Office Max 2008/2028 TJ Maxx 2004/2009 Michigan Bloomfield Town Square Bloomfield Hills 1998 (A) Fee 213,903 71% TJ Maxx 2003/2013 Office Max 2010/2025 Home Goods 2010/2025 Ohio Mad River Station Dayton 1999 (A) Fee 153,968 90% Office Depot 2005/2010 Babies -R- Us 2005/2020 PROPERTY HELD IN JOINT VENTURE (16) New York Crossroads Shopping Center White Plains 1998 JV 310,919 98% Kmart 2012/2037 Waldbaum's 2007/2032 B. Dalton 2012/2022 Modell's 2002/none Pergament 2009/2019 ---------- ---- Total 8,670,957 90% ========== ==== </TABLE> 10
Notes: (1) Does not include space leased but not yet occupied by the tenant (2) Generally, Anchors GLA comprises at least 10% of the GLA of the center (3) In addition to the 16,834 square feet of retail GLA, this property also has 21 apartments comprising 14,434 square feet (4) Includes a 92,500 square foot Wal*Mart which is not owned by the Company (5) The Company recaptured the former lease with Caldors for 85,800 square feet in October 1999 and is currently negotiating with a national discount retailer for this space (6) Bradlees declared Chapter 11 bankruptcy on November 17, 2000. This lease has been neither rejected nor affirmed to date. The Company has received notification that the lease is to be assumed by a national home improvement retailer (7) The planned redevelopment of this property, which included the recapture of the former Grand Union space, has been temporarily delayed following the assignment of this lease to Shaw's supermarket (8) Grand Union declared Chapter 11 bankruptcy on October 3, 2000. This lease has been neither rejected nor affirmed to date. The Company has executed a lease with A&P to construct a new store upon the expiration of the Grand Union lease in April 2001 (9) The Company is a ground lessee under a long-term ground lease (10) Pergaments filed Chapter 11 Bankruptcy on March 22, 2001. The lease has been neither rejected nor affirmed to date (11) Includes a 160,000 square foot Target Store currently under construction which is not owned by the Company (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) Does not include 61,406 square feet leased, but not yet occupied, by Giant Food (14) This tenant has ceased operating in their space but continues to pay rent pursuant to the lease (15) This space is currently being sub-leased to a non-grocery store tenant (16) The Company has a 49% investment in this property 11
MAJOR TENANTS No individual retail tenant accounted for more than 6.7% of minimum rents for the year ended December 31, 2000 or 11.1% of total leased GLA as of December 31, 2000. The following table sets forth certain information for the 25 largest retail tenants based upon minimum rents in place as of December 31, 2000. The table does not include leases related to the Company's joint venture property (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 9 924,282 $ 3,431,692 11.1% 6.7% Ames (3) 11 815,171 2,479,383 9.8% 4.8% Price Chopper (4) 6 267,197 1,596,727 3.2% 3.1% Eckerd Drug (5) 14 169,563 1,354,990 2.0% 2.6% T.J. Maxx 7 207,543 1,288,861 2.5% 2.5% Shaw's 3 134,217 1,141,084 1.6% 2.2% Walmart 2 232,540 1,116,575 2.8% 2.2% Acme (Albertson's) (6) 3 109,064 1,004,080 1.3% 2.0% Fashion Bug (7) 11 120,294 876,391 1.4% 1.7% Pathmark 1 63,000 837,270 0.8% 1.6% Redner's Supermarket 2 111,739 837,112 1.3% 1.6% Restoration Hardware 1 12,292 830,000 0.1% 1.6% PharMor 2 90,471 820,346 1.1% 1.6% A&P (Waldbaum's) 1 64,665 730,000 0.8% 1.4% Sears 2 159,640 703,230 1.9% 1.4% Blockbuster Video 5 28,266 668,957 0.3% 1.3% Penn Traffic 2 85,896 635,811 1.0% 1.2% Stern's (Federated) (8) 1 73,349 610,745 0.9% 1.2% CVS 6 62,610 625,855 0.7% 1.2% Clearview Cinemas (9) 1 25,400 596,250 0.3% 1.2% Kay Bee Toys 5 41,025 559,050 0.5% 1.1% Payless Shoe Source 12 41,209 553,470 0.5% 1.1% JC Penney 2 72,580 546,747 0.9% 1.1% Office Depot 3 83,821 499,817 1.0% 1.0% Circuit City 1 33,294 449,469 0.4% 0.9% ------ --------- ----------- ------ ------ Total 113 4,029,128 $24,793,912 48.2% 48.2% ====== ========= =========== ====== ====== </TABLE> (1) Base rents do not include percentage rents (except where noted), additional rents for property expense reimbursements, and contractual rent escalations due after December 31, 2000 (2) Represents total GLA and annualized base rent for the Company's retail properties excluding mixed-use and joint venture properties (3) The tenant is currently not operating the store at the Valmont Plaza. They are obligated, and continue, to pay annual minimum rent of $220,000 until the lease expires in January 31, 2007. (4) The tenant is currently not operating the store at the Luzerne Street Shopping Center. They are obligated, and continue, to pay annual minimum rent of $177,650 until the lease expires in April 30, 2004. (5) Subsidiary of JC Penney. The store at the Route 6 Mall has ceased operating but continues to pay annual rent of $106,560 through January 31, 2011 pursuant to the lease (6) The tenant is currently not operating the store at the Mountainville Shopping Center. They are obligated, and continue, to pay annual minimum rent of $85,416 until the lease expires in June 30, 2004. (7) This tenant pays percentage rent only (no minimum rent) at 8 of these locations. Included in the above rent is $659,763 of percentage rent paid for calendar 2000 (8) The Company has been notified that this store will be converted to a Macy's (9) Subsidiary of Cablevision 12
LEASE EXPIRATIONS The following table shows scheduled lease expirations for retail tenants in place as of December 31, 2000, assuming that none of the tenants exercise renewal options. The table does not include leases related to the Company's joint venture property (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> 2001 145 779 $ 5,100 10% 10% 2002 87 380 3,524 5% 7% 2003 90 533 4,270 7% 8% 2004 80 1,337 6,330 18% 12% 2005 81 815 6,058 11% 12% 2006 26 356 1,944 5% 4% 2007 20 522 3,056 7% 6% 2008 28 332 3,085 5% 6% 2009 29 466 2,435 6% 5% 2010 19 235 2,438 3% 5% Thereafter 34 1,558 13,226 23% 25% --- ----- ------- ---- ---- Total 639 7,313 $51,466 100% 100% === ===== ======= ==== ==== </TABLE> (1) Base rents do not include percentage rents, additional rents for property expense reimbursements, nor contractual rent escalations due after December 31, 2000. GEOGRAPHIC CONCENTRATIONS The following table summarizes the Company's retail properties (including joint venture property) by region as of December 31, 2000 (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 717 97% $ 5,711 $ 8.21 8% 10% New York Region 1,850 92% 17,127 10.04 21% 30% Mid-Atlantic 3,356 93% 15,192 4.85 39% 27% Southeast 1,143 79% 3,979 4.39 13% 7% Midwest 703 88% 6,457 10.43 8% 12% ----- ----- -------- ------ ---- ---- 7,769 91% 48,466 6.87 89% 86% Redevelopment Properties (2) 591 70% 3,000 11.73 7% 5% Joint Venture Property (3) 311 98% 4,993 16.45 4% 9% ----- ----- -------- ------ ---- ---- Total 8,671 90% $ 56,459 $ 7.36 100% 100% ===== ===== ======== ====== ==== ==== </TABLE> (1) Base rents do not include percentage rents, additional rents for property expense reimbursements, nor contractual rent escalations due after December 31, 2000. (2) The Company currently has four redevelopment projects (3) The Company has a 49% investment in this property 13
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, 2000, 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, 2000: <TABLE> <CAPTION> Multi-family Ownership Property Location Year Acquired Interest Units % Occupied - ------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> Maryland Glen Oaks Apartments (1) Greenbelt 1998 Fee 463 100% Marley Run Apartments (1) Pasadena 1998 Fee 336 96% Missouri Gate House, Holiday House, Tiger Village Columbia 1998 Fee 592 96% Colony Apartments Columbia 1998 Fee 282 96% North Carolina Village Apartments Winston Salem 1998 Fee 600 79% ----- --- Totals 2,273 92% ===== === </TABLE> (1) These properties were held for sale as of December 31, 2000 ITEM 3. LEGAL PROCEEDINGS As further discussed in the notes to the consolidated financial statements appearing in Item 8 of this Annual Report on Form 10-K, on December 31, 1998, the Company and Jack Wertheimer, a former President of the Company, settled certain litigation filed by Mr. Wertheimer in connection with his termination of employment and entered into an agreement whereby the Company paid Mr. Wertheimer $1.0 million on December 31, 1998 and $900,000 on April 1, 1999 and agreed to pay him 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 2000. 14
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, 2000 and 1999. Dividend Quarter Ended High Low Per Share ------------- ---- --- --------- 2000 March 31, 2000 5 7/16 4 13/16 $ 0.12 June 30, 2000 6 5 3/16 0.12 September 30, 2000 6 3/16 5 3/4 0.12 December 31, 2000 6 1/8 5 5/8 0.12 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 At March 21, 2001, there were 223 holders of record of the Company's Common Shares. (b) Dividends The Company has determined that 100% of the total dividends distributed to shareholders in 2000 represented ordinary income. 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. 15
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> Year ended December 31, ----------------------------------------------------------------------------------- 2000 1999 1998(1) 1997 1996 ----------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> OPERATING DATA: Revenues $ 96,758 $ 92,709 $ 59,771 $ 44,498 $ 43,796 ----------------------------------------------------------------------------------- Operating expenses 39,723 38,483 28,485 17,055 17,868 Interest and other financing expense 25,163 23,314 18,302 15,444 12,733 Depreciation and amortization 20,460 19,887 15,795 13,768 13,398 ----------------------------------------------------------------------------------- Total 85,346 81,684 62,582 46,267 43,999 ----------------------------------------------------------------------------------- 11,412 11,025 (2,811) (1,769) (203) Non-recurring charges (2) - - (2,249) - - Equity in earnings of unconsolidated partnerships 645 584 256 - - Adjustment of carrying value of property held for sale - - (11,560) - (392) ----------------------------------------------------------------------------------- Income (loss) before gain (loss) on sale, extraordinary items and minority interest 12,057 11,609 (16,364) (1,769) (595) Gain (loss) on sale of properties 13,742 (1,284) (175) (12) 21 Extraordinary item - loss on early extinguishment of debt - - (707) - (190) Minority interest (5,892) (3,130) 3,348 217 40 ----------------------------------------------------------------------------------- Net income (loss) $ 19,907 $ 7,195 $ (13,898) $ (1,564) $ (724) =================================================================================== Net income (loss) per Common Share - basic and diluted $ 0.75 $ 0.28 $ (0.91) $ (0.18) $ (0.08) =================================================================================== Weighted average number of Common Shares outstanding - basic 26,437,265 25,708,787 15,205,962 8,551,930 8,546,553 - diluted (3) 26,437,265 25,708,787 15,205,962 8,551,930 8,546,553 =================================================================================== Funds from Operations (4) $ 31,789 $ 31,160 $ 15,073 $ 11,003 $ 12,536 =================================================================================== Funds from Operations per share (5) $ 0.89 $ 0.85 $ 0.74 $ 1.08 $ 1.23 =================================================================================== BALANCE SHEET DATA: Real estate before accumulated depreciation $ 514,139 $ 569,521 $ 551,249 $ 311,688 $ 307,411 Total assets 523,611 570,803 528,512 254,500 258,517 Total mortgage indebtedness 277,112 326,651 277,561 183,943 172,823 Minority interest - Operating Partnership 48,959 74,462 79,344 9,244 10,752 Total equity 179,317 152,487 154,591 48,800 56,806 </TABLE> 16
