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 March 31, 2023
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 April 28, 2023 there were 95,212,325 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 March 31, 2023 (Unaudited) and December 31, 2022
Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2023 and 2022
5
Consolidated Statements of Comprehensive (Loss) Income (Unaudited) for the Three Months Ended March 31, 2023 and 2022
6
Consolidated Statements of Changes in Equity (Unaudited) for the Three Months Ended March 31, 2023 and 2022
7
Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2023 and 2022
8
Notes to Consolidated Financial Statements (Unaudited)
10
2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
43
3.
Quantitative and Qualitative Disclosures about Market Risk
55
4.
Controls and Procedures
58
PART II - OTHER INFORMATION
Legal Proceedings
59
1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
5.
Other Information
6.
Exhibits
60
Signatures
61
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 (the "Securities Act"), and Section 21E of the Securities 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 the 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”) or future pandemics, including its impact on our tenants and their ability to make rent and other payments or honor their commitments under existing leases; (ii) macroeconomic conditions, such as a disruption of or lack of access to the capital markets, disruptions and instability in the banking and financial services industries and rising inflation; (iii) our success in implementing our business strategy and our ability to identify, underwrite, finance, consummate and integrate diversifying acquisitions and investments; (iv) changes in general economic conditions or economic conditions in the markets in which we may, from time to time, compete, and their effect on our revenues, earnings and funding sources; (v) increases in our borrowing costs as a result of rising inflation, changes in interest rates and other factors, including the discontinuation of USD LIBOR, which is currently anticipated to occur in 2023; (vi) our ability to pay down, refinance, restructure or extend our indebtedness as it becomes due; (vii) our investments in joint ventures and unconsolidated entities, including our lack of sole decision-making authority and our reliance on our joint venture partners’ financial condition; (viii) our ability to obtain the financial results expected from our development and redevelopment projects; (ix) our tenants’ ability and willingness to renew their leases with us upon expiration, our ability to re-lease our properties on the same or better terms in the event of nonrenewal or in the event we exercise our right to replace an existing tenant, and obligations we may incur in connection with the replacement of an existing tenant; (x) our potential liability for environmental matters; (xi) damage to our properties from catastrophic weather and other natural events, and the physical effects of climate change; (xii) uninsured losses; (xiii) our ability and willingness to maintain our qualification as a real estate investment trust (REIT) in light of economic, market, legal, tax and other considerations; (xiv) information technology security breaches, including increased cybersecurity risks relating to the use of remote technology; (xv) the loss of key executives; (xvi) the accuracy of our methodologies and estimates regarding environmental, social and governance (“ESG”) metrics, goals and targets, tenant willingness and ability to collaborate towards reporting ESG metrics and meeting ESG goals and targets, and the impact of governmental regulation on our ESG efforts; and (xvii) the risk that our restatement of certain of our previously issued consolidated financial statements or material weaknesses in internal controls could negatively affect investor confidence and raise reputational issues.
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, 2022 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 to reflect any changes in the Company’s expectations with regard thereto or changes 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
March 31,
December 31,
(dollars in thousands, except per share amounts)
2023
2022
ASSETS
(Unaudited)
Investments in real estate, at cost
Operating real estate, net
$
3,401,368
3,343,265
Real estate under development
117,914
184,602
Net investments in real estate
3,519,282
3,527,867
Notes receivable, net
123,967
123,903
Investments in and advances to unconsolidated affiliates
191,552
291,156
Other assets, net
200,430
229,591
Right-of-use assets - operating leases, net
36,379
37,281
Cash and cash equivalents
17,125
17,158
Restricted cash
14,257
15,063
Marketable securities
34,227
—
Rents receivable, net
45,934
49,506
Assets of properties held for sale
11,057
Total assets (a)
4,194,210
4,302,582
LIABILITIES
Mortgage and other notes payable, net
926,918
928,639
Unsecured notes payable, net
647,101
696,134
Unsecured line of credit
172,587
168,287
Accounts payable and other liabilities
191,837
196,491
Lease liability - operating leases, net
34,361
35,271
Dividends and distributions payable
18,498
18,395
Distributions in excess of income from, and investments in, unconsolidated affiliates
9,376
10,505
Total liabilities (a)
2,000,678
2,053,722
Commitments and contingencies
Redeemable noncontrolling interests
63,269
67,664
EQUITY
Acadia Shareholders' Equity
Common shares, $0.001 par value per share, authorized 200,000,000 shares, issued and outstanding 95,207,514 and 95,120,773 shares, respectively
95
Additional paid-in capital
1,945,157
1,945,322
Accumulated other comprehensive income
30,003
46,817
Distributions in excess of accumulated earnings
(304,173
)
(300,402
Total Acadia shareholders’ equity
1,671,082
1,691,832
Noncontrolling interests
459,181
489,364
Total equity
2,130,263
2,181,196
Total liabilities, equity and redeemable noncontrolling interests
The accompanying notes are an integral part of these consolidated financial statements (unaudited).
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31,
(in thousands except per share amounts)
Revenues
Rental income
80,737
79,467
Other
1,102
2,040
Total revenues
81,839
81,507
Operating expenses
Depreciation and amortization
33,173
33,713
General and administrative
9,946
11,937
Real estate taxes
11,479
11,280
Property operating
15,133
13,350
Total operating expenses
69,731
70,280
Gain on disposition of properties
28,815
Operating income
12,108
40,042
Equity in earnings of unconsolidated affiliates
29
3,130
Interest and other income
4,818
2,935
Realized and unrealized holding gains on investments and other
26,757
15,730
Interest expense
(21,587
(17,925
Income from continuing operations before income taxes
22,125
43,912
Income tax (provision) benefit
(123
185
Net income
22,002
44,097
Net loss attributable to redeemable noncontrolling interests
2,075
Net income attributable to noncontrolling interests
(10,717
(27,259
Net income attributable to Acadia
13,360
16,838
Basic income per share
0.14
0.18
Diluted income per share
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
(in thousands)
Other comprehensive (loss) income:
Unrealized (loss) gain on valuation of swap agreements
(15,242
35,734
Reclassification of realized interest on swap agreements
(6,553
5,049
Other comprehensive (loss) income
(21,795
40,783
Comprehensive income
207
84,880
Comprehensive loss attributable to redeemable noncontrolling interests
Comprehensive income attributable to noncontrolling interests
(5,736
(37,552
Comprehensive (loss) income attributable to Acadia
(3,454
47,328
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
Three Months Ended March 31, 2023 and 2022
Acadia Shareholders
(in thousands, except per share amounts)
CommonShares
ShareAmount
AdditionalPaid-inCapital
AccumulatedOtherComprehensiveIncome (Loss)
Distributionsin Excess ofAccumulatedEarnings
TotalCommonShareholders’Equity
NoncontrollingInterests
TotalEquity
Redeemable NoncontrollingInterests
Balance at January 1, 2023
95,121
Conversion of OP Units to Common Shares by limited partners of the Operating Partnership
37
631
(631
Dividends/distributions declared ($0.18 per Common Share/OP Unit)
(17,131
(1,343
(18,474
City Point Loan accrued interest
(2,320
Employee and trustee stock compensation, net
50
988
3,897
4,885
Noncontrolling interest distributions
(70,868
Noncontrolling interest contributions
31,242
Comprehensive income (loss)
(16,814
5,736
2,282
(2,075
Reallocation of noncontrolling interests
(1,784
1,784
Balance at March 31, 2023
95,208
Balance at January 1, 2022
89,304
89
1,754,383
(36,214
(196,645
1,521,613
628,322
2,149,935
36
572
(572
Issuance of Common Shares, net
5,151
111,511
111,516
(17,011
(1,283
(18,294
17
1
430
431
3,389
3,820
(22,780
99,129
30,490
37,552
(2,836
2,836
Balance at March 31, 2022
94,508
1,864,060
(5,724
(196,818
1,661,613
746,593
2,408,206
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on disposition of properties and other investments
(30,288
Net unrealized holding losses (gains) on investments
2,059
(13,763
Stock compensation expense
Straight-line rents
(767
(3,076
(29
(3,130
Distributions of operating income from unconsolidated affiliates
1,097
2,655
Adjustments to straight-line rent reserves
473
(1,350
Amortization of financing costs
1,647
1,386
Non-cash lease expense
901
858
Adjustments to allowance for credit loss
326
(1,134
Other, net
(1,568
(1,432
Changes in assets and liabilities:
Rents receivable
3,562
3,283
Other liabilities
(1,281
(1,567
Accounts payable and accrued expenses
(6,256
(8,564
Prepaid expenses and other assets
118
1,858
Lease liability - operating leases
(910
(823
Net cash provided by operating activities
59,432
26,543
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of real estate
(159,599
Proceeds from the disposition of properties and other investments, net
116,619
Investments in and advances to unconsolidated affiliates and other
(24,911
(95,898
Development, construction and property improvement costs
(12,529
(7,931
Refund (payment) of deposits for properties under purchase contract
930
(3,650
Change in control of previously unconsolidated affiliate
3,592
Return of capital from unconsolidated affiliates and other
35,406
2,602
Payment of deferred leasing costs
(2,508
(1,264
Acquisition of investment interests
(4,527
Net cash used in investing activities
(3,612
(150,056
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from unsecured debt
43,309
279,139
Principal payments on unsecured debt
(88,395
(227,140
Proceeds from the sale of Common Shares
Capital contributions from noncontrolling interests
Principal payments on mortgage and other notes
(2,196
(81,743
Distributions to noncontrolling interests
(22,999
(23,819
Dividends paid to Common Shareholders
(17,122
(13,396
Proceeds received from mortgage and other notes
307
Deferred financing and other costs
(498
(13
Net cash (used in) provided by financing activities
(56,659
143,980
(Decrease) increase in cash and restricted cash
(839
20,467
Cash of $17,158 and $17,746 and restricted cash of $15,063 and $9,813, respectively, beginning of period
32,221
27,559
Cash of $17,125 and $36,151 and restricted cash of $14,257 and $11,875, respectively, end of period
31,382
48,026
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)
Supplemental disclosure of cash flow information
Cash paid during the period for interest, net of capitalized interest of $1,928 and $623 respectively
23,107
11,882
Cash paid for income taxes, net of (refunds)
123
(185
Supplemental disclosure of non-cash investing and financing activities
Distribution declared and payable on April 14, 2023 and April 14, 2022, respectively
18,351
18,172
Assumption of accounts payable and accrued expenses through acquisition of real estate
1,904
Accrued interest on note receivable recorded to redeemable noncontrolling interest
2,307
Distributions to noncontrolling interests of marketable securities
49,117
Reclassification of investment in unconsolidated affiliate to marketable securities
32,745
Change in control of previously unconsolidated investment
Increase in real estate
(55,791
Increase in mortgage notes payable
35,970
Decrease in investments in and advances to unconsolidated affiliates
17,822
Decrease in notes receivable
5,306
Decrease in reserve on note receivable
(4,582
Decrease in accrued interest on notes receivable
4,691
Change in other assets and liabilities
176
Increase in cash and restricted cash upon change of control
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Organization, Basis of Presentation and Summary of Significant Accounting Policies
Organization
Acadia Realty Trust, a Maryland real estate investment trust (collectively with its consolidated subsidiaries, 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 March 31, 2023 and December 31, 2022, the Company controlled approximately 95% 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 March 31, 2023, the Company has ownership interests in 149 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 51 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 200 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 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 March 31, 2023 (b)
UnfundedCommitment (b, c)
Equity InterestHeld ByOperatingPartnership (a)
PreferredReturn
Total Distributions as of March 31, 2023 (b, c)
Fund II and Mervyns II (c,d)
6/2004
61.67
%
557.3
0.0
172.9
Fund III
5/2007
24.54
448.1
1.9
603.5
Fund IV
5/2012
23.12
488.1
41.9
221.4
Fund V
8/2016
20.10
387.0
133.0
94.4
Basis of Presentation
Segments
At March 31, 2023, 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, including where the Company has been determined to be a primary beneficiary of a variable interest entity ("VIE"), 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.
