SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-12002
ACADIA REALTY TRUST
(Exact name of registrant in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
23-2715194
(I.R.S. Employer
Identification No.)
411 THEODORE FREMD AVENUE, SUITE 300, RYE, NY
(Address of principal executive offices)
10580
(Zip Code)
(914) 288-8100
(Registrant’s telephone number, including area code)
Title of class of registered securities
Trading symbol
Name of exchange on which registered
Common shares of beneficial interest, par value $0.001 per share
AKR
The New York Stock Exchange
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 ☒
No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated Filer
Emerging Growth Company
Non-accelerated Filer
Smaller Reporting Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐ No ☒
As of October 22, 2021 there were 88,453,569 common shares of beneficial interest, par value $0.001 per share (“Common Shares”), outstanding.
ACADIA REALTY TRUST AND SUBSIDIARIES
INDEX
Item No.
Description
Page
PART I - FINANCIAL INFORMATION
1.
Financial Statements
4
Consolidated Balance Sheets as of September 30, 2021 (Unaudited) and December 31, 2020
Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020
5
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020
6
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020
7
Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2021 and 2020
9
Notes to Consolidated Financial Statements (Unaudited)
11
2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
45
3.
Quantitative and Qualitative Disclosures about Market Risk
58
4.
Controls and Procedures
59
PART II - OTHER INFORMATION
Legal Proceedings
60
1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
5.
Other Information
6.
Exhibits
61
Signatures
62
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q (this “Report”) of Acadia Realty Trust, a Maryland real estate investment trust (the “Company”), may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations are generally identifiable by the use of words such as “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project,” or the negative thereof, or other variations thereon or comparable terminology. Forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause our actual results and financial performance to be materially different from future results and financial performance expressed or implied by such forward-looking statements, including, but not limited to: (i) the economic, political and social impact of, and uncertainty surrounding the COVID-19 pandemic (the “COVID-19 Pandemic”), including (a) its impact on our tenants and their ability to make rent and other payments or honor their commitments under existing leases; (b) the rate and efficacy of COVID-19 vaccines;; (c) temporary or permanent migration out of major cities by customers, including cities where the Company’s properties are located, which may have a negative impact on the Company’s tenant’s businesses; (d) to the extent we were seeking to sell properties in the near term, significantly greater uncertainty regarding our ability to do so at attractive prices, and (e) the potential impact of any such events on the obligations of the Company’s tenants to make rent and other payments or honor other commitments under existing leases, (f) to the extent we were seeking to sell properties in the near term, significantly greater uncertainty regarding our ability to do so at attractive prices, and (g) the potential adverse impact on returns from development and redevelopment projects; (ii) the ability and willingness of the Company’s tenants (in particular its major tenants) and other third parties to satisfy their obligations under their respective contractual arrangements with the Company; (iii) macroeconomic conditions, such as a disruption of or lack of access to the capital markets; (iv) the Company’s success in implementing its business strategy and its ability to identify, underwrite, finance, consummate and integrate diversifying acquisitions and investments; (v) changes in general economic conditions or economic conditions in the markets in which the Company may, from time to time, compete, and their effect on the Company’s revenues, earnings and funding sources; (vi) increases in the Company’s borrowing costs as a result of changes in interest rates and other factors, including the potential phasing out of the London Interbank Offered Rate after 2021; (vii) the Company’s ability to pay down, refinance, restructure or extend its indebtedness as it becomes due; (viii) the Company’s investments in joint ventures and unconsolidated entities, including its lack of sole decision-making authority and its reliance on its joint venture partners’ financial condition; (ix) the Company’s ability to obtain the financial results expected from its development and redevelopment projects; (x) the ability and willingness of the Company’s tenants to renew their leases with the Company upon expiration, the Company’s ability to re-lease its properties on the same or better terms in the event of nonrenewal or in the event the Company exercises its right to replace an existing tenant, and obligations the Company may incur in connection with the replacement of an existing tenant; (xi) the Company’s liability for environmental matters; (xii) damage to the Company’s properties from catastrophic weather and other natural events, and the physical effects of climate change; (xiii) uninsured losses; (xiv) the Company’s ability and willingness to maintain its qualification as a real estate investment trust (“REIT”) in light of economic, market, legal, tax and other considerations; (xv) information technology security breaches, including increased cybersecurity risks relating to the use of remote technology during the COVID-19 Pandemic; and (xvi) the loss of key executives.
The factors described above are not exhaustive and additional factors could adversely affect the Company’s future results and financial performance, including the risk factors discussed under the section captioned “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 and other periodic or current reports the Company files with the SEC, including those set forth under the headings “Item 1A. Risk Factors” and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Report. These risks and uncertainties should be considered in evaluating any forward-looking statements contained or incorporated by reference herein. Any forward-looking statements speak only as of the date hereof. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company’s expectations with regard thereto or change in the events, conditions or circumstances on which such forward-looking statements are based.
SPECIAL NOTE REGARDING CERTAIN REFERENCES
All references to “Notes” throughout the document refer to the footnotes to the consolidated financial statements of the registrant referenced in Part I, Item 1. Financial Statements.
3
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED BALANCE SHEETS
September 30,
December 31,
(dollars in thousands, except per share amounts)
2021
2020
ASSETS
Investments in real estate, at cost
Operating real estate, net
$
3,268,573
3,260,139
Real estate under development
219,037
247,349
Net investments in real estate
3,487,610
3,507,488
Notes receivable, net
158,468
101,450
Investments in and advances to unconsolidated affiliates
305,668
249,807
Other assets, net
174,750
173,809
Right-of-use assets - operating leases, net
41,577
76,268
Cash and cash equivalents
17,359
19,232
Restricted cash
14,827
14,692
Rents receivable, net
44,386
44,136
Total assets
4,244,645
4,186,882
LIABILITIES
Mortgage and other notes payable, net
1,181,028
1,204,581
Unsecured notes payable, net
503,966
420,858
Unsecured line of credit
102,905
138,400
Accounts payable and other liabilities
245,697
269,911
Lease liability - operating leases, net
39,743
88,816
Dividends and distributions payable
14,339
147
Distributions in excess of income from, and investments in, unconsolidated affiliates
15,456
15,616
Total liabilities
2,103,134
2,138,329
Commitments and contingencies
EQUITY
Acadia Shareholders' Equity
Common shares, $0.001 par value, authorized 200,000,000 shares, issued and outstanding 88,451,668 and 86,268,303 shares, respectively
88
86
Additional paid-in capital
1,733,448
1,683,165
Accumulated other comprehensive loss
(43,169
)
(74,891
Distributions in excess of accumulated earnings
(185,373
(167,046
Total Acadia shareholders’ equity
1,504,994
1,441,314
Noncontrolling interests
636,517
607,239
Total equity
2,141,511
2,048,553
Total liabilities and equity
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands except per share amounts)
Revenues
Rental income
71,852
50,300
212,723
183,396
Other
1,594
981
4,777
3,078
Total revenues
73,446
51,281
217,500
186,474
Operating expenses
Depreciation and amortization
30,866
34,457
93,601
101,627
General and administrative
9,978
8,625
29,645
26,415
Real estate taxes
11,320
10,689
35,286
31,833
Property operating
12,698
11,559
39,065
41,685
Impairment charges
9,925
—
51,549
Total operating expenses
74,787
65,330
207,522
253,109
Gain on disposition of properties
24
10,521
509
Operating (loss) income
(1,341
(14,025
20,499
(66,126
Equity in earnings (losses) of unconsolidated affiliates
644
(624
4,013
(155
Interest and other income
2,354
2,132
6,108
7,156
Realized and unrealized holding gains (losses) on investments and other
47,293
(7,946
56,511
79,335
Interest expense
(17,334
(17,752
(52,080
(54,373
Income (loss) from continuing operations before income taxes
31,616
(38,215
35,051
(34,163
Income tax (provision) benefit
(59
(74
(403
741
Net income (loss)
31,557
(38,289
34,648
(33,422
Net (income) loss attributable to noncontrolling interests
(19,488
29,259
(13,499
35,388
Net income (loss) attributable to Acadia
12,069
(9,030
21,149
1,966
Basic and diluted earnings (loss) per share
0.13
(0.10
0.24
0.02
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Other comprehensive income (loss):
Unrealized gain (loss) on valuation of swap agreements
1,045
952
24,528
(82,444
Reclassification of realized interest on swap agreements
5,528
5,506
16,169
9,598
Other comprehensive income (loss)
6,573
6,458
40,697
(72,846
Comprehensive income (loss)
38,130
(31,831
75,345
(106,268
Comprehensive (income) loss attributable to noncontrolling interests
(21,321
27,137
(22,474
53,536
Comprehensive income (loss) attributable to Acadia
16,809
(4,694
52,871
(52,732
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Three Months Ended September 30, 2021 and 2020
Acadia Shareholders
(in thousands, except per share amounts)
CommonShares
ShareAmount
AdditionalPaid-inCapital
AccumulatedOtherComprehensiveLoss
Distributionsin Excess ofAccumulatedEarnings
TotalCommonShareholders’Equity
NoncontrollingInterests
TotalEquity
Balance at July 1, 2021
88,419
1,730,686
(47,909
(184,174
1,498,691
617,659
2,116,350
Conversion of OP Units to Common Shares by limited partners of the Operating Partnership
18
288
(288
Cancellation of OP Units
(479
Issuance of Common Shares
13
189
Dividends/distributions declared ($0.15 per Common Share/OP Unit)
(13,268
(1,046
(14,314
Employee and trustee stock compensation, net
2
225
2,419
2,644
Noncontrolling interest distributions
(10,527
Noncontrolling interest contributions
9,518
Comprehensive income
4,740
21,321
Reallocation of noncontrolling interests
2,060
(2,060
Balance at September 30, 2021
88,452
Balance at July 1, 2020
86,265
1,693,006
(90,209
(147,291
1,455,592
637,739
2,093,331
Dividends/distributions declared ($0 per Common Share/OP Unit)
(123
1
232
2,181
2,413
(20,117
8,427
4,336
(27,137
2,100
(2,100
Balance at September 30, 2020
86,266
1,695,338
(85,873
(156,321
1,453,230
598,870
2,052,100
Nine Months Ended September 30, 2021 and 2020
Balance at January 1, 2021
86,269
2,085
45,863
45,865
44
697
(697
Dividends/distributions declared ($0.45 per Common Share/OP Unit)
(39,476
(3,146
(42,622
54
914
8,866
9,780
(21,558
26,627
31,722
22,474
2,809
(2,809
Balance at January 1, 2020
87,050
87
1,706,357
(31,175
(132,961
1,542,308
644,657
2,186,965
Cumulative effect of change in accounting principle
(389
(11
(400
Acquisition of noncontrolling interest
588
408
6,544
(6,544
Repurchase of Common Shares
(1,219
(1
(22,385
(22,386
Dividends/distributions declared ($0.29 per Common Share/OP Unit)
(24,937
(2,095
(27,032
27
578
7,973
8,551
(24,654
36,736
Comprehensive (loss) income
(54,698
(53,536
4,244
(4,244
8
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Straight-line rents
(4,022
Non-cash lease expense
2,887
2,382
Net unrealized holding gains on investments
(55,796
(57,031
Distributions of operating income from unconsolidated affiliates
2,004
2,829
Equity in (earnings) losses of unconsolidated affiliates
(4,013
155
Stock compensation expense
Amortization of financing costs
3,901
4,040
(10,521
(509
Allowance for credit loss
973
20,509
Termination of ground lease
(3,615
Adjustments to straight-line rent reserves
254
19,678
Other, net
(5,319
(3,228
Changes in assets and liabilities:
Other liabilities
1,833
(7,736
Lease liability - operating leases
(2,653
(957
Prepaid expenses and other assets
(5,579
(1,435
Rents receivable
4,104
(27,489
Accounts payable and accrued expenses
220
7,015
Net cash provided by operating activities
72,390
82,506
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of real estate
(63,425
(21,208
Development, construction and property improvement costs
(27,197
(29,374
Proceeds from the disposition of properties, net
63,901
14,182
Investments in and advances to unconsolidated affiliates and other
(6,111
(3,662
Return of capital from unconsolidated affiliates and other
10,671
9,054
Issuance of notes receivable
(57,957
(59,000
Return of deposits for properties under contract
187
Payment of deferred leasing costs
(3,509
(5,422
Change in control of previously unconsolidated affiliate
950
Net cash used in investing activities
(83,627
(94,293
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and other notes
(69,766
(18,981
Principal payments on unsecured debt
(160,387
(123,750
Proceeds received on mortgage and other notes
12,654
5,523
Proceeds from unsecured debt
211,854
215,554
Payments of finance lease obligations
(63
(903
Proceeds from the sale (repurchase) of Common Shares
Capital contributions from noncontrolling interests
Distributions to noncontrolling interests
(23,781
(28,418
Dividends paid to Common Shareholders
(26,208
(50,182
Deferred financing and other costs
(7,296
(1,635
Net cash provided by financing activities
9,499
11,558
Decrease in cash and restricted cash
(1,738
(229
Cash of $19,232 and $15,845 and restricted cash of $14,692 and $14,165, respectively, beginning of period
33,924
30,010
Cash of $17,359 and $16,108 and restricted cash of $14,827 and $13,673, respectively, end of period
32,186
29,781
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Supplemental disclosure of cash flow information
Cash paid during the period for interest, net of capitalized interest of $2,723 and $6,270 respectively
31,807
40,470
Cash paid for income taxes, net of refunds
253
282
Supplemental disclosure of non-cash investing and financing activities
Right-of-use assets, operating leases modified in exchange for operating lease liabilities
412
Assumption of accounts payable and accrued expenses through acquisition of real estate
523
116
Acquisition of real estate through assumption of debt
31,802
Distribution declared and payable on October 15, 2021 and 2020, respectively
14,314
123
Settlement of note receivable through cancellation of OP Units
479
Right-of-use assets, finance leases obtained in exchange for assets under capital lease
(70,427
Right-of-use assets, operating leases exchanged for operating lease liabilities
33,189
Right of use assets, operating leases terminated in exchange for finance lease liabilities
(1,432
Change in control of previously unconsolidated (consolidated) investment
Increase in real estate
(135,190
Decrease in investments in and advances to unconsolidated affiliates
96,816
Change in other assets and liabilities
1,238
Acquisition of noncontrolling interest asset
(588
Decrease in notes receivable
38,674
Increase in cash and restricted cash upon change of control
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Organization, Basis of Presentation and Summary of Significant Accounting Policies
Organization
The Company is a fully-integrated equity REIT focused on the ownership, acquisition, development, and management of retail properties located primarily in high-barrier-to-entry, supply-constrained, densely-populated metropolitan areas in the United States.