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 in 1998 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 2000 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 depreciation of real estate and amortization of capitalized leasing costs. FFO for 1998 through 1996 has been restated to include straight-line rent. (5) Includes weighted average OP Units as follows: 2000 - 9,168,230; 1999 - 10,883,184; 1998 - 5,252,815; 1997 and 1996 - 1,623,000. 17
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, 2000 ("2000") to the year ended December 31, 1999 ("1999") Total revenues increased $4.1 million, or 4%, to $96.8 million for 2000 compared to $92.7 million for 1999. Minimum rents increased $1.2 million, or 2%, to $74.2 million for 2000 compared to $73.0 million for 1999. Of this increase, $2.0 million was attributable to the redevelopment of 239 Greenwich Avenue and re-anchoring of the Ledgewood Mall (the "1999 Redevelopments"). Additionally, the full year effect in 2000 of the acquisition of the Mad River Shopping Center in February 1999, the Gateway Shopping Center in May 1999 and the Pacesetter Park Shopping Center in November 1999 (the "1999 Acquisitions") resulted in an increase of $1.3 million. These increases were partially offset by $1.4 million of non-recurring income received in 1999 related to two settlements with former tenants and a $1.0 million decrease in rents resulting from the planned termination of various tenant leases at the Abington Towne Center as part of the redevelopment and partial sale of the center. Expense reimbursements increased $444,000, or 3%, from $13.8 million for 1999 to $14.2 million for 2000. An increase in real estate tax reimbursements of $601,000 was primarily the result of the 1999 Acquisitions and 1999 Redevelopments. This was partially offset by a $157,000 decrease in common area maintenance ("CAM") expense reimbursements. This net decrease in CAM reimbursements was primarily a result of a $379,000 decrease in reimbursements following the termination of tenant leases in connection with the redevelopment of the Abington Towne Center, partially offset against an increase in reimbursements related to the 1999 Acquisitions. Other income increased $2.4 million, or 83%, from $2.9 million in 1999 to $5.3 million in 2000. $2.0 million of this increase was attributable to lease termination income received from former tenants at the Abington Towne Center. Total operating expenses increased $1.8 million, or 3%, to $60.2 million for 2000, from $58.4 million for 1999. Property operating expenses increased $1.6 million, or 7%, to $23.2 million for 2000 compared to $21.6 million for 1999. This increase was primarily attributable to higher payroll costs and CAM expenses throughout the portfolio as well as a $557,000 increase due to the 1999 Acquisitions. These increases were partially offset against a decrease in bad debt expense in 2000. Real estate taxes increased $928,000, or 9%, from $10.5 million for 1999 to $11.4 million for 2000. Of this increase, $759,000 was a result of a higher assessment at the Ledgewood Mall following the re-anchoring of Wal*Mart and Circuit City and the 1999 Acquisitions. The balance of this increase was experienced throughout the portfolio. Depreciation and amortization increased $573,000, or 3%, from $19.9 million for 1999 to $20.5 million for 2000. This increase was attributable to a $633,000 increase in depreciation expense, which was primarily related to the redevelopment of 239 Greenwich Avenue and the 1999 Acquisitions. General and administrative expense decreased $1.3 million, or 21%, from $6.3 million for 1999 to $5.0 million for 2000. This variance was primarily the result of a $766,000 decrease in third party professional fees in 2000 and a $189,000 decrease in office rent expense following the relocation of the Pennsylvania regional office. 18
RESULTS OF OPERATIONS, continued Interest expense of $25.2 million for 2000 increased $1.9 million, or 8%, from $23.3 million for 1999. Of the increase, $532,000 was a result of higher average outstanding borrowings related to property redevelopments, $418,000 was due to a higher weighted average interest rate on the portfolio and $899,000 was attributable to less capitalized interest in 2000. 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-assignor 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. 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. 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. 19
RESULTS OF OPERATIONS, continued 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. The adjustment of carrying value of properties 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 and the remaining two were sold in 1999. 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. The $707,000 extraordinary loss in 1998 was a result of the write-off of deferred financing fees as a result of the repayment of the related debt. 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 depreciation of real estate and amortization of capitalized leasing costs. The reconciliation of net income to FFO for the years ended December 31, 2000, 1999 and 1998 is as follows: Reconciliation of Net Income (Loss) to Funds from Operations <TABLE> <CAPTION> For the Year Ended December 31, 2000 1999 1998 (a) ------- --------- --------- <S> <C> <C> <C> Net income (loss) $19,907 $ 7,195 $(13,898) Depreciation of real estate and amortization of leasing costs: Wholly owned and consolidated partnerships 19,325 18,949 14,925 Unconsolidated partnerships 625 626 231 Non-recurring RDC transaction charges (b) -- -- 2,249 Settlement of Litigation -- -- 2,358 Income (loss) attributable to minority interest (c) 5,674 3,106 (3,348) (Gain) loss on sale of properties (13,742) 1,284 175 Adjustment of carrying value of properties held for sale -- -- 11,560 Other adjustments -- -- 114 Extraordinary item - loss on extinguishment of debt -- -- 707 ------- ------- ------- Funds from operations $31,789 $31,160 $15,073 ======= ======= ======= Funds from operations per share (d) $ 0. 89 $ 0.85 $ 0.74 ======= ======= ======= </TABLE> 20
RESULTS OF OPERATIONS, continued Notes: (a) FFO for the year ended December 31, 1998 has been restated to include straight-line rents (net of write-offs) of $353. (b) The Company acquired substantially all of the interests of RD Capital on August 12, 1998. (c) Does not include distributions paid to Preferred OP Unitholders. (d) FFO per share is computed based on the weighted average number of Common Shares outstanding for the years ended December 31, 2000, 1999 and 1998 of 26,437,265, 25,708,787 and 15,205,962, respectively. It also assumes full conversion of a weighted average 9,168,230, 10,833,184 and 5,252,815 OP Units into Common Shares for the years ended December 31, 2000, 1999 and 1998. 21
LIQUIDITY AND CAPITAL RESOURCES Uses of Liquidity The Company's principal uses of its liquidity are expected to be for distributions to its shareholders and OP unitholders, debt service and loan repayments, and property investment which includes acquisition, redevelopment, expansion and retenanting activities. In order to qualify as a REIT for Federal income tax purposes, the Company must currently distribute at least 95% of its taxable income to its shareholders. Effective 2001, the requirement will be reduced to 90% pursuant to the REIT Modernization Act passed in 1999. On December 13, 2000, the Board of Trustees of the Company approved and declared a cash quarterly dividend for the quarter ended December 31, 2000 of $0.12 per Common Share and Common OP Unit. The dividend was paid on January 15, 2001 to the shareholders of record as of December 29, 2000. The Board of Trustees also approved a distribution of $22.50 per Preferred OP Unit which was paid on January 15, 2001. Property Redevelopment and Expansion The Company's redevelopment program focuses on selecting well-located neighborhood and community shopping centers and creating significant value through retenanting and property redevelopment. The Company currently has four properties under redevelopment as follows: Abington Towne Center - The Company has completed the first phase of redevelopment of this previously enclosed multi-level mall located in the Philadelphia suburb of Abington, Pennsylvania. In December 2000, the Company sold approximately 160,000 square feet representing the top two floors and the rear portion of the ground level and the related parking area to the Target Corp. ("Target") for $11.5 million. Target is currently building out the space and is expected to open prior to the end of 2001. The Company has "de-malled" the balance of the center consisting of approximately 46,000 square feet of the main building and 14,000 square feet of store space in outparcel buildings which it will continue to own and operate. An existing anchor, T.J. Maxx, was relocated to a 27,000 square foot space in the Company's portion of the main building and reopened for business during November 2000. As of December 31, 2000, costs incurred on this project totaled $3.6 million. Remaining costs projected to complete the redevelopment of this property are approximately $370,000. Elmwood Park Shopping Center - During 2000, the Company commenced with the sitework on the redevelopment of this center located in Elmwood Park, New Jersey, approximately ten miles west of New York City. The redevelopment consists of reanchoring, renovating and expanding the existing 125,000 square foot shopping center by 30,000 square feet. The new anchor, a 48,000 square foot free-standing A&P supermarket, will replace an undersized (28,000 square feet) in-line Grand Union supermarket when completed. The project also includes the expansion of an existing Walgreens drug store. As of December 31, 2000, costs incurred on this project totaled $563,000. The Company expects remaining redevelopment costs of approximately $8.7 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 $2.75 million as discussed in Item 8, Note 2 to the Consolidated Financial Statements. Methuen Shopping Center - This center, located in Methuen, Massachusetts (part of the Boston metropolitan statistical area) was formally anchored by a Caldor department store. The Company acquired this lease out of bankruptcy and is currently in final lease negotiations with a national discount retailer for an 89,000 square foot department store. Projected costs to complete this project are approximately $400,000. Gateway Shopping Center - The redevelopment of the Gateway Shopping Center, a partially enclosed mall located in Burlington, Vermont, includes the recapture of a 32,000 square foot former Grand Union store, demolition of 70% of the property and the construction of a new anchor tenant. Following the bankruptcy of Grand Union, the lease was assigned to Shaw's supermarket which has resulted in a temporary delay of the planned de-malling and redevelopment. Additionally, the Company currently estimates that for the remaining portfolio, capital outlays of approximately $3.0 million will be required for tenant improvements, related renovations and other property improvements related to executed leases. 22