These interim consolidated financial statements should be read in conjunction with the Company’s 2022 consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
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.
Recent Accounting Pronouncements
In January 2021, the FASB issued Accounting Standards Update (“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 the London Interbank Offered Rate (“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. The Company has elected 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 did not have an effect on the Company’s consolidated financial statements.
In December 2022, the FASB issued ASU 2022-06 Reference Rate Reform (Topic 848). The guidance in this update defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The amendments are effective for all entities in scope upon issuance of the ASU. The Company plans to transition all variable rate loans currently indexed to LIBOR to SOFR or another applicable benchmark index and will apply the relief based Topic 848 in line with the sunset date.
Any other recently issued accounting standards or pronouncements not disclosed above have been excluded as they are not relevant to the Company, or they are not expected to have a material impact on the consolidated financial statements.
11
Economic and Other Considerations
In response to the rising rate of inflation the United States Federal Reserve Board (the “Federal Reserve”) has steadily increased interest rates, and may continue to increase interest rates throughout the year and into 2024, until the rate of inflation begins to decrease. These increases in interest rates could adversely impact the business and financial results of the Company and its tenants. In addition to the rising rate of inflation, slower economic growth and the potential for a recession could have an adverse effect on the Company and its tenants. This could negatively affect the overall demand for retail space, including the demand for leasable space in the Company’s properties, real estate asset values and cash flows. Except for increased interest costs, the Company has not experienced any material negative impacts at this time and the Company intends to actively manage its business to respond to the ongoing economic and social impact from such events, and will assess its properties for any impairment indicators.
2. Real Estate
The Company’s consolidated real estate is comprised of the following for the periods presented (in thousands):
Land
881,717
817,802
Buildings and improvements
2,995,451
2,987,594
Tenant improvements
235,442
216,899
Construction in progress
13,299
21,027
Right-of-use assets - finance leases (Note 11)
25,086
Total
4,150,995
4,068,408
Less: Accumulated depreciation and amortization
(749,627
(725,143
Acquisitions and Foreclosure
During the three months ended March 31, 2023 and the year ended December 31, 2022, the Company acquired (through purchase, investment or foreclosure) the following consolidated retail properties and other real estate investments (dollars in thousands):
Property and Location
PercentAcquired
Date ofAcquisition
PurchasePrice
2023 Acquisitions
None
2022 Acquisitions and Foreclosure
Core
121 Spring Street - New York, NY
100%
Jan 12, 2022
39,637
Williamsburg Collection - Brooklyn, NY (a)
(a)
Feb 18, 2022
97,750
8833 Beverly Boulevard - West Hollywood, CA
Mar 2, 2022
24,117
Henderson Avenue Portfolio - Dallas, TX (b)
Apr 18, 2022
85,192
Subtotal Core
246,696
640 Broadway - New York, NY (Foreclosure) (c)
Jan 26, 2022
59,207
Subtotal Fund III
Total 2022 Acquisitions and Foreclosure
305,903
12
For the year ended December 31, 2022, the Company capitalized $1.2 million of acquisition costs in connection with the 2022 Acquisitions and Foreclosure. In addition, during the year ended December 31, 2022, the Company expensed $2.0 million of acquisition costs related to the Williamsburg Portfolio (including a $1.5 million acquisition fee paid to an affiliate of a joint venture partner), consistent with the application of transaction costs in a business combination (Note 10). Acquisition costs that were expensed are included in General and administrative expenses in the consolidated statements of income. During the year ended December 31, 2022, the Company assumed a $36.0 million mortgage with the consolidation of 640 Broadway (Note 7).
Purchase Price Allocations
The purchase prices for the 2022 Acquisitions and Foreclosure were allocated to the acquired assets and assumed liabilities based on their estimated relative 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):
Year Ended December 31,
Net Assets Acquired
119,898
168,862
Acquisition-related intangible assets (Note 6)
29,016
Accounts receivable, prepaids and other assets
4,077
(661
Acquisition-related intangible liabilities (Note 6)
(14,126
Net assets acquired
307,066
Consideration
Cash
242,633
Carrying value of note receivable exchanged in foreclosure (Note 3)
5,416
Existing interest in previously unconsolidated investment (Note 4)
Debt assumed
Liabilities assumed
4,062
Total consideration
Gain on bargain purchase
1,163
The Company determines the fair value of the individual components of income producing real estate asset acquisitions primarily through calculating the "as-if vacant" value of a building, using an income approach, which relies significantly upon internally determined assumptions. The Company has determined that these estimates primarily rely on Level 3 inputs, which are unobservable inputs based on our own assumptions. The most significant assumptions used in calculating the "as-if vacant" value for acquisition activity during 2022 is as follows:
13
Low
High
Exit Capitalization Rate
4.25
7.25
Annual net rental rate per square foot on acquired buildings
20.00
825.00
Annual net rental rate per square foot on acquired ground lease
The estimate of the portion of the "as-if vacant" value that is allocated to the land underlying the acquired real estate relies on Level 3 inputs and is primarily determined by reference to recent comparable transactions.
Dispositions
During the three months ended March 31, 2023 and the year ended December 31, 2022, the Company disposed of the following consolidated properties and other real estate investments (in thousands):
Owner
Date Sold
Sale Price
Gain (Loss)on Sale
2023 Dispositions
2022 Dispositions
NE Grocer Portfolio (Selected Assets) - Pennsylvania
Jan 26, 2022 Mar 4, 2022
45,350
13,784
New Towne (Parcel) - Canton, MI
Feb 1, 2022
2,231
1,776
Cortlandt Crossing - Westchester County, NY
Feb 9, 2022
65,533
13,255
Lincoln Place - Fairview Heights, IL
May 25, 2022
40,670
12,216
Wake Forest Crossing - Wake Forest, NC
Aug 24, 2022
38,919
8,885
Henderson Avenue (Parcel) - Dallas, TX
Oct 7, 2022
3,050
(194
330-340 River Street - Cambridge, MA
Dec 13, 2022
26,400
7,439
Total 2022 Dispositions
222,153
57,161
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 three months ended March 31, 2023 and 2022 were as follows (in thousands):
3,240
Expenses
(2,209
(22,724
7,122
Properties Held for Sale
At March 31, 2023, the Company had one property under contract for sale with assets totaling $11.1 million, which was probable of disposition. The property was classified as "held for sale" on the Company's consolidated balance sheets at March 31, 2023 and December 31, 2022. The Company has received $2.6 million of non-refundable deposits under the sales contract, which is recorded in Other liabilities on the Company's consolidated balance sheets.
14
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, 2023
Three Months Ended March 31, 2023
March 31, 2023
Number ofProperties
CarryingValue
Transfers In
CapitalizedCosts
Transfers Out
2
54,817
1,393
56,210
Fund II
34,072
1,107
35,179
25,798
727
26,525
Fund IV (a)
69,915
3,227
January 1, 2022
Year Ended December 31, 2022
December 31, 2022
42,517
9,610
2,690
Fund II (a)
35,125
503
1,556
24,296
1,502
Fund IV (b)
101,835
215
32,135
203,773
4,910
33,691
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. At March 31, 2023, consolidated development projects included: portions of the Henderson Portfolio for the Core Portfolio and Broad Hollow Commons at Fund III. In addition, at March 31, 2023, the Company had one Core unconsolidated development project, 1238 Wisconsin Avenue.
During the three months ended March 31, 2023, the Company placed the remainder of one Fund IV property, 717 N. Michigan Avenue, into service.
At December 31, 2022, consolidated development projects included: portions of the Henderson Portfolio for the Core Portfolio, Broad Hollow Commons at Fund III, and a portion of 717 N. Michigan Avenue at Fund IV. In addition, at December 31, 2022, the Company had one Core unconsolidated development project, 1238 Wisconsin Avenue. During the year ended December 31, 2022, 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.