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 entities in which the Operating Partnership owns an interest. As of September 30, 2021 and December 31, 2020, the Company controlled approximately 94% and 95%, respectively, of the Operating Partnership as the sole general partner and is entitled to share, in proportion to its percentage interest, in the cash distributions and profits and losses of the Operating Partnership. The limited partners primarily represent entities or individuals that contributed their interests in certain properties or entities to the Operating Partnership in exchange for common or preferred units of limited partnership interest (“Common OP Units” or “Preferred OP Units”) and employees who have been awarded restricted Common OP Units (“LTIP Units”) as long-term incentive compensation (Note 13). Limited partners holding Common OP and LTIP Units are generally entitled to exchange their units on a one-for-one basis for common shares of beneficial interest, par value $0.001 per share, of the Company (“Common Shares”). This structure is referred to as an umbrella partnership REIT or “UPREIT.”
As of September 30, 2021, the Company has ownership interests in 130 properties within its core portfolio, which consist of those properties either 100% owned, or partially owned through joint venture interests, by the Operating Partnership, or subsidiaries thereof, not including those properties owned through its funds (“Core Portfolio”). The Company also has ownership interests in 52 properties within its opportunity funds, Acadia Strategic Opportunity Fund II, LLC (“Fund II”), Acadia Strategic Opportunity Fund III LLC (“Fund III”), Acadia Strategic Opportunity Fund IV LLC (“Fund IV”), and Acadia Strategic Opportunity Fund V LLC (“Fund V” and, collectively with Fund II, Fund III and Fund IV, the “Funds”). The 182 Core Portfolio and Fund properties primarily consist of street and urban retail and suburban shopping centers. In addition, the Company, together with the investors in the Funds, invested in operating companies through Acadia Mervyn Investors I, LLC (“Mervyns I,” which was liquidated in 2018) and Acadia Mervyn Investors II, LLC (“Mervyns II”), all on a non-recourse basis. The Company consolidates the Funds as it has (i) the power to direct the activities that most significantly impact the Funds’ economic performance, (ii) is obligated to absorb the Funds’ losses and (iii) has the right to receive benefits from the Funds that could potentially be significant.
The Operating Partnership is the sole general partner or managing member of the Funds and Mervyns II and earns fees or priority distributions for asset management, property management, construction, development, leasing, and legal services. Cash flows from the Funds and Mervyns II are distributed pro-rata to their respective partners and members (including the Operating Partnership) until each receives a certain cumulative return (“Preferred Return”) and the return of all capital contributions. Thereafter, remaining cash flow is distributed 20% to the Operating Partnership (“Promote”) and 80% to the partners or members (including the Operating Partnership). All transactions between the Funds and the Operating Partnership have been eliminated in consolidation.
The following table summarizes the general terms and Operating Partnership’s equity interests in the Funds and Mervyns II (dollars in millions):
Entity
FormationDate
OperatingPartnershipShare ofCapital
Capital Called as of September 30, 2021 (b)
UnfundedCommitment (b, c)
Equity InterestHeld ByOperatingPartnership (a)
PreferredReturn
Total Distributions as of September 30, 2021 (b, c)
Fund II and Mervyns II (c)
6/2004
28.33
%
376.6
8.7
169.8
Fund III
5/2007
24.54
448.1
1.9
576.0
Fund IV
5/2012
23.12
488.1
41.9
193.1
Fund V (d)
8/2016
20.10
226.2
293.8
42.8
Basis of Presentation
Segments
At September 30, 2021, the Company had three reportable operating segments: Core Portfolio, Funds and Structured Financing. The Company’s chief operating decision maker may review operational and financial data on a property-level basis and does not differentiate properties on a geographical basis for purposes of allocating resources or capital.
Principles of Consolidation
The interim consolidated financial statements include the consolidated accounts of the Company and its investments in partnerships and limited liability companies in which the Company has control in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810 “Consolidation” (“ASC Topic 810”). The ownership interests of other investors in these entities are recorded as noncontrolling interests. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in entities for which the Company has the ability to exercise significant influence over, but does not have financial or operating control, are accounted for using the equity method of accounting. Accordingly, the Company’s share of the earnings (or losses) of these entities are included in consolidated net income or loss.
The interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the full fiscal year. The information furnished in the accompanying consolidated financial statements reflects all adjustments that, in the opinion of management, are necessary for a fair presentation of the aforementioned consolidated financial statements for the interim periods. Such adjustments consisted of normal recurring items, with the exception of adjustments due to the adoption of the new credit loss standard and impairment.
These interim consolidated financial statements should be read in conjunction with the Company’s 2020 consolidated financial statements included in the Annual Report on Form 10-K, as filed with the SEC on February 22, 2021.
Reclassifications
Certain prior year amounts on the Company’s consolidated balance sheet at December 31, 2020 with regard to Mortgage and other notes payable, net and Unsecured notes payable, net have been reclassified to conform to the current period presentation. In addition, certain prior year amounts in the Company’s statement of cash flows for the nine months ended September 30, 2020 with regard to Right-of-use assets – operating leases, lease liabilities – operating leases and credit losses have been reclassified to conform to the current period presentation. These reclassifications had no material effect on the reported results of operations, financial condition or cash flows.
Use of Estimates
GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported in the interim consolidated financial statements and accompanying notes. The most significant assumptions and estimates relate to the valuation of real estate, depreciable lives, revenue recognition and the collectability of notes receivable and rents receivable. Application of these estimates and assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.
Recently Adopted Accounting and Reporting Guidance
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. The amendments in this Update provide guidance for interim period and intra period tax accounting; provide tax accounting guidance for foreign subsidiaries; require that an entity recognize a franchise (or similar) tax that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax; as well as other changes to tax accounting. This ASU is effective for fiscal years beginning after December 15, 2020. As a REIT, the Company usually does not have significant income taxes. Accordingly, the implementation of this guidance did not have a material effect on the Company’s consolidated financial statements.
On April 8, 2020, the FASB issued a Q&A allowing for reporting entities to make an accounting policy election to account for lease concessions related to the effects of COVID-19 consistent with how those concessions would be accounted for under Topic 842, which is as though the enforceable rights and obligations for those concessions existed regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contract. This election is available for concessions that result in the total cash flows required by the modified contract being
12
substantially the same or less than total cash flows required by the original contract. Effective April 1, 2020, the Company has made the accounting policy election noted above. The Company entered into concession agreements as lessor during the nine months ended September 30, 2021 (Note 11). The Company may grant further concessions during subsequent periods.
In January 2020, the FASB issued ASU 2020-01 Investments—Equity securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815. The amendments in this Update affect all entities that apply the guidance in Topics 321, 323, and 815 and (i) elect to apply the measurement alternative or (ii) enter into a forward contract or purchase an option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting. This ASU is effective for fiscal years beginning after December 15, 2020. Currently, the Company does not apply the measurement alternative and does not have any such forward contracts or purchase options. As a result, the implementation of this guidance did not have any effect on the Company’s consolidated financial statements.
In October 2020, the FASB issued ASU 2020-08 Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs. The amendments in this update clarify that an entity should reevaluate whether a callable debt security is within the scope of paragraph 310-20-35-33 for each reporting period. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early application is not permitted. Currently, the Company does not have any such callable debt securities. As a result, the implementation of this guidance did not have any effect on the Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06—Debt with conversion and other options (Subtopic 470-20) and derivatives and hedging—contracts in entity's own equity (Subtopic 815-40)—accounting for convertible instruments and contracts in an entity's own equity. This ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU simplifies accounting for convertible instruments and simplifies the diluted earnings per share (EPS) calculation in certain areas. This ASU is effective for fiscal years beginning after December 15, 2021. Currently, the Company does not have any such debt instruments and, as a result, the implementation of this guidance is not expected to have an effect on the Company’s consolidated financial statements.
In January 2021, the FASB issued ASU 2021-01 Reference Rate Reform (Topic 848) which modifies ASC 848, which was intended to provide relief related to “contracts and transactions that reference LIBOR or a reference rate that is expected to be discontinued as a result of reference rate reform.” ASU 2021-01 expands the scope of ASC 848 to include all affected derivatives and give reporting entities the ability to apply certain aspects of the contract modification and hedge accounting expedients to derivative contracts affected by the discounting transition. ASU 2021-01 also adds implementation guidance to clarify which optional expedients in ASC 848 may be applied to derivative instruments that do not reference LIBOR or a reference rate that is expected to be discontinued, but that are being modified as a result of the discounting transition. Currently, the Company does not anticipate the need to modify any existing debt agreements as a result of reference rate reform in the current year. If any modification is executed as a result of reference rate reform, the Company will elect the optional practical expedient under ASU 2020-04 and 2021-01, which allows entities to account for the modification as if the modification was not substantial. As a result, the implementation of this guidance is not expected to have an effect on the Company’s consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04 Modification of Equity-Classified Written Call Options — Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options — to codify how an issuer should account for modifications made to equity-classified written call options (a warrant to purchase the issuer’s common stock). The guidance in the ASU requires the issuer to treat a modification of an equity-classified warrant that does not cause the warrant to become liability-classified as an exchange whether structured as an amendment or reissuance and is effective for all periods beginning after December 15, 2021 with early application permitted. The Company does not currently have any outstanding equity awards with written call options. As a result, the implementation of this guidance is not expected to have an effect on the Company’s consolidated financial statements.
In July 2021, the FASB issued ASU 2021-05 Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments. This Update requires a lessor to classify a lease with entirely or partially variable payments that do not depend on an index or rate as an operating lease if another classification (i.e. sales-type or direct financing) would trigger a commencement date selling loss. The guidance in the ASU is effective for all periods beginning after December 15, 2021 with early application permitted and may be applied either retrospectively or prospectively. The Company does not currently have any sales-type or direct financing leases as lessor. As a result, the implementation of this guidance is not expected to have an effect on the Company’s consolidated financial statements.
2. Real Estate
The Company’s consolidated real estate is comprised of the following for the periods presented (in thousands):
September 30,2021
December 31,2020
Land
777,991
776,275
Buildings and improvements
2,889,285
2,848,781
Tenant improvements
211,588
191,046
Construction in progress
12,341
5,751
Right-of-use assets - finance leases (Note 11)
25,086
Total
3,916,291
3,846,939
Less: Accumulated depreciation and amortization
(647,718
(586,800
Acquisitions and Conversions
During the nine months ended September 30, 2021 and the year ended December 31, 2020, the Company acquired the following consolidated retail properties and other real estate investments (dollars in thousands):
Property and Location
PercentAcquired
Date ofAcquisition
PurchasePrice
2021 Acquisitions
Fund V
Canton Marketplace - Canton, GA
100%
Aug 20,2021
50,954
Monroe Marketplace - Selinsgrove, PA
Sept 9, 2021
44,796
Total 2021 Acquisitions
95,750
2020 Acquisitions and Conversions
Core
Soho Acquisitions - 37 Greene Street - New York, NY
Jan 9, 2020
15,689
917 W. Armitage - Chicago, IL
Feb 13, 2020
3,515
Town Center - Wilmington, DE (Conversion) (Note 4)
Apr 1, 2020
138,939
Subtotal Core
158,143
230-240 W. Broughton Street - Savannah, GA
May 26, 2020
13,219
102 E. Broughton Street - Savannah, GA
790
Subtotal Fund IV
14,009
Total 2020 Acquisitions and Conversions
172,152
For the nine months ended September 30, 2021 and the year ended December 31, 2020, the Company capitalized $1.2 million and $1.3 million of acquisition costs, respectively. For the nine months ended September 30, 2021, the Company assumed a $31.8 million mortgage upon the acquisition of Canton Marketplace (Note 7). No debt was assumed in any of the 2020 Acquisitions and Conversions. Conversions represent notes receivable that were converted to an equity interest in the underlying collateral in a non-cash transaction.
14
Purchase Price Allocations
The purchase prices for the 2021 Acquisitions and 2020 Acquisitions and Conversions were allocated to the acquired assets and assumed liabilities based on their estimated fair values at the dates of acquisition. The following table summarizes the allocation of the purchase price of properties acquired during the periods presented (in thousands):
Nine Months Ended September 30,2021
Year Ended December 31,2020
Net Assets Acquired
19,609
25,440
70,354
123,459
Accounts receivable, prepaids and other assets
5,770
Acquisition-related intangible assets (Note 6)
18,752
23,061
Right-of-use asset - Operating lease (Note 11)
234
Acquisition-related intangible liabilities (Note 6)
(12,965
(4,569
Lease liability - Operating lease (Note 11)
(234
(1,009
Net assets acquired
Consideration
Cash
63,425
21,208
Conversion of note receivable
Conversion of accrued interest
1,995
Debt assumed
Liabilities assumed
Existing interest in previously unconsolidated investment
109,571
Acquisition of noncontrolling interests
Total consideration
15
Dispositions
During the nine months ended September 30, 2021 and the year ended December 31, 2020, the Company disposed of the following consolidated properties and other real estate investments (in thousands):
Owner
Date Sold
Sale Price
Gainon Sale
2021 Dispositions
60 Orange St - Bloomfield, NJ
Jan 29, 2021
16,400
4,612
654 Broadway - New York, NY
May 19, 2021
10,000
111
NE Grocer Portfolio (Selected Assets) - Maine
Jun 18, 2021
39,925
5,064
Total 2021 Dispositions (a)
66,325
9,787
2020 Dispositions
163 Highland Ave. (Easement) - Needham, MA
Mar 19, 2020
238
Colonie Plaza - Albany, NY
Apr 13, 2020
15,250
485
Airport Mall (Parcel) - Bangor, ME
Sep 10, 2020
400
Cortlandt Crossing (Sewer Project and Retention Pond) - Cortlandt, NY
Nov 30, 2020
6,325
Union Township (Parcel) - New Castle, PA
Dec 11, 2020
200
Total 2020 Dispositions
22,413
683
The aggregate rental revenue, expenses and pre-tax income reported within continuing operations for the aforementioned consolidated properties that were sold as well as the lease that was terminated (Note 11) during the nine months ended September 30, 2021 and year ended December 31, 2020 were as follows (in thousands):
2,070
3,522
7,488
Expenses
(1,872
(3,868
(7,164
Net income attributable to noncontrolling interests
(124
(4,281
(475
Net income attributable to Acadia
98
5,894
358
Real Estate Under Development and Construction in Progress
Real estate under development represents the Company’s consolidated properties that have not yet been placed into service while undergoing substantial development or construction.