LIQUIDITY AND CAPITAL RESOURCES, continued Share Repurchase Plan The Company's repurchase of its Common Shares is an additional use of liquidity. In January 2001, the Board of Trustees approved a continuation and expansion of the Company's existing stock repurchase program. Management is authorized, at its discretion, to repurchase up to an additional $10.0 million of the Company's outstanding Common Shares. Through March 9, 2001, the Company had repurchased 1,781,742 (net of 86,063 shares reissued) at a total cost of $10.5 million under the expanded share repurchase program which allows for the repurchase of up to $20.0 million of the Company's outstanding Common Shares. The program may be discontinued or extended at any time and there is no assurance that the Company will purchase the full amount authorized. Sources of Liquidity Sources of capital for funding property acquisition, redevelopment, expansion and retenanting, as well as repurchase of Common Shares are expected to be obtained primarily from cash on hand, additional debt financings and sales of existing properties. As of December 31, 2000, the Company has a total of $27.9 million of additional capacity with three lenders, of which $23.0 million is available under a financing line with a bank which must be drawn by April 2001. The Company also has thirteen properties that are currently unencumbered and therefore available as potential collateral for future borrowings. The Company anticipates that cash flow from operating activities will continue to provide adequate capital for all debt service payments, recurring capital expenditures and REIT distribution requirements. Financing and Debt At December 31, 2000, mortgage notes payable aggregated $277.1 million and were collateralized by 45 properties and related tenant leases. Interest on the Company's mortgage indebtedness ranged from 7.5% to 9.6% with maturities that ranged from January 2001 to November 2021. Of the total outstanding debt, $153.2 million, or 55%, was carried at fixed interest rates with a weighted average of 8.3% and $123.9 million, or 45%, was carried at variable rates with a weighted average of 8.5%. Of the total outstanding debt, $83.6 million will become due by 2002, with scheduled maturities of $18.0 million at a weighted average interest rate of 7.8% in 2001 and $65.6 million with a weighted average interest rate of 8.2% in 2002. 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, 1999: On January 8, 2001, the Company partially repaid $10.1 million of fixed-rate mortgage debt, which was secured by two of the Company's properties, with a life insurance company. Following this repayment from working capital, the remaining balance of $7.9 million was converted to a variable-rate facility which is secured by one of the Company's properties, requires the monthly payments of interest at LIBOR plus 200 basis points and principal amortized over 25 years, and matures January 10, 2002. On December 22, 2000, the Company closed on two fixed-rate financings with a bank for $11.1 million and $5.6 million, each of which are secured by one of the Company's properties. The loans, which mature January 1, 2011, require monthly payments of interest at 7.55% and principal amortized over 30 years. Approximately $13.2 million of the proceeds were used to retire existing debt, $454,000 for various closing costs and funding of escrows, and the balance of $3.0 million was available for working capital. On December 11, 2000, the Company fully repaid $10.1 million of outstanding debt with a life insurance company following the sale of a portion of the property which secured the debt. 23
LIQUIDITY AND CAPITAL RESOURCES, continued On October 13, 2000, the Company refinanced $36.0 million of maturing debt with a life insurance company, with two new loans from the same lender. The Company repaid $5.0 million prior to refinancing the balance of the maturing debt. The first loan, which is a fixed-rate facility secured by two of the Company's properties, was for $25.2 million and requires the monthly payment of interest at a rate of 8.13% and principal amortized over 25 years. The loan matures in November 2010. The second loan, which is a variable-rate facility secured by three of the Company's properties, was for $10.8 million and requires the monthly payment of interest at LIBOR plus 200 basis points and matures in November 2003. Commencing 18 months after the closing, the loan also requires the monthly payment of principal amortized over 25 years. Both loans are cross-collateralized with all five properties. Furthermore, with respect to the variable-rate facility, the Company is required to deposit 50% of the monthly net cash flow after debt service, which will be used to fund future property and tenant improvements at the collateral properties. On July 19, 2000, the Company closed on a facility with a bank, which provides for the borrowing of up to $10.0 million. The variable-rate facility, which is secured by one of the Company's properties, matures in August 2003 and requires the monthly payment of interest at the rate of LIBOR plus 175 basis points and principal amortized over 25 years. At closing, the Company borrowed $9.0 million under this facility, of which $7.1 million of proceeds were used to retire existing debt with another lender, $149,000 for various closing costs and the balance was available for working capital. The Company may draw the additional $1.0 million subject to certain lender requirements including debt-service and collateral value. On March 30, 2000, the Company closed on a $59.0 million secured financing line with a bank (the "Line"). The Line is secured by five of the seven properties that collateralized a loan with a life insurance company which was retired using $30.7 million of the proceeds from the initial $36.0 million funding. The balance of the Line must be drawn by April 2001. The Line matures April 1, 2005 and requires the monthly payment of interest at a variable-rate of LIBOR plus 175 basis points and principal amortized over 30 years. After September 2001, the debt can be prepaid without prepayment or yield maintenance fees. As of December 31, 2000, $35.8 million was outstanding under the Line. On March 23, 2000, the Company fully repaid $4.6 million of outstanding debt with a bank which was collateralized by one of the Company's properties. 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 variable-rate 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. As of December 31, 2000, the Company had $3.5 million outstanding under this facility. On January 31, 2000, the Company repaid $23.1 million of outstanding debt with a life insurance company from working capital. The remaining outstanding debt of $30.8 with this lender was fully repaid with the proceeds from the March 30, 2000 bank financing as described above. 24
LIQUIDITY AND CAPITAL RESOURCES, continued Asset Sales Asset sales are an additional source of liquidity for the Company. During 2000, the Company sold a non-core asset in connection with its ongoing program of evaluatingand optimizing the property portfolio with respect to property locations, tenant profiles, cash flows and future capital appreciation. On December 14, 2000, the Company sold the Northwood Centre, located in Tallahassee, Florida, for $31.5 million. The buyer assumed the mortgage balance of $22.1 million and acquired various mortgage-related escrows for $1.8 million that, following additional net closing adjustments and costs resulted in net proceeds of $11.0 million to the Company. Additionally, there were two sales to anchor tenants as part of the Company's reanchoring and retenenating programs during 2000. On December 11, 2000, the Company sold approximately 160,000 square feet of the main building and related parking lot at the Abington Towne Center to the Target Corporation for $11.5 million as previously discussed. Net proceeds from the sale were $1.4 million following the repayment of the mortgage balance of $10.1 million and additional net closing adjustments and costs. On August 25, 2000, the Company sold 13 acres at the Union Plaza, located in New Castle, Pennsylvania, to Lowes Home Center, Inc., which is constructing a 130,000 square foot store at the location. Proceeds from this sale totaled $1.9 million. HISTORICAL CASH FLOW The following discussion of historical cash flow compares the Company's cash flow for the year ended December 31, 2000 ("2000") with the Company's cash flow for the year ended December 31, 1999 ("1999"). Net cash provided by operating activities increased from $25.9 million for 1999 to $32.6 million for 2000. This variance was primarily attributable to an increase in cash provided by changes in operating assets and liabilities, primarily accounts receivable and accounts payable, for 2000. Net cash provided by investing activities of $8.2 million for 2000 increased $28.2 million compared to $19.9 million used during 1999. This was the result of an increase in net sales proceeds of $18.3 million received in 2000 versus 1999, a $9.2 million decrease in expenditures for real estate acquisitions, development and tenant installations in 2000 and $688,000 of additional distributions received from investments in unconsolidated partnerships in 2000. Net cash used in financing activities of $54.0 million for 2000 increased $68.2 million compared to $14.2 million provided in 1999. The increased use of cash resulted primarily from $116.2 million of additional cash used in 2000 for the repayment of debt, partially offset by an increase of $58.2 million of cash provided by additional borrowings in 2000. Additionally, dividends and distributions used an additional $4.1 million in 2000 and $5.7 million of additional cash was used in 2000 for the repurchase of Common Shares. INFLATION The Company's long-term leases contain provisions designed to mitigate the adverse impact of inflation on the Company's net income. Such provisions include clauses enabling the Company to receive percentage rents based on tenants' gross sales, which generally increase as prices rise, and/or, in certain cases, escalation clauses, which generally increase rental rates during the terms of the leases. Such escalation clauses are often related to increases in the consumer price index or similar inflation indexes. In addition, many of the Company's leases are for terms of less than ten years, which permits the Company to seek to increase rents upon re-rental at market rates if current 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. 25