15
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)
124,801
Apr 2020 - Dec 2027
4.65% - 10.00%
Allowance for credit loss
(834
(898
During the three months ended March 31, 2023, the Company decreased its allowance for credit loss of approximately $0.1 million. The Company also received payment on a bridge loan and funded additional proceeds on a loan to an unconsolidated venture as part of its investments in and advances to unconsolidated affiliates (Note 4).
During the year ended December 31, 2022, the Company:
Default
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 March 31, 2023 and December 31, 2022. 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. The Company has determined that the collateral for this loan is sufficient to cover the loan’s carrying value at March 31, 2023 and December 31, 2022.
16
Allowance for Credit Losses
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). Interest receivable is included in Other assets (Note 5).
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, the Company did not elect the collateral-dependent CECL practical expedient for three of its loans with a total amortized cost of $114.5 million, inclusive of accrued interest of $13.5 million, for which an allowance for credit losses has been recorded aggregating $0.8 million at March 31, 2023. For two loans in this portfolio, aggregating $27.9 million, inclusive of accrued interest of $4.1 million at March 31, 2023, the Company has elected to apply the 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 March 31, 2023, 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:
Renaissance Portfolio
20%
28,975
28,755
Gotham Plaza
49%
30,293
30,112
Georgetown Portfolio (a)
50%
4,101
4,048
1238 Wisconsin Avenue (a, b)
80%
16,223
14,502
79,592
77,417
Mervyns II:
KLA/ABS (c)
36.7%
85,403
Fund IV:
Fund IV Other Portfolio
98.57%
7,344
7,914
650 Bald Hill Road
90%
9,721
10,203
Paramus Plaza
807
936
17,872
19,053
Fund V:
Family Center at Riverdale (d)
89.42%
4,574
4,995
Tri-City Plaza
7,665
8,422
Frederick County Acquisitions
11,510
12,240
Wood Ridge Plaza
12,295
12,751
La Frontera Village
20,078
20,803
Shoppes at South Hills (e)
13,189
44,677
Mohawk Commons
20,158
775
89,469
104,663
Various:
Due from (to) Related Parties
277
305
Other (f)
4,342
4,315
Investments in and advances tounconsolidated affiliates
Crossroads (g)
8,750
8,832
840 N. Michigan Avenue (d, g)
88.43%
626
1,673
Distributions in excess of income from,and investments in, unconsolidated affiliates
18
During the three months ended March 31, 2023, the Company:
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 March 31, 2023 and 2022, respectively, which are included in Other revenues in the consolidated statements of income.
In addition, the Company's joint ventures paid to certain unaffiliated partners of its joint ventures $0.6 million and $0.3 million for the three months ended March 31, 2023 and 2022, respectively, for leasing commissions, development, management, construction and overhead fees.
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 March 31, 2023, 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
706,731
650,997
18,676
17,359
Other assets
140,052
127,070
Total assets
865,459
795,426
Liabilities and partners’ equity:
Mortgage notes payable
683,601
609,923
100,757
96,532
Partners’ equity
81,101
88,971
Total liabilities and partners’ equity
Company's share of accumulated equity
122,188
131,878
Basis differential
52,566
52,813
Deferred fees, net of portion related to the Company's interest
2,803
5,937
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
177,834
190,933
Investments carried at fair value or cost
89,718
Company's share of distributions in excess of income from and investments in unconsolidated affiliates
Combined and Condensed Statements of Operations
28,218
23,118
Operating and other expenses
(8,632
(7,258
(9,233
(4,739
(8,901
(5,911
Net income attributable to unconsolidated affiliates
1,452
5,210
Company’s share of equity in net income of unconsolidated affiliates
276
3,383
Basis differential amortization
(247
(253
Company’s equity in earnings of unconsolidated affiliates
20
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)
94,600
102,374
Derivative financial instruments (Note 8)
35,867
54,902
Deferred charges, net (a)
29,568
28,478
Accrued interest receivable (Note 3)
19,922
18,082
Prepaid expenses
12,358
15,872
Due from seller
3,036
Income taxes receivable
1,906
1,876
Deposits
711
1,624
Corporate assets, net
1,200
1,287
Other receivables
1,262
2,060
(a) Deferred Charges, Net:
Deferred leasing and other costs (a)
66,646
63,920
Deferred financing costs related to line of credit
9,494
76,140
73,414
Accumulated amortization
(46,572
(44,936
Deferred charges, net
Accounts Payable and Other Liabilities:
76,313
78,416
57,216
59,922
Deferred income
33,132
34,503
Tenant security deposits, escrow and other
16,877
16,582
Lease liability - finance leases, net (Note 11)
7,128
7,022
1,171
46
21
6. Lease Intangibles
Upon acquisitions of real estate (Note 2), the Company assesses the relative 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.
Intangible assets and liabilities are included in Other assets, net and Accounts payable and other liabilities (Note 5) on the consolidated balance sheets and summarized as follows (in thousands):
Gross CarryingAmount
AccumulatedAmortization
Net CarryingAmount
Amortizable Intangible Assets
In-place lease intangible assets
301,556
(213,228
88,328
(205,951
95,605
Above-market rent
24,064
(17,792
6,272
(17,295
6,769
325,620
(231,020
(223,246
Amortizable Intangible Liabilities
Below-market rent
(176,253
100,271
(75,982
98,182
(78,071
Above-market ground lease
(671
340
(331
(345
(176,924
100,611
(76,313
98,508
(78,416
During the three months ended March 31, 2023, the Company did not have any acquisitions of real estate or acquired lease intangibles.
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 income. Amortization of above-market ground leases are recorded as a reduction to rent expense in the consolidated statements of income.
The scheduled amortization of acquired lease intangible assets and assumed liabilities as of March 31, 2023 is as follows (in thousands):
Years Ending December 31,
Net Increase inLease Revenues
Increase toAmortization
Reduction ofRent Expense
Net (Expense) Income
2023 (Remainder)
4,277
(17,964
44
(13,643
2024
5,565
(17,995
(12,372
2025
5,140
(13,059
(7,861
2026
4,900
(10,658
(5,700
2027
4,736
(8,457
(3,663
Thereafter
45,092
(20,195
24,952
69,710
(88,328
331
(18,287
22
7. Debt
A summary of the Company’s consolidated indebtedness is as follows (dollars in thousands):
Interest Rate at (a)
Carrying Value at
Maturity Date at
Mortgages Payable
Core Mortgages Payable
3.99%-5.89%
3.88%-5.89%
Feb 2024 - Apr 2035
$193,344
$193,838
Fund II Mortgages Payable
SOFR+2.61%
Aug 2025
133,655
Fund III Mortgages Payable
SOFR+3.35%
Jul 2023
Fund IV Mortgages and Other Notes Payable (b)
LIBOR+2.25%-LIBOR+3.65%
Apr 2023 - Jun 2026
146,091
146,230
Total Fund V Mortgages Payable
SOFR + 1.61% to SOFR + 2.76%
LIBOR + 1.85% - SOFR + 2.76%
May 2023 - Nov 2026
424,662
426,224
Net unamortized debt issuance costs
(7,121)
(7,621)
Unamortized premium
317
343
Total Mortgages Payable
$926,918
$928,639
Unsecured Notes Payable
Core Unsecured Term Loans
3.72%-5.24%
3.74%-5.11%
Jun 2026 - Jul 2029
$650,000
Fund V Subscription Facility
SOFR+1.86%
May 2023
1,824
51,210
(4,723)
(5,076)
Total Unsecured Notes Payable
$647,101
$696,134
Unsecured Line of Credit
Total Unsecured Line of Credit
SOFR+1.50%
Jun 2025
$172,587
$168,287
Total Debt (c)(d)
$1,758,133
$1,805,414
(11,844)
(12,697)
Total Indebtedness
$1,746,606
$1,793,060
23
Credit Facilities
The Operating Partnership has a $700.0 million senior unsecured credit facility, as amended (the “Credit Facility”), with Bank of America, N.A. as administrative agent, comprised of a $300.0 million senior unsecured revolving credit facility (the “Revolver”) which bears interest at a floating rate based on SOFR with margins based on leverage or credit rating, and a $400.0 million senior unsecured term loan (the “Term Loan”) which bears interest at a floating rate based on SOFR with margins based on leverage or credit rating. Currently, the Revolver bears interest at SOFR + 1.50% and the Term Loan bears interest at SOFR + 1.65%. The Revolver matures on June 29, 2025, subject to two six-month extension options, and the Term Loan matures on June 29, 2026. The Credit Facility provides for an 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 Credit Facility is guaranteed by the Company and certain subsidiaries of the Company.
On April 6, 2022, the Operating Partnership entered into a $175.0 million term loan facility (the “$175.0 Million Term Loan”), with Bank of America, N.A. as administrative agent, which bears interest at a floating rate based on SOFR with margins based on leverage or credit rating, and which matures on April 6, 2027. The proceeds of the $175.0 million term loan were used to pay down the Revolver. Currently the $175.0 million term loan bears interest at SOFR + 1.60%. The $175.0 million term loan is guaranteed by the Company and certain subsidiaries of the Company.
On July 29, 2022, the Operating Partnership entered into the $75.0 million term loan (the “$75.0 Million Term Loan”), with TD Bank, N.A. as administrative agent, which bears interest at a floating rate based on SOFR with margins based on leverage or credit rating and which matures on July 29, 2029. Currently the $75.0 million term loan bears interest at SOFR + 2.05%. The proceeds of the $75.0 million term loan were used to pay down the Revolver. The $75.0 million term loan is guaranteed by the Company and certain subsidiaries of the Company.
The Company has entered into various swap agreements to effectively fix its interest costs on a portion of its Revolver and term loans, as described above (Note 8).
Mortgages and Other Notes Payable
During the three months ended March 31, 2023, the Company (amounts represent balances at the time of transactions):
During the year ended December 31, 2022, the Company (amounts represent balances at the time of transactions):
24
At March 31, 2023 and December 31, 2022, the Company’s mortgages were collateralized by 32 and 31 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 Operating Partnership has guaranteed up to $50.0 million related to the Fund II City Point mortgage loan. The Company is not in default on any of its loan agreements at March 31, 2023. A portion of the Company’s variable-rate mortgage debt has been effectively fixed through certain cash flow hedge transactions (Note 8).