Development activity for the Company’s consolidated properties comprised the following during the periods presented (dollars in thousands):
January 1, 2021
Nine Months Ended September 30, 2021
September 30, 2021
Number ofProperties
CarryingValue
Transfers In
CapitalizedCosts
Transfers Out
63,875
1,689
23,213
42,351
Fund II
74,657
1,595
76,252
23,139
826
23,965
85,678
2,153
11,362
76,469
6,263
34,575
16
January 1, 2020
Year Ended December 31, 2020
December 31, 2020
60,863
3,012
Fund II (a)
10,703
66,812
3,612
6,470
36,240
70
13,171
Fund IV (b)
145,596
1,368
61,286
253,402
8,062
80,927
The number of properties in the tables above refers to projects comprising the entire property under development; however, certain projects represent a portion of a property. Core amounts relate to City Center and Fund II amounts relate to the City Point Phase III project.
During the nine months ended September 30, 2021, the Company:
During the year ended December 31, 2020, the Company:
Construction in progress pertains to construction activity at the Company’s operating properties that are in service and continue to operate during the construction period.
3. Notes Receivable, Net
The Company’s notes receivable, net are generally collateralized either by the underlying properties or the borrowers’ ownership interests in the entities that own the properties, and were as follows (dollars in thousands):
Number
Maturity Date
Interest Rate
Core Portfolio (a)
154,332
96,794
Apr 2020 - Dec 2027
5.00% - 12.00%
5,306
Jul 2020
18.00%
Total notes receivable
159,638
102,100
(1,170
(650
17
One Core Portfolio note aggregating $21.6 million including accrued interest (exclusive of default interest and other amounts due on the loan that have not been recognized) was in default at September 30, 2021 and December 31, 2020. On April 1, 2020, the loan matured and was not repaid. The Company expects to take appropriate actions to recover the amounts due under the loan, and has issued a reservation of rights letter to the borrowers and guarantor, reserving all of its rights and remedies under the applicable loan documents and otherwise. In addition, one Fund III note receivable aggregating $10.0 million, including accrued interest (exclusive of default interest and other amounts due on the loan that have not been recognized) matured on July 1, 2020 and was not repaid. The Company has issued the borrower a notice of maturity default. The Company has determined for each of these loans that the collateral is sufficient to cover the loan’s carrying value at September 30, 2021. In addition, there are certain personal guarantees associated with each of these notes receivable.
The Company monitors the credit quality of its notes receivable on an ongoing basis and considers indicators of credit quality such as loan payment activity, the estimated fair value of the underlying collateral, the seniority of the Company’s loan in relation to other debt secured by the collateral and the prospects of the borrower.
Earnings from these notes and mortgages receivable are reported within the Company’s Structured Financing segment (Note 12).
The Company’s estimated allowance for credit losses related to its Structured Financing segment has been computed for its amortized cost basis in the portfolio, including accrued interest (Note 5), factoring historical loss experience in the United States for similar loans, as adjusted for current conditions, as well as the Company’s expectations related to future economic conditions. Due to the lack of comparability across the Structured Financing portfolio, each loan was evaluated separately. As a result, there were five non-collateral-dependent loans with a total amortized cost of $140.9 million, inclusive of accrued interest of $10.4 million, for which an allowance for credit losses has been recorded aggregating $1.2 million at September 30, 2021. For three loans in this portfolio, aggregating $37.9 million, inclusive of accrued interest of $8.8 million at September 30, 2021, the Company has elected to apply a practical expedient in accordance with ASC 326 and did not establish an allowance for credit losses because (i) these loans are collateral-dependent loans, which due to their settlement terms are not expected to be settled in cash but rather by the Company’s possession of the real estate collateral; and (ii) at September 30, 2021, the Company determined that the estimated fair value of the collateral at the expected realization date for these loans was sufficient to cover the carrying value of its investments in these notes receivable. Impairment charges may be required if and when such amounts are estimated to be nonrecoverable upon a realization event, which is generally at the time a loan is repaid, or in the case of foreclosure, when the underlying asset is sold; however, non-recoverability may also be concluded if it is reasonably certain that all amounts due will not be collected.
4. Investments in and Advances to Unconsolidated Affiliates
The Company accounts for its investments in and advances to unconsolidated affiliates primarily under the equity method of accounting as it has the ability to exercise significant influence, but does not have financial or operating control over the investment, which is maintained by each of the unaffiliated partners who co-invest with the Company. The Company’s investments in and advances to unconsolidated affiliates consist of the following (dollars in thousands):
Ownership Interest
Portfolio
Property
Core:
840 N. Michigan (a)
88.43%
52,797
55,863
Renaissance Portfolio
20%
28,669
29,270
Gotham Plaza
49%
28,892
28,683
Georgetown Portfolio
50%
4,078
4,624
1238 Wisconsin Avenue
80%
4,385
2,571
118,821
121,011
Mervyns I & II:
KLA/ABS (b)
36.7%
128,186
72,391
Fund III:
Self Storage Management (c)
95%
207
Fund IV:
Fund IV Other Portfolio
98.57%
12,638
11,719
650 Bald Hill Road
90%
11,692
12,550
24,330
24,269
Fund V:
Family Center at Riverdale (a)
89.42%
12,612
11,824
Tri-City Plaza
6,992
7,024
Frederick County Acquisitions
10,817
10,837
30,421
29,685
Various:
Due from (to) Related Parties
527
363
Other (d)
3,176
1,881
Investments in and advances tounconsolidated affiliates
Crossroads (e)
Distributions in excess of income from,and investments in, unconsolidated affiliates
19
Fees from Unconsolidated Affiliates
The Company earned property management, construction, development, legal and leasing fees from its investments in unconsolidated partnerships totaling $0.1 million for each of the three months ended September 30, 2021 and 2020, and $0.3 million for each of the nine months ended September 30, 2021 and 2020, which are included in other revenues in the consolidated statements of operations.
In addition, the Company's joint ventures paid to certain unaffiliated partners of its joint ventures, $0.3 million and $0.4 million for the three months ended September 30, 2021 and 2020, respectively, and $1.0 million and $1.7 million for the nine months ended September 30, 2021 and 2020, respectively, for leasing commissions, development, management, construction and overhead fees.
20
Summarized Financial Information of Unconsolidated Affiliates
The following combined and condensed Balance Sheets and Statements of operations, in each period, summarize the financial information of the Company’s investments in unconsolidated affiliates that were held as of September 30, 2021, and accordingly exclude the results of any investments disposed of or consolidated prior to that date (in thousands):
Combined and Condensed Balance Sheets
Assets:
Rental property, net
557,892
563,997
10,768
14,517
Other assets
63,461
61,969
632,121
640,483
Liabilities and partners’ equity:
Mortgage notes payable
507,396
512,490
71,937
74,872
Partners’ equity
52,788
53,121
Total liabilities and partners’ equity
Company's share of accumulated equity
100,015
100,767
Basis differential
54,065
55,017
Deferred fees, net of portion related to the Company's interest
4,036
3,565
Amounts receivable/payable by the Company
Investments in and advances to unconsolidated affiliates, net of Company's share of distributions in excess of income from and investments in unconsolidated affiliates
158,643
159,712
Investments carried at fair value or cost
131,569
74,479
Company's share of distributions in excess of income from and investments in unconsolidated affiliates
Combined and Condensed Statements of Operations
17,912
17,302
54,734
53,170
Operating and other expenses
(6,845
(6,234
(19,878
(18,996
(4,733
(4,865
(14,136
(15,135
(6,320
(7,947
(20,797
(20,831
Gain on disposition of properties (a)
3,206
Net income (loss) attributable to unconsolidated affiliates
(1,744
3,129
(1,792
Company’s share of equity in net income (loss) of unconsolidated affiliates
899
21
4,965
(153
Income attributable to unconsolidated affiliates recently sold or consolidated
1,280
Basis differential amortization
(255
(634
(952
(1,282
Company’s equity in earnings (losses) of unconsolidated affiliates
5. Other Assets, Net and Accounts Payable and Other Liabilities
Other assets, net and accounts payable and other liabilities are comprised of the following for the periods presented:
Other Assets, Net:
Lease intangibles, net (Note 6)
95,518
100,732
Deferred charges, net (a)
31,374
30,488
Accrued interest receivable
19,208
13,917
Prepaid expenses
17,919
17,468
Due from seller
3,364
3,682
Income taxes receivable
2,142
2,433
Other receivables
1,753
2,058
Deposits
1,725
1,728
Corporate assets, net
1,745
1,302
Derivative financial instruments (Note 8)
(a) Deferred Charges, Net:
Deferred leasing and other costs
60,794
57,533
Deferred financing costs related to line of credit
9,877
11,341
70,671
68,874
Accumulated amortization
(39,297
(38,386
Deferred charges, net
Accounts Payable and Other Liabilities:
78,012
76,434
60,440
53,031
54,827
90,139
Deferred income
33,498
31,842
Tenant security deposits, escrow and other
12,407
12,178
Lease liability - finance leases, net (Note 11)
6,513
6,287
6. Lease Intangibles
Upon acquisitions of real estate (Note 2), the Company assesses the fair value of acquired assets (including land, buildings and improvements, and identified intangibles such as above- and below-market leases, including below-market options and acquired in-place leases) and assumed liabilities. The lease intangibles are amortized over the remaining terms of the respective leases, including option periods where applicable.
22
Intangible assets and liabilities are included in Other assets, net and Accounts payable and other liabilities (Note 5) on the consolidated balance sheet and summarized as follows (in thousands):
Gross CarryingAmount
AccumulatedAmortization
Net CarryingAmount
Amortizable Intangible Assets
In-place lease intangible assets
276,187
(185,871
90,316
268,335
(171,856
96,479
Above-market rent
21,071
(15,869
5,202
19,188
(14,935
4,253
297,258
(201,740
287,523
(186,791
Amortizable Intangible Liabilities
Below-market rent
(170,555
92,960
(77,595
(164,923
88,951
(75,972
Above-market ground lease
(671
(417
209
(462
(171,226
93,214
(78,012
(165,594
89,160
(76,434
During the nine months ended September 30, 2021, the Company acquired in-place lease intangible assets of $16.8 million, above-market rents of $2.0 million, and below-market rents of $13.0 million with weighted-average useful lives of 6.1, 4.0, and 31.4 years, respectively. During the nine months ended September 30, 2021, the Company wrote-off in-place lease intangible assets of $9.4 million and below-market rent of $6.5 million related to disposed properties (Note 2).
During the year ended December 31, 2020, the Company acquired in-place lease intangible assets of $21.0 million, above-market rents of $2.0 million, and below-market rents of $4.6 million with weighted-average useful lives of 4.9, 5.8, and 20.2 years, respectively.
Amortization of in-place lease intangible assets is recorded in depreciation and amortization expense and amortization of above-market rent and below-market rent is recorded as a reduction to and increase to rental income, respectively, in the consolidated statements of operations. Amortization of above-market ground leases are recorded as a reduction to rent expense in the consolidated statements of operations.
The scheduled amortization of acquired lease intangible assets and assumed liabilities as of September 30, 2021 is as follows (in thousands):
Years Ending December 31,
Net Increase inLease Revenues
Increase toAmortization
Reduction ofRent Expense
Net (Expense) Income
2021 (Remainder)
1,557
(6,494
(4,922
2022
5,849
(21,736
(15,829
2023
5,404
(16,515
(11,053
2024
5,280
(11,313
(5,975
2025
4,807
(8,021
(3,156
Thereafter
49,496
(26,237
170
23,429
72,393
(90,316
417
(17,506
23
7. Debt
A summary of the Company’s consolidated indebtedness is as follows (dollars in thousands):
Interest Rate at
Carrying Value at
Maturity Date at
Mortgages Payable
Core Fixed Rate
3.88%-5.89%
Feb 2024 - Apr 2035
$146,061
$147,810
Core Variable Rate - Swapped (a)
3.41%-4.54%
Jan 2023 - Nov 2028
73,164
80,500
Total Core Mortgages Payable
219,225
228,310
Fund II Variable Rate
LIBOR+3.00% - PRIME+2.00%
Mar 2022 - August 2022
237,943
228,282
Fund II Variable Rate - Swapped (a)
2.88%
Nov 2021
18,588
18,803
Total Fund II Mortgages Payable
256,531
247,085
Fund III Variable Rate
LIBOR+2.75%-LIBOR+3.10%
Jun 2022 - Jul 2022
71,003
71,918
Fund IV Fixed Rate
4.50%
3.40%-4.50%
Oct 2025
1,120
6,726
Fund IV Variable Rate
LIBOR+1.60%-LIBOR+3.65%
LIBOR+1.60%-LIBOR+3.40%
Nov 2021 - Jun 2026
235,125
254,234
Fund IV Variable Rate - Swapped (a)
3.48%-4.61%
Apr 2022 - Dec 2022
42,385
66,590
Total Fund IV Mortgages and Other Notes Payable
278,630
327,550
Fund V Fixed Rate
3.35%
May 2023
31,801
Fund V Variable Rate
LIBOR + 1.85%
LIBOR+1.50%-LIBOR+2.20%
Jun 2022
30,024
1,354
Fund V Variable Rate - Swapped (a)
2.43%-4.78%
2.95%-4.78%
Feb 2022 - Dec 2024
298,014
334,323
Total Fund V Mortgages Payable
359,839
335,677
Net unamortized debt issuance costs
(4,671)
(6,507)
Unamortized premium
471
548
Total Mortgages Payable
$1,181,028
$1,204,581
Unsecured Notes Payable
Core Variable Rate Credit Facility
LIBOR+2.55%
$—
$30,000
Core Variable Rate Unsecured Term Loans - Swapped (a)
3.65%-5.32%
2.49%-5.02%
Jun 2026
400,000
350,000
Total Core Unsecured Notes Payable
380,000
Fund II Unsecured Notes Payable
LIBOR+2.25%
LIBOR+1.65%
Sep 2022
40,000
Fund IV Term Loan/Subscription Facility
LIBOR+1.90%
Dec 2021
864
Fund V Subscription Facility
LIBOR+1.60%
May 2022
68,076
250
(4,110)
(256)
Total Unsecured Notes Payable
$503,966
$420,858
Unsecured Line of Credit
Core Unsecured Line of Credit -Swapped (a)
Jun 2025
$102,905
$138,400
Total Debt - Fixed Rate (b, c )
$1,114,038
$1,143,152
Total Debt - Variable Rate (d)
682,171
626,902
Total Debt
1,796,209
1,770,054
(8,781)
(6,763)
Total Indebtedness
$1,787,899
$1,763,839
Credit Facility
Since February 2018 and as subsequently amended, the Company has had a senior unsecured credit facility (the “Credit Facility”) comprised of a $250.0 million senior unsecured revolving credit facility (the “Revolver”) which bore interest at LIBOR + 1.40%, and a $350.0 million senior unsecured term loan (the “Term Loan”) which bore interest at LIBOR + 1.30%. The Revolver was scheduled to mature on March 31, 2022, subject to two six-month extension options, and the $350.0 million Term Loan was scheduled to expire on March 31, 2023.