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 will 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. In December 1999, the Securities and Exchange Commission (the "SEC") released Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition", to provide guidance on the recognition, presentation and disclosure of revenue in financial statements. Specifically, SAB No. 101 provides guidance on lessors' accounting for contingent rent. SAB No. 101 did not require the Company to change existing revenue recognition policies and therefore had no impact on the Company's financial position at or results of operations for the year ended December 31, 2000. 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, LIBOR rate caps and interest rate swap agreements. As of December 31, 2000, the Company had total mortgage debt of $277.1 million of which $153.2 million, or 55%, is fixed-rate and $123.9 million, or 45%, is variable-rate based upon LIBOR plus certain spreads. $23.6 million of notional variable-rate principal is hedged through the use of LIBOR rate caps as of December 31, 2000. Of the total outstanding debt, $83.6 million will become due by 2002. As the Company intends on refinancing some or all of such debt at the then-existing market interest rates which may be greater than the current interest rate, the Company's interest expense would increase by approximately $836,000 annually if the interest rate on the refinanced debt increased by 100 basis points. Furthermore, interest expense on the Company's variable debt as of December 31, 2000 would increase by $1.0 million annually for a 100 basis point increase in interest rates. The Company may seek additional variable-rate financing if and when pricing and other commercial and financial terms warrant. As such, the Company would consider hedging against the interest rate risk related to such additional variable-rate debt through interest rate swaps and protection agreements, or other means. 26
ITEM 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 31, 2001, 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 31, 2001, 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 31, 2001, to be filed pursuant to Regulation 14A. 27
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 31, 2001, 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 Report of Independent Auditors F-2 Consolidated Balance Sheets as of December 31, 2000 and 1999 F-3 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998 F-4 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 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 28
Exhibit No. <TABLE> <CAPTION> <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 Incorporated by reference to Series A Preferred Operating to the copy thereof filed as an Partnership Units of Limited exhibit to the Company's Form Partnership Interest of Acadia 10-K filed for the fiscal Realty Limited Partnership year ended December 31, 1999 *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 </TABLE> 29
<TABLE> <CAPTION> <S> <C> <C> 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. 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 </TABLE> 30
<TABLE> <CAPTION> <S> <C> <C> 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 10.36 Secured Promissory Note between Incorporated by reference to RD Absecon Associates, L.P. and the copy thereof filed as an Fleet Bank, N.A. dated February 8, exhibit to the Company's 2000 Form 10-K filed for the fiscal year ended December 31, 1999 10.37 Mortgage Note between RD Branch Incorporated by reference to Associates, L.P. and North the copy thereof filed as an Fork Bank dated November 22, 1999 exhibit to the Company's Form 10-K filed for the fiscal year ended December 31, 1999 10.38 Promissory Note between 239 Incorporated by reference to Greenwich Associates, L.P. and First the copy thereof filed as an Union National Bank dated exhibit to the Company's December 16, 1999 Form 10-K filed for the fiscal year ended December 31, 1999 10.39 Note and Mortgage Assumption Incorporated by reference to Agreement between Acadia Mad River the copy thereof filed as an Property LLC and Lasalle National Bank exhibit to the Company's for the benefit of Certificateholders Form 10-K filed for the fiscal of American Southwest Financial Securities year ended December 31, 1999 Corporation, Commercial Mortgage Pass- Through Certificates, Series 1195-C1 Dated February 24, 1999 </TABLE> 31
<TABLE> <CAPTION> <S> <C> <C> 10.40 Mortgage Note Modification Agreement Incorporated by reference to Between Heathcote Associates and the copy thereof filed as an Huntoon Hastings Capital Corp. dated exhibit to the Company's May 5, 1999 Form 10-K filed for the fiscal year ended December 31, 1999 10.41 Promissory Note between Merrillville Incorporated by reference to Realty, L.P. and Sun America Life the copy thereof filed as an Insurance Company dated July 7, 1999 exhibit to the Company's Form 10-K filed for the fiscal year ended December 31, 1999 10.42 Mortgage and Note Modification Incorporated by reference to Agreement between Pacesetter/Ramapo the copy thereof filed as an Associates and M&T Real Estate, Inc. exhibit to the Company's Form 10-K filed for the fiscal year ended December 31, 1999 10.43 Secured Promissory Note between Incorporated by reference to Acadia Town Line, LLC and Fleet the copy thereof filed as an Bank, N.A. dated March 23, 1999 exhibit to the Company's Form 10-K filed for the fiscal year ended December 31, 1999 10.44 Promissory Note between RD Village Incorporated by reference to Associates Limited Partnership and the copy thereof filed as an Sun America Life Insurance Company exhibit to the Company's Dated September 21, 1999 Form 10-K filed for the fiscal year ended December 31, 1999 10.45 Sale-Purchase Agreement between Acadia Realty L.P. and Mark Northwood Associates L.P., seller, and UrbanAmerica, L.P., Buyer, dated June 14, 2000 Filed herewith 10.46 Purchase Agreement between RD Abington Associates L.P. and Target Corporation dated June 29, 2000 Filed herewith 10.47 Agreement to Sell and Purchase real estate between Mark Twelve Associates, L.P. and Lowes Home Centers, Inc. dated April 25, 2000 Filed herewith 10.48 Amended and Restated Mortgage Note between Port Bay Associates, LLC and Fleet Bank, N.A. dated July 19, 2000 Filed herewith 10.48.a Mortgage and Security Agreement between Port Bay Associates, LLC and Fleet Bank, N.A. dated July 19, 2000 Filed herewith 10.49 Amended and Restated Promissory Note Between Acadia Realty L.P. and Metropolitan Life Insurance Company for $25.2 million dated October 13, 2000 Filed herewith 10.50 Amended and Restated Promissory Note Between Acadia Realty L.P. and Metropolitan Life Insurance Company for $10.8 million dated October 13, 2000 Filed herewith 10.50.a Amended and Restated Mortgage, Security Agreement and Fixture Filing between Acadia Realty L.P. and Metropolitan Life Insurance Company dated October 13, 2000 Filed herewith
10.51 Term Loan Agreement between Acadia Realty L.P. and The Dime Savings Bank of New York, dated March 30, 2000 Filed herewith 10.51.a Mortgage Agreement between Acadia Realty L.P. and The Dime Savings Bank of New York, dated March 30, 2000 Filed herewith 10.52 Promissory Note between RD Whitegate Associates, L.P. and Bank of America, N.A. Dated December 22, 2000 Filed herewith 10.53 Promissory Note between RD Columbia Associates, L.P. and Bank of America, N.A. Dated December 22, 2000 Filed herewith 21 List of Subsidiaries of Acadia Realty Trust Filed herewith 23 Consent of Independent Auditors to Form S-3 and Form S-8 Filed herewith * Constitutes a compensatory plan or arrangement required to be filed as an exhibit to this Form. </TABLE> (b) Reports on Form 8-K filed during the quarter ended December 31, 2000 - The Company did not file any report on Form 8-K during the quarter ended December 31, 2000. 32
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/ Kenneth F. Bernstein Chief Executive Officer, President and Trustee Dated: March 21, 2001 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. <TABLE> <CAPTION> Signature Title Date - --------- ----- ---- <S> <C> <C> /s/Kenneth F.Bernstein Chief Executive Officer, March 21, 2001 - ------------------------- President and Trustee (Kenneth F.Bernstein) (Principal Executive Officer) /s/Perry Kamerman Senior Vice President March 21, 2001 - ------------------------- and Chief Financial Officer (Perry Kamerman) (Principal Financial and Accounting Officer) /s/Ross Dworman Chairman and Trustee March 21, 2001 - ------------------------- (Ross Dworman) /s/Martin L. Edelman Trustee March 21, 2001 - ------------------------- (Martin L. Edelman, Esq.) /s/Marvin J. Levine Trustee March 21, 2001 - ------------------------- (Marvin J. Levine, Esq) /s/Lawrence J. Longua Trustee March 21, 2001 - ------------------------- (Lawrence J. Longua) /s/Gregory A. White Trustee March 21, 2001 - ------------------------- (Gregory A. white) /s/Lee S. Wielansky Trustee March 21, 2001 - ------------------------- (Lee S. Wielansky) </TABLE> 33
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 - ------- ----------- 10.45 Sale-Purchase Agreement between Acadia Realty L.P. and Mark Northwood Associates L.P., seller, and UrbanAmerica, L.P., Buyer, dated June 14, 2000 10.46 Purchase Agreement between RD Abington Associates L.P. and Target Corporation dated June 29, 2000 10.47 Agreement to Sell and Purchase real estate between Mark Twelve Associates, L.P. and Lowes Home Centers, Inc. dated April 25, 2000 10.48 Amended and Restated Mortgage Note between Port Bay Associates, LLC and Fleet Bank, N.A. dated July 19, 2000 10.48.a Mortgage and Security Agreement between Port Bay Associates, LLC and Fleet Bank, N.A. dated July 19, 2000 10.49 Amended and Restated Promissory Note Between Acadia Realty L.P. and Metropolitan Life Insurance Company for $25.2 million dated October 13, 2000 10.50 Amended and Restated Promissory Note Between Acadia Realty L.P. and Metropolitan Life Insurance Company for $10.8 million dated October 13, 2000 10.50.a Amended and Restated Mortgage, Security Agreement and Fixture Filing between Acadia Realty L.P. and Metropolitan Life Insurance Company dated October 13, 2000 10.51 Term Loan Agreement between Acadia Realty L.P. and The Dime Savings Bank of New York, dated March 30, 2000 10.51.a Mortgage Agreement between Acadia Realty L.P. and The Dime Savings Bank of New York, dated March 30, 2000 10.52 Promissory Note between RD Whitegate Associates, L.P. and Bank of America, N.A. Dated December 22, 2000 10.53 Promissory Note between RD Columbia Associates, L.P. and Bank of America, N.A. Dated December 22, 2000 21 List of Subsidiaries of Acadia Realty Trust 23 Consent of Independent Auditors to Form S-3 and Form S-8 34
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, 2000 and 1999 F-3 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998 F-4 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 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, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. 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, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 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 March 2, 2001 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, 2000 1999 ---- ---- <S> <C> <C> ASSETS Real estate Land $ 69,206 $ 81,956 Buildings and improvements 444,933 487,565 -------- -------- 514,139 569,521 Less: accumulated depreciation 102,461 90,932 -------- -------- Net real estate 411,678 478,589 Properties held for sale 49,445 13,227 Cash and cash equivalents 22,167 35,340 Cash in escrow 5,213 9,707 Investments in unconsolidated partnerships 6,784 7,463 Rents receivable, net 9,667 8,865 Prepaid expenses 2,905 2,952 Due from related parties -- 19 Deferred charges, net 13,026 12,374 Other assets 2,726 2,267 -------- -------- $523,611 $570,803 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Mortgage notes payable $277,112 $326,651 Accounts payable and accrued expenses 7,495 6,385 Due to related parties 111 -- Dividends and distributions payable 4,241 4,371 Other liabilities 4,179 4,224 -------- -------- Total liabilities 293,138 341,631 -------- -------- Minority interest in Operating Partnership 48,959 74,462 Minority interests in majority- owned partnerships 2,197 2,223 -------- -------- Total minority interests 51,156 76,685 -------- -------- Shareholders' equity: Common shares, $.001 par value, authorized 100,000,000 shares, issued and outstanding 28,150,472 and 25,724,315 shares, respectively 28 26 Additional paid-in capital 188,392 168,641 Deficit (9,103) (16,180) -------- -------- Total shareholders' equity 179,317 152,487 -------- -------- $523,611 $570,803 ======== ======== </TABLE> See accompanying notes F-3
ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) <TABLE> <CAPTION> Years ended December 31, 2000 1999 1998 ---- ---- ---- <S> <C> <C> <C> Revenues Minimum rents $ 74,161 $ 73,021 $ 46,940 Percentage rents 3,048 2,994 2,651 Expense reimbursements 14,230 13,786 8,655 Other 5,319 2,908 1,525 -------- -------- -------- Total revenues 96,758 92,709 59,771 -------- -------- -------- Operating Expenses Property operating 23,198 21,606 14,182 Real estate taxes 11,468 10,540 7,536 Depreciation and amortization 20,460 19,887 15,795 General and administrative 5,057 6,337 4,409 Non-recurring charges -- -- 2,249 Settlement of litigation -- -- 2,358 -------- -------- -------- Total operating expenses 60,183 58,370 46,529 -------- -------- -------- Operating income 36,575 34,339 13,242 Equity in earnings of unconsolidated partnerships 645 584 256 Gain (loss) on sale of properties 13,742 (1,284) (175) Adjustment of carrying value of properties held for sale -- -- (11,560) Interest expense (25,163) (23,314) (18,302) -------- -------- -------- Income (loss) before extraordinary item and minority interest 25,799 10,325 (16,539) Extraordinary item - loss on early extinguishment of debt -- -- (707) Minority interests (5,892) (3,130) 3,348 -------- -------- -------- Net income (loss) $ 19,907 $ 7,195 $(13,898) ======== ======== ======== Net income (loss) per Common Share: Income (loss) before extraordinary item $ .75 $ .28 $ (.86) Extraordinary item -- -- (.05) -------- -------- -------- Net income (loss) per Common Share $ .75 $ .28 $ (.91) ======== ======== ======== </TABLE> 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 Shareholders' Shares Amount Paid-in Capital Deficit Equity ------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> 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 ($.48 per Common Share) - - (5,133) (7,195) (12,328) Repurchase of Common Shares (394,900) - (1,984) - (1,984) Income before minority interest - - - 10,325 10,325 Minority interest's equity - - - (3,130) (3,130) ---------- --- -------- --------- --------- Balance, December 31, 1999 25,724,315 26 168,641 (16,180) 152,487 Conversion of 3,679,999 OP Units by limited partners of the Operating Partnership 3,679,999 3 26,999 - 27,002 Dividends declared ($.48 per Common Share) - - - (12,830) (12,830) Repurchase of Common Shares (1,339,905) (1) (7,691) - (7,692) Reissuance of Common Shares 86,063 - 443 - 443 Income before minority interest - - - 25,799 25,799 Minority interest's equity - - - (5,892) (5,892) ---------- --- -------- --------- --------- Balance, December 31, 2000 28,150,472 $ 28 $188,392 $ (9,103) $179,317 ========== === ======== ========= ========= </TABLE> F-5
ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, except per share amounts) <TABLE> <CAPTION> Years ended December 31, 2000 1999 1998 ---- ---- ---- <S> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 19,907 $ 7,195 $(13,898) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 20,460 19,887 15,795 Extraordinary item - loss on early extinguishment of debt -- -- 707 Minority interests 5,892 3,130 (3,348) Equity in earnings of unconsolidated partnerships (645) (584) (256) Provision for bad debts 453 1,404 1,275 (Gain) loss on sale of properties (13,742) 1,284 175 Stock-based compensation 443 -- -- Adjustment to carrying value of properties held for sale -- -- 11,560 Other -- -- 29 Changes in assets and liabilities: Funding of escrows, net 1,250 2,943 (4,744) Rents receivable (1,255) (4,263) (2,495) Prepaid expenses 47 (155) (1,556) Due to/from related parties 130 (195) 163 Other assets (792) (879) (975) Accounts payable and accrued expenses 470 (4,288) 3,120 Other liabilities (45) 407 1,907 ------- ------- -------- Net cash provided by operating activities 32,573 25,886 7,459 ------- ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for real estate and improvements (15,865) (25,091) (23,253) Net proceeds from sale of properties 24,413 6,128 2,193 Investments in unconsolidated partnerships -- -- (861) Distributions from unconsolidated partnerships 1,324 637 -- Payment of deferred leasing costs (1,623) (1,604) (2,901) -------- -------- -------- Net cash provided by (used in) investing activities 8,249 (19,930) (24,822) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of Common Shares -- -- 95,923 Principal payments on mortgage notes (133,838) (17,598) (80,493) Proceeds received on mortgage notes 106,350 48,168 19,877 Payment of note payable to shareholder -- -- (3,050) Payment of deferred financing and other costs (1,435) (1,091) (967) Dividends paid (12,545) (9,238) -- Distributions to minority interests in Operating Partnership (4,617) (3,929) (31) Distributions on Preferred Operating Partnership Units (173) Distributions to minority interest in majority-owned partnership (45) (127) -- Repurchase of Common Shares (7,692) (1,984) -- -------- -------- -------- Net cash (used in) provided by financing activities (53,995) 14,201 31,259 -------- -------- -------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (13,173) 20,157 13,896 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 35,340 15,183 1,287 -------- -------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 22,167 $ 35,340 $ 15,183 ======== ======== ======== </TABLE> See accompanying notes F-6
ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, except per share amounts) <TABLE> <CAPTION> Years ended December 31, 2000 1999 1998 ---- ---- ---- <S> <C> <C> Supplemental Disclosures of Cash Flow Information: Cash paid during the year for interest, net of amounts capitalized of $439, $1,299, and $857, respectively $ 25,035 $ 23,793 $ 17,650 ======== ======== ========= Supplemental Disclosures of Non-Cash Investing and Financing Activities: Disposition of real estate through assignment of debt $ 22,051 ======== 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. All of the Company's assets are held by, and all of its operations are conducted through, Acadia Realty Limited Partnership (the "Operating Partnership") and its majority owned subsidiaries. As of December 31, 2000, the Company controlled 81% of the Operating Partnership as the sole general partner. As of December 31, 2000, the Company operated fifty-seven properties, which it owned or had an ownership interest in, consisting of forty-seven neighborhood and community shopping centers, four redevelopment retail properties, one enclosed shopping mall and five multi-family properties, all of which are located in the Eastern and Midwestern regions of the United States. 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 accounting principles generally accepted in the United States 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 30 to 40 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. As of December 31, 2000, one shopping center and two multi-family properties were held for sale. 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, 2000 and 1999, unbilled rents receivable relating to straight-lining of rents were $4,098 and $3,057, respectively. Percentage rents are recognized in the period when 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, 2000 and 1999 are shown net of an allowance for doubtful accounts of $1,738 and $1,588, 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, minimum occupancy and property operating income requirements at specific properties as required by certain loan agreements. Non-Recurring Charges In connection with the RDC Transaction (note 2), the Company incurred non-recurring costs in 1998 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% (90% commencing in 2001) 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 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, 2000, 1999, and 1998 were 26,437,265, 25,708,787 and 15,205,962, 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, 2000, 1999, and 1998 no additional shares were reflected as the impact would be anti-dilutive in such years. Share Repurchase Plan As of December 31, 2000, the Company had repurchased 1,648,742 Common Shares (net of 86,063 Common Shares reissued) at a total cost of $9,675 under a share repurchase program 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. In January 2001, the Board of Trustees approved a continuation and expansion of the Company's existing stock repurchase program. Management is authorized, at its discretion, to repurchase up to an additional $10,000 of the Company's outstanding Common Shares. The program may be discontinued or extended at any time and there is no assurance that the Company will purchase the full amount authorized. 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 will 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. In December 1999, the Securities and Exchange Commission (the "SEC") released Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition", to provide guidance on the recognition, presentation and disclosure of revenue in financial statements. Specifically, SAB No. 101 provides guidance on lessors' accounting for contingent rent. SAB No. 101 did not require the Company to change existing revenue recognition policies and therefore had no impact on the Company's financial position at or results of operations for the year ended December 31, 2000. Reclassifications Certain 1999 and 1998 amounts were reclassified to conform to the 2000 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 2000 Dispositions On December 14, 2000, the Company sold the Northwood Centre, located in Tallahassee, Florida, for $31,500. The buyer assumed the mortgage balance of $22,051 and acquired various mortgage-related escrows for $1,784 which, following additional net closing adjustments and costs, resulted in net proceeds of $11,026 to the Company. On December 11, 2000, the Company sold approximately 160,000 square feet of the main building and related parking lot at the Abington Towne Center for $11,500. The Company retained ownership of approximately 50,000 square feet of the main building, as well as the outparcels (14,000 square feet) and related parking areas. Total sales proceeds were $1,366 following the repayment of the mortgage balance of $10,137 and additional net closing adjustments and costs. On August 25, 2000, the Company sold 13 acres at the Union Plaza, located in New Castle, Pennsylvania, for $1,900. Proceeds from the sale totaled $1,882 after net closing costs and adjustments. The Company recognized a gain of $13,742 for the year ended December 31, 2000 as a result of the above property sales. 