Fund IV also has an outstanding balance and total available credit on its secured bridge facility of $39.2 million and $0.0 million, respectively, at March 31, 2023 and December 31, 2022. The Operating Partnership has guaranteed up to $22.5 million of the Fund IV secured bridge facility.
Unsecured notes payable at March 31, 2023 and December 31, 2022 are comprised of the following:
Unsecured Revolving Line of Credit
At March 31, 2023 and December 31, 2022, the Company had a total of $127.4 million and $131.7 million available under its Revolver, reflecting borrowings of $172.6 million and $168.3 million, respectively, and no letters of credit outstanding.
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 March 31, 2023 are as follows (in thousands):
Year Ending December 31,
288,658
251,476
413,292
436,444
202,354
165,909
1,758,133
(11,844
Total indebtedness
1,746,606
The table above does not reflect available extension options (subject to customary conditions) on consolidated debt with balances as of March 31, 2023 of $1.8 million contractually due in the remainder of 2023 for which the Company has available options to extend by up to 12 months. However, there can be no assurance that the Company will be able to successfully execute any or all of its available extension options.
25
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.
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 the Company used quoted prices from active markets to determine their fair values.
Marketable Equity Securities — The Company has an investment in marketable equity securities of Albertsons, which has a readily determinable market value (traded on an exchange) and is being accounted for as a Level 1 investment (Note 4).
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.
The Company did not have any transfers into or out of Level 1, Level 2, and Level 3 measurements during the three months ended March 31, 2023 or December 31, 2022.
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
Marketable equity securities
Liabilities
(1,171
(46
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.
26
Marketable Equity Securities
In January 2023, following the expiration of the lock-up period and distribution of approximately 2.5 million shares by Mervyns II to its partners, the Company directly owns 1.6 million shares of Albertsons at March 31, 2023. The shares are included in marketable securities on the Company's consolidated balance sheets at fair value, with the net unrealized gains or losses reported in net income. Through Mervyns II, the Company recognized mark-to-market loss on its marketable equity securities of $2.5 million and mark-to-market gain on its marketable equity securities of $12.6 million for the three months ended March 31, 2023 and 2022, which is included in Realized and unrealized holding gains on investments and other on the Company's consolidated statements of income.
The Company recognized dividend income from marketable securities of $28.5 million and $0.5 million on a consolidated basis, of which the Company's share was $11.4 million and $0.1 million, for the three months ended March 31, 2023 and 2022, respectively, which is included in Realized and unrealized holding gains on investments and other on the Company's consolidated statements of income.
Items Measured at Fair Value on a Nonrecurring Basis
Impairment Charges
The Company did not recognize any impairments during the three months ended March 31, 2023. During 2022, the Company reduced its holding period and intended use, and projected 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
2023 Impairment Charges
2022 Impairment Charges
146 Geary Street,San Francisco, CA
Reduced projected operating income
Projections of: holding period, net operating income, cap rate, incremental costs
Sept 30, 2022
12,435
2,875
717 N. Michigan Avenue,Chicago, IL
Reduced holding period and intended use
Offering price
20,876
4,827
Total 2022 Impairment Charges
33,311
7,702
27
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
Balance SheetLocation
March 31,2023
December 31,2022
Interest Rate Swaps
50,000
Dec 2022 - Apr 2023
Apr 2028 - Dec 2029
3.35%
3.61%
Other Liabilities
Interest Rate Swap
756,000
Mar 2015 - Jan 2023
Mar 2023 - Jul 2030
2.10%
3.05%
Other Assets
26,009
40,884
806,000
24,838
40,838
Jan 2023
Dec 2029
3.23%
53
1,108
Interest Rate Cap
Jul 2022
3.50%
137
232
Interest Rate Caps
76,338
Jul 2021 - Dec 2022
Jul 2023 - Dec 2023
3.00%
793
1,093
301,459
Nov 2019- Jan 2023
Jun 2023- Dec 2027
1.14%
3.36%
8,490
11,585
40,665
Jan 2024
3.64%
385
342,124
8,875
Total asset derivatives
Total liability derivatives
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 $25.0 million included in Accumulated other comprehensive income related to derivatives will be reclassified to interest expense within the next twelve months. As of March 31, 2023 and December 31, 2022, no derivatives were designated 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.
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.
28
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)
122,094
122,716
City Point Loan (a)
65,945
66,398
65,856
Mortgage and Other Notes Payable (a)
933,722
914,099
935,917
906,348
Investment in non-traded equity securities (b)
4,187
4,824
4,160
5,593
Unsecured notes payable and Unsecured line of credit (c)
824,411
823,167
869,497
868,399
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 March 31, 2023.
9. Commitments and Contingencies
The Company is involved in various matters of litigation arising out of, or incidental 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 or results of operations.
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 $48.3 million and $39.1 million as of March 31, 2023 and December 31, 2022, respectively.
At March 31, 2023 and December 31, 2022, the Company had Core and Fund letters of credit outstanding of $7.0 million (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 ATM Program activity discussed below, the Company completed the following transactions in its Common Shares during the three months ended March 31, 2023:
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, 2022:
ATM Program
The Company has an at-the-market equity issuance program (“ATM Program”) that provides the Company an efficient 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 first quarter of 2022. The Company sold 5,150,832 Common Shares under its ATM Program during the three months ended March 31, 2022 generating $115.6 million of gross proceeds and $111.5 million of net proceeds after related issuance costs at a weighted-average price per share of $22.44 and $21.65, respectively. No such sales were made during the three months ended March 31, 2023. The Company did not sell or issue any Common Shares on a forward basis for the three months ended March 31, 2023 or the year ended December 31, 2022 and at March 31, 2023 had approximately $222.3 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 three months ended March 31, 2023 or 2022. Under the share repurchase program $122.5 million remains available as of March 31, 2023.
30
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
February 15, 2022
March 31, 2022
April 14, 2022
May 4, 2022
June 30, 2022
July 15, 2022
August 10, 2022
September 30, 2022
October 14, 2022
November 9, 2022
December 30, 2022
January 13, 2023
January 17, 2023
April 14, 2023
Accumulated Other Comprehensive Income (Loss)
The following tables set forth the activity in accumulated other comprehensive income (loss) for the three months ended March 31, 2023 and 2022 (in thousands):
Other comprehensive loss before reclassifications - swap agreements
Net current period other comprehensive loss
Net current period other comprehensive loss attributable to redeemable noncontrolling interests
Net current period other comprehensive loss attributable to noncontrolling interests
4,981
Other comprehensive income before reclassifications - swap agreements
Net current period other comprehensive income
Net current period other comprehensive income attributable to noncontrolling interests
(10,293
31
Noncontrolling Interests
The following tables summarize the change in the noncontrolling interests for the three months ended March 31, 2023 and 2022 (dollars in thousands):
NoncontrollingInterests inOperatingPartnership (a)
NoncontrollingInterests inPartially-OwnedAffiliates (b)
Redeemable Noncontrolling Interests (c)
99,554
389,810
Distributions declared of $0.18 per Common OP Unit and distributions on Preferred OP Units
Net income (loss) for the three months ended March 31, 2023
917
9,800
10,717
Conversion of 37,393 Common OP Units to Common Shares by limited partners of the Operating Partnership
Other comprehensive loss - unrealized gain on valuation of swap agreements
(914
(1,347
(2,261
Reclassification of realized interest expense on swap agreements
(45
(2,675
(2,720
Employee Long-term Incentive Plan Unit Awards
Reallocation of noncontrolling interests (d)
103,219
355,962
94,120
534,202
Net income for the three months ended March 31, 2022
1,121
26,138
27,259
Conversion of 35,606 Common OP Units to Common Shares by limited partners of the Operating Partnership
Other comprehensive income - unrealized gain on valuation of swap agreements
1,698
6,929
8,627
1,620
1,666
101,355
645,238
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Preferred OP Units
There were no issuances of Preferred OP Units during the three months ended March 31, 2023 or the year ended December 31, 2022.
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 March 31, 2023, 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 March 31, 2023, 15,209 Series C Preferred OP Units were converted into 52,613 Common OP Units and then into Common Shares.
Redeemable Noncontrolling Interests
Williamsburg Portfolio
In connection with the Williamsburg Portfolio acquisition in February 2022 (Note 2), the Company evaluated the Williamsburg Noncontrolling Interest ("NCI"), which represents the venture partner's one-time right to put its 50.01% interest in the property to the Company for redemption at fair value at a future date. As it was unlikely as of the acquisition date that the venture partner would receive any consideration on redemption due to the Company’s preferential returns, the initial fair value of the Williamsburg NCI was determined to be zero. The Company is required to periodically evaluate the NCI and adjust it to redemption value. At March 31, 2023 and December 31, 2022, the Company determined that the fair value of the Williamsburg NCI was zero.
City Point Loan
In August 2022, the Company provided a loan, through a separate lending subsidiary, to other Fund II investors in City Point, through a separate borrower subsidiary, to fund the investors' pro rata contribution necessary to complete the refinancing of the City Point debt (Note 7), of which $65.9 million was funded at closing ("City Point Loan"). The City Point Loan has a five-year term which matures on August 1, 2027 and is collateralized by the investors' equity in City Point ("City Point NCI"). Because the City Point Loan was granted in return for a capital contribution from the investors, and is collateralized by the City Point NCI, the City Point Loan, net of a $0.5 million allowance for credit loss, and accrued interest are presented as a reduction of the City Point NCI balance. The borrower subsidiary of the City Point Loan was determined to be a variable interest entity ("VIE") for which the Company is not the primary beneficiary. The maximum loss in the VIE is limited to the amount of the City Point Loan and any accrued interest.