During June 2021, the Company modified the Credit Facility, providing for a $50.0 million increase in the Revolver and a $50.0 million increase in the Term Loan. This amendment resulted in borrowing capacity of up to $700.0 million in principal amount, which includes a $300.0 million Revolver maturing on June 29, 2025, subject to two six-month extension options, and a $400.0 million Term Loan expiring on June 29, 2026. In addition, the amendment provides for revisions to the accordion feature, which allows for one or more increases in the revolving credit facility or term loan facility, for a maximum aggregate principal amount not to exceed $900.0 million. The $300.0 million Revolver bears interest at LIBOR + 1.40% and the $400.0 million Term Loan bears interest at LIBOR + 1.55% at September 30, 2021, all of which were swapped to fixed rates. In connection with the amendment to the Credit Facility, during the second quarter of 2021, the Company (i) capitalized $2.7 million of debt issuance costs associated with the amended Revolver, which are included in deferred financing costs within other assets (Note 5); (ii) capitalized $3.1 million associated with the amended Term Loan, which are included in net unamortized debt issuance costs in the table above; and (iii) expensed $0.1 million of third-party costs associated with the Term Loan.
Mortgages and Other Notes Payable
25
At September 30, 2021 and December 31, 2020, the Company’s mortgages were collateralized by 38 and 42 properties, respectively, and the related tenant leases. Certain loans are cross-collateralized and contain cross-default provisions. The loan agreements contain customary representations, covenants and events of default. Certain loan agreements require the Company to comply with affirmative and negative covenants, including the maintenance of debt service coverage and leverage ratios. The Company was not in default on any of its loan agreements at September 30, 2021. A portion of the Company’s variable-rate mortgage debt has been effectively fixed through certain cash flow hedge transactions (Note 8).
A mortgage loan collateralized by the property held by Brandywine Holdings in the Core Portfolio, was in default and subject to litigation at December 31, 2019. The loan was originated in June 2006 and had an original principal amount of $26.3 million and a scheduled maturity of July 1, 2016. By maturity, the loan was in default. On October 30, 2020, the Company settled the litigation for approximately $30.0 million resulting in a gain on debt extinguishment of $18.3 million reflected in Realized and unrealized holding gains (losses) on investments and other in the consolidated statement of operations during the fourth quarter of 2020, of which the Company’s proportionate share was $4.1 million. Upon settlement of this litigation, the Company obtained its partner’s 77.78% noncontrolling interest for nominal consideration, resulting in an adjustment of $15.9 million as a reduction to equity.
Unsecured notes payable for which total availability was $71.2 million and $128.7 million at September 30, 2021 and December 31, 2020, respectively, are comprised of the following:
Unsecured Revolving Line of Credit
At September 30, 2021 and December 31, 2020, the Company had a total of $193.1 million and $101.1 million available under its Core Revolver, reflecting borrowings of $102.9 million and $138.4 million and letters of credit of $4.0 million and $10.5 million, respectively. At each of September 30, 2021 and December 31, 2020, all of the Core unsecured revolving line of credit was swapped to a fixed rate.
26
Scheduled Debt Principal Payments
The scheduled principal repayments, without regard to available extension options (described further below), of the Company’s consolidated indebtedness, as of September 30, 2021 are as follows (in thousands):
Year Ending December 31,
102,817
670,056
110,501
212,020
168,233
532,582
(8,781
Total indebtedness
1,787,899
The table above does not reflect available extension options (subject to customary conditions) on consolidated debt with balances as of September 30, 2021 of $64.2 million contractually due in 2021, $216.6 million contractually due in 2022, and $41.5 million contractually due in 2023; most for which the Company has available options to extend by up to 12 months and for some an additional 12 months thereafter. However, there can be no assurance that the Company will be able to successfully execute any or all of its available extension options.
See Note 4 for information about liabilities of the Company’s unconsolidated affiliates.
8. Financial Instruments and Fair Value Measurements
The fair value of an asset is defined as the exit price, which is the amount that would either be received when an asset is sold or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance establishes a three-tier fair value hierarchy based on the inputs used in measuring fair value. These tiers are: Level 1, for which quoted market prices for identical instruments are available in active markets, such as money market funds, equity securities, and U.S. Treasury securities; Level 2, for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument, such as certain derivative instruments including interest rate caps and interest rate swaps; and Level 3, for financial instruments or other assets/liabilities that do not fall into Level 1 or Level 2 and for which little or no market data exists, therefore requiring the Company to develop its own assumptions.
Items Measured at Fair Value on a Recurring Basis
The methods and assumptions described below were used to estimate the fair value of each class of financial instrument. For significant Level 3 items, the Company has also provided the unobservable inputs along with their weighted-average ranges.
Money Market Funds — The Company has money market funds, which at times have zero balances and are included in Cash and cash equivalents in the consolidated balance sheets, and are comprised of government securities and/or U.S. Treasury bills. These funds were classified as Level 1 as we used quoted prices from active markets to determine their fair values.
Equity Investments –Albertsons became publicly traded during 2020 (Note 4). Upon Albertsons’ IPO, the Company’s Investment in Albertsons has a readily determinable market value (traded on an exchange) and is being accounted for as a Level 1 investment.
Derivative Assets — The Company has derivative assets, which are included in Other assets, net on the consolidated balance sheets, and are comprised of interest rate swaps and caps. The derivative instruments were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market. See “Derivative Financial Instruments,” below.
Derivative Liabilities — The Company has derivative liabilities, which are included in Accounts payable and other liabilities on the consolidated balance sheets, and are comprised of interest rate swaps. These derivative instruments were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 because they are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market. See “Derivative Financial Instruments,” below.
Other than the Investment in Albertsons described above, the Company did not have any transfers into or out of Level 1, Level 2, and Level 3 measurements during the nine months ended September 30, 2021 or 2020.
The following table presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis (in thousands):
Level 1
Level 2
Level 3
Assets
Money market funds
Derivative financial instruments
Investment in Albertsons (Note 4)
Liabilities
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
Items Measured at Fair Value on a Nonrecurring Basis (Including Impairment Charges)
During 2020 and 2021, the Company was impacted by the COVID-19 Pandemic (Note 11), which caused the Company to reduce its holding periods and forecasted operating income at certain properties. As a result, several impairments were recorded. Impairment charges for the periods presented are as follows (in thousands):
Impairment Charge
Triggering Event
Level 3 Inputs
Effective Date
Acadia's Share
2021 Impairment Charges
210 Bowery,Manhattan, NY
Reduced projected operating income
Projections of: holding period, net operating income, cap rate, incremental costs
Sept 30, 2021
3,016
27 E. 61st StreetManhattan, NY
6,909
1,597
Total 2021 Impairment Charges
2,294
2020 Impairment Charges
Cortlandt Crossing,Mohegan Lake, NY
Reduced holding period, reduced projected operating income
Mar 31, 2020
27,402
654 Broadway, New York, NY
Reduced holding period
6,398
1,570
146 Geary Street, San Francisco, CA
Projections of: holding period, net operating
6,718
1,553
28
income, cap rate, incremental costs
801 Madison Avenue, New York, NY
11,031
2,551
717 N. Michigan Avenue,Chicago, IL
Dec 31, 2020
17,392
4,021
110 University, New York, NY
16,238
3,754
Fifth Wall Investment
Decline in fair value
Projections of: reported fair value of net assets
419
Total 2020 Impairment Charges
85,598
20,594
Derivative Financial Instruments
The Company had the following interest rate swaps and caps for the periods presented (dollars in thousands):
Strike Rate
Fair Value
DerivativeInstrument
Aggregate Notional Amount
Low
High
Balance SheetLocation
Interest Rate Swaps
539,636
Dec 2012-Jul 2020
Mar 2022-Jul 2030
1.71
3.77
Other Liabilities
(46,731
(74,990
Interest Rate Swap
Oct 2014
1.49
(23
(219
Interest Rate Cap
45,000
Mar 2019
Mar 2022
3.50
Other Assets
63,588
Interest Rate Caps
35,970
Jan 2021
Jul 2022
3.00
Mar 2017-Dec 2019
Apr 2022-Dec 2022
1.48
2.61
(528
(1,713
71,338
Dec 2020 - Jul 2021
Dec 2022-Jul 2023
113,723
(526
(1,712
Jun 2018-Feb 2021
Feb 2022-Oct 2024
0.23
2.88
(7,545
(13,217
Total asset derivatives
Total liability derivatives
(54,827
(90,139
All of the Company’s derivative instruments have been designated as cash flow hedges and hedge the future cash outflows on variable-rate debt (Note 7). It is estimated that approximately $18.8 million included in Accumulated other comprehensive loss related to derivatives will be reclassified to interest expense within the next twelve months. As of September 30, 2021 and December 31, 2020, no derivatives were designated
29
as fair value hedges or hedges of net investments in foreign operations. Additionally, the Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated hedges.
During the first quarter of 2021, the Company terminated two forward swaps with an aggregate notional value of $100.0 million (Note 7) for cash proceeds of $3.4 million. As the hedged forecasted transaction is still expected, amounts deferred in Accumulated other comprehensive loss will be amortized into earnings as a reduction of interest expense over the original term of the swaps beginning in 2022.
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its debt funding and, from time to time, through the use of derivative financial instruments. The Company enters into derivative financial instruments to manage exposures that result in the receipt or payment of future known and uncertain cash amounts, the values of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.
The Company is exposed to credit risk in the event of non-performance by the counterparties to the swaps if the derivative position has a positive balance. The Company believes it mitigates its credit risk by entering into swaps with major financial institutions. The Company continually monitors and actively manages interest costs on its variable-rate debt portfolio and may enter into additional interest rate swap positions or other derivative interest rate instruments based on market conditions.
Credit Risk-Related Contingent Features
The Company has agreements with each of its swap counterparties that contain a provision whereby if the Company defaults on certain of its unsecured indebtedness, the Company could also be declared in default on its swaps, resulting in an acceleration of payment under the swaps.
Other Financial Instruments
The Company’s other financial instruments had the following carrying values and fair values as of the dates shown (dollars in thousands, inclusive of amounts attributable to noncontrolling interests where applicable):
Level
CarryingAmount
EstimatedFair Value
Notes Receivable (a)
159,476
102,135
Mortgage and Other Notes Payable (a)
1,185,228
1,165,716
1,210,540
1,190,214
Investment in non-traded equity securities (b)
3,021
3,772
1,726
1,456
Unsecured notes payable and Unsecured line of credit (c)
610,981
616,056
559,514
544,532
The Company’s cash and cash equivalents, restricted cash, rents receivable, accounts payable and certain financial instruments included in other assets and other liabilities had fair values that approximated their carrying values due to their short maturity profiles at September 30, 2021.
9. Commitments and Contingencies
The Company is involved in various matters of litigation arising out of, or incident to, its business. While the Company is unable to predict with certainty the outcome of any particular matter, management does not expect, when such litigation is resolved, that the Company’s resulting exposure to loss contingencies, if any, will have a material adverse effect on its consolidated financial position.
30
Commitments and Guaranties
In conjunction with the development and expansion of various properties, the Company has entered into agreements with general contractors for the construction or development of properties aggregating approximately $39.5 million and $32.7 million as of September 30, 2021 and December 31, 2020, respectively.
At September 30, 2021 and December 31, 2020, the Company had Core and Fund letters of credit outstanding of $19.7 million and $35.6 million, respectively (Note 7). The Company has not recorded any obligation associated with these letters of credit. The majority of the letters of credit are collateral for existing indebtedness and other obligations of the Company.
10. Shareholders’ Equity, Noncontrolling Interests and Other Comprehensive Loss
Common Shares and Units
In addition to the share repurchase activity discussed below, the Company completed the following transactions in its Common Shares during the nine months ended September 30, 2021:
In addition to the ATM Program activity discussed below, the Company completed the following transactions in its Common Shares during the year ended December 31, 2020:
ATM Program
The Company has an at-the-market equity issuance program (“ATM Program”) that provides the Company an efficient and low-cost vehicle for raising public equity capital to fund its needs. The Company entered into its current $250.0 million ATM Program, which includes an optional “forward purchase” component, in the second quarter of 2019. The Company sold 2,084,896 Common Shares under its ATM Program during the nine months ended September 30, 2021 generating $46.6 million of gross proceeds and $45.9 million of net proceeds after related issuance costs at a weighted-average price per share of $22.37 and $22.09, respectively. The Company did not sell or issue any Common Shares on a forward basis for the nine months ended September 30, 2021 or the year ended December 31, 2020 and currently has approximately $123.6 million of availability under the ATM program.
Share Repurchase Program
During 2018, the Company’s board of trustees (the “Board”) approved a new share repurchase program, which authorizes management, at its discretion, to repurchase up to $200.0 million of its outstanding Common Shares. The program does not obligate the Company to repurchase any specific number of Common Shares and may be discontinued or extended at any time. The Company did not repurchase any shares during the nine months ended September 30, 2021. During the first quarter of 2020, the Company repurchased 1,219,065 Common Shares for $22.4 million, inclusive of $0.1 million of fees at a weighted-average price per share of $18.29, under the share repurchase program, under which $122.6 million remains available as of September 30, 2021.
31
Dividends and Distributions
The following table sets forth the distributions declared and/or paid during the periods presented:
Date Declared
Amount Per Share
Record Date
Payment Date
November 5, 2019
0.29
December 31, 2019
January 15, 2020
February 26, 2020
March 31, 2020
April 15, 2020
March 15, 2021
0.15
March 31, 2021
April 15, 2021
May 5, 2021
June 30, 2021
July 15, 2021
August 5, 2021
October 15, 2021
Beginning with the second quarter of 2020, the Board temporarily suspended distributions on its Common Shares and Common Units, which suspension continued through the fourth quarter of 2020; however, distributions of $0.1 million were payable to preferred unit holders at each of June 30, 2020, September 30, 2020 and December 31, 2020. The Company reinstated quarterly distributions beginning in the first quarter of 2021.