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 Shopping Center , 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. 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 non-core 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. RDC Transaction 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 were not under common control, in which RDC served 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 served as general partner, in exchange for $100,000. These Common Shares were subsequently distributed to the limited partners of the RDC Funds in March 2000. 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 RDC Transaction, 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 non-core 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, 2000, 1999, and 1998 (does not include unconsolidated partnerships): <TABLE> <CAPTION> 2000 ---- Retail Multi-Family All Properties Properties Other Total ---------- ------------ ----- -------- <S> <C> <C> <C> <C> Revenues $ 79,229 $ 15,396 $ 2,133 $ 96,758 Property operating expenses and real estate taxes 28,547 6,119 -- 34,666 Net property income before depreciation, amortization and certain nonrecurring items 50,682 9,277 2,133 62,092 Depreciation and amortization 18,064 2,066 330 20,460 Interest expense 20,802 4,361 -- 25,163 Real estate at cost 430,841 83,298 -- 514,139 Total assets 435,287 81,540 6,784 523,611 Gross leasable area (multi-family - 2,273 units) 8,371 2,039 -- 10,410 Expenditures for real estate and improvements 14,712 1,153 -- 15,865 Revenues Total revenues for reportable segments $ 97,710 Elimination of intersegment management fee income (952) -------- Total consolidated revenues $ 96,758 ======== Property operating expenses and real estate taxes Total property operating expenses and real estate taxes for reportable segments $ 35,618 Elimination of intersegment management fee expense (952) -------- Total consolidated expense $ 34,666 ======== Reconciliation to income before extraordinary item and minority interest Net property income before depreciation, amortization and certain nonrecurring items $ 62,092 Depreciation and amortization (20,460) General and administrative (5,057) Equity in earnings of unconsolidated partnerships 645 Gain on sale of properties 13,742 Interest expense (25,163) -------- Income before minority interest $ 25,799 ======== </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> 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 481,175 82,165 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 properties (1,284) Interest expense (23,314) -------- Income before minority interest $ 10,325 ======== </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> 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 438,163 82,833 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-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 "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 Crossroads and the Company's investment in and share of income from Crossroads follows: <TABLE> <CAPTION> December 31, 2000 1999 ---- ---- <S> <C> <C> Balance Sheet Assets: Rental property, net $ 8,446 $ 8,801 Other assets 4,655 5,204 ----- ----- Total assets $13,101 $14,005 ======= ======= Liabilities and partners' equity Mortgage note payable $34,642 $35,105 Other liabilities 736 777 Partners' equity (22,277) (21,877) -------- -------- Total liabilities and partners' equity $13,101 $14,005 ======= ======= Company's investment in partnerships $ 6,784 $ 7,463 ======= ======= </TABLE> <TABLE> <CAPTION> Years Ended December 31, 2000 1999 1998 ---- ---- ---- <S> <C> <C> <C> Statement of Operations Total revenue $ 7,242 $ 7,003 $ 2,680 Operating and other expenses 1,895 1,910 643 Interest expense 2,699 2,568 1,022 Depreciation and amortization 532 534 192 ------- ------- ------- Net income $ 2,116 $ 1,991 $ 823 ======= ======= ======= Company's share of net income $ 1,037 $ 976 $ 403 Amortization of excess investment (See below) 392 392 147 --- --- --- Income from Partnerships $ 645 $ 584 $ 256 ======== ======== ======= </TABLE> 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, 2000 and 1999: 2000 1999 ---- ---- Deferred financing costs $ 7,091 $ 7,563 Deferred leasing and other costs 13,092 12,279 ------- ------- 20,183 19,842 Accumulated amortization (7,157) (7,468) ------- ------- $13,026 $12,374 ======= ======= 6. Mortgage Loans At December 31, 2000, mortgage notes payable aggregated $277,112 and were collateralized by 45 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 2021. 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 22, 2000, the Company closed on two fixed-rate financings with a bank for $11,100 and $5,550, each of which are secured by one of the Company's properties. The loans, which mature January 1, 2011, require monthly payments of interest at 7.55% and principal amortized over 30 years. Approximately $13,181 of the proceeds were used to retire existing debt, $454 for various closing costs and funding of escrows, and the balance of $3,015 was available for working capital. On December 11, 2000, the Company fully repaid $10,137 of outstanding debt with a life insurance company following the sale of a portion of the property which secured the debt (Note 2). On October 13, 2000, the Company refinanced $36,000 of maturing debt with a life insurance company, with two new loans from the same lender. The Company repaid $5,000 prior to refinancing the balance of the maturing debt. The first loan, which is a fixed-rate facility secured by two of the Company's properties, was for $25,200 and requires the monthly payment of interest at a rate of 8.13% and principal amortized over 25 years. The loan matures in November 2010. The second loan, which is a variable-rate facility secured by three of the Company's properties, was for $10,800 and requires the monthly payment of interest at LIBOR plus 200 basis points and matures in November 2003. Commencing 18 months after the closing, the loan also requires the monthly payment of principal amortized over 25 years. Both loans are cross-collateralized with all five properties. Furthermore, with respect to the variable-rate facility, the Company is required to deposit 50% of the monthly net cash flow after debt service, which will be used to fund future property and tenant improvements at the collateral properties. On July 19, 2000, the Company closed on a facility with a bank, which provides for the borrowing of up to $10,000. The variable-rate facility, which is secured by one of the Company's properties, matures in August 2003 and requires the monthly payment of interest at the rate of LIBOR plus 175 basis points and principal amortized over 25 years. At closing, the Company borrowed $9,000 under this facility, of which $7,060 of proceeds were used to retire existing debt with another lender, $149 for various closing costs and the balance was available for working capital. The Company may draw the additional $1,000 subject to certain lender requirements including debt-service and collateral value. On March 30, 2000, the Company closed on a $59,000 secured financing line with a bank (the "Line"). The Line is secured by five of the seven properties that collateralized a loan with a life insurance company which was retired using $30,735 of the proceeds from the initial $36,000 funding. The balance of the Line must be drawn by April 2001. The Line matures April 1, 2005 and requires the monthly payment of interest at a variable-rate of LIBOR plus 175 basis points and principal amortized over 30 years. After September 2001, the debt can be prepaid without prepayment or yield maintenance fees. As of December 31, 2000, $35,814 was outstanding under the Line. F-17
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) 6. Mortgage Loans, continued On March 23, 2000, the Company fully repaid $4,600 of outstanding debt with a bank which was collateralized by one of the Company's properties. 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 variable-rate 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. As of December 31, 2000, the Company had $3,500 outstanding under this facility. On January 31, 2000, the Company repaid $23,090 of outstanding debt with a life insurance company from working capital. The remaining outstanding debt of $30,735 with this lender was fully repaid with the proceeds from the March 30, 2000 bank financing as described above. The following table summarizes the Company's mortgage indebtedness as of December 31, 2000 and 1999: <TABLE> <CAPTION> December 31, December 31, Interest 2000 1999 Rate ------- ------- ------ <S> <C> <C> <C> Mortgage notes payable - variable-rate General Electric Capital Corp. $ -- $ 7,126 -- Fleet Bank, N.A. 4,110 3,966 8.51% (LIBOR + 1.75%) Fleet Bank, N.A. 9,216 9,326 8.54% (LIBOR + 1.78%) Sun America Life Insurance Company 13,774 13,931 8.55% (LIBOR + 2.05%) Sun America Life Insurance Company 9,856 9,979 8.55% (LIBOR + 2.05%) KBC Bank 14,238 14,508 8.07% (LIBOR + 1.25%) Fleet Bank, N.A. 3,500 -- 8.13% (LIBOR + 1.50%) Fleet Bank, N.A. 8,965 -- 8.49% (LIBOR + 1.75%) Metropolitan Life Insurance Company 10,800 -- 8.80% (LIBOR + 2.00%) First Union National Bank 13,636 13,750 8.21% (LIBOR + 1.45%) Dime Savings Bank of NY 35,814 -- 8.56% (LIBOR + 1.75%) ------- ------ Total variable-rate debt 123,909 72,586 ------- ------ Mortgage notes payable - fixed rate Sun America Life Insurance Company 17,999 42,143 7.75% Huntoon Hastings Capital Corp. 6,222 6,222 7.50% North Fork Bank 9,887 5,000 7.75% Anchor National Life Insurance Company 3,775 3,866 7.93% Lehman Brothers Holdings, Inc. 17,792 17,973 8.32% Mellon Mortgage Company 7,442 7,566 9.60% Northern Life Insurance Company 2,895 3,173 7.70% Reliastar Life Insurance Company 1,996 2,189 7.70% Metropolitan Life Insurance Company 25,148 -- 8.13% Bank of America, N.A. 11,100 -- 7.55% Bank of America, N.A. 5,550 -- 7.55% Morgan Stanley Mortgage Capital 43,397 44,092 8.84% Nomura Asset Capital Corporation -- 22,335 9.02% John Hancock Mutual Life Insurance Company -- 53,878 9.11% Metropolitan Life Insurance Company -- 41,000 7.75% M&T Real Estate Inc. -- 4,628 8.18% -------- -------- Total fixed-rate debt 153,203 254,065 -------- -------- $277,112 $326,651 ======== ======== </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. -- -- -- Fleet Bank, N.A. 03/15/02 (1) (2) Fleet Bank, N.A. 05/31/02 (3) (2) Sun America Life Insurance Company 08/01/02 (4) (2) Sun America Life Insurance Company 10/01/02 (5) (2) KBC Bank 12/31/02 (6) (2) Fleet Bank, N.A. 03/01/03 (7) (2) Fleet Bank, N.A. 08/01/03 (8) (2) Metropolitan Life Insurance Company 11/01/03 (9) (24) First Union National Bank 01/01/05 (10) (2) Dime Savings Bank of NY 04/01/05 (11) (2) Mortgage notes payable - fixed rate Sun America Life Insurance Company 01/10/01 (12) $161(2) Huntoon Hastings Capital Corp. 09/01/02 (13) (14) North Fork Bank 12/01/02 (15) $76(2) Anchor National Life Insurance Company 01/01/04 (16) $33(2) Lehman Brothers Holdings, Inc. 03/01/04 (17) $139(2) Mellon Mortgage Company 05/23/05 (18) $70(2) Northern Life Insurance Company 12/01/08 (19) $41(2) Reliastar Life Insurance Company 12/01/08 (19) $28(2) Metropolitan Life Insurance Company 11/01/10 (20) $197(2) Bank of America, N.A. 01/01/11 (21) $78(2) Bank of America, N.A. 01/01/11 (22) $39(2) Morgan Stanley Mortgage Capital 11/01/21 (23) $380(2) Nomura