In connection with the City Point Loan, each partner has a one-time right to put its City Point NCI to the Company for redemption in exchange for the settlement of its proportion of the City Point Loan amount plus either (i) a fixed cash amount or (ii) a cash amount equal to the value of fixed number of Common Shares of the Company on the trading day prior to the election, at a future point in time beginning in August 2023 ("redemption value"). As a result of granting these redemption rights, the City Point NCI, net of the City Point Loan, has been reclassified and presented as redeemable noncontrolling interests on the Company's consolidated balance sheets. Given the carrying value of the City Point NCI at the time of the transaction exceeded the maximum redemption value, the Company did not recognize any initial adjustment to accrete the City Point NCI to the redemption value. The Company is required to periodically evaluate the maximum redemption amount of the NCI interest and recognize an increase in the carrying value of the City Point NCI if the redemption value exceeds the then current carrying value. At March 31, 2023 and December 31, 2022, the Company determined that the carrying value exceeded the maximum redemption value and no adjustment was required.
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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 (see below) that expire at various dates through June 20, 2066, with renewal options. 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 three months ended March 31, 2023 and 2022, the Company earned $15.9 million and $14.7 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 income.
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:
Specific Allowance
Balance atBeginning ofPeriod
Provision (Recovery), Net
Write-Offs
General Allowance
Balance atEnd of Period
Allowance for credit loss - billed rents
18,828
(327
18,827
Straight-line rent reserves
13,245
1,373
(900
13,718
Total - credit losses and reserves
32,073
1,699
32,545
As Lessee
During the three months ended March 31, 2023 and year ended December 31, 2022, there were no leasing transactions where the Company acted 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
Interest on lease liabilities
106
100
Subtotal
332
Operating lease cost
1,337
1,375
Variable lease cost
208
Total lease cost
1,689
1,909
Weighted-average remaining lease term - finance leases (years)
31.8
32.5
Weighted-average remaining lease term - operating leases (years)
13.4
13.9
Weighted-average discount rate - finance leases
6.3
Weighted-average discount rate - operating leases
5.1
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 income. 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 income.
34
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 March 31, 2023, are summarized as follows (in thousands):
Minimum Rental Payments
Minimum RentalRevenues (a)
Operating Leases (b)
Finance Leases (b)
172,208
4,043
232,169
5,414
203,078
5,329
176,212
5,173
152,308
4,373
633,427
20,066
12,549
1,569,402
44,398
Interest
(10,037
(5,421
During the three months ended March 31, 2023 and 2022, no single tenant or property collectively comprised more than 10% of the Company’s consolidated total revenues.
35
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):
As of or for the Three Months Ended March 31, 2023
CorePortfolio
Funds
StructuredFinancing
Unallocated
49,796
32,043
(18,659
(14,514
(33,173
Property operating expenses and real estate taxes
(16,109
(10,503
(26,612
General and administrative expenses
(9,946
15,028
7,026
1,482
24,995
280
Equity in earnings (losses) of unconsolidated affiliates
1,800
(1,771
(10,670
(10,917
Income tax provision
7,640
19,333
5,098
(10,069
(923
(9,794
6,717
11,614
Real estate at cost (a)
2,604,244
1,664,665
4,268,909
2,568,946
1,501,297
Cash paid for acquisition of real estate
Cash paid for development and property improvement costs
6,686
5,843
12,529
As of or for the Three Months Ended March 31, 2022
48,350
33,157
(17,675
(16,038
(33,713
(14,639
(9,991
(24,630
(11,937
16,036
35,943
14,567
1,617
1,513
(7,597
(10,328
Income tax benefit
11,219
41,695
(11,752
(1,121
(26,138
10,098
15,557
2,511,417
1,757,058
4,268,475
2,398,426
1,944,594
153,161
4,496,181
159,599
3,752
4,179
7,931
13. Share Incentive and Other Compensation
Share Incentive Plan
In March and May of 2020, respectively, the Board and the Company’s shareholders, approved the 2020 Share Incentive Plan (the “2020 Plan”), which increased the number of Common Shares authorized for issuance by 2,650,000 shares to an aggregate of 2,829,953 shares. On March 22, 2023 and May 4, 2023, respectively, the Board and the Company’s shareholders approved the Amended and Restated 2020 Share Incentive Plan (the "Amended and Restated 2020 Plan") which further increased the number of Common Shares authorized for issuance by 3,100,000 to an aggregate of 3,883,564 shares (Note 16). The 2020 Plan and the Amended and Restated 2020 Plan authorize 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 March 31, 2023 a total of 783,564 shares remained available to be issued under the 2020 Plan.
Restricted Shares and LTIP Units - Employees
During the three months ended March 31, 2023, and the year ended December 31, 2022, the Company issued 739,734 and 603,267 LTIP Units and 22,314 and 15,878 restricted share units (“Restricted Share Units”), respectively, to employees of the Company pursuant to the 2020 Plan. These awards were measured at their fair value on the grant date, incorporating the following factors:
For valuation of the 2023 and 2022 Performance Shares, a Monte Carlo simulation was used to estimate the fair values of the Relative TSR portion 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 49.0%) and risk-free interest rates of (4.3% and 1.7%) for 2023 and 2022, respectively. The total fair value of the 2023 and 2022 Performance Shares will be expensed over the vesting period.
The total fair value of the above Restricted Share Units and LTIP Units as of the grant date was $11.5 million for the three months ended March 31, 2023 and $13.1 million for the year ended December 31, 2022. Total long-term incentive compensation expense, including the expense related to the 2020 Plan, was $2.9 million and $1.4 million for the three months ended March 31, 2023 and 2022, respectively, and is recorded in General and administrative in the consolidated statements of income.
Restricted Shares and LTIP Units - Board of Trustees
In addition, members of the Board have been issued shares and units under the 2020 Plan. During the three months ended March 31, 2023, the Company issued 2,433 Restricted Shares as compensation to a new Trustee of the Company. These Restricted Shares vest over three years with 33% vesting May 9, 2023 and the remaining amount vesting ratably on May 9, 2024 and May 9, 2025. 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 2020 Plan, was $0.6 million for the three months ended March 31, 2023 and $0.4 million for the three months ended March 31, 2022, and is recorded in General and administrative in the consolidated statements of income.
Long-Term Investment Alignment Program
In 2009, the Company adopted the Long-Term Investment 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 18.0% 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 were determined to have no intrinsic value as of March 31, 2023 or December 31, 2022.
The Company did not recognize any compensation expense related to the Program for the three months ended March 31, 2023. During the year ended December 31, 2022, the Company recognized compensation expense related to the Program of $0.4 million and $0.1 million for Funds III and V, respectively.
38
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 December 31, 2021
89,746
16.87
1,415,195
20.85
Granted
45,813
20.98
637,818
21.04
Vested
(40,894
19.75
(309,283
22.86
Forfeited
(1,930
31.82
(278,332
31.16
Unvested at December 31, 2022
92,735
17.31
1,465,398
18.59
22,314
15.38
739,734
15.08
(11,036
21.41
(313,720
20.53
(2,050
33.24
(91,604
30.96
Unvested at March 31, 2023
101,963
16.13
1,799,808
16.15
The weighted-average grant date fair value for Restricted Shares and LTIP Units granted for the three months ended March 31, 2023 and the year ended December 31, 2022 were $15.09 and $21.04, respectively. As of March 31, 2023, there was $23.2 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the 2020 Plan. That cost is expected to be recognized over a weighted-average period of 1.7 years. The total fair value of Restricted Shares that vested during the three months ended March 31, 2023 and the year ended December 31, 2022, was $0.2 million and $0.8 million, respectively. The total fair value of LTIP Units that vested (LTIP units vest primarily during the first quarter) during the three months ended March 31, 2023 and the year ended December 31, 2022, was $6.4 million and $7.1 million, respectively.
Other Plans
On a combined basis, the Company incurred a total of $0.2 million and $0.1 million of compensation expense related to the following employee benefit plans for the three months ended March 31, 2023 and 2022, respectively.
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 for a maximum aggregate issuance of 200,000 Common Shares. 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 2,837 and 1,460 Common Shares were purchased by employees under the Purchase Plan for the three months ended March 31, 2023 and 2022, respectively, and 185,806 shares remained available to be issued under the Purchase Plan.
Deferred Share Plan
The Company maintains a Trustee Deferral and Distribution Election program, 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 $22,500, for the year ending December 31, 2023.
39
14. Earnings 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.
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 2020 Plan (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: earnings attributable to unvested participating securities
(243
(204
Income from continuing operations net of income attributable to participating securities for basic earnings per share
13,117
16,634
Denominator:
Weighted average shares for basic earnings per share
95,189,490
93,285,565
Effect of dilutive securities:
Series A Preferred OP Units
25,067
Employee unvested restricted shares
24,468
Denominator for diluted earnings per share
93,335,100
Basic earnings per Common Share from continuing operations attributable to Acadia
Diluted earnings per Common Share from continuing operations attributable to Acadia
Anti-Dilutive Shares Excluded from Denominator:
188
Series A Preferred OP Units - Common share equivalent
Series C Preferred OP Units
126,384
126,593
Series C Preferred OP Units - Common share equivalent
438,831
439,556
Restricted shares
78,060
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15. Variable Interest Entities
Pursuant to GAAP consolidation guidance, the Company consolidates certain VIEs for which the Company is the primary beneficiary. The Operating Partnership is considered a VIE in which the Company is the primary beneficiary because the limited partners do not have substantive kick-out or participating rights. As of March 31, 2023 and December 31, 2022, the Operating Partnership held interests in the Funds and two consolidated entities owning properties that were determined to be VIEs in which the Company is the primary beneficiary as it has (i) the power to direct the activities of the entity that most significantly impact the entity's economic performance, and (ii) the obligation to absorb the entity's losses or receive benefits from the entity that could potentially be significant to the entity.