Accumulated Other Comprehensive Loss
The following tables set forth the activity in accumulated other comprehensive loss for the three and nine months ended September 30, 2021 and 2020 (in thousands):
Gains or Losseson DerivativeInstruments
Other comprehensive income before reclassifications - swap agreements
Net current period other comprehensive income
Net current period other comprehensive income attributable to noncontrolling interests
(1,833
(2,122
32
(8,975
Other comprehensive loss before reclassifications - swap agreements
Net current period other comprehensive loss
Net current period other comprehensive loss attributable to noncontrolling interests
18,148
33
Noncontrolling Interests
The following tables summarize the change in the noncontrolling interests for the three and nine months ended September 30, 2021 and 2020 (dollars in thousands):
NoncontrollingInterests inOperatingPartnership (a)
NoncontrollingInterests inPartially-OwnedAffiliates (b)
95,088
522,571
Distributions declared of $0.15 per Common OP Unit and distributions on Preferred OP Units
Net income for the three months ended September 30, 2021
872
18,616
19,488
Conversion of 18,000 Common OP Units to Common Shares by limited partners of the Operating Partnership
Cancellation of OP Units (c)
Other comprehensive loss - unrealized gain (loss) on valuation of swap agreements
227
(261
(34
Reclassification of realized interest expense on swap agreements
53
1,814
1,867
Employee Long-term Incentive Plan Unit Awards
Reallocation of noncontrolling interests (d)
94,786
541,731
90,321
547,418
Distributions on Preferred OP Units
Net loss for the three months ended September 30, 2020
(352
(28,907
(29,259
Other comprehensive income - unrealized gain (loss) on valuation of swap agreements
183
(166
63
2,042
2,105
90,173
508,697
34
89,431
517,808
Distributions declared of $0.45 per Common OP Unit and distributions on Preferred OP Units
Net income for the nine months ended September 30, 2021
1,740
11,759
13,499
Conversion of 43,973 Common OP Units to Common Shares by limited partners of the Operating Partnership
Other comprehensive income - unrealized gain on valuation of swap agreements
1,721
1,625
3,346
159
5,470
5,629
97,670
546,987
Distributions declared of $0.29 per Common OP Unit
Net income (loss) for the nine months ended September 30, 2020
570
(35,958
(35,388
Conversion of 407,594 Common OP Units to Common Shares by limited partners of the Operating Partnership
Other comprehensive loss - unrealized loss on valuation of swap agreements
(3,268
(18,423
(21,691
3,432
3,543
Noncontrolling interest gain
35
Preferred OP Units
There were no issuances of Preferred OP Units during the nine months ended September 30, 2021 or the year ended December 31, 2020.
In 1999, the Operating Partnership issued 1,580 Series A Preferred OP Units in connection with the acquisition of a property, which have a stated value of $1,000 per unit, and are entitled to a preferred quarterly distribution of the greater of (i) $22.50 (9% annually) per Series A Preferred OP Unit or (ii) the quarterly distribution attributable to a Series A Preferred OP Unit if such unit was converted into a Common OP Unit. Through September 30, 2021, 1,392 Series A Preferred OP Units were converted into 185,600 Common OP Units and then into Common Shares. The 188 remaining Series A Preferred OP Units are currently convertible into Common OP Units based on the stated value divided by $7.50. Either the Company or the holders can currently call for the conversion of the Series A Preferred OP Units at the lesser of $7.50 or the market price of the Common Shares as of the conversion date.
During 2016, the Operating Partnership issued 442,478 Common OP Units and 141,593 Series C Preferred OP Units to a third party to acquire Gotham Plaza (Note 4). The Series C Preferred OP Units have a value of $100.00 per unit and are entitled to a preferred quarterly distribution of $0.9375 per unit and are convertible into Common OP Units at a rate based on the share price at the time of conversion. If the share price is below $28.80 on the conversion date, each Series C Preferred OP Unit will be convertible into 3.4722 Common OP Units. If the share price is between $28.80 and $35.20 on the conversion date, each Series C Preferred OP Unit will be convertible into a number of Common OP Units equal to $100.00 divided by the closing share price. If the share price is above $35.20 on the conversion date, each Series C Preferred OP Unit will be convertible into 2.8409 Common OP Units. The Series C Preferred OP Units have a mandatory conversion date of December 31, 2025, at which time all units that have not been converted will automatically be converted into Common OP Units based on the same calculations. Through September 30, 2021, 15,000 Series C Preferred OP Units were converted into 51,887 Common OP Units and then into Common Shares.
11. Leases
As Lessor
The Company is engaged in the operation of shopping centers and other retail properties that are either owned or, with respect to certain shopping centers, operated under long-term ground leases that expire at various dates through June 20, 2066, with renewal options (as discussed further below). Space in the shopping centers is leased to tenants pursuant to agreements that provide for terms ranging generally from one month to sixty years and generally provide for additional rents based on certain operating expenses as well as tenants’ sales volumes. During the nine months ended September 30, 2021 and 2020, the Company earned $42.8 million and $41.8 million, respectively in variable lease revenues, primarily for real estate taxes and common area maintenance charges, which are included in rental income in the consolidated statements of operations.
Reserve Analysis
The activity for the reserves related to billed rents and straight-line rents (including those under specific operating leases where the collection of rents is assessed to be not probable) is as follows:
Balance atBeginning ofPeriod
Provision (Recovery)
Write-Offs
Balance atEnd of Period
Allowance for credit loss - billed rents
30,366
(2,909
28,430
Straight-line rent reserves
15,042
(2,648
12,648
Total - rents receivable
45,408
1,227
(5,557
41,078
Tenant Settlement
On September 24, 2021, the Company entered into a conditional settlement agreement with its former tenant and lease guarantor at one of its Core properties for the payment by such former tenant and guarantor of a minimum of $5.4 million in accordance with a payment schedule set forth and subject to the terms in the conditional settlement agreement. The payments relate to tenant’s default under the lease and its subsequent termination by the Company. Given the inherent uncertainties involving collectability, the Company has not recognized any amounts in its consolidated financial statements. Such amounts will be recognized when realized.
36
As Lessee
Additional disclosures regarding the Company’s leases as lessee are as follows:
Lease Cost
Finance lease cost:
Amortization of right-of-use assets
226
677
1,370
Interest on lease liabilities
97
92
289
1,541
Subtotal
323
318
966
2,911
Operating lease cost
1,334
2,258
5,850
5,377
Variable lease cost
57
Total lease cost
1,680
2,581
6,873
8,315
Weighted-average remaining lease term - finance leases (years)
32.8
33.5
Weighted-average remaining lease term - operating leases (years)
14.2
26.5
Weighted-average discount rate - finance leases
6.3
6.2
Weighted-average discount rate - operating leases
5.1
5.4
Right-of-use assets – finance leases are included in Operating real estate (Note 2) in the consolidated balance sheets. Lease liabilities – finance leases are included in Accounts payable and other liabilities in the consolidated balance sheets (Note 5). Operating lease cost comprises amortization of right-of-use assets for operating properties (related to ground rents) or amortization of right-of-use assets for office and corporate assets and is included in Property operating expense or General and administrative expense, respectively, in the consolidated statements of operations. Finance lease cost comprises amortization of right-of-use assets for certain ground leases, which is included in Property operating expense, as well as interest on lease liabilities, which is included in Interest expense in the consolidated statements of operations.
37
Lease Obligations
The scheduled future minimum (i) rental revenues from rental properties under the terms of non-cancelable tenant leases greater than one year (assuming no new or renegotiated leases or option extensions for such premises) and (ii) rental payments under the terms of all non-cancelable operating and finance leases in which the Company is the lessee, principally for office space, land and equipment, as of September 30, 2021, are summarized as follows (in thousands):
Minimum Rental Payments
Minimum RentalRevenues (a)
Operating Leases (b)
Finance Leases (b)
49,136
1,380
208,208
5,368
197,110
5,389
172,240
5,414
140,533
5,329
606,694
29,711
12,515
1,373,921
52,591
12,549
Interest
(12,848
(6,036
During the three and nine months ended September 30, 2021 and 2020, no single tenant or property collectively comprised more than 10% of the Company’s consolidated total revenues.
COVID-19 Pandemic Impacts
Beginning in March 2020, the COVID-19 Pandemic has had a material adverse impact on economic and market conditions, and consumer activity, and triggered a period of global and domestic economic slowdown. The COVID-19 Pandemic and government responses created disruption in global supply chains and has been adversely impacting many industries, including the domestic retail sectors in which the Company’s tenants operate. Under governmental restrictions and guidance, certain retailers were considered “essential businesses” and were permitted to remain fully operating during the COVID-19 Pandemic, while other “non-essential businesses” were ordered to decrease or close operations for an indeterminate period of time to protect their employees and customers from the spread of the virus. These disruptions, which have substantially ceased as of the date of this Report, have impacted the collectability of rent from the Company’s affected tenants primarily in 2020 and to a lesser extent in 2021. While the Company considers disruptions related to the COVID-19 Pandemic to be substantially over, if such government mandated closures are reinstated, they may have a material, adverse effect on the Company’s revenues, results of operations, financial condition, and liquidity in future periods.
Rent Collections – The Company collected or negotiated payment agreements of approximately 97.1% and 92.5% of its third quarter pre-COVID billings (original contract rents without regard to deferral or abatement agreements) for its Core Portfolio and the Funds, respectively.
Earnings Impact (Amounts Reflect the Company's Share) – The Company incurred aggregate credit (recoveries) losses and rent abatements totaling approximately ($0.3) million and $3.4 million for the three and nine months ended September 30, 2021, respectively, compared to $13.3 million and $26.9 million for the three and nine months ended September 30, 2020, respectively, primarily related to the COVID-19 Pandemic. In addition, the Company incurred impairment charges of $2.3 million for the three and nine months ended September 30, 2021 and $12.4 million for the nine months ended September 30, 2020 primarily related to the COVID-19 Pandemic (Note 8).
Other Impacts
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12. Segment Reporting
The Company has three reportable segments: Core Portfolio, Funds and Structured Financing. The Company’s Core Portfolio consists primarily of high-quality retail properties located primarily in high-barrier-to-entry, densely-populated metropolitan areas with a long-term investment horizon. The Company’s Funds hold primarily retail real estate in which the Company co-invests with high-quality institutional investors. The Company’s Structured Financing segment consists of earnings and expenses related to notes and mortgages receivable which are held within the Core Portfolio or the Funds (Note 3). Fees earned by the Company as the general partner or managing member of the Funds are eliminated in the Company’s consolidated financial statements and are not presented in the Company’s segments.
The following tables set forth certain segment information for the Company (in thousands):
For the Three Months Ended September 30, 2021
CorePortfolio
Funds
StructuredFinancing
Unallocated
45,942
27,504
(17,678
(13,188
(30,866
Property operating expenses, other operating and real estate taxes
(13,911
(10,107
(24,018
General and administrative expenses
(9,978
(9,925
Operating income (loss)
14,353
(5,716
Interest income
Realized and unrealized holding gains on investments and other
47,643
(350
Equity in (losses) earnings of unconsolidated affiliates
(485
1,129
(7,446
(9,888
Income tax provision
Net income
6,422
33,168
(10,037
(906
(18,582
5,516
14,586
39
For the Three Months Ended September 30, 2020
38,848
12,433
(17,987
(16,470
(34,457
(12,709
(9,539
(22,248
(8,625
8,152
(13,552
Realized and unrealized holding losses on investments and other
(7,906
(40
(784
160
(8,276
(9,476
Net (loss) income
(908
(30,774
2,092
(8,699
Net loss attributable to noncontrolling interests
1,407
27,852
499
(2,922
As of or for the Nine Months Ended September 30, 2021
134,292
83,208
(51,898
(41,703
(93,601
(41,773
(32,578
(74,351
(29,645
-
5,909
Operating income
45,233
4,911
57,031
(520
(944
4,957
(22,010
(30,070
22,279
36,829
5,588
(30,048
(1,919
(11,580
20,360
25,249
Real estate at cost (a)
2,328,208
1,807,120
4,135,328
Total assets (a)
2,201,871
1,884,306
Cash paid for acquisition of real estate
Cash paid for development and property improvement costs
11,601
15,596
27,197
40
As of or for the Nine Months Ended September 30, 2020
117,383
69,091
(53,193
(48,434
(101,627
(42,484
(31,034
(73,518
(26,415
(51,549
21,706
(61,417
79,845
(510
(212
(25,127
(29,246
Income tax benefit
(3,633
(10,761
6,646
(25,674
7,691
27,697
4,058
16,936
2,365,426
1,802,865
4,168,291
2,291,730
1,824,880
134,798
4,251,408
19,963
1,245
7,522
20,427
27,949
13. Share Incentive and Other Compensation
Share Incentive Plan
The 2020 Share Incentive Plan (the “Share Incentive Plan”) authorizes the Company to issue options, Restricted Shares, LTIP Units and other securities (collectively “Awards”) to, among others, the Company’s officers, trustees and employees. At September 30, 2021 a total of 1,917,304 shares remained available to be issued under the Share Incentive Plan.
Restricted Shares and LTIP Units - Employees
During the nine months ended September 30, 2021, and the year ended December 31, 2020, the Company issued 635,976 and 396,149 LTIP Units and 11,244 and 13,766 restricted share units (“Restricted Share Units”), respectively, to employees of the Company pursuant to the Share Incentive Plan. These awards were measured at their fair value on the grant date, incorporating the following factors:
41
For valuation of the 2021 and 2020 Performance Shares, a Monte Carlo simulation was used to estimate the fair values based on probability of satisfying the market conditions and the projected share prices at the time of payments, discounted to the valuation dates over the three-year performance periods. The assumptions include volatility (48.0% and 21.0%) and risk-free interest rates of (0.2% and 1.4%) for 2021 and 2020, respectively. The total value of the 2021 and 2020 Performance Shares will be expensed over the vesting period regardless of the Company’s performance.
The total value of the above Restricted Share Units and LTIP Units as of the grant date was $12.6 million during the nine months ended September 30, 2021 and $10.4 million during the year ended December 31, 2020. Total long-term incentive compensation expense, including the expense related to the Share Incentive Plan, was $2.3 million and $2.1 million for the three months ended September 30, 2021 and 2020, and $7.1 million and $6.3 million for the nine months ended September 30, 2021 and 2020, respectively and is recorded in General and administrative expense in the consolidated statements of operations.
Restricted Shares and LTIP Units - Board of Trustees
In addition, members of the Board have been issued shares and units under the Share Incentive Plan. During the nine months ended September 30, 2021, the Company issued 30,321 LTIP Units and 30,592 Restricted Shares as compensation to Trustees of the Company. A portion of LTIP Units and Restricted Shares vest over three years with 33% vesting May 9, 2022 and the remaining amount vesting ratably on May 9, 2023 and May 9, 2024. The remaining awards vest on May 9, 2022. The Restricted Shares do not carry voting rights or other rights of Common Shares until vesting and may not be transferred, assigned or pledged until the recipients have a vested non-forfeitable right to such shares. Dividends are not paid currently on unvested Restricted Shares, but are paid cumulatively from the issuance date through the applicable vesting date of such Restricted Shares. Total trustee fee expense, including the expense related to the Share Incentive Plan, was $1.2 million and $1.0 million for the nine months ended September 30, 2021 and 2020, respectively, and is recorded in General and Administrative expense in the consolidated statements of operations.