Asset Capital Corporation -- -- -- John Hancock Mutual Life Insurance Company -- -- -- Metropolitan Life Insurance Company -- -- -- M&T Real Estate Inc. -- -- -- </TABLE> Notes: <TABLE> <CAPTION> <S> <C> <C> (1) Town Line Plaza (11) Ledgewood Mall (20) Crescent Plaza New Louden Center East End Centre (2) Monthly principal and interest Route 6 Plaza Bradford Towne Centre (21) GHT Apartments (3) Smithtown Shopping Center Berlin Shopping Center (22) Colony Apartments (4) Merrillville Plaza (12) Bloomfield Town Square Walnut Hill Shopping Center (23) Midway Plaza (5) Village Apartments (note 20) Kings Fairgrounds Shillington Plaza (6) Marley Run Apartments (13) Gateway Shopping Center Dunmore Plaza Kingston Plaza (7) Marketplace of Absecon (14) Interest only until 5/01; monthly 25th Street Shopping Center principal and interest thereafter Circle Plaza (8) Soundview Marketplace Northside Mall (15) The Branch Shopping Center Monroe Plaza (9) Green Ridge Plaza New Smyrna Beach Luzerne Street Plaza (16) Pittston Plaza Mountainville Plaza Valmont Plaza Cloud Springs Plaza (17) Glen Oaks Apartments Birney Plaza (10) 239 Greenwich Avenue Troy Plaza (18) Mad River Station Shopping Martintown Plaza Center Plaza 15 Ames Plaza (19) Manahawkin Shopping Center (24) Interest only until 5/02; monthly 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, 2000 are as follows: 2001 $ 21,595 2002 69,291 2003 25,916 2004 23,440 2005 56,912 Thereafter 79,958 -------- $277,112 ======== 7. Minority Interests Minority interest represents the limited partners' interest of 6,804,144 and 10,484,143 Common Operating Partnership ("Common OP") Units in the Operating Partnership at December 31, 2000 and 1999, 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 $1,000 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. On December 12, 2000 and August 15, 2000, 220,300 and 3,459,699 Common OP Units, respectively, were converted into Common Shares by certain limited partners. Minority interests at December 31, 2000 and 1999 also include an aggregate amount of $2,197 and $2,223, 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 and $112 for the years ended December 31, 1999 and 1998, 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% to 3.5% of collections. Such fees aggregated $853, $639 and $225 for the years ended December 31, 2000, 1999 and 1998, respectively. Management fees earned under management contracts on properties owned by Mr. Slomowitz aggregated $8 for the year ended December 31, 1998. In connection with the RDC Transaction, the Company is obligated, for a period of five years following the transaction, to reimburse the partners of the real estate partnerships which contributed properties as part of the transaction, for any tax liabilities resulting from the sale of any of the contributed properties. As a result, in connection with the sale of a portion of the Abington Towne Center (note 2), the Company estimated that it was obligated to reimburse the partners of the partnership which contributed this property a total of approximately $640. Of this amount, Mssrs. Dworman and Berstein are owed approximately $275 as a result of their interests in the contributing partnership. The total estimated obligation was included in the determination of the gain on sale of the property. 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, 2000 are summarized as follows: 2001 $ 51,025 2002 47,495 2003 44,179 2004 39,308 2005 32,589 Thereafter 201,162 -------- $415,758 ======== Minimum future rentals above include a total of $5,110 for four tenants (with six leases), which have filed for bankruptcy protection. None of these leases have been rejected nor affirmed. During the years ended December 31, 2000, 1999 and 1998, no single tenant collectively accounted for more than 10% of the Company's total revenues. 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: 2001 $ 714 2002 668 2003 642 2004 642 2005 642 Thereafter 20,641 ------- $23,949 ======= 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 total 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, 2000, the Company has issued 2,115,600 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, 9000 options have been issued to non-employee Trustees. 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, 2000, the Company issued 86,063 Restricted Shares to employees, which vest equally over three years. No awards of Share Appreciation Rights or Performance Units/Shares were granted for the years ended December 31, 2000 and 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, 2000 1999 1998 ---- ---- ---- Risk-free interest rate 4.9% 6.4% 5.2% Dividend Yield 7.8% 9.5% 9.4% Expected Life 7.7 years 8.6 years 9.7 Years Expected volatility 30.0% 32.4% 37.7% For purposes of pro forma disclosure, the estimated fair value of the options are amortized to expense over the options vesting period. For the years ended December 31, 2000 and 1999, pro forma net income is $19,038, or $0.72 per Share, and $6,573, or $0.26 per Common Share, respectively. For the year ended December 31, 1998, the Company has elected not to present proforma information because the impact on the reported net loss per Common Share is immaterial. Changes in the number of shares under all option arrangements are summarized as follows: Year ended December 31, 2000 1999 1998 ---- ---- ---- Outstanding at beginning of period 2,071,600 300,000 329,500 Granted 55,000 2,071,600 305,000 Option price per share granted $5.00-$5.75 $4.89-$7.50 $8.88-$9.00 Cancelled 2,000 300,000 334,500 Exercisable at end of period 2,108,200 1,368,733 300,000 Exercised -- -- -- -- -- -- Expired -- -- -- Outstanding at end of period 2,124,600 2,071,600 300,000 Option prices per share outstanding $4.89-$7.50 $4.89-$7.50 $9.00 As of December 31, 2000 the outstanding options had a weighted average remaining contractual life of approximately 7.7 years. F-23
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) 12. 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 $11 for the year ended December 31, 2000. The Company contributed $143, $93 and $77 for the years ended December 31, 2000, 1999 and 1998, respectively. 13. Dividends and Distributions Payable On December 13, 2000, the Company declared a cash dividend for the quarter ended December 31, 2000 of $0.12 per Common Share. The dividend was paid on January 15, 2001 to shareholders of record as of December 29, 2000. The Company has determined that the cash distributed to the shareholders is characterized as follows for federal income tax purposes: 2000 1999 1998 ---- ---- ---- Ordinary income 100% 41% n/a Return of capital - 59% n/a ---- ---- ---- 100% 100% n/a ==== ==== ==== 14. 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, Cash in Escrow, Rents Receivable, Prepaid Expenses, Other Assets, Accounts Payable and Accrued Expenses, Dividends Payable and Other Liabilities. 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, 2000 and 1999, the Company has determined the estimated fair value of its mortgage notes payable are approximately $287,588 and $326,797, 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) 15. Summary of Quarterly Financial Information (unaudited) The separate results of operations of the Company for the years ended December 31, 2000 and 1999 are as follows: <TABLE> <CAPTION> March 31, June 30, September 30, December 31, Total for 2000 2000 2000 2000 Year --------- -------- ------------- ------------ --------- <S> <C> <C> <C> <C> <C> Revenue $23,863 $24,969 $23,489 $24,437 $96,758 =================================================================== Income before minority interest $2,701 $4,238 $1,527 $17,333 $25,799 =================================================================== Net income $1,874 $2,964 $1,105 $13,964 $19,907 =================================================================== Net income per Common Share - basic and diluted $0.07 $0.12 $0.04 $0.49 $0.75 =================================================================== Cash dividends declared per Common Share $0.12 $0.12 $0.12 $0.12 $0.48 =================================================================== Weighted average Common Shares outstanding - basic and diluted 25,476,098 25,241,794 26,789,666 28,218,059 26,437,265 =================================================================== </TABLE> <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 Common Share - basic and diluted $ 0.03 $ 0.05 $ 0.12 $ 0.08 $ 0.28 ================================================================= Cash dividends declared per Common Share $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.48 ================================================================= Weighted average Common Shares outstanding - basic and diluted 25,419,215 25,510,424 25,988,860 25,908,199 25,708,787 ================================================================= </TABLE> F-25
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) 16. 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 $900 on April 1, 1999 and agreed to pay him five annual payments of $200 which commenced January 10, 2000. Pursuant to this agreement, the Company has obtained a standby letter of credit to collateralize the remaining 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. 17. 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 entered into a voluntary remedial agreement with the State of New York for the remediation of the property. During 2000, the Company satisfied all conditions to the voluntary remedial agreement and received final approval from the State of New York. All remaining amounts held by Morgan Stanley pertaining to environmental remediation were released in October 2000. 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) 18. Extraordinary Item - Loss on Early Extinguishment of Debt The consolidated statements 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. 19. Pro Forma Information The following unaudited pro forma condensed consolidated information for the year ended December 31, 1998 is presented as if the RDC Transaction had occurred on January 1, 1997. Revenue $ 84,053 ======== Loss income before extraordinary item $ (5,886) Net loss income $ (6,067) Net (loss) income per Common Share- basic and diluted $ (0.24) Weighted average number of Common Shares outstanding 24,677,928 ========== Weighted average number of Common Shares outstanding- assuming dilution 24,677,928 ========== 20. Subsequent Events On January 8, 2001, the Company partially repaid $10,087 of fixed-rate mortgage debt, which was secured by two of the Company's properties, with a life insurance company. Following this repayment from working capital, the remaining balance of $7,912 was converted to a variable-rate facility which is secured by one of the Company's properties, requires the monthly payments of interest at LIBOR plus 200 basis points and principal amortized over 25 years, and matures January 10, 2002. On January 4, 2001, the Company announced that Kenneth F. Bernstein, President, was elected by the Board of Trustees to the additional post of Chief Executive Officer and that Ross Dworman, former Chairman and Chief Executive Officer, is to remain as Chairman of the Board. F-27