The majority of the operations of these VIEs are funded with fees earned from investment opportunities or cash flows generated from the properties. The Company has not provided financial support to any of these VIEs that it was not previously contractually required to provide, which consists primarily of funding any capital commitments and capital expenditures, which are deemed necessary to continue to operate the entity and any operating cash shortfalls the entity may experience.
Since the Company conducts its business through and substantially all of its interests are held by the Operating Partnership, the assets and liabilities on the consolidated balance sheets represent the assets and liabilities of the Operating Partnership. As of March 31, 2023 and December 31, 2022, the consolidated balance sheets include the following assets and liabilities of the consolidated VIEs of the Operating Partnership:
VIE ASSETS
1,532,531
1,466,381
61,811
129,888
109,106
210,922
87,587
98,675
2,431
2,535
13,745
13,330
14,183
14,995
16,552
17,915
Total VIE assets (a)
1,837,946
1,954,641
VIE LIABILITIES
759,926
761,166
1,839
51,202
98,716
95,385
2,548
2,657
Total VIE liabilities (a)
863,029
910,410
The Company also holds variable interest in certain VIEs which are not consolidated as it is determined that the Company is not the primary beneficiary (Note 4). The Company's involvement with such entities is in the form of direct and indirect equity interests and fee arrangements. The maximum exposure to loss is limited to the amount of the Company's equity investment in these VIEs, except with regard to the Company's remaining $3.2 million construction commitment related to its investment in 1238 Wisconsin. The Company's aggregate investment in the unconsolidated VIEs assets was $43.0 million and $41.5 million at March 31, 2023 and December 31, 2022, respectively. The Company's aggregate investment in unconsolidated VIE liabilities was $50.4 million and $49.2 million at March 31, 2023 and December 31, 2022, respectively.
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16. Subsequent Events
Financing Activities
On April 28, 2023, Fund IV refinanced a property mortgage with an outstanding balance of $14.6 million with a new mortgage of $16.5 million and extended the maturity date.
On May 1, 2023, Fund V modified its subscription line and extended the maturity date to November 1, 2023.
On May 1, 2023, Fund IV repaid a property mortgage with an outstanding balance of $31.9 million using proceeds from the Fund V subscription line.
On May 4, 2023, the Amended and Restated 2020 Plan was approved by the Company's shareholders, which increased the number of Common Shares authorized for issuance by 3,100,000 shares to an aggregate of 3,883,564 shares.
42
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
As of March 31, 2023, we own or have an ownership interest in 200 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 subsidiaries thereof, not including those properties owned through our Funds. These properties primarily consist of street and urban retail, and 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 at March 31, 2023 is as follows:
Number of Properties
Operating Properties
Development orRedevelopment
Operating
GLA
Occupancy
Core Portfolio:
Chicago Metro
590,347
85.0
New York Metro
394,371
92.4
Los Angeles Metro
23,757
100.0
San Francisco Metro
Dallas Metro
121,203
84.5
Washington DC Metro
344,469
83.6
Boston Metro
1,050
Suburban
4,005,860
94.1
Total Core Portfolio
139
5,481,057
92.2
Acadia Share of Total Core Portfolio
5,120,168
92.8
Fund Portfolio:
536,329
66.3
4,637
91.6
696,627
88.6
7,120,324
92.3
Total Fund Portfolio
49
8,357,917
90.3
Acadia Share of Total Fund Portfolio
1,824,599
87.6
Total Core and Funds
13,838,974
91.0
Acadia Share of Total Core and Funds
6,944,767
91.4
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:
SIGNIFICANT DEVELOPMENTS DURING THE THREE MONTHS ENDED MARCH 31, 2023
Investments
During the three months ended March 31, 2023, Fund V acquired one unconsolidated property, Mohawk Commons, located in Schenectady, New York, for $62.1 million, inclusive of transaction costs (Note 4).
On January 20, 2023, through Mervyns II we received a special cash dividend of $28.2 million from our investment in Albertsons, of which our share was $11.3 million. Additionally, following the expiration of the lock-up period and distribution of 2.5 million shares of Albertsons to our partners, we directly own 1.6 million shares of Albertsons (Note 4, Note 8).
Financing Activity
During the three months ended March 31, 2023, we (Note 7):
We also repaid one Fund mortgage at a property for $31.9 million using proceeds from the Fund V subscription line, which was extended for six months, and refinanced one Fund mortgage at a property for $14.6 million with a new mortgage of $16.5 million (Note 16);
Structured Financing Investments
During the three months ended March 31, 2023, we funded $2.0 million of a $12.8 million construction loan commitment to an unconsolidated venture (Note 4). Through Fund V, we refinanced a $31.7 million bridge loan at an unconsolidated property that was originated by Fund V at acquisition with the aforementioned $36.0 million mortgage loan at an unconsolidated property.
The year ended December 31, 2022 and quarter ended March 31, 2023 were impacted by significant volatility in global markets, largely driven by rising inflation, rising interest rates, slowing economic growth, geopolitical uncertainty and instability in the banking sector following multiple bank failures. The rate hikes enacted by the Federal Reserve have had a significant impact on interest rate indexes such as LIBOR, SOFR and the Prime Rate and cost of borrowing. We manage our exposure to fluctuations in interest rates primarily through the use of fixed-rate debt and interest rate swap and cap agreements. We believe we manage our properties in a cost-conscious manner to minimize recurring operational expenses and utilize multi-year contracts to alleviate the impact of inflation on our business and our tenants. We also continue to see consumer confidence and we expect to continue to add value to our portfolio by executing on our current leasing momentum, our active development and redevelopment projects, and leasing pipeline. Except for increased interest costs, we have not experienced any material negative impacts at this time and we intend to actively manage our business to respond to the ongoing economic and social impact from such events.
On April 23, 2023, Bed Bath and Beyond, Inc. (”Bed Bath and Beyond”) filed Chapter 11 bankruptcy protection causing them to reject their leases at several of our properties. Bed Bath and Beyond’s leases represent two locations within our Core Portfolio and three locations in our Fund Portfolio, with aggregate GLA of 124,432 square feet and 59,391 square feet, representing 2.1% and 0.7% of Core and Fund GLA, respectively. During the quarter ended March 31, 2023, we signed a new 15-year lease for the entirety of Bed Bath and Beyond store at one of the locations in the Core Portfolio. While our exposure in the Fund portfolio is limited, and we have not experienced any material negative impacts at this time, the bankruptcy of any of our tenants, which may cause them to reject their leases, or not to renew their leases as they expire, could have an adverse effect on our cash flows or property values.
45
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 March 31, 2023 to the Three Months Ended March 31, 2022
The results of operations by reportable segment for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 are summarized in the table below (in millions, totals may not add due to rounding):
Three Months Ended
Increase (Decrease)
SF
49.8
32.0
81.8
48.4
33.2
81.5
1.4
(1.2
0.3
(18.7
(14.5
(33.2
(17.7
(16.0
(33.7
1.0
(1.5
(0.5
(16.1
(10.5
(26.6
(14.6
(10.0
(24.6
1.5
0.5
2.0
(9.9
(11.9
(2.0
28.8
(28.8
15.0
7.0
12.1
16.0
35.9
40.0
(1.0
(28.9
(27.9
4.8
2.9
25.0
26.8
1.2
14.6
15.7
10.4
11.1
Equity in (losses) earnings of unconsolidated affiliates
1.8
(1.8
1.6
3.1
0.2
(3.3
(3.1
(10.7
(10.9
(21.6
(7.6
(10.3
(17.9
0.6
3.7
(0.1
(0.3
7.6
19.3
22.0
11.2
41.7
44.1
(3.6
(22.4
2.2
(22.1
2.1
(0.9
(9.8
(1.1
(26.1
(27.3
16.3
16.6
6.7
11.6
10.1
15.6
16.8
(3.4
(4.0
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 decreased $3.4 million for the three months ended March 31, 2023 compared to the prior year period as a result of the changes further described below.
Revenues for our Core Portfolio increased $1.4 million for the three months ended March 31, 2023 compared to the prior year period primarily due to (i) a $2.5 million increase from Core Portfolio property acquisitions in 2022 (Note 2), and (ii) $1.1 million from lease up within the Core Portfolio. These increases were offset by (i) a $1.2 million credit loss benefit in 2022 related to the conversion of tenants from cash to accrual basis, and (ii) a $0.7 million increase in tenant credit loss in 2023.
Depreciation and amortization for our Core Portfolio increased $1.0 million for the three months ended March 31, 2023 compared to the prior year period primarily due to Core Portfolio property acquisitions in 2022 (Note 2).
Property operating expenses and real estate taxes for our Core Portfolio increased $1.5 million for the three months ended March 31, 2023 compared to the prior year period primarily due to an increase in non-recurring repair and maintenance in 2023.
Interest expense for our Core Portfolio increased $3.1 million for the three months ended March 31, 2023 compared to the prior year period primarily due to higher average interest rates in 2023 (Note 7).
Funds (all amounts below are consolidated amounts and are not representative of our proportionate share)
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 decreased $4.0 million for the three months ended March 31, 2023 compared to the prior year period as a result of the changes described below.
Revenues for the Funds decreased $1.2 million for the three months ended March 31, 2023 compared to the prior year period primarily due to (i) a $2.4 million decrease from Fund property dispositions in 2022 (Note 2), and (ii) a $0.5 million credit loss benefit related to the conversion of tenants from cash to accrual basis in 2022. These decreases were partially offset by an increase of a $1.8 million related to tenant lease up within the Funds in 2023.
Depreciation and amortization for the Funds decreased $1.5 million for the three months ended March 31, 2023 compared to the prior year period primarily due to Fund property dispositions in 2022.
Gain on disposition of properties for the Funds decreased $28.8 million for the three months ended March 31, 2023 compared to the prior year period due to the sale of Cortlandt Crossing at Fund III, Mayfair and Dauphin Plaza at Fund IV and New Towne parcel at Fund V in 2022 (Note 2).