Long-Term Incentive Alignment Program
In 2009, the Company adopted the Long-Term Incentive Alignment Program (the “Program”) pursuant to which the Company may grant awards to employees, entitling them to receive up to 25% of any potential future payments of Promote to the Operating Partnership from Funds III, IV and V. The Company has granted such awards to employees representing 25% of the potential Promote payments from Fund III to the Operating Partnership, 23.1% of the potential Promote payments from Fund IV to the Operating Partnership and 8.4% of the potential Promote payments from Fund V to the Operating Partnership. Payments to senior executives under the Program require further Board approval at the time any potential payments are due pursuant to these grants. Compensation relating to these awards will be recognized in each reporting period in which Board approval is granted.
As payments to other employees are not subject to further Board approval, compensation relating to these awards will be recorded based on the estimated fair value at each reporting period in accordance with ASC Topic 718, Compensation– Stock Compensation. The awards in connection with Fund IV and Fund V were determined to have no intrinsic value as of September 30, 2021 or December 31, 2020.
The Company did not recognize any compensation expense for the nine months ended September 30, 2021 or the year ended December 31, 2020 related to the Program in connection with Fund III, Fund IV or Fund V.
42
A summary of the status of the Company’s unvested Restricted Shares and LTIP Units is presented below:
Unvested Restricted Shares and LTIP Units
CommonRestrictedShares
WeightedGrant-DateFair Value
LTIP Units
Unvested at January 1, 2020
42,390
23.73
936,180
28.24
Granted
66,824
13.70
440,829
19.64
Vested
(19,264
27.72
(250,241
30.44
Forfeited
(39
24.77
(3,879
24.67
Unvested at December 31, 2020
89,911
15.42
1,122,889
24.38
43,078
19.94
666,297
19.48
(43,084
16.85
(283,024
26.66
(159
36.22
(91,637
Unvested at September 30, 2021
89,746
16.87
1,414,525
20.85
The weighted-average grant date fair value for Restricted Shares and LTIP Units granted for the nine months ended September 30, 2021 and the year ended December 31, 2020 were $19.50 and $18.86, respectively. As of September 30, 2021, there was $19.4 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Share Incentive Plan. That cost is expected to be recognized over a weighted-average period of 1.5 years. The total fair value of Restricted Shares that vested during the nine months ended September 30, 2021 and the year ended December 31, 2020, was $0.7 million and $0.5 million, respectively. The total fair value of LTIP Units that vested (LTIP units vest primarily during the first quarter) during the nine months ended September 30, 2021 and the year ended December 31, 2020, was $7.5 million and $7.6 million, respectively.
Other Plans
On a combined basis, the Company incurred a total of $0.3 million of compensation expense related to the following employee benefit plans for each of the nine months ended September 30, 2021 and 2020.
Employee Share Purchase Plan
The Acadia Realty Trust Employee Share Purchase Plan (the “Purchase Plan”), allows eligible employees of the Company to purchase Common Shares through payroll deductions. The Purchase Plan provides for employees to purchase Common Shares on a quarterly basis at a 15% discount to the closing price of the Company’s Common Shares on either the first day or the last day of the quarter, whichever is lower. A participant may not purchase more than $25,000 in Common Shares per year. Compensation expense will be recognized by the Company to the extent of the above discount to the closing price of the Common Shares with respect to the applicable quarter. A total of 6,111 and 3,285 Common Shares were purchased by employees under the Purchase Plan for the nine months ended September 30, 2021 and 2020, respectively. On March 23, 2021, the Board adopted, which was subsequently approved by the Company’s shareholders at the 2021 annual meeting of shareholders, the Acadia Realty Trust 2021 Employee Share Purchase Plan which allows for a maximum aggregate issuance of 200,000 Common Shares.
Deferred Share Plan
During 2006, the Company adopted a Trustee Deferral and Distribution Election, under which the participating Trustees earn deferred compensation.
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, up to $19,500, for the year ending December 31, 2021.
14. Earnings (Loss) Per Common Share
Basic earnings per Common Share is computed by dividing net income attributable to Common Shareholders by the weighted-average Common Shares outstanding (Note 10). During the periods presented, the Company had unvested LTIP Units which provide for non-forfeitable rights to dividend equivalent payments. Accordingly, these unvested LTIP Units are considered participating securities and are included in the computation of basic earnings per Common Share pursuant to the two-class method.
43
Diluted earnings per Common Share reflects the potential dilution of the conversion of obligations and the assumed exercises of securities including the effects of Restricted Share Units issued under the Company’s Share Incentive Plans (Note 13). The effect of such shares is excluded from the calculation of earnings per share when anti-dilutive as indicated in the table below.
The effect of the conversion of Common OP Units is not reflected in the computation of basic and diluted earnings per share, as they are exchangeable for Common Shares on a one-for-one basis. The income allocable to such units is allocated on this same basis and reflected as noncontrolling interests in the accompanying consolidated financial statements. As such, the assumed conversion of these units would have no net impact on the determination of diluted earnings per share.
(dollars in thousands)
Numerator:
Less: net income attributable to participating securities
(156
(468
(233
Income (loss) from continuing operations net of income attributable to participating securities
11,913
20,681
1,733
Denominator:
Weighted average shares for basic earnings (loss) per share
88,480,844
86,308,500
87,217,422
86,486,017
Effect of dilutive securities:
Employee unvested restricted shares
Denominator for diluted earnings per share
Basic earnings (loss) and diluted earnings per Common Share from continuing operations attributable to Acadia
Anti-Dilutive Shares Excluded from Denominator:
Series A Preferred OP Units
188
Series A Preferred OP Units - Common share equivalent
25,067
Series C Preferred OP Units
126,593
Series C Preferred OP Units - Common share equivalent
439,556
Restricted shares
70,827
76,394
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
As of September 30, 2021, we own or have an ownership interest in 182 properties held through our Core Portfolio and Funds. Our Core Portfolio consists of those properties either 100% owned, or partially owned through joint venture interests, by the Operating Partnership or its subsidiaries, not including those properties owned through our Funds. These properties primarily consist of street and urban retail, and dense suburban shopping centers. Our Funds are investment vehicles through which our Operating Partnership and outside institutional investors invest in primarily opportunistic and value-add retail real estate. Currently, we have active investments in four Funds. A summary of our wholly-owned and partially-owned retail properties and their physical occupancies (including tenants who may have been forced to close their businesses as a result of the COVID-19 Pandemic, as discussed under “Significant Developments” below) at September 30, 2021 is as follows:
Number of Properties
Operating Properties
Development orRedevelopment
Operating
GLA
Occupancy
Core Portfolio:
Chicago Metro
741,333
86.5
New York Metro
342,851
85.7
Los Angeles Metro
14,000
100.0
San Francisco Metro
148,832
Washington DC Metro
320,898
73.6
Boston Metro
55,276
Suburban
3,916,393
90.9
Total Core Portfolio
125
5,539,583
89.3
Acadia Share of Total Core Portfolio
5,170,750
90.3
Fund Portfolio:
469,518
44.3
128,911
83.5
1,786,098
92.2
5,103,689
88.9
Total Fund Portfolio
50
7,488,216
86.8
Acadia Share of Total Fund Portfolio
1,569,160
86.1
Total Core and Funds
175
13,027,799
87.9
Acadia Share of Total Core and Funds
6,739,910
The majority of our operating income is derived from rental revenues from operating properties, including expense recoveries from tenants, offset by operating and overhead expenses.
Our primary business objective is to acquire and manage commercial retail properties that will provide cash for distributions to shareholders while also creating the potential for capital appreciation to enhance investor returns. Generally, we focus on the following fundamentals to achieve this objective:
Some of these investments historically have also included, and may in the future include, joint ventures with private equity investors for the purpose of making investments in operating retailers with significant embedded value in their real estate assets.
SIGNIFICANT DEVELOPMENTS DURING THE NINE MONTHS ENDED SEPTEMBER 30, 2021
Investments
During the nine months ended September 30, 2021, Fund V acquired two properties totaling $95.8 million as described below (Note 2) and we did not make any new real estate investments within our Core Portfolio.
Dispositions of Real Estate
During the nine months ended September 30, 2021, the Company disposed of six properties and terminated one lease as follows:
Financing Activity
During the nine months ended September 30, 2021, we (Note 7):
46
Structured Financing Investments
During the nine months ended September 30, 2021, the Company made two Core Portfolio loans totaling $58.0 million within its Structured Financing portfolio as follows (Note 3):
In addition, one Core and one Fund loan receivable remains in default (Note 3) at September 30, 2021.
Equity Sales
The Company sold 2,084,896 of its Common Shares during the nine months ended September 30, 2021 for net proceeds of $45.9 million through its ATM Program (Note 10).
Special Note Regarding the COVID-19 Pandemic
During 2020, the COVID-19 Pandemic had a negative impact on the business of the Company and that of its tenants. In order to protect citizens and slow the spread of COVID-19, a majority of state governments in the United States instituted restrictions on travel, implemented “shelter-in-place” or “stay-at-home” orders and social distancing practices, and mandated shutdowns of certain “non-essential” businesses for what was then an indeterminate period of time. As a result, a majority of the Company’s retail tenants were forced to temporarily close their businesses during a portion of 2020. While substantially all tenants have since reopened, the tenant closures created concern regarding the Company’s ability to fully collect billed rents from non-operating tenants, many of which have requested rent concessions from the Company. In addition, during 2020, and to a lesser extent in 2021, the COVID-19 Pandemic has had a significant adverse impact on economic and market conditions resulting in a decline in the Company’s share price, disruption of or lack of access to the capital markets and depressed real estate values, among others during 2020.
For the nine months ended September 30, 2021 the Company incurred charges totaling $5.7 million at its pro rata share, as compared to $39.3 million for the prior year period, which were primarily as a result of the COVID-19 Pandemic. These charges comprised credit loss, straight-line rent reserves, rent abatements and impairment charges (Note 11).
The Company collected or negotiated payment agreements of approximately 97.1% and 92.5% of its third quarter pre-COVID billings (original contract rents without regard to deferral or abatement agreements) for its Core Portfolio and the Funds, respectively.
While the Company currently considers the disruptions associated with the COVID-19 Pandemic to be substantially over, if such disruptions recur, they may have a material adverse effect on the Company’s revenues, results of operations, financial condition, and liquidity in future periods.
47
RESULTS OF OPERATIONS
See Note 12 in the Notes to Consolidated Financial Statements for an overview of our three reportable segments.
Comparison of Results for the Three Months Ended September 30, 2021 to the Three Months Ended September 30, 2020
The results of operations by reportable segment for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 are summarized in the table below (in millions, totals may not add due to rounding):
Three Months Ended
September 30, 2020
Increase (Decrease)
SF
45.9
27.5
73.4
38.8
12.4
51.3
7.1
15.1
22.1
(17.7
(13.2
(30.9
(18.0
(16.5
(34.5
(0.3
(3.3
(3.6
(13.9
(10.1
(24.0
(12.7
(9.5
(22.2
1.2
0.6
1.8
(10.0
(8.6
1.4
(9.9
9.9
14.4
(5.7
(1.3
8.2
(13.6
(14.0
7.9
12.7
2.4
2.1
0.3
47.6
(0.4
47.3
(7.9
55.5
0.4
55.2
(0.5
1.1
(0.8
0.2
(0.6
0.9
(7.4
(17.3
(8.3
(17.8
(0.9
(0.1
6.4
33.2
2.0
31.6
(30.8
(38.3
7.3
64.0
69.9
(18.6
(19.5
27.9
29.3
(2.3
(46.5
(48.8
5.5
14.6
12.1
0.5
(2.9
(9.0
5.0
17.5
21.1
Core Portfolio
The results of operations for our Core Portfolio segment are depicted in the table above under the headings labeled “Core.” Segment net income attributable to Acadia for our Core Portfolio increased $5.0 million for the three months ended September 30, 2021 compared to the prior year period as a result of the changes further described below.
Revenues for our Core Portfolio increased $7.1 million for the three months ended September 30, 2021 compared to the prior year period primarily due to (i) a $6.7 million decrease in credit loss reserves in 2021 primarily related to additional COVID-19 Pandemic reserves in 2020 (Note 11), (ii) $1.8 million from the reversal of reserved amounts for cash received on past due balances in 2021 and (iii) $0.8 million for higher termination income in 2021 for vacated tenants. These increases were partially offset by decreases in revenues of $2.2 million from tenants that vacated during 2020 and 2021.
Property operating expenses, other operating and real estate taxes for our Core Portfolio increased $1.2 million for the three months ended September 30, 2021 compared to the prior year period primarily due to a $0.7 million overall increase in operating expenses across our properties in 2021 following reduced levels in 2020 as a result of the COVID-19 Pandemic, and a $0.5 million increase in real estate tax expenses primarily across the Chicago properties.
Net (income) loss attributable to noncontrolling interests for our Core Portfolio decreased $2.3 million for the three months ended September 30, 2021 compared to the prior year period based on the noncontrolling interests’ share of the variances discussed above.
The results of operations for our Funds segment are depicted in the table above under the headings labeled “Funds.” Segment net income attributable to Acadia for the Funds increased $17.5 million for the three months ended September 30, 2021 compared to the prior year period as a result of the changes described below.
Revenues for the Funds increased $15.1 million for the three months ended September 30, 2021 compared to the prior year period primarily due to (i) a $14.9 million decrease in credit loss reserves in 2021 primarily related to additional COVID-19 Pandemic reserves in 2020 (Note 11), and (ii) $1.1 million from the reversal of reserved amounts for cash received on past due balances. These increases were partially offset by $1.0 million from a decrease in recovery on real estate taxes and operating expenses.
Depreciation and amortization for the Funds decreased $3.3 million for the three months ended September 30, 2021 compared to the prior year period primarily due to the write-off of costs associated with tenants that vacated during 2020.
48
Impairment charges for the Funds increased $9.9 million for the three months ended September 30, 2021 compared to the prior year period (Note 8). Impairment charges totaling $9.9 million for the Funds related to 27 East 61st and 210 Bowery in Fund IV.
Realized and unrealized holding gains on investments and other for the Funds increased $55.5 million for the three months ended September 30, 2021 compared to the prior year period. Realized and unrealized holding gains on investments and other includes primarily a $47.2 million mark-to-market gain on the Investment in Albertsons (Note 4) during the three months ended September 30, 2021 compared to a $7.9 million mark-to-market loss in 2020.
Net (income) loss attributable to noncontrolling interests for the Funds decreased $46.5 million for the three months ended September 30, 2021 compared to the prior year period based on the noncontrolling interests’ share of the variances discussed above. Net loss attributable to noncontrolling interests in the Funds includes asset management fees earned by the Company of $2.6 million and $3.6 million for the three months ended September 30, 2021 and 2020, respectively.
The Company does not allocate general and administrative expense and income taxes to its reportable segments. These unallocated amounts are depicted in the table above under the headings labeled “Total.” Unallocated general and administrative expense increased $1.4 million for the three months ended September 30, 2021 compared to the prior year period due to increased compensation expense primarily attributable to an increase in the number of employees and the valuation of equity grants in 2021.