ACADIA REALTY TRUST SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2000 <TABLE> <CAPTION> Costs capitalized Buildings & Subsequent Description Encumbrances Land Improvements to Acquisition Land - --------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Shopping Centers Circle Plaza (1) $ - $ 3,435 $ 152 $ 2 Shamokin Dam, PA Martintown Plaza (1) - 4,625 1,648 - North Augusta, SC Midway Plaza (1) 196 1,647 3,171 196 Opelika, AL Northside Mall (1) 1,604 7,080 4,103 1,604 Dothan, AL New Smyrna Beach (1) 246 2,219 3,982 246 New Smyrna Beach FL King's Fairground (1) - 1,426 338 - Danville, VA Cloud Springs Plaza (1) 159 2,712 1,177 159 Ft Ogelthorpe, GA Crescent Plaza 8,882 1,147 7,425 512 1,147 Brockton, MA New Louden Centre (2) 505 4,161 10,130 505 Latham, NY Ledgewood Mall (2) 619 5,434 31,415 619 Ledgewood, NJ Troy Plaza (1) 479 1,976 1,094 479 Troy, NY Birney Plaza (1) 210 2,979 803 210 Moosic, PA Dunmore Plaza (1) 100 506 137 100 Dunmore, PA Mark Plaza - - 4,268 4,111 - Edwardsville, PA Kingston Plaza (1) 305 1,745 463 284 Kingston, PA Luzerne Street Plaza 1,600 35 315 1,208 35 Scranton, PA Blackman Plaza - 120 - 1,383 120 Wilkes- Barre, PA East End Centre 16,266 1,086 8,661 3,559 1,086 Wilkes-Barre, PA Greenridge Plaza 6,100 1,335 6,314 655 1,335 Scranton, PA Plaza 15 (1) 171 81 1,481 171 Lewisburg, PA </TABLE>
[RESTUB] <TABLE> <CAPTION> Date of Buildings & Accumulated Acquisition (a) Description Improvements Total Depreciation Construction (c) - ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Shopping Centers Circle Plaza $ 3,585 $ 3,587 $ 1,470 1978(c) Shamokin Dam, PA Martintown Plaza 6,273 6,273 2,755 1985(a) North Augusta, SC Midway Plaza 4,818 5,014 2,384 1984(a) Opelika, AL Northside Mall 11,192 12,796 4,653 1986(a) Dothan, AL New Smyrna Beach 6,201 6,447 3,338 1983(a) New Smyrna Beach FL King's Fairground 1,764 1,764 552 1992(a) Danville, VA Cloud Springs Plaza 3,889 4,048 1,795 1985(a) Ft Ogelthorpe, GA Crescent Plaza 7,937 9,084 3,207 1984(a) Brockton, MA New Louden Centre 14,291 14,796 4,871 1982(a) Latham, NY Ledgewood Mall 36,849 37,468 16,238 1983(a) Ledgewood, NJ Troy Plaza 3,070 3,549 1,692 1982(a) Troy, NY Birney Plaza 3,782 3,992 3,374 1968(c) Moosic, PA Dunmore Plaza 643 743 331 1975(a) Dunmore, PA Mark Plaza 8,379 8,379 4,140 1968(c) Edwardsville, PA Kingston Plaza 2,229 2,513 1,324 1982(c) Kingston, PA Luzerne Street Plaza 1,523 1,558 865 1983(a) Scranton, PA Blackman Plaza 1,383 1,503 122 1968(c) Wilkes- Barre, PA East End Centre 12,220 13,306 5,834 1986(c) Wilkes-Barre, PA Greenridge Plaza 6,969 8,304 3,176 1986(c) Scranton, PA Plaza 15 1,562 1,733 609 1976(c) Lewisburg, PA </TABLE>
ACADIA REALTY TRUST SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2000 <TABLE> <CAPTION> Costs capitalized Buildings & Subsequent Description Encumbrances Land Improvements to Acquisition Land - --------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Shopping Centers (cont.) Plaza 422 - 190 3,004 517 190 Lebanon, PA Tioga West - 48 1,238 3,215 48 Tunkhannock,PA Mountainville Plaza (1) 420 2,390 486 420 Allentown, PA Monroe Plaza (1) 70 2,083 288 150 Stroudsburg, PA Ames Plaza (1) 57 1,958 316 57 Shamokin, PA Route 6 Mall (2) - - 12,696 1,664 Honesdale , PA Pittston Mall 3,775 1,500 - 5,956 1,521 Pittston , PA Valmont Plaza 3,100 522 5,591 1,030 522 West Hazelton , PA Manahawkin 4,891 2,360 9,396 4,890 3,065 Stafford Township, NJ Twenty Fifth Street (1) 2,280 9,276 199 2,280 Easton, PA Berlin Shopping Centre (2) 1,331 5,351 205 1,331 Berlin, NJ Shillington Plaza (1) 809 3,268 322 809 Reading, PA Union Plaza - - - 19,127 4,312 New Castle, PA Bradford Towne Centre (2) - - 16,100 817 Towanda, PA Atrium Mall - 799 3,197 24 799 Abington, PA Bloomfield Town Square 8,894 3,443 13,774 245 3,443 Bloomfield Hills, MI Walnut Hill Plaza 9,104 3,122 12,488 418 3,122 Woonsocket, RI Elmwood Park Plaza - 3,248 12,992 218 3,248 Elmwood Park, NJ Merrillville Plaza 13,775 4,288 17,152 829 4,288 Hobart, IN Soundview Marketplace 8,965 2,428 9,711 1,332 2,428 Port Washington, NY Marketplace of Absecon 3,500 2,573 10,294 2,316 2,577 Absecon, NJ </TABLE>
[RESTUB] <TABLE> <CAPTION> Date of Buildings & Accumulated Acquisition (a) Description Improvements Total Depreciation Construction (c) - -------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Shopping Centers (cont.) Plaza 422 3,521 3,711 2,168 1972(c) Lebanon, PA Tioga West 4,453 4,501 2,246 1965(c) Tunkhannock,PA Mountainville Plaza 2,876 3,296 1,649 1983(a) Allentown, PA Monroe Plaza 2,291 2,441 1,120 1964(c) Stroudsburg, PA Ames Plaza 2,274 2,331 1,772 1966(c) Shamokin, PA Route 6 Mall 11,032 12,696 2,385 1995(c) Honesdale , PA Pittston Mall 5,935 7,456 1,114 1995(c) Pittston , PA Valmont Plaza 6,621 7,143 3,257 1985(a) West Hazelton , PA Manahawkin 13,581 16,646 2,167 1993(a) Stafford Township, NJ Twenty Fifth Street 9,475 11,755 2,314 1993(a) Easton, PA Berlin Shopping Centre 5,556 6,887 1,322 1994 (a) Berlin, NJ Shillington Plaza 3,590 4,399 724 1994 (a) Reading, PA Union Plaza 14,815 19,127 1,987 1996 (c) New Castle, PA Bradford Towne Centre 15,283 16,100 3,483 1994 (c) Towanda, PA Atrium Mall 3,221 4,020 193 1998(a) Abington, PA Bloomfield Town Square 14,019 17,462 834 1998(a) Bloomfield Hills, MI Walnut Hill Plaza 12,906 16,028 948 1998(a) Woonsocket, RI Elmwood Park Plaza 13,210 16,458 772 1998(a) Elmwood Park, NJ Merrillville Plaza 17,981 22,269 1,137 1998(a) Hobart, IN Soundview Marketplace 11,043 13,471 712 1998(a) Port Washington, NY Marketplace of Absecon 12,606 15,183 704 1998(a) Absecon, NJ </TABLE>
ACADIA REALTY TRUST SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2000 <TABLE> <CAPTION> Costs capitalized Buildings & Subsequent Description Encumbrances Land Improvements to Acquisition Land - --------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Shopping Centers (cont.) Hobson West Plaza - 1,793 7,172 353 1,793 Naperville, IL Smithtown Shopping Center 9,216 3,229 12,917 933 3,229 Smithtown, NY Town Line Plaza 4,110 878 3,510 6,578 909 Rocky Hill, CT Branch Shopping Center 9,887 3,156 12,545 100 3,156 Village of the Branch, NY The Caldor Shopping Center - 956 3,826 0 956 Methuen, MA Gateway Mall 6,222 1,273 5,091 - 1,273 Burlington, VT Mad River Station 7,442 2,350 9,404 53 2,350 Dayton, OH Pacesetter Park Shopping Center - 1,475 5,899 212 1,475 Ramapo, NY 239 Greenwich 13,636 1,817 15,846 163 1,817 Greenwich, CT Residential Properties Gate House, Holiday House, Tiger Village 11,100 2,312 9,247 910 2,312 Columbia, MO Village Apartments 9,856 3,429 13,716 615 3,429 Winston Salem, NC Colony Apartments 5,550 1,118 4,470 264 1,118 Columbia, MO Properties under development - - - 6,301 - ---------- --------------------------------------------------------------- $ 277,112 (5) $ 61,591 $ 293,815 $ 158,733 $ 69,206 ========== =============================================================== </TABLE>
[RESTUB] <TABLE> <CAPTION> Date of Buildings & Accumulated Acquisition (a) Description Improvements Total Depreciation Construction (c) - ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Shopping Centers (cont.) Hobson West Plaza 7,525 9,318 503 1998(a) Naperville, IL Smithtown Shopping Center 13,850 17,079 1,028 1998(a) Smithtown, NY Town Line Plaza 10,057 10,966 1,020 1998(a) Rocky Hill, CT Branch Shopping Center 12,645 15,801 746 1998(a) Village of the Branch, NY The Caldor Shopping Center 3,826 4,782 227 1998(a) Methuen, MA Gateway Mall 5,091 6,364 96 1999(a) Burlington, VT Mad River Station 9,457 11,807 436 1999(a) Dayton, OH Pacesetter Park Shopping Center 6,111 7,586 166 1999(a) Ramapo, NY 239 Greenwich 16,009 17,826 527 1999(c) Greenwich, CT Residential Properties Gate House, Holiday House, Tiger Village 10,157 12,469 703 1998(a) Columbia, MO Village Apartments 14,331 17,760 958 1998(a) Winston Salem, NC Colony Apartments 4,734 5,852 313 1998(a) Columbia, MO Properties under development 6,301 6,301 - ---------------------------------------- 444,933 $ 514,139 $ 102,461 ======================================== </TABLE> F-28
Acadia Realty Trust Notes To Schedule 3 December 31, 2000 1. These seventeen properties serve as collateral for the financing with Morgan Stanley (note 6). 2. These five properties serve as collateral for the financing with Dime Savings Bank (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 $453,994 as of December 31, 2000. 5. Total encumbrances include $14,238 and $17,792 for Marley Run Apartments and Glen Oaks Apartments which are separately disclosed as Property held for sale in the balance sheet. 6.(a) Reconciliation of Real Estate Properties: The following table reconciles the real estate properties from January 1, 1998 to December 31, 2000: <TABLE> <CAPTION> For the year ended December 31, 2000 1999 1998 ---- ---- ---- <S> <C> <C> <C> Balance at beginning of period $ 569,521 $ 551,249 $ 311,688 Other improvements 13,998 19,728 16,647 Properties acquired - 25,905 254,164 Adjustment of carrying value of property held for sale - - (11,560) Property held for sale (54,819) (27,301) (11,991) Fully depreciated assets written off (11) (60) (3,350) Sale of property (14,550) - (4,349) ------------------------------------------- Balance at end of period $ 514,139 $ 569,521 $ 551,249 =========================================== </TABLE> (b) Reconciliation of accumulated Depreciation: The following table reconciles accumulated depreciation from January 1, 1998 to December 31, 2000: <TABLE> <CAPTION> For the year ended December 31, 2000 1999 1998 ---- ---- ---- <S> <C> <C> <C> Balance at beginning of period $ 90,932 $ 87,202 $ 83,326 Sale of property (453) - (2,035) Property held for sale (5,374) (14,074) (4,918) Fully depreciated assets written off (11) (60) (3,350) Depreciation related to real estate 17,367 17,864 14,179 Balance at end of period $ 102,461 $ 90,932 $ 87,202 </TABLE> F-29
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 - ------ ----------- 10.45 Sale-Purchase Agreement between Acadia Realty L.P. and Mark Northwood Associates L.P., seller, and UrbanAmerica, L.P., Buyer, dated June 14, 2000 10.46 Purchase Agreement between RD Abington Associates L.P. and Target Corporation dated June 29, 2000 10.47 Agreement to Sell and Purchase real estate between Mark Twelve Associates, L.P. and Lowes Home Centers, Inc. dated April 25, 2000 10.48 Amended and Restated Mortgage Note between Port Bay Associates, LLC and Fleet Bank, N.A. dated July 19, 2000 10.48.a Mortgage and Security Agreement between Port Bay Associates, LLC and Fleet Bank, N.A. dated July 19, 2000 10.49 Amended and Restated Promissory Note Between Acadia Realty L.P. and Metropolitan Life Insurance Company for $25.2 million dated October 13, 2000 10.50 Amended and Restated Promissory Note Between Acadia Realty L.P. and Metropolitan Life Insurance Company for $10.8 million dated October 13, 2000 10.50.a Amended and Restated Mortgage, Security Agreement and Fixture Filing between Acadia Realty L.P. and Metropolitan Life Insurance Company dated October 13, 2000 10.51 Term Loan Agreement between Acadia Realty L.P. and The Dime Savings Bank of New York, dated March 30, 2000 10.51.a Mortgage Agreement between Acadia Realty L.P. and The Dime Savings Bank of New York, dated March 30, 2000 10.52 Promissory Note between RD Whitegate Associates, L.P. and Bank of America, N.A. Dated December 22, 2000 10.53 Promissory Note between RD Columbia Associates, L.P. and Bank of America, N.A. Dated December 22, 2000 21 List of Subsidiaries of Acadia Realty Trust 23 Consent of Independent Auditors to Form S-3 and Form S-8