Realized and unrealized holding gains on investments and other for the Funds increased $10.4 million for the three months ended March 31, 2023 compared to the prior year period primarily due to a $28.2 million increase in dividend income from Albertsons in 2023. This increase was offset by (i) a $12.6 million increase in the mark-to-market adjustment on the Investment in Albertsons in 2022, (ii) a $2.0 million decrease in the mark-to-market adjustment on the Investment in Albertsons in 2023, and (iii) a $1.4 million distribution from the Storage Post Management Company in 2022.
Equity in (losses) earnings of unconsolidated affiliates for the Funds decreased $3.3 million for the three months ended March 31, 2023 compared to the prior year period primarily due to new unconsolidated Fund acquisitions in 2022 and 2023 (Note 4).
Net loss attributable to redeemable noncontrolling interests for the Funds increased $2.1 million for the three months ended March 31, 2023 compared to the prior year period due to the City Point Loan in August 2022 (Note 10).
Net income attributable to noncontrolling interests for the Funds increased $16.3 million for the three months ended March 31, 2023 compared to the prior year period based on the noncontrolling interests’ share of the variances discussed above. Net income attributable to noncontrolling interests in the Funds includes asset management fees earned by the Company of $2.5 million and $2.4 million for the three months ended March 31, 2023 and 2022, respectively.
Structured Financing
Interest and other income for the Structured Financing portfolio increased $1.9 million for the three months ended March 31, 2023 compared to the prior year period primarily due to new loans issued during 2022 (Note 3).
The Company does not allocate general and administrative expenses 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 decreased $2.0 million for the three months ended March 31, 2023 compared to the prior year period primarily due to $2.0 million related to acquisition costs incurred in the prior year but not in the current period (Note 2).
NON-GAAP 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.
47
A reconciliation of consolidated operating income to net operating income - Core Portfolio follows (in thousands):
Consolidated operating income
Add back:
Less:
Above/below-market rent, straight-line rent and other adjustments (a)
(2,242
(6,757
(28,815
Consolidated NOI
52,985
50,120
Redeemable noncontrolling interest in consolidated NOI
(1,217
Noncontrolling interest in consolidated NOI
(14,475
(15,877
Less: Operating Partnership's interest in Fund NOI included above
(5,037
(3,844
Add: Operating Partnership's share of unconsolidated joint ventures NOI (b)
3,959
3,641
NOI - Core Portfolio
36,215
34,040
Same-Property NOI includes Core Portfolio properties that we owned for both the current and prior periods presented, but excludes those properties that we acquired, sold or expected to sell, redeveloped 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
(8,031
(7,688
Same-Property NOI
28,184
26,352
Percent change from prior year period
Components of Same-Property NOI:
Same-Property Revenues
40,808
38,467
Same-Property Operating Expenses
(12,624
(12,115
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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. The table below includes embedded option renewals for which the renewed rent was equal to or approximated existing base rent.
Core Portfolio New and Renewal Leases
Cash Basis
Straight-Line Basis
Number of new and renewal leases executed
GLA commencing
54,551
New base rent
31.44
32.88
Expiring base rent
28.61
26.89
Percent growth in base rent
9.9
22.3
Average cost per square foot (a)
2.54
Weighted average lease term (years)
(a) The average cost per square foot includes tenant improvement costs, leasing commissions and tenant allowances.
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 due to its widespread acceptance and use within the REIT investor 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 (loss) 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)
26,444
24,313
Gain on disposition of properties (net of noncontrolling interests' share)
(6,876
Income attributable to Common OP Unit holders
794
998
Distributions - Preferred OP Units
Funds from operations attributable to Common Shareholders and Common OP Unit holders - Basic
40,721
35,396
Funds From Operations per Share - Diluted
Basic weighted-average shares outstanding, GAAP earnings
Weighted-average OP Units outstanding
6,885,106
5,314,108
Basic weighted-average shares and OP Units outstanding, FFO
102,074,596
98,599,673
Assumed conversion of Preferred OP Units to Common Shares
463,898
464,623
Assumed conversion of LTIP units and Restricted Share Units to Common Shares
311,878
Diluted weighted-average number of Common Shares and Common OP Units outstanding, FFO
102,539,352
99,376,174
Diluted Funds from operations, per Common Share and Common OP Unit
0.40
0.36
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 three months ended March 31, 2023, we paid dividends and distributions on our Common Shares and Preferred OP Units totaling $17.1 million.
During the three months ended March 31, 2023, we funded $2.0 million of a $12.8 million construction loan commitment to an unconsolidated venture (Note 4).
Capital Commitments
During the three months ended March 31, 2023, we made capital contributions aggregating $7.9 million to our Funds. At March 31, 2023, our share of the remaining capital commitments to our Funds aggregated $36.9 million as follows:
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Development Activities
During the three months ended March 31, 2023, capitalized costs associated with development activities totaled $3.2 million (Note 2). At March 31, 2023, we had a total of nine consolidated and one unconsolidated project under development or redevelopment, for which the estimated total cost to complete these projects through 2025 was $49.0 million to $66.2 million, and our estimated share was approximately $28.8 million to $38.3 million. Substantially all remaining development and redevelopment costs are discretionary, which could be affected by various risks and uncertainties, including, but not limited to, the effects of the current inflationary environment, rising interest rates, and other risks detailed in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2022.
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
1,383,725
1,440,773
Total Debt - Variable Rate
374,408
364,641
1,805,414
(12,697
1,793,060
As of March 31, 2023, our consolidated indebtedness aggregated $1,758.1 million, excluding unamortized premium of $0.3 million and net unamortized loan costs of $11.8 million, and were collateralized by 32 properties and related tenant leases. Stated interest rates on our outstanding indebtedness ranged from 3.35% to LIBOR + 3.65% with maturities that ranged from April 28, 2023 to April 15, 2035, without regard to available extension options. With respect to the debt maturing in April and May 2023, we have refinanced two Fund mortgages and extended the Fund V subscription line, and we are actively pursuing refinancing the remaining obligations (Note 16), though there can be no assurance that we can refinance on favorable terms or at all. Taking into consideration $1,207.5 million of notional principal under variable to fixed-rate swap agreements currently in effect, $1,383.7 million of the portfolio debt, or 78.7%, was fixed at a 4.42% weighted-average interest rate and $374.4 million, or 21.3% was floating at a 6.64% weighted average interest rate as of March 31, 2023. Our variable-rate debt includes $144.5 million of debt subject to interest rate caps.
Without regard to available extension options, at March 31, 2023 there was $283.6 million of debt maturing in 2023 at a weighted-average interest rate of 6.52%; there was $5.1 million of scheduled principal amortization due in the remainder of 2023; and our share of scheduled remaining 2023 principal payments and maturities on our unconsolidated debt was $46.8 million. In addition, $251.5 million of our total consolidated debt and $45.0 million of our pro-rata share of unconsolidated debt will come due in 2024. With respect to the debt maturing in 2023 and 2024, we have options to extend consolidated debt aggregating $1.8 million and $0.0 million at March 31, 2023, 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 on acceptable terms or at all. Our ability to obtain financing could be affected by various risks and uncertainties, including, but not limited to, the effects of the current inflationary environment, rising interest rates, and other risks detailed in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2022.
We maintain a share repurchase program under which $122.5 million remains available as of March 31, 2023 (Note 10). We did not repurchase any shares under this program during the three months ended March 31, 2023.
Sources of Liquidity
Our primary sources of capital for funding our short-term (less than 12 months) and long-term (12 months and longer) 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, (vi) liquidation of marketable securities, and (vii) cash on hand and future cash flow from operating activities. Our cash on hand in our consolidated subsidiaries at March 31, 2023 totaled $17.1 million. Our remaining sources of liquidity are described further below.
52
We have an ATM Program (Note 10) that provides us with an efficient and low-cost vehicle for raising capital through public equity issuances on an as-we-go basis to fund our capital needs. Through this program, we have been able to effectively “match-fund” the required capital for our Core Portfolio and our share of Fund acquisitions through the issuance of Common Shares over extended periods employing a price averaging strategy. In addition, from time to time, we have issued and may 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. We did not make any sales under the ATM program during the three months ended March 31, 2023.
Fund Capital
During the three months ended March 31, 2023, Fund V called for capital contributions of $39.1 million, of which our aggregate share was $7.9 million. At March 31, 2023, unfunded capital commitments from noncontrolling interests within Funds II, III, IV and V were zero, $1.4 million, $32.2 million and $106.3 million, respectively.
Other Transactions
During the three months ended March 31, 2023, we recognized cash dividends totaling $28.2 million related to the special dividend received from Mervyns II investment in Albertsons, of which our share was $11.3 million (Note 4). The contractual lock-up restrictions on our investment in Albertsons expired in January 2023, and we now own 1.6 million shares directly, which had a fair value of $34.2 million at March 31, 2023 (Note 4, Note 8).
Structured Financing Repayments
During the three months ended March 31, 2023, Fund V refinanced a $31.7 million bridge loan at an unconsolidated property that was originated by Fund V at acquisition of an unconsolidated property. We also have one Structured Financing investment in the amount of $21.6 million including accrued interest (exclusive of default interest and other amounts due on the loan that have not been recognized) that previously matured and has not been repaid (Note 3).
Financing and Debt
As of March 31, 2023, we had $218.6 million of additional capacity under existing Core Portfolio and Fund revolving debt facilities. In addition, at that date within our Core and Fund portfolios, we had 94 unleveraged consolidated properties with an aggregate carrying value of approximately $1.8 billion, although there can be no assurance that we would be able to obtain financing for these properties at favorable terms, if at all.