Comparison of Results for the Nine Months Ended September 30, 2021 to the Nine Months Ended September 30, 2020
The results of operations by reportable segment for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 are summarized in the table below (in millions, totals may not add due to rounding):
Nine Months Ended
134.3
83.2
217.5
117.4
69.1
186.5
16.9
14.1
31.0
(51.9
(41.7
(93.6
(53.2
(48.4
(101.6
(6.7
(8.0
(41.8
(32.6
(74.4
(42.5
(31.0
(73.5
(0.7
1.6
(29.6
(26.4
3.2
(51.5
41.6
4.6
5.9
10.5
10.0
45.2
4.9
20.5
21.7
(61.4
(66.1
23.5
66.3
86.6
6.1
7.2
(1.0
57.0
56.5
79.8
79.3
(22.8
4.0
(0.2
0.1
4.2
(22.0
(30.1
(52.1
(25.1
(29.2
(54.4
(3.1
0.7
(1.1
22.3
36.8
5.6
34.6
(10.8
6.6
(33.4
25.9
68.0
(1.9
(11.6
(13.5
7.7
27.7
35.4
(9.6
(39.3
(48.9
20.4
25.2
4.1
16.3
8.3
19.1
The results of operations for our Core Portfolio segment are depicted in the table above under the headings labeled “Core.” Segment net income attributable to Acadia for our Core Portfolio increased $16.3 million for the nine months ended September 30, 2021 compared to the prior year period as a result of the changes further described below.
Revenues for our Core Portfolio increased $16.9 million for the nine months ended September 30, 2021 compared to the prior year period primarily due to (i) $14.8 million decrease in credit loss reserves in 2021 primarily related to additional COVID-19 Pandemic reserves in 2020 (Note 11), (ii) $3.6 million from the reversal of reserved amounts for cash received on past due balances, (iii) $2.5 million related to the consolidation of Town Center in 2020 (Note 4), (iv) $2.3 million from increased tenant recoveries due to higher operating expenses including real estate taxes, and (v) $0.8 million for higher termination income in 2021 for vacated tenants. These increases were partially offset by (i) decreases in revenues of $4.8 million for tenants that vacated during 2020, and (ii) $1.3 million from an additional increase in abatements due to the COVID-19 Pandemic in 2021 and (iii) $1.0 million for a co-tenancy clause at a property.
49
Depreciation and amortization for our Core Portfolio decreased $1.3 million for the nine months ended September 30, 2021 compared to the prior year period primarily due to the write off of costs associated with tenants that vacated during 2020.
The gain on disposition of properties for our Core Portfolio of $4.6 million for the nine months ended September 30, 2021 relates to the sale of 60 Orange Street (Note 2).
Interest expense for our Core Portfolio decreased $3.1 million for the nine months ended September 30, 2021 compared to the prior year period primarily due to (i) $1.6 million from default interest on a loan that was satisfied in 2020, (ii) $1.2 million from the modification of a financing lease to an operating lease in 2020 (Note 11) and (iii) $1.0 million from higher average outstanding borrowings in 2020. These decreases were partially offset by $0.7 million due to higher loan cost amortization in 2021.
Net (income) loss attributable to noncontrolling interests for our Core Portfolio decreased $9.6 million for the nine months ended September 30, 2021 compared to the prior year period based on the noncontrolling interests’ share of the variances discussed above.
The results of operations for our Funds segment are depicted in the table above under the headings labeled “Funds.” Segment net income attributable to Acadia for the Funds increased $8.3 million for the nine months ended September 30, 2021 compared to the prior year period as a result of the changes described below.
Revenues for the Funds increased $14.1 million for the nine months ended September 30, 2021 compared to the prior year period primarily due to (i) increases in revenues of $17.5 million from a decrease in credit loss reserves in 2021 primarily related to additional COVID-19 Pandemic reserves in 2020 (Note 11), (ii) $2.7 million from the reversal of reserved amounts for cash received on past due balances, (iii) $0.9 million from an increase in termination income in 2021, and (iv) $0.7 million from an increase in percentage rent in 2021. These increases were partially offset by decreases of (i) $3.3 million for tenants that vacated during 2020, (ii) $1.1 million from an increase in rent abatements related to the COVID-19 Pandemic in 2021, and (iii) $2.1 million from property dispositions in 2021.
Depreciation and amortization for the Funds decreased $6.7 million for the nine months ended September 30, 2021 compared to the prior year period primarily due to the write-off of costs associated with tenants that vacated during 2020.
Property operating expenses, other operating and real estate taxes for the Funds increased $1.6 million for the nine months ended September 30, 2021 compared to the prior year period primarily due to an overall increase of operating expenses across our properties in 2021 following reduced levels in 2020 as a result of the COVID-19 Pandemic.
Impairment charges for the Funds decreased $41.6 million for the nine months ended September 30, 2021 compared to the prior year period (Note 8). Impairment charges totaling $9.9 million for the Funds in the third quarter of 2021 relate to 27 East 61st and 210 Bowery in Fund IV. Impairment charges totaling $51.5 million during the third quarter of 2020 for the Funds relate to $33.8 million for 654 Broadway and Cortlandt Crossing in Fund III and $17.7 million for 801 Madison and 146 Geary Street in Fund IV.
Gain on disposition of properties for the Funds increased $5.4 million for the nine months ended September 30, 2021 compared to the prior year period due to dispositions of 654 Broadway at Fund III and the NE Grocer Portfolio and 110 University at Fund IV in 2021 compared to the sale of Colonie Plaza in 2020 (Note 2, Note 11).
Realized and unrealized holding gains on investments and other for the Funds decreased $22.8 million for the nine months ended September 30, 2021 compared to the prior year period. Realized and unrealized holding losses on investments and other includes a $55.8 million mark-to-market adjustment on the Investment in Albertsons (Note 4) during the nine months ended September 30, 2021 compared to a $57.0 million mark-to-market adjustment and a $22.8 million net realized gain on disposition of shares related to the Investment in Albertsons in 2020.
Equity in earnings (losses) of unconsolidated affiliates for the Funds increased $4.9 million for the nine months ended September 30, 2021 compared to the prior year period primarily due to the $3.2 million gain on sale related to two land parcels at Riverdale Family Center in Fund V (Note 2) in 2021 and $1.7 million due to COVID-19 Pandemic related reserves at a property in 2020.
Net (income) loss attributable to noncontrolling interests for the Funds decreased $39.3 million for the nine months ended September 30, 2021 compared to the prior year period based on the noncontrolling interests’ share of the variances discussed above. Net loss attributable to noncontrolling interests in the Funds includes asset management fees earned by the Company of $8.6 million and $12.0 million for the nine months ended September 30, 2021 and 2020, respectively.
Structured Financing
The results of operations for our Structured Financing segment are depicted in the table above under the headings labeled “SF.” Interest income for the Structured Financing portfolio decreased $1.0 million for the nine months ended September 30, 2021 compared to the prior year period primarily due the conversion of notes receivable to equity in 2020 (Note 4) partially offset by the issuance of new notes in 2021.
The Company does not allocate general and administrative expense and income taxes to its reportable segments. These unallocated amounts are depicted in the table above under the headings labeled “Total.” Unallocated general and administrative expense increased $3.2 million for the nine months ended September 30, 2021 compared to the prior year period due to increased compensation expense primarily attributable to an increase in the number of employees and the valuation of equity grants in 2021. Income tax (provision) benefit decreased $1.1 million for the nine months ended September 30, 2021 compared to the prior year period due to the carry-back of net operating losses under current Federal rules in 2020.
SUPPLEMENTAL FINANCIAL MEASURES
Net Property Operating Income
The following discussion of net property operating income (“NOI”) and rent spreads on new and renewal leases includes the activity from both our consolidated and our pro-rata share of unconsolidated properties within our Core Portfolio. Our Funds invest primarily in properties that typically require significant leasing and development. Given that the Funds are finite-life investment vehicles, these properties are sold following stabilization. For these reasons, we believe NOI and rent spreads are not meaningful measures for our Fund investments.
NOI represents property revenues less property expenses. We consider NOI and rent spreads on new and renewal leases for our Core Portfolio to be appropriate supplemental disclosures of portfolio operating performance due to their widespread acceptance and use within the REIT investor and analyst communities. NOI and rent spreads on new and renewal leases are presented to assist investors in analyzing our property performance, however, our method of calculating these may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
A reconciliation of consolidated operating income to net operating income - Core Portfolio follows (in thousands):
Consolidated operating (loss) income (a)
Add back:
Straight-line rent (recoveries) reserves
(258
13,185
327
19,714
Less:
Above/below-market rent, straight-line rent and other adjustments
(4,572
(3,671
(14,105
(6,256
(24
Consolidated NOI
44,598
38,547
129,371
126,414
Noncontrolling interest in consolidated NOI
(12,576
(10,335
(35,810
(36,327
Less: Operating Partnership's interest in Fund NOI included above
(3,104
(2,289
(8,853
(8,710
Add: Operating Partnership's share of unconsolidated joint ventures NOI
2,961
3,133
10,025
12,353
NOI - Core Portfolio
31,879
29,056
94,733
93,730
(a) Does not include the Operating Partnership’s share of NOI from unconsolidated joint ventures within the Funds.
51
Same-Property NOI includes Core Portfolio properties that we owned for both the current and prior periods presented, but excludes those properties which we acquired, sold or expected to sell, and developed during these periods. The following table summarizes Same-Property NOI for our Core Portfolio (in thousands):
Core Portfolio NOI
Less properties excluded from Same-Property NOI
(2,855
(1,934
(6,161
(6,058
Same-Property NOI
29,024
27,122
88,572
87,672
Percent change from prior year period
7.0
1.0
Components of Same-Property NOI:
Same-Property Revenues
42,285
39,459
128,503
124,075
Same-Property Operating Expenses
(13,261
(12,337
(39,931
(36,403
Rent Spreads on Core Portfolio New and Renewal Leases
The following table summarizes rent spreads on both a cash basis and straight-line basis for new and renewal leases based on leases executed within our Core Portfolio for the periods presented. Cash basis represents a comparison of rent most recently paid on the previous lease as compared to the initial rent paid on the new lease. Straight-line basis represents a comparison of rents as adjusted for contractual escalations, abated rent and lease incentives for the same comparable leases.
Three Months Ended September 30, 2021
Core Portfolio New and Renewal Leases
Cash Basis
Straight-Line Basis
Number of new and renewal leases executed
GLA commencing
44,138
330,416
New base rent
53.83
55.29
25.98
26.90
Expiring base rent
48.59
46.65
24.98
23.69
Percent growth in base rent
10.8
18.5
13.6
Average cost per square foot (a)
25.69
6.38
Weighted average lease term (years)
(a) The average cost per square foot includes tenant improvement costs, leasing commissions and tenant allowances.
52
Funds from Operations
We consider funds from operations (“FFO”) as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) to be an appropriate supplemental disclosure of operating performance for an equity REIT due to its widespread acceptance and use within the REIT and analyst communities. FFO is presented to assist investors in analyzing our performance. It is helpful as it excludes various items included in net income that are not indicative of the operating performance, such as gains (losses) from sales of depreciated property, depreciation and amortization, and impairment of real estate. Our method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. FFO does not represent cash generated from operations as defined by GAAP and is not indicative of cash available to fund all cash needs, including distributions. It should not be considered as an alternative to net income for the purpose of evaluating our performance or to cash flows as a measure of liquidity. Consistent with the NAREIT definition, we define FFO as net income (computed in accordance with GAAP), excluding gains (losses) from sales of depreciated property and impairment of depreciable real estate, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Also consistent with NAREIT’s definition of FFO, the Company has elected to include gains and losses incidental to its main business (including those related to its RCP investments such as Albertsons) in FFO. A reconciliation of net income attributable to Acadia to FFO follows (dollars in thousands, except per share amounts):
Depreciation of real estate and amortization of leasing costs (net of noncontrolling interests' share)
23,111
25,106
69,995
73,584
Impairment charges (net of noncontrolling interests' share)
12,400
Gain on disposition of properties (net of noncontrolling interests' share)
(6
(4,163
(117
Income (loss) attributable to Common OP Unit holders
749
1,371
199
Distributions - Preferred OP Units
369
372
Funds from operations attributable to Common Shareholders and Common OP Unit holders
38,346
15,599
91,015
88,404
Funds From Operations per Share - Diluted
Basic weighted-average shares outstanding, GAAP earnings
Weighted-average OP Units outstanding
5,122,016
4,890,876
5,125,394
5,027,646
Basic weighted-average shares outstanding, FFO
93,602,860
91,199,376
92,342,816
91,513,663
Assumed conversion of Preferred OP Units to Common Shares
464,623
Assumed conversion of LTIP units and Restricted Share Units to Common Shares
15,671
Diluted weighted-average number of Common Shares and Common OP Units outstanding, FFO
94,083,154
91,224,443
92,807,439
91,978,286
Diluted Funds from operations, per Common Share and Common OP Unit
0.41
0.17
0.98
0.96
LIQUIDITY AND CAPITAL RESOURCES
Uses of Liquidity and Cash Requirements
Generally, our principal uses of liquidity are (i) distributions to our shareholders and OP unit holders, (ii) investments which include the funding of our capital committed to the Funds and property acquisitions and development/re-tenanting activities within our Core Portfolio, (iii) distributions to our Fund investors, (iv) debt service and loan repayments and (v) share repurchases.
Distributions
In order to qualify as a REIT for federal income tax purposes, we must distribute at least 90% of our taxable income to our shareholders. During the nine months ended September 30, 2021, we paid dividends and distributions on our Common Shares and Preferred OP Units totaling $28.4 million. Beginning with the second quarter of 2020, the Board temporarily suspended distributions on its Common Shares and Common Units, which suspension continued through the fourth quarter of 2020. The Company reinstated quarterly distributions beginning in the first quarter of 2021 (Note 10).
During the nine months ended September 30, 2021, Fund V acquired two properties totaling $95.8 million as described below (Note 2) and we did not make any new real estate investments within our Core portfolio.
Capital Commitments
During the nine months ended September 30, 2021, we made capital contributions aggregating $8.1 million to our Funds. At September 30, 2021, our share of the remaining capital commitments to our Funds aggregated $71.7 million as follows:
Development Activities
During the nine months ended September 30, 2021, capitalized costs associated with development activities totaled $6.3 million (Note 2). At September 30, 2021, we had a total of seven consolidated and one unconsolidated projects under development or redevelopment for which the estimated total cost to complete these projects through 2025 was $93.7 million to $120.9 million and our estimated share was approximately $52.4 million to $63.9 million. Substantially all remaining development and redevelopment costs are discretionary.