Inflation and Economic Condition Considerations
The year ended December 31, 2022 and quarter ended March 31, 2023 were impacted by significant volatility in global markets, largely driven by rising inflation, rising interest rates, slowing economic growth, geopolitical uncertainty and instability in the banking sector following multiple bank failures. Central banks have responded to rapidly rising inflation by tightening monetary policies that are likely to create headwinds to economic growth. The Federal Reserve has raised interest rates nine times since January 2022, and has signaled that further interest rate increases may be forthcoming throughout 2023 and into 2024. The rate hikes enacted by the Federal Reserve have had a significant impact on interest rate indexes such as LIBOR, SOFR and the Prime Rate. As of March 31, 2023, approximately 78.7% of our outstanding debt is fixed or effectively fixed rate with the remaining 21.3% indexed to LIBOR, SOFR or Prime plus an applicable margin per the loan agreement. As of March 31, 2023, we were counterparty to 34 interest rate swap agreements and four interest rate cap agreements, all of which qualify for and are designated as hedging instruments, which helps to alleviate the impact of rising interest rates on our operations.
We believe we manage our properties in a cost-conscious manner to minimize recurring operational expenses and utilize multi-year contracts to alleviate the impact of inflation on our business and our tenants. Most of our leases require tenants to pay their share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation. These provisions are designed to partially mitigate the impact of inflation; however, current inflation levels are much greater than the contractual rent increases we obtain from our tenant base. We also continue to see consumer confidence and we expect to continue to add value to our portfolio through executing on our current leasing momentum, our active development and redevelopment projects, and leasing pipeline.
On April 23, 2023, Bed Bath and Beyond filed Chapter 11 bankruptcy protection causing them to reject their leases at several of our properties. Bed Bath and Beyond’s leases represents two locations within our Core Portfolio and three locations in our Fund Portfolio. The bankruptcy of any of our tenants, which may cause them to reject their leases, or not to renew their leases as they expire, could have an adverse effect on our cash flows or property values.
While we have not experienced any material negative impacts at this time, we intend to actively manage our business to respond to the ongoing economic and social impact from such events. See Risk Factors in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2022.
HISTORICAL CASH FLOW
The following table compares the historical cash flow for the three months ended March 31, 2023 with the cash flow for the three months ended March 31, 2022 (in millions, totals may not add due to rounding):
Variance
59.4
26.5
32.9
(150.1
146.5
(56.7
144.0
(200.7
(0.8
20.5
(21.3
Operating Activities
Net cash provided by operating activities primarily consists of cash inflows from dividend income and rental revenue, and cash outflows for property operating expenses, general and administrative expenses and interest and debt expense.
Our operating activities provided $32.9 million more cash for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, primarily due to the $28.2 million dividend received from our investment in Albertsons. The remainder of the increase is attributable to an increase in cash receipts from tenants.
Investing Activities
Net cash used in investing activities is impacted by our investments in and advances to unconsolidated affiliates, the timing and extent of our real estate development, capital improvements, and acquisition and disposition activities during the period.
Our investing activities used $146.5 million less cash for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, primarily due to (i) $164.2 million less cash used for the acquisition of properties, (ii) $71.0 million less cash used in our investments in and advances to unconsolidated affiliates, and (iii) $32.8 million more cash received from return of capital from unconsolidated affiliates. These sources of cash were primarily offset by (i) $116.6 million less cash received from the disposition of properties, and (ii) $4.6 million more cash used in development, construction, and property improvements.
Net cash used in financing activities is impacted by the timing and extent of issuances of debt and equity securities, distributions paid to common shareholders and unitholders of the Operating Partnership as well as principal and other payments associated with our outstanding indebtedness.
Our financing activities provided $200.7 million less cash during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, primarily from (i) $111.5 million less cash provided by the sale of Common Shares, (ii) $67.9 million less cash provided by contributions from noncontrolling interests, (iii) $17.9 million less cash provided by net borrowings, and (iv) $3.7 million more cash used for dividends paid to Common Shareholders.
54
OFF-BALANCE SHEET ARRANGEMENTS
We have the following investments made through joint ventures (that may include, among others, tenancy-in common and other similar investments) 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
5.0
6.98
Jun 2023
49.0
8.6
5.09
20.0
3.81
Aug 2023
3104 M Street
0.8
8.00
Crossroads
29.7
3.94
Oct 2024
Tri-City Plaza (c)
18.1
3.01
Frederick Crossing (c)
4.3
3.26
Dec 2024
Paramus Plaza (b)
3.3
6.99
Frederick County Square (c)
4.0
4.00
Jan 2025
840 N. Michigan Avenue
88.4
65.0
4.36
Feb 2025
Wood Ridge Plaza (b)
6.0
8.13
Mar 2025
20.8
3.75
Jun 2026
La Frontera
10.0
6.11
Jun 2027
Family Center at Riverdale
18.0
6.50
Nov 2027
Georgetown Portfolio
50.0
7.4
4.72
Dec 2027
7.2
5.80
Mar 2028
Shoppes at South Hills
5.8
5.95
206.1
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 2022 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 March 31, 2023
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 March 31, 2023, we had total mortgage and other notes payable of $1,758.1 million, excluding the unamortized premium of $0.3 million and net unamortized debt issuance costs of $11.8 million, of which $1,383.7 million, or 78.7% was fixed-rate, inclusive of debt with rates fixed through the use of derivative financial instruments, and $374.4 million, or 21.3%, was variable-rate based upon LIBOR, SOFR or Prime rates plus certain spreads. As of March 31, 2023, we were party to 34 interest rate swaps and four interest rate cap agreements to hedge our exposure to changes in interest rates with respect to $1,207.5 million and $144.5 million of variable-rate debt, respectively. For a discussion of the risks associated with the discontinuation of LIBOR, see Item 1A. “Risk Factors—Risks Related to Our Liquidity and Indebtedness on our Annual Report on Form 10-K for the year ended December 31, 2022 — If we decided to employ higher leverage levels, we would be subject to increased debt service requirements and a higher risk of default on our debt obligations, which could adversely affect our financial conditions, cash flows and ability to make distributions to our shareholders. In addition, increases or changes in interest rates could cause our borrowing costs to rise and may limit our ability to refinance debt”.
The following table sets forth information as of March 31, 2023 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
7.3
9.1
4.7
232.6
234.7
4.2
2.4
400.0
402.4
200.1
202.3
161.6
165.9
4.4
14.4
1,001.6
1,016.0
Fund Consolidated Mortgage and Other Debt
3.5
283.6
287.1
6.5
2.6
239.7
242.3
178.4
178.6
6.4
0.1
34.0
34.1
735.7
742.1
Mortgage Debt in Unconsolidated Partnerships (at our Pro-Rata Share)
1.1
45.7
46.8
1.3
43.7
45.0
74.6
75.2
4.6
3.0
3.6
3.8
22.6
23.2
12.3
5.9
201.9
Without regard to available extension options, in the remainder of 2023, $288.7 million of our total consolidated debt and $46.8 million of our pro-rata share of unconsolidated outstanding debt will become due. In addition, $251.5 million of our total consolidated debt and $45.0 million of our pro-rata share of unconsolidated debt will become due in 2024. As it relates to the aforementioned maturing debt in 2023 and 2024, we
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have options to extend consolidated debt aggregating $1.8 million and $0.0 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 $6.3 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 $1.2 million. Interest expense on our variable-rate debt of $374.4 million, net of variable to fixed-rate swap agreements currently in effect, as of March 31, 2023, would increase $3.7 million if corresponding rate indices increased by 100 basis points. After giving effect to noncontrolling interests, our share of this increase would be $1.3 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 March 31, 2023, the fair value of our total consolidated outstanding debt would decrease by approximately $5.5 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 $4.8 million.
As of March 31, 2023, and December 31, 2022, we had consolidated notes receivable of $124.0 million and $123.9 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 March 31, 2023, the fair value of our total outstanding notes receivable would decrease by approximately $2.6 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 $0.4 million.
Summarized Information as of December 31, 2022
As of December 31, 2022, we had total mortgage and other notes payable of $1,805.4 million, excluding the unamortized premium of $0.3 million and unamortized debt issuance costs of $12.7 million, of which $1,440.8 million, or 79.8% was fixed-rate, inclusive of debt with rates fixed through the use of derivative financial instruments, and $364.6 million, or 20.2%, was variable-rate based upon LIBOR rates plus certain spreads. As of December 31, 2022, we were party to 36 interest rate swap and three interest rate cap agreements to hedge our exposure to changes in interest rates with respect to $1,264.0 million and $103.8 million of LIBOR or SOFR-based variable-rate debt, respectively.
Interest expense on our variable-rate debt of $364.6 million as of December 31, 2022, would have increased $3.6 million if corresponding rate indices increased by 100 basis points. Based on our outstanding debt balances as of December 31, 2022, the fair value of our total outstanding debt would have decreased by approximately $0.4 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 $2.6 million.
Changes in Market Risk Exposures from December 31, 2022 to March 31, 2023
Our interest rate risk exposure from December 31, 2022, to March 31, 2023, has increased on an absolute basis, as the $364.4 million of variable-rate debt as of December 31, 2022 has increased to $374.4 million as of March 31, 2023. As a percentage of our overall debt, our interest rate exposure has increased as our variable-rate debt accounted for 20.2% of our unconsolidated debt as of December 31, 2022 compared to 21.3% as of March 31, 2023.
57
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 March 31, 2023, have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of March 31, 2023, 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, 2022.
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
Third Amended and Restated Credit Agreement dated as of March 22, 2023, by and among Acadia Realty Limited Partnership, as borrower, Acadia Realty Trust and certain subsidiaries of Acadia Realty Limited Partnership from time to time party thereto, as guarantors, Bank of America, N.A., as administrative agent, Wells Fargo Bank, National Association, Truist Bank, and PNC Bank, National Association, as syndication agents, BofA Securities, Inc. and Wells Fargo Securities, LLC, as joint bookrunners, and BofA Securities, Inc., Wells Fargo Securities, LLC, Truist Bank and PNC Capital Markets LLC, as joint lead arrangers and the lenders party thereto
Filed herewith
10.2
Amended and Restated Acadia Realty Trust 2020 Share Incentive Plan
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
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
Furnished herewith
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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
Executive Vice President and
Chief Financial Officer
/s/ Richard Hartmann
Richard Hartmann
Senior Vice President and
Chief Accounting Officer
Dated: May 5, 2023