Debt
A summary of our consolidated debt, which includes the full amount of Fund related obligations and excludes our pro rata share of debt at our unconsolidated subsidiaries, is as follows (in thousands):
Total Debt - Fixed and Effectively Fixed Rate
1,114,038
1,143,152
Total Debt - Variable Rate
(6,763
1,763,839
As of September 30, 2021, our consolidated outstanding mortgage and notes payable aggregated $1,796.2 million, excluding unamortized premium of $0.5 million and net unamortized loan costs of $8.8 million, and were collateralized by 38 properties and related tenant leases. Stated interest rates on our outstanding indebtedness ranged from LIBOR + 1.39% to 5.89% with maturities that ranged from November 1, 2021 to April 15, 2035. Taking into consideration $935.1 million of notional principal under variable to fixed-rate swap agreements currently in effect, $1,114.0 million of the portfolio debt, or 62.0%, was fixed at a 3.89% weighted-average interest rate and $682.2 million, or 38.0% was floating at a 2.44% weighted average interest rate as of September 30, 2021. Our variable-rate debt includes $145.3 million of debt subject to interest rate caps.
Without regard to available extension options, there is $100.5 million of debt maturing in 2021 at a weighted-average interest rate of 2.90%; there is $2.3 million of scheduled principal amortization due in 2021; and our share of scheduled remaining 2021 principal payments and maturities on our unconsolidated debt was $12.6 million at September 30, 2021. In addition, $670.1 million of our total consolidated debt and $5.7 million of our pro-rata share of unconsolidated debt will come due in 2022. As it relates to the aforementioned maturing debt in 2021 and 2022, we have options to extend consolidated debt aggregating $64.2 million and $216.6 million at September 30, 2021, respectively; however, there can be no assurance that the Company will be able to successfully execute any or all of its available extension options. For the remaining indebtedness, we may not have sufficient cash on hand to repay such indebtedness, and, therefore, we expect to refinance at least a portion of this indebtedness or select other alternatives based on market conditions as these loans mature; however, there can be no assurance that we will be able to obtain financing at acceptable terms.
We maintain a share repurchase program under which $122.6 million remains available as of September 30, 2021 (Note 10). We did not repurchase any shares under this program during the nine months ended September 30, 2021.
Sources of Liquidity
Our primary sources of capital for funding our liquidity needs include (i) the issuance of both public equity and OP Units, (ii) the issuance of both secured and unsecured debt, (iii) unfunded capital commitments from noncontrolling interests within our Funds, (iv) future sales of existing properties, (v) repayments of structured financing investments, and (vi) cash on hand and future cash flow from operating activities. Our cash on hand in our consolidated subsidiaries at September 30, 2021 totaled $17.4 million. Our remaining sources of liquidity are described further below.
We have an ATM Program (Note 10) which provides us an efficient and low-cost vehicle for raising public equity to fund our capital needs. In addition, from time to time, we have issued and intend to continue to issue, equity in follow-on offerings separate from our ATM Program. Net proceeds raised through our ATM Program and follow-on offerings are primarily used for acquisitions, both for our Core Portfolio and our pro-rata share of Fund acquisitions, and for general corporate purposes. During the nine months ended September 30, 2021, the Company sold 2,084,896 of its Common Shares for net proceeds of $45.9 million through the ATM Program.
Fund Capital
During the nine months ended September 30, 2021, Funds II, IV and V called for capital contributions of $7.0 million, $18.7 million and $9.1 million, respectively, of which our aggregate share was $8.1 million. At September 30, 2021, unfunded capital commitments from noncontrolling interests within our Funds II, III, IV and V were $6.3 million, $1.4 million, $32.2 million and $234.8 million, respectively.
55
Asset Sales and Other Transactions
During the nine months ended September 30, 2021 the Company redeemed one Structured Financing loan in the amount of $0.5 million. The Company has one loan for $13.6 million including accrued interest that is maturing during the remainder of 2021. The Company also has two Structured Financing investments aggregating $31.6 million including accrued interest that previously matured and have not been repaid (Note 3).
Financing and Debt
As of September 30, 2021, we had $264.3 million of additional capacity under existing Core and Fund revolving debt facilities. In addition, at that date within our Core and Fund portfolios, we had 83 unleveraged consolidated properties with an aggregate carrying value of approximately $1.7 billion, although there can be no assurance that we would be able to obtain financing for these properties at favorable terms, if at all.
HISTORICAL CASH FLOW
The following table compares the historical cash flow for the nine months ended September 30, 2021 with the cash flow for the nine months ended September 30, 2020 (in millions, totals may not add due to rounding):
Variance
72.4
82.5
(83.6
(94.3
10.7
9.5
11.6
(2.1
(1.7
(1.5
Operating Activities
Our operating activities provided $10.1 million less cash during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily due to a decrease from the monetization of the Company's Investment in Albertsons in 2020 offset by an increase in cash receipts from tenants in 2021.
Investing Activities
During the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, our investing activities used $10.7 million less cash, primarily due to (i) $49.7 million more cash received from the disposition of properties, (ii) $2.2 million less cash used for development costs, (iii) $1.9 million less used for leasing costs and (iv) $1.6 million more cash received from the return of capital from unconsolidated affiliates offset by $42.4 million more cash used in acquisition of properties in 2021 and $2.4 million more cash used in investments in affiliates.
56
Financing Activities
Our financing activities provided $2.1 million less cash during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily from (i) $84.0 million less cash provided from net borrowings, (ii) $10.1 million less cash provided from contributions from noncontrolling interests, and (iii) $5.7 million more cash used for financing costs. These uses of cash were partially offset by (i) $45.8 million more cash provided by the sale of Common Shares, (ii) $24.0 million less cash used in dividends paid to Common Shareholders, (iii) $22.4 million less cash used to repurchase Common Shares and (iv) $4.6 million less cash distributed to noncontrolling interests .
OFF-BALANCE SHEET ARRANGEMENTS
We have the following investments made through joint ventures for the purpose of investing in operating properties. We account for these investments using the equity method of accounting. As such, our financial statements reflect our investment and our share of income and loss from, but not the individual assets and liabilities, of these joint ventures.
See Note 4 in the Notes to Consolidated Financial Statements, for a discussion of our unconsolidated investments. The Operating Partnership’s pro-rata share of unconsolidated non-recourse debt related to those investments is as follows (dollars in millions):
Operating Partnership
Investment
OwnershipPercentage
Pro-rata Share ofMortgage Debt
Effective Interest Rate (a)
Eden Square
22.8
5.3
2.24
Promenade at Manassas (b)
4.57
3104 M Street
20.0
3.75
Family Center at Riverdale (b)
18.0
4.4
3.68
49.0
9.0
5.09
Jun 2023
32.0
3.81
Aug 2023
Crossroads
30.7
3.94
Oct 2024
Tri-City Plaza (c)
18.1
3.01
Frederick Crossing (c)
3.26
Dec 2024
Frederick County Square (c)
4.00
Jan 2025
840 N. Michigan
88.4
65.0
4.36
Feb 2025
20.8
3.3
50.0
7.8
4.72
Dec 2027
180.1
CRITICAL ACCOUNTING POLICIES
Management’s discussion and analysis of financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these Consolidated Financial Statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe there have been no material changes to the items that we disclosed as our critical accounting policies under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our 2020 Annual Report on Form 10-K.
Recently Issued and Adopted Accounting Pronouncements
Reference is made to Note 1 for information about recently issued accounting pronouncements.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information as of September 30, 2021
Our primary market risk exposure is to changes in interest rates related to our mortgage and other debt. See Note 7 in the Notes to Consolidated Financial Statements, for certain quantitative details related to our mortgage and other debt.
Currently, we manage our exposure to fluctuations in interest rates primarily through the use of fixed-rate debt and interest rate swap and cap agreements. As of September 30, 2021, we had total mortgage and other notes payable of $1,796.2 million, excluding the unamortized premium of $0.5 million and net unamortized debt issuance costs of $8.8 million, of which $1,114.0 million, or 62.0% was fixed-rate, inclusive of debt with rates fixed through the use of derivative financial instruments, and $682.2 million, or 38.0%, was variable-rate based upon LIBOR or Prime rates plus certain spreads. As of September 30, 2021, we were party to 30 interest rate swaps and four interest rate cap agreements to hedge our exposure to changes in interest rates with respect to $935.1 million and $145.3 million of LIBOR-based variable-rate debt, respectively.
The following table sets forth information as of September 30, 2021 concerning our long-term debt obligations, including principal cash flows by scheduled maturity (without regard to available extension options) and weighted average effective interest rates of maturing amounts (dollars in millions):
Core Consolidated Mortgage and Other Debt
Year
ScheduledAmortization
Maturities
Weighted-AverageInterest Rate
0.8
2.9
11.8
14.7
3.8
2.7
4.7
2.8
162.9
165.7
10.4
517.2
527.6
22.9
699.2
722.1
Fund Consolidated Mortgage and Other Debt
1.5
100.5
102.0
662.6
666.8
3.5
92.1
95.9
3.7
2.6
199.5
202.1
1,061.7
1,074.1
Mortgage Debt in Unconsolidated Partnerships (at our Pro-Rata Share)
12.3
12.6
1.3
5.7
40.6
39.6
69.0
69.3
4.3
9.4
4.8
175.3
Without regard to available extension options, in 2021, $102.8 million of our total consolidated debt and $12.6 million of our pro-rata share of unconsolidated outstanding debt will become due. In addition, $670.1 million of our total consolidated debt and $5.7 million of our pro-rata share of unconsolidated debt will become due in 2022. As it relates to the aforementioned maturing debt in 2021 and 2022, we have options to extend consolidated debt aggregating $64.2 million and $216.6 million, respectively; however, there can be no assurance that the Company will be able successfully execute any or all of its available extension options. As we intend on refinancing some or all of such debt at the then-existing market interest rates, which may be greater than the current interest rates, our interest expense would increase by approximately $7.9 million annually if the interest rate on the refinanced debt increased by 100 basis points. After giving effect to noncontrolling interests, our share of this increase would be $1.8 million. Interest expense on our variable-rate debt of $682.2 million, net of variable to fixed-rate swap agreements currently in effect, as of September 30, 2021, would increase $6.8 million if LIBOR increased by 100 basis points. After giving effect to noncontrolling interests, our share of this increase would be $1.6 million. We may seek additional variable-rate financing if and when pricing and other commercial and financial terms warrant. As such, we 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.
Based on our outstanding debt balances as of September 30, 2021, the fair value of our total consolidated outstanding debt would decrease by approximately $8.7 million if interest rates increase by 1%. Conversely, if interest rates decrease by 1%, the fair value of our total outstanding debt would increase by approximately $23.4 million.
As of September 30, 2021, and December 31, 2020, we had consolidated notes receivable of $158.5 million and $101.5 million, respectively. We determined the estimated fair value of our notes receivable by discounting future cash receipts utilizing a discount rate equivalent to the rate at which similar notes receivable would be originated under conditions then existing.
Based on our outstanding notes receivable balances as of September 30, 2021, the fair value of our total outstanding notes receivable would decrease by approximately $2.5 million if interest rates increase by 1%. Conversely, if interest rates decrease by 1%, the fair value of our total outstanding notes receivable would increase by approximately $2.4 million.
Summarized Information as of December 31, 2020
As of December 31, 2020, we had total mortgage and other notes payable of $1,770.1 million, excluding the unamortized premium of $0.5 million and unamortized debt issuance costs of $6.8 million, of which $1,143.2 million, or 64.6% was fixed-rate, inclusive of debt with rates fixed through the use of derivative financial instruments, and $626.9 million, or 35.4%, was variable-rate based upon LIBOR or Prime rates plus certain spreads. As of December 31, 2020, we were party to 39 interest rate swap and four interest rate cap agreements to hedge our exposure to changes in interest rates with respect to $988.6 million and $139.2 million of LIBOR-based variable-rate debt, respectively.
Interest expense on our variable-rate debt of $626.9 million as of December 31, 2020, would have increased $6.3 million if LIBOR increased by 100 basis points. Based on our outstanding debt balances as of December 31, 2020, the fair value of our total outstanding debt would have decreased by approximately $9.2 million if interest rates increased by 1%. Conversely, if interest rates decreased by 1%, the fair value of our total outstanding debt would have increased by approximately $26.7 million.
Changes in Market Risk Exposures from December 31, 2020 to September 30, 2021
Our interest rate risk exposure from December 31, 2020, to September 30, 2021, has increased on an absolute basis, as the $626.9 million of variable-rate debt as of December 31, 2020, has increased to $682.2 million as of September 30, 2021. As a percentage of our overall debt, our interest rate risk exposure has increased as our variable-rate debt accounted for 35.4% of our consolidated debt as of December 31, 2020 compared to 38.0% as of September 30, 2021.
ITEM 4.CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
Our disclosure controls and procedures include internal controls and other procedures designed to provide reasonable assurance that information required to be disclosed in this and other reports filed under the Exchange Act, is recorded, processed, summarized, and reported within the required time periods specified in the SEC’s rules and forms; and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures. It should be noted that no system of controls can provide complete assurance of achieving a company’s objectives and that future events may impact the effectiveness of a system of controls. Our chief executive officer and chief financial officer, after conducting an evaluation, together with members of our management, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2021, have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of September 30, 2021, at a reasonable level of assurance.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II – OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS.
From time to time, we are a party to various legal proceedings, claims or regulatory inquiries and investigations arising out of, or incident to, our ordinary course of business. While we are unable to predict with certainty the outcome of any particular matter, management does not expect, when such matters are resolved, that our resulting exposure to loss contingencies, if any, will have a material adverse effect on our consolidated financial position.
ITEM 1A.RISK FACTORS.
Except to the extent additional factual information disclosed elsewhere in this Report relates to such risk factors (including, without limitation, the matters discussed in Part I, “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations”), there were no material changes to the risk factors disclosed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES.
ITEM 4.MINE SAFETY DISCLOSURES.
ITEM 5.OTHER INFORMATION.
ITEM 6.EXHIBITS.
The following is an index to all exhibits including (i) those filed with this Quarterly Report on Form 10-Q and (ii) those incorporated by reference herein:
Exhibit No.
Method of Filing
31.1
Certification of Chief Executive Officer pursuant to rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
31.2
Certification of Chief Financial Officer pursuant to rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Document
101.DEF
Inline XBRL Taxonomy Extension Definitions Document
101.LAB
Inline XBRL Taxonomy Extension Labels Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Document
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
(Registrant)
By:
/s/ Kenneth F. Bernstein
Kenneth F. Bernstein
Chief Executive Officer,
President and Trustee
/s/ John Gottfried
John Gottfried
Senior Vice President and
Chief Financial Officer
/s/ Richard Hartmann
Richard Hartmann
Chief Accounting Officer
Dated: October 28